<PAGE> 1
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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): MAY 9, 1997
VERTEX COMMUNICATIONS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
TEXAS 0-15277 75-1982974
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
2600 NORTH LONGVIEW STREET, KILGORE, TEXAS 75662
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (903) 984-0555
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
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<PAGE> 2
VERTEX COMMUNICATIONS CORPORATION
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
===============================================================================
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) ACQUISITION OF TIW SYSTEMS, INC. In accordance with the terms
and provisions of a definitive Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated May 9, 1997, by and among the Registrant
(the "Registrant" or "Vertex"), Vertex Acquisition Corporation ("VAC"), a
Nevada corporation and a wholly-owned subsidiary of the Registrant, TIW
Systems, Inc. ("TIW"), a California corporation, and certain principal
shareholders of TIW (the "Principal Shareholders"), the Registrant has agreed
to acquire all of the outstanding stock of TIW pursuant to the merger (the
"Merger") of TIW with and into VAC, whereby VAC (i) will be the surviving
corporation in the Merger, (ii) will continue thereafter as a wholly-owned
subsidiary of the Registrant and (iii) incidental to and as a part of the
Merger change its name to "TIW Systems, Inc." The Registrant will account for
the acquisition under the purchase method of accounting.
The Registrant will effectuate the Merger for aggregate
consideration of approximately $19.4 million, consisting of (i) cash at closing
(from the Registrant's general corporate funds available therefor) of
approximately $7.8 million (the "Cash Portion of the Consideration"), (ii) an
aggregate of 574,359 shares of the Registrant's authorized but previously
unissued common stock, $.10 par value per share (the "Vertex Exchange Shares"),
valued at $19.50 per share, subject to adjustment for payment of fractional
shares in cash, and (iii) direct acquisition costs of approximately $.4
million. Such consideration was determined between the Registrant, TIW and the
Principal Shareholders through arms-length, good faith bargaining.
Upon consummation of the Merger, (i) the separate corporate
existence of TIW will cease and all of the properties, rights, privileges,
powers and franchises of TIW will vest in VAC, and all of the debts,
liabilities and duties of TIW will attach to VAC, and (ii) all of the shares of
TIW common stock, no par value per share (the "TIW Common Stock"), outstanding
immediately prior to the effective time of the Merger will be converted into
the right to receive the Cash Portion of the Consideration and the Vertex
Exchange Shares, subject to certain adjustments. The Reorganization Agreement,
including the related Merger, is subject, among other conditions, to the
approval of the shareholders of TIW. If the requisite approval of TIW
shareholders is received and the other conditions to the Merger are satisfied
or waived, the Merger is expected to be consummated on or about June 11, 1997.
Neither the Registrant nor any of its affiliates, any director or
officer of the Registrant, nor any associate of any such director or officer of
the Registrant had, nor has, any material relationship with TIW or the
Principal Shareholders thereof or any of their respective affiliates or
associates.
<PAGE> 3
(b) NATURE AND INTENDED USE OF ASSETS. TIW designs, develops,
manufactures, markets and supports telecommunications equipment and systems
used in satellite and deep space communications, including receiving telemetry
from, tracking, commanding and monitoring of satellites. TIW's product lines
include large steerable antenna products, antenna tracking and control
equipment, frequency conversion products, and digital communications products,
including time division multi-access and single channel per carrier modems and
voice and data channel processing equipment. The assets of TIW include, among
other properties, cash, accounts receivable, plant and equipment (including
land, manufacturing facilities, leasehold improvements, machinery and
equipment, furniture and fixtures) and inventories (including finished goods,
work-in-process and raw materials) utilized by TIW in operating and otherwise
conducting its business headquartered at Santa Clara, California, and at
various other sites through its subsidiaries, including the business operations
of its principal operating subsidiaries, located in Albuquerque, New Mexico,
Chantilly, Virginia, and Ontario, Canada, respectively. The Registrant intends
to continue to utilize the assets of TIW, through VAC as the surviving
corporation in the Merger and a wholly-owned subsidiary of the Registrant, in
the same facilities, at the same respective locations, and for the same
purposes as such assets were previously utilized by TIW.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Consolidated Financial Statements of TIW Systems, Inc. and
subsidiaries ("TIW") for the Years ended December 31, 1996 and 1995
prepared in accordance with the specifications exacted by
Regulation S-X, are included herein at pages 3 through 17 and
include:
o Independent Auditors' Report
o Consolidated Balance Sheets at December 31, 1996 and 1995
o Consolidated Statements of Operations for the Years ended
December 31, 1996 and 1995
o Consolidated Statements of Shareholders' Equity for the Years
ended December 31, 1996 and 1995
o Consolidated Statements of Cash Flows for the Years ended
December 31, 1996 and 1995
o Notes to Consolidated Financial Statements for the Years ended
December 31, 1996 and 1995
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<PAGE> 4
TIW SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND INDEPENDENT AUDITORS' REPORT
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<PAGE> 5
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of TIW Systems, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of TIW Systems,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity and of 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, such consolidated financial statements present fairly, in all
material respects, the financial position of TIW Systems, Inc. and subsidiaries
as of December 31, 1996 and 1995, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
April 2, 1997
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<PAGE> 6
TIW SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 3,319 $ 1,112
Trade and contracts receivable, less allowance for doubtful accounts
of $148 in 1996 and $148 in 1995 7,956 9,680
Costs and estimated earnings in excess of billings on uncompleted contracts 5,352 8,783
Inventories 5,999 4,027
Prepaid expenses and other 115 573
Deferred income taxes 699 422
-------- --------
Total current assets 23,440 24,597
PROPERTY AND EQUIPMENT, Net 2,352 1,947
LONG-TERM RECEIVABLE 552 1,064
OTHER ASSETS 386 469
-------- --------
TOTAL $ 26,730 $ 28,077
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,694 $ 4,238
Accrued expenses 1,193 1,344
Due to related party -- 82
Billings in excess of costs and estimated earnings on uncompleted contracts 4,554 3,595
Line of credit 3,585 1,950
Current maturities of long-term debt 1,039 862
-------- --------
Total current liabilities 12,065 12,071
LONG-TERM DEBT 2,529 3,256
DEFERRED INCOME TAXES 53 92
MINORITY INTEREST IN SUBSIDIARY 14 19
SHAREHOLDERS' EQUITY:
Common stock - no par value; 10,000,000 shares authorized, outstanding:
1996 - 6,457,935 shares; 1995 - 6,443,597 shares 2,260 2,107
Notes receivable from issuance of common stock (89) (89)
Accumulated translation adjustment (14) (11)
Retained earnings 13,154 14,379
Note receivable from Employee Stock Ownership Plan -- (48)
Unallocated ESOP shares (acquired after December 31, 1992):
1996 - 958,894 shares; 1995 - 1,269,485 shares (3,242) (3,699)
-------- --------
Total shareholders' equity 12,069 12,639
-------- --------
TOTAL $ 26,730 $ 28,077
======== ========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 7
TIW SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CONTRACT REVENUE AND SALES $ 41,332 $ 45,721
CONTRACT COSTS AND COST OF SALES 32,465 35,929
-------- --------
Gross profit 8,867 9,792
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,289 5,344
RESEARCH AND DEVELOPMENT
EXPENSES 3,922 4,057
-------- --------
Operating profit (loss) (1,344) 391
-------- --------
OTHER EXPENSE:
Interest expense, net (240) (302)
Other, net (104) 39
-------- --------
Other expense, net (344) (263)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES (1,688) 128
INCOME TAX BENEFIT (463) (216)
-------- --------
NET INCOME (LOSS) $ (1,225) $ 344
======== ========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 8
TIW SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
NOTES
RECEIVABLE
FROM UNALLOCATED
COMMON STOCK ISSUANCE OF ACCUMULATED NOTE ESOP TOTAL
-------------------- COMMON TRANSLATION RETAINED RECEIVABLE SHARE SHAREHOLDERS'
SHARES AMOUNT STOCK ADJUSTMENT EARNINGS FROM ESOP AMOUNTS EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1995 6,443,597 $ 2,032 $ (89) $(22) $14,035 $(69) $(3,857) $12,030
Allocation of shares in ESOP 21 158 179
Compensation expense - ESOP 75 75
Translation adjustment 11 11
Net income 344 344
--------- ------- ----- ---- ------- ------ ------- -------
BALANCES, December 31, 1995 6,443,597 2,107 (89) (11) 14,379 (48) (3,699) 12,639
Allocation of shares in ESOP 48 457 505
Compensation expense - ESOP 148 148
Stock issued for Multipoint 14,338 5 5
Translation adjustment (3) (3)
Net loss (1,225) (1,225)
--------- ------- ----- --- ------- ------ ------- -------
BALANCES, December 31, 1996 6,457,935 $ 2,260 $ (89) $(14) $13,154 $ -- $(3,242) $12,069
========= ======= ===== ==== ======= ====== ======= =======
</TABLE>
See notes to consolidated financial statements.
-7-
<PAGE> 9
TIW SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,225) $ 344
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 667 484
Deferred income taxes (316) (170)
Allocation of shares in Employee Stock Ownership Plan 457 158
Increase in common stock due to compensation expense 148 75
Changes in operating assets and liabilities, excluding the effect of acquisitions:
Receivables 2,235 (2,682)
Costs and estimated earnings in excess of billings on uncompleted contracts 3,431 (3,590)
Inventories (1,972) (934)
Prepaid expenses and other 459 (92)
Other assets 83 (202)
Accounts payable (2,628) 3,048
Accrued expenses (150) (154)
Billings in excess of costs and estimated earnings on uncompleted contracts 959 (1,343)
------- -------
Net cash provided by (used in) operating activities 2,148 (5,058)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition (133)
Purchases of equipment and leasehold improvements (1,073) (346)
Proceeds from repayments of note receivable from Employee Stock Ownership Plan 48 21
------- -------
Net cash used in investing activities (1,025) (458)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit, net 1,635 1,950
Proceeds from debt 434 55
Repayments of debt (984) (901)
------- -------
Net cash provided by financing activities 1,085 1,104
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1) 11
------- -------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 2,207 (4,401)
CASH AND EQUIVALENTS, Beginning of year 1,112 5,513
------- -------
CASH AND EQUIVALENTS, End of year $ 3,319 $ 1,112
======= =======
NONCASH OPERATING AND INVESTING ACTIVITIES -
Equipment acquired under capital lease $ 434 $ 4
======= =======
</TABLE>
See notes to consolidated financial statements. (Continued)
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<PAGE> 10
TIW SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the year for:
Interest $ 684 $ 647
====== =====
Income taxes $ 50 $ 174
====== =====
The following provides additional information concerning supplemental
disclosures of cash flow activities for the effect of acquisition:
Cash paid - net of cash acquired $ -- $(133)
Stock issued -- --
Tangible assets acquired -- 90
Goodwill acquired -- 147
----- -----
Liabilities assumed $ -- $ 104
====== =====
</TABLE>
See notes to consolidated financial statements. (Concluded)
-9-
<PAGE> 11
TIW SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - TIW Systems, Inc., a closely held company, was
founded in 1976. TIW Systems, Inc. is a multi-discliplinary systems
engineering and project management company with primary emphasis on the
design, manufacture and implementation of satellite communication
equipment and facilities.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of TIW Systems, Inc. and its wholly-owned
subsidiaries (the Company). All significant intercompany transactions and
balances have been eliminated in consolidation.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses during the reporting period. Such
estimates include estimates to complete on long-term construction
contracts, the level of the allowance for potentially uncollectible
receivables, inventory reserves for obsolete, slow moving or nonsalable
inventory, warranty reserves, deferred income taxes and accrued
liabilities. Actual results could differ from those estimates.
CASH AND EQUIVALENTS - The Company considers all highly liquid investments
and debt instruments with a maturity of three months or less when
purchased to be cash equivalents. Cash equivalents consist of commercial
paper and bankers' acceptances.
RECEIVABLES - Receivables contain amounts which are billed in accordance
with the terms of the related contracts, which may allow progress billings
upon shipment, billings upon completion, or other billing arrangements.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out basis) or market.
ACCOUNTING FOR LONG-TERM CONTRACTS - The Company recognizes income from
long-term contracts on the percentage-of-completion method. Contract
revenue is determined by applying the percentage of completion of
contracts in each year to the negotiated contract value.
Percentage-of-completion is measured by the percentage of costs incurred
to date to total estimated costs for each contract. Losses estimated prior
to completion of the contract are provided for when determined. As
contracts extend over one or more years, revisions in cost and gross
profit estimates during the course of the work are reflected in the
accounting period in which the factors requiring the revision become
known.
Costs and estimated earnings in excess of billings and billings in excess
of costs and estimated earnings on uncompleted contracts are classified as
current assets and current liabilities, respectively. Costs and estimated
earnings in excess of billings on uncompleted contracts represent revenue
recognized on the percentage-of-completion method which, based upon the
terms of the related contracts, is not yet billable.
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<PAGE> 12
PROPERTY AND EQUIPMENT - Property and equipment are carried at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, ranging from five to 20 years. The Company
adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
To Be Disposed Of," effective January 1, 1996. The adoption of this
statement had no material effect on the Company's financial condition or
results of operations.
LONG-TERM RECEIVABLE - Long-term receivable consists of noncurrent amounts
due to the Company under a direct financing equipment lease with a
customer.
OTHER ASSETS - Other assets consist of investments in nonconsolidated
subsidiaries and goodwill which is being amortized over five years.
FOREIGN CURRENCY TRANSLATION - The Company translates the assets and
liabilities of its foreign operations at rates of exchange in effect at
year end. Income and expenses are translated at an average rate.
Translation adjustments are reported as a separate component of
shareholders' equity. Foreign currency transaction gains and losses were
not significant in 1996 and 1995.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
subject the Company to a concentration of credit risk principally consist
of cash equivalents and accounts receivable.
The Company's customers consist of U.S. and foreign governmental agencies
and private sector companies located worldwide. To reduce credit risk, the
Company monitors its customers' financial condition. Collateral is
generally not required, although letters of credit are frequently
obtained. The Company maintains reserves for potential credit losses, but
historically has not experienced significant losses related to individual
customers or groups of customers in any particular industry or geographic
area.
The Company maintains its excess cash balances in a variety of financial
instruments such as commercial paper and bankers' acceptances.
Historically, the Company has not experienced any losses in any of the
instruments it has purchased with excess cash balances.
INCOME TAXES - The Company accounts for income taxes using an asset and
liability approach in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Valuation allowances are
provided when necessary to reduce deferred tax assets to the amount
expected to be realized.
STOCK-BASED COMPENSATION - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
"Accounting for stock issued to Employees."
RECLASSIFICATIONS - Certain amounts in the 1995 financial statements have
been reclassified to conform to the 1996 presentation. Such
reclassifications had no effect on net income or shareholders' equity.
2. ACQUISITION
In December 1995, the Company purchased all outstanding shares of Whitewave
Communications, Inc., a Canadian company, for $226,000. This transaction
was accounted for as a purchase. Accordingly, a portion of the purchase
price has been allocated to the net assets acquired based on their
estimated fair values with the balance of the purchase price, $147,000,
included in goodwill. The goodwill is being amortized over five years. The
operations of Whitewave prior to its acquisition were not significant.
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<PAGE> 13
3. COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
A summary of costs and billings on uncompleted contracts at December 31 is
as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Costs incurred on uncompleted contracts $ 52,580 $75,409
Estimated earnings (losses) to date (250) 2,128
-------- -------
Total revenue recognized to date 52,330 77,537
Less billings to date 51,532 72,349
-------- -------
$ 798 $ 5,188
======== =======
</TABLE>
The above amounts are included in the accompanying balance sheets at
December 31 under the following captions (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 5,352 $ 8,783
Billings in excess of costs and estimated
earnings on uncompleted contracts (4,554) (3,595)
------- -------
$ 798 $ 5,188
======= =======
</TABLE>
4. INVENTORIES
Inventories at December 31 consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Finished goods $2,160 $ 621
Work in process 2,836 864
Raw materials 1,003 2,542
------ ------
$5,999 $4,027
====== ======
</TABLE>
5. PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements at December 31 consist of
the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Machinery and equipment $ 5,291 $ 4,321
Furniture and fixtures 326 288
Building 247 250
Construction-in-process 111 72
Land 92 92
Leasehold improvements 46 3
------- -------
6,113 5,026
Accumulated depreciation and amortization (3,761) (3,079)
------- -------
$ 2,352 $ 1,947
======= =======
</TABLE>
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<PAGE> 14
6. BORROWING ARRANGEMENTS
LINE OF CREDIT - The Company has a $12,000,000 credit facility with a bank
which may be used for advances under a revolving line of credit for its
normal working capital requirements and for the issuance of standby
letters of credit. Under this credit agreement, which expires on July 31,
1997, the Company is required to comply with certain minimum financial
ratios and other restrictive covenants. The Company was not in compliance
with a profitability covenant at December 31, 1996, but has received a
waiver from the bank. Advances under the revolving lines of credit are
secured by receivables, inventories and property and equipment and bear
interest at the bank's reference rate (9.0% at December 31, 1996) plus
0.5%. Fees for letters of credit are 1.5% of the face amount of each
advance and mature no later than one year after the expiration date of the
credit facility. At December 31, 1996, there were $3,585,000 outstanding
borrowings under the line of credit and the Company had issued irrevocable
standby letters of credit totaling $978,000.
LONG-TERM DEBT - Long-term debt at December 31 consists of the following
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Term loan payable to bank in monthly installments of $39 plus interest
at prime (8.25% at December 31, 1996) plus 0.875% through May 1999,
collateralized by receivables, inventory, and property and
equipment (see Note 11) $ 2,082 $ 2,605
Bank note payable in monthly installments of $7 plus interest at 9.5%
with balance due November 2000, collateralized by land 528 560
Term loan payable to bank in monthly installments of $12 plus interest
at prime (8.25% at December 31, 1996) plus 1.75% through May 1998,
collateralized by receivables, inventory and property and
equipment (see Note 11) 198 338
------- -------
2,808 3,503
Capital leases obligations (see Note 7) 760 615
------- -------
3,568 4,118
Current maturities (1,039) (862)
------- -------
$ 2,529 $ 3,256
======= =======
</TABLE>
Future annual principal payments of long-term debt (excluding capital
leases) as of December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
<S> <C>
1997 $ 654
1998 573
1999 1,187
2000 394
2001 -
------
$2,808
======
</TABLE>
-13-
<PAGE> 15
7. LEASES
The Company leases its manufacturing facilities and certain equipment
under long-term operating leases. These leases expire at various dates
through 2003. Rent expense for all operating leases was approximately
$739,000 and $664,000, respectively, in 1996 and 1995.
At December 31, 1996, the carrying value of equipment held under capital
leases was $817,000, net of accumulated amortization of $447,000.
Additionally, the Company entered into five capital leases totaling
approximately $434,000.
Future minimum lease payments for capital and operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
<C> <C> <C>
1997 $ 433 $ 753
1998 251 714
1999 157 721
2000 -- 739
2001 -- 687
Thereafter -- 1,271
----- ------
Total 841 $4,885
======
Less amount representing interest (81)
-----
Present value of lease payments $ 760
-----
</TABLE>
8. INCOME TAX BENEFIT
The income tax benefit for the years ended December 31 consists of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Currently payable (refundable):
Federal $(276) $ (10)
State 129 (36)
----- -----
(147) (46)
----- -----
Deferred credit:
Federal (174) (113)
State (142) (57)
----- -----
(316) (170)
----- -----
Total $(463) $(216)
===== =====
</TABLE>
Deferred income taxes result from differences in the recognition of
certain assets and liabilities for tax and financial reporting purposes,
principally related to depreciation, accrued expenses, interest on
contracts in progress and state net operating loss carryforwards. The
effective tax rate differs from the statutory rate principally due to
foreign losses for which there is no federal benefit.
-14-
<PAGE> 16
No (benefit)/provision for federal income taxes has been made on the
undistributed (loss)/earnings of its foreign subsidiary of approximately
($239,000) and $20,000, respectively, in 1996 and 1995 which are expected
to be permanently reinvested. The cumulative amount of undistributed
earnings on which no federal income taxes have been provided was
approximately $411,000 at December 31, 1996, representing an unrecognized
deferred tax liability of $140,000.
9. STOCK OPTIONS
The Company has granted stock options to directors, officers and key
employees. The Board of Directors approves the exercise price of the
option, the periods during which the option may be exercised and all other
terms and conditions of the option. The options generally vest over five
years and have a term of up to ten years. The options outstanding at
December 31, 1996 are subject to an acceleration clause if the Vertex
Communications acquisition is consummated (see Note 14).
Option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
<S> <C> <C>
Outstanding, December 31, 1994 and 1995 (14,000 exercisable at
a weighted average price of $2.09) 70,000 $ 2.09
Granted (fair value of $1.76) 50,000 2.09
Canceled (70,000) 2.09
------ --------
Outstanding, December 31, 1996 (none were exercisable) 50,000 $ 2.09
====== ========
</TABLE>
Subsequent to December 31, 1996, the Company granted an option for 25,000
shares at $0.35 per share.
ADDITIONAL STOCK PLAN INFORMATION - As discussed in Note 1, the Company
continues to account for its stock-based awards using the intrinsic value
method in accordance with Accounting Principles Board No. 25, "Accounting
for Stock Issued to Employees," and its related interpretations.
Accordingly, no compensation expense has been recognized in the financial
statements for employee stock arrangements.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), requires the disclosure of pro forma
net income had the Company adopted the fair value method as of the
beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based
awards to employees is calculated through the use of option pricing
models, even though such models were developed to estimate the fair value
of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option
awards. These models also require subjective assumptions, including future
stock price volatility and expected time to exercise, which affect the
calculated values. The Company's calculations were made using the
Black-Scholes option pricing method with the following weighted average
assumptions: expected life, 48 months following vesting; volatility, zero
in 1996; risk-free interest rates, 6.5% in 1996; and no dividends during
the expected term. The Company's calculations are based on a single option
valuation approach, and forfeitures are recognized as they occur. If the
computed fair value of the 1996 award had been amortized to expense over
the vesting period of the award, pro forma net income (loss) would not
have been materially different from actual net income (loss) reported for
the year.
-15-
<PAGE> 17
Additional information regarding options outstanding as of December 31,
1996 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------ OPTIONS EXERCISABLE
WEIGHTED --------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL LIFE EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING (YEARS) PRICE EXERCISABLE PRICE
<C> <C> <C> <C> <C> <C>
$ 2.09 50,000 3.67 $ 2.09 - $ 2.09
-------- ------ ---- -------- --------- --------
</TABLE>
10. RETIREMENT PLAN
The Company has a profit-sharing plan and a money purchase pension plan
which cover substantially all employees. The Profit-Sharing Plan provides
for voluntary employee salary reduction contributions to a maximum of 10%
of compensation. Company contributions to this plan are discretionary, as
determined by the Board of Directors, and totaled approximately $132,000
and $147,000 in 1996 and 1995, respectively. Company contributions to the
Money Purchase Pension Plan are five percent of eligible employee
compensation, become vested at various rates over seven years and totaled
approximately $233,000 and $310,000 in 1996 and 1995, respectively.
11. EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors an employee stock ownership plan (ESOP) that covers
all U.S. non-union employees. The Company made a loan to the ESOP of
$3,300,000 in 1994 for the purchase of shares. The Company makes annual
contributions to the ESOP equal to the ESOP's debt service to the Company.
The ESOP shares are pledged as collateral on the notes payable to the
Company. As the debt is repaid, shares are released from collateral and
allocated to active employees, based on the proportion of debt service
paid in the year. The Company accounts for its ESOP in accordance with
Statement of Position 93-6. Accordingly, beginning in 1994, shares
acquired by the ESOP after 1992 and pledged as collateral are reported as
unallocated ESOP shares in the balance sheet. As shares are released from
collateral, the Company reports compensation expense equal to the current
market price of the shares, except for shares acquired by the ESOP prior
to December 31, 1992 for which the Company records compensation expense
equal to the cost of the shares to the ESOP. As of December 31, 1996, all
shares acquired by the ESOP through December 31, 1992 had been committed
for allocation. ESOP compensation expense was $148,000 and $75,000 for
1996 and 1995, respectively. The ESOP shares as of December 31, 1996 were
as follows:
<TABLE>
<S> <C>
Allocated shares 1,008,544
Unallocated shares 965,165
---------
Total ESOP shares 1,973,709
=========
Fair value (as estimated by the Company's Board of Directors) of
unallocated shares 2,557,687
---------
</TABLE>
12. MAJOR CUSTOMERS
During 1996, the Company had contract revenue from two customers of
$8,873,000 and $5,666,000 representing 21% and 14%, respectively, of total
contract revenue and sales. Receivables and costs and estimated earnings
in excess of billings on uncompleted contracts totaled $1,692,000 and
$126,000 respectively, for these two customers at December 31, 1996.
During 1995, the Company had contract
-16-
<PAGE> 18
revenue from two customers of $10,079,000 and $9,422,000 representing 22%
and 21%, respectively, of total contract revenue and sales. Receivables
and costs and estimated earnings in excess of billings on uncompleted
contracts totaled $2,501,000 and $2,938,000, respectively, for these two
customers at December 31, 1995. The individual customers that represent
the Company's major customers vary year to year depending upon the
relative sizes of the respective contracts and the timing of the work
performed.
13. RELATED PARTY TRANSACTIONS
The Company purchased $696,393 of services and material in their normal
course of business from TIW Syscon in which TIW Systems had a 33%
ownership interest at December 31, 1996.
The Company owns 44% of Tauberaud (an Estonian company) that is accounted
for under the equity method. The results of operations and financial
position of Tauberaud are not material. In addition, the Company's
president holds an additional 7% ownership in the same company. Purchases
from Tauberaud were $1,406,660 and $440,000 in 1996 and 1995,
respectively. At December 31, 1996, there was a $35,000 receivable from
Tauberaud.
14. SUBSEQUENT EVENTS
On January 21, 1997, the Company entered into a letter of intent with
Vertex Communications Corporation (Vertex) providing for the acquisition
of the Company. Vertex was incorporated in 1984 to design, develop and
manufacture an extensive line of precision earth station antennas for
satellite communications. The acquisition requires shareholder approval
and is expected to be consummated in the second quarter of 1997.
* * * * *
-17-
<PAGE> 19
(b) PRO FORMA FINANCIAL INFORMATION
Pro Forma Condensed Consolidated Financial Statements, in
compliance with the applicable Rules of Regulation S-X, relative to
the Registrant and TIW are included herein at pages 18 through 22
and include:
o Introduction to Unaudited Pro Forma Condensed Consolidated
Financial Statements
o Pro Forma Condensed Consolidated Balance Sheet at March 28,
1997 (unaudited)
o Pro Forma Condensed Consolidated Statement of Income for the
Year ended September 30, 1996 (unaudited)
o Pro Forma Condensed Consolidated Statement of Income for the
Six Months ended March 28, 1997 (unaudited)
o Notes to Pro Forma Condensed Consolidated Financial Statements
(unaudited)
INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma financial information and related notes
have been prepared giving effect to the acquisition of TIW by Vertex through
the Merger, as if the transaction had been effected at March 28, 1997 for the
pro forma condensed consolidated balance sheet, and at October 1, 1995 for the
pro forma condensed consolidated statements of income for the year ended
September 30, 1996, and for the six months ended March 28, 1997. The Merger is
being accounted for under the purchase method of accounting.
The accompanying unaudited pro forma condensed consolidated
financial statements do not purport to be indicative of the results that would
actually have been obtained if the Merger had been effected as of the
respective dates indicated above or that may be obtained in the future.
These pro forma financial statements and related notes have been
prepared by the Registrant based upon assumptions deemed appropriate. Certain
of these assumptions are set forth in the accompanying Notes to Pro Forma
Condensed Consolidated Financial Statements. The pro forma financial
information presented herein should be read in conjunction with Vertex's Annual
Report on Form 10-K for its fiscal year ended September 30, 1996 and Quarterly
Reports on Form 10-Q for the periods ended December 27, 1996 and March 28,
1997, respectively, as well as TIW's Consolidated Financial Statements and
related notes included in this report.
-18-
<PAGE> 20
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
MARCH 28, 1997
HISTORICAL PRO FORMA
----------------------- PRO FORMA FINANCIAL
VERTEX TIW ADJUSTMENTS STATEMENT
------- --------- ---------------- -------------
ASSETS
<S> <C> <C> <C> <C>
Current Assets:
Cash and equivalents $18,388 $ 10 $ (7,751) (A) $ 10,647
Accounts receivable 20,352 17,498 37,850
Inventories 16,326 6,917 23,243
Deferred income taxes 979 979
---------- ------------ ----------- -------------
55,066 25,404 (7,751) (A) 72,719
Property and equipment, net 13,737 2,201 15,938
Goodwill 4,604 6,307 (A) 10,911
Long-term receivable 552 552
Other assets 431 651 1,082
---------- ------------ ----------- -------------
TOTAL ASSETS $73,838 $ 28,808 $ (1,444) $ 101,202
========== ============ =========== =============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities:
Accounts payable $ 3,028 $ 2,507 $ 400 (A) $ 5,935
Accrued liabilities 5,817 1,271 7,088
Customers' advances 2,767 3,926 6,693
Income taxes payable 940 940
Line of credit 5,275 5,275
Current portion of long-term debt 592 823 1,415
---------- ------------ ----------- -------------
13,144 13,802 400 27,346
Deferred income taxes 951 92 1,043
Long-term debt 753 2,528 3,281
Minority interest in subsidiary 14 14
Shareholders' Equity
Common stock (4,661,402 actual
shares issued by Vertex and
5,235,761 pro forma shares) 466 2,260 (2,202) (A) 524
Capital in excess of par value 24,743 10,470 (A) 35,213
Retained earnings 36,077 13,331 (13,331) (A) 36,077
Treasury stock (2,269) (2,269)
Notes receivable from common stock
issued (89) 89 (A) 0
Translation adjustment (27) (14) 14 (A) (27)
Unallocated ESOP shares (3,116) 3,116 (A) 0
---------- ------------ ----------- -------------
58,990 12,372 (1,844) 69,518
---------- ------------ ----------- -------------
TOTAL LIABILITIES AND EQUITY $73,838 $ 28,808 $ (1,444) $ 101,202
========== ============ =========== =============
</TABLE>
See Accompanying Notes to Pro Forma Condensed Consolidated Financial Statements
-19-
<PAGE> 21
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------- PRO FORMA FINANCIAL
VERTEX TIW ADJUSTMENTS STATEMENT
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
SALES $ 77,525 $ 41,332 $ 118,857
COSTS AND EXPENSES
Cost of Sales 56,911 32,465 89,376
Research and development 3,217 3,922 7,139
Marketing 4,236 1,846 6,082
General and administrative 5,127 4,547 420 (B) 10,094
-------- -------- --------- --------
69,491 42,780 420 112,691
-------- -------- --------- --------
Operating income 8,034 (1,448) (420) 6,166
OTHER INCOME (EXPENSE)
Income from investments 632 198 (232)(C) 598
Interest expense (115) (438) (553)
-------- -------- --------- --------
INCOME BEFORE INCOME TAXES 8,551 (1,688) (652) 6,211
PROVISION FOR INCOME TAXES 2,451 (463) 1,988
-------- -------- --------- --------
NET INCOME (LOSS) $ 6,100 $ (1,225) $ (652) $ 4,223
======== ======== ========= ========
EARNINGS PER SHARE $ 1.32 $ 0.81
========= ========
AVERAGE SHARES AND
EQUIVALENT SHARES
OUTSTANDING 4,612 574(D) 5,186
======== ========= ========
</TABLE>
See Accompanying Notes to Pro Forma Condensed Consolidated Financial Statements
-20-
<PAGE> 22
VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED MARCH 28, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- PRO FORMA FINANCIAL
VERTEX TIW ADJUSTMENTS STATEMENT
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
SALES $ 40,116 $ 16,178 $ 56,294
COSTS AND EXPENSES
Cost of Sales 28,791 11,212 40,003
Research and development 1,448 1,642 3,090
Marketing 2,273 1,023 3,296
General and administrative 3,295 2,192 $ 210 (B) 5,697
-------- -------- -------- -------
35,807 16,069 210 52,086
-------- -------- -------- -------
Operating income 4,309 109 (210) 4,208
OTHER INCOME (EXPENSE)
Income from investments 406 49 (116)(C) 339
Interest expense (49) (206) (255)
-------- -------- -------- -------
INCOME BEFORE INCOME TAXES 4,666 (48) (326) 4,292
PROVISION FOR INCOME TAXES 1,447 (13) 1,434
-------- -------- -------- -------
NET INCOME (LOSS) $ 3,219 $ (35) $ (326) $ 2,858
======== ======== ======== =======
EARNINGS PER SHARE $ 0.69 $ 0.55
======== =======
AVERAGE SHARES AND
EQUIVALENT SHARES
OUTSTANDING 4,663 574 (D) 5,237
======== ======== =======
</TABLE>
See Accompanying Notes to Pro Forma Condensed Consolidated Financial Statements
-21-
<PAGE> 23
VERTEX COMMUNICATIONS CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BALANCE SHEET ADJUSTMENTS
(A) On the Effective Date of the Merger, Vertex will acquire all of the
outstanding shares of TIW Common Stock through the Merger for
approximately $19.4 million of total consideration. Such consideration
will be comprised of cash of approximately $7.8 million, 574,359 shares of
Vertex Common Stock, and approximately $.4 million of direct acquisition
costs, subject to certain adjustments. The acquisition will be accounted
for under the purchase method of accounting and, accordingly, the assets
acquired and liabilities assumed will be recorded at their estimated fair
market values on the Effective Date. The excess of the purchase
consideration over the net assets acquired of approximately $6.3 million
will be recorded as goodwill and amortized over fifteen years using the
straight line method.
STATEMENT OF INCOME ADJUSTMENTS
(B) To record amortization expense of goodwill ($6.3 million) of approximately
$420,000 annually.
(C) To reduce investment income due to cash paid out of $7.8 million as part
of the purchase consideration.
(D) To give effect to the issuance of 574,359 shares of Vertex's Common Stock
which will be part of the consideration exchanged for all of the shares of
TIW Common Stock.
The historical results of TIW included in Vertex's pro forma condensed
consolidated statement of income for the year ended September 30, 1996 are for
the year ended December 31, 1996, which was TIW's fiscal year end.
(c) EXHIBITS.
2.1* -- Agreement and Plan of Reorganization, dated May
9, 1997, by and among TIW Systems, Inc., Vertex
Communications Corporation, a Texas corporation,
Vertex Acquisition Corporation, a Nevada
corporation, and Heldur Tonisson, Rein Luik, and
TIW Systems, Incorporated Employee Stock Ownership
Trust, Principal Shareholders of TIW Systems, Inc.
---------------
* Filed herewith.
-22-
<PAGE> 24
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.
VERTEX COMMUNICATIONS CORPORATION
(Registrant)
By: /s/ James D. Carter
-------------------------------------
James D. Carter
Vice President and Chief Financial
Officer (Duly Authorized Officer and
Principal Financial and Accounting
Officer)
Date: May 14, 1997
-23-
<PAGE> 25
EXHIBIT INDEX
2.1* -- Agreement and Plan of Reorganization, dated May
9, 1997, by and among TIW Systems, Inc., Vertex
Communications Corporation, a Texas corporation,
Vertex Acquisition Corporation, a Nevada
corporation, and Heldur Tonisson, Rein Luik, and
TIW Systems, Incorporated Employee Stock Ownership
Trust, Principal Shareholders of TIW Systems, Inc.
---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 2.1
===============================================================================
VERTEX COMMUNICATIONS CORPORATION
EXHIBIT 2.1
TO
CURRENT REPORT ON FORM 8-K
Date of Report (Date of Earliest Event Reported): May 9, 1997
===============================================================================
<PAGE> 2
EXHIBIT 2.1
===============================================================================
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
TIW SYSTEMS, INC.
A CALIFORNIA CORPORATION
AND
VERTEX ACQUISITION CORPORATION
A NEVADA CORPORATION
AND
VERTEX COMMUNICATIONS CORPORATION
A TEXAS CORPORATION
DATED AS OF MAY 9, 1997
===============================================================================
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
RECITALS........................................................................................................ 1
ARTICLE 1 TERMS OF MERGER..................................................................................... 2
1.1 Merger.............................................................................................. 2
1.2 Effect of Merger.................................................................................... 2
1.3 Effective Date of Merger............................................................................ 3
1.4 Disposition and Conversion of Shares................................................................ 3
(a) VAC Shares..................................................................................... 3
(b) Vertex Shares.................................................................................. 3
(c) Company Shares................................................................................. 3
(d) No Dilution.................................................................................... 4
(e) Exchange of Company Capital Stock Certificates................................................. 4
(1) Delivery of Vertex Exchange Shares..................................................... 4
(2) Exchange of TIW Common Stock Certificates............................................... 4
(3) Restriction on Receipt of Dividends..................................................... 4
(4) Fractional Shares....................................................................... 5
(5) Termination of Transfer Agent's Obligations............................................. 5
(6) Lost TIW Certificates................................................................... 5
(7) Withholding............................................................................. 5
(f) Escrow of Shares............................................................................... 6
(g) Inspection of Books and Records................................................................ 6
1.5 Cancellation of Options and Warrants................................................................ 6
1.6 Articles of Incorporation of Surviving Corporation.................................................. 6
1.7 Bylaws of Surviving Corporation..................................................................... 6
1.8 Directors of Surviving Corporation.................................................................. 6
1.9 Officers of Surviving Corporation................................................................... 6
1.10 Disclosure Schedule................................................................................. 7
1.11 Definition of Assets................................................................................ 7
1.12 Retained Liabilities................................................................................ 9
1.13 Brokerage Fees...................................................................................... 9
1.14 Costs of Transaction................................................................................ 10
1.15 Release by Shareholders............................................................................. 10
1.16 Certain Definitions................................................................................. 11
ARTICLE 2 REPRESENTATIONS AND WARRANTIES...................................................................... 13
2.1 Representations and Warranties of the Company, the Controlling Shareholders and the
ESOT................................................................................................ 13
(a) Organization and Good Standing of the Company.................................................. 13
(b) Company Subsidiaries........................................................................... 13
(c) Articles of Incorporation and Bylaws........................................................... 14
(d) Capitalization................................................................................. 14
(e) Corporate Minutes.............................................................................. 14
</TABLE>
(i)
<PAGE> 4
<TABLE>
<S> <C>
(f) Exclusive Operation of Business................................................................ 15
(g) Authorization.................................................................................. 15
(h) Compliance with Law............................................................................ 15
(i) Consents and Approvals......................................................................... 16
(j) Noncontravention............................................................................... 16
(k) Financial Statements........................................................................... 17
(l) Absence of Undisclosed Liabilities............................................................. 18
(m) Absence of Certain Changes..................................................................... 18
(n) Books and Records.............................................................................. 19
(o) Accounts Receivable............................................................................ 19
(p) Legal Proceedings.............................................................................. 19
(q) Illegal Payments............................................................................... 20
(r) Product Warranty............................................................................... 20
(s) Outstanding Claims............................................................................. 20
(t) Taxes and Tax Returns.......................................................................... 20
(u) Real Property.................................................................................. 22
(v) Leased Personal Property....................................................................... 22
(w) Intellectual Property.......................................................................... 23
(x) Title to Properties............................................................................ 24
(y) Sufficiency and Condition of Properties........................................................ 25
(z) Permits........................................................................................ 25
(aa) Contracts...................................................................................... 25
(ab) Inventory...................................................................................... 27
(ac) Backlog........................................................................................ 27
(ad) Employees...................................................................................... 27
(ae) Labor Organization............................................................................. 27
(af) Qualified Employee Benefit Plans............................................................... 27
(ag) Employee Benefits.............................................................................. 28
(ah) Insurance...................................................................................... 30
(ai) No Dividends; Accruals and Reserves............................................................ 30
(aj) Bank Accounts.................................................................................. 30
(ak) Customer Relationships......................................................................... 30
(al) Finders........................................................................................ 30
(am) Environmental Compliance....................................................................... 31
(an) Shareholder Access to Information.............................................................. 32
(ao) Investment Representations..................................................................... 32
(ap) Title to TIW Common Stock...................................................................... 33
(aq) Continuity of Interest......................................................................... 33
(ar) Conflicts of Interest.......................................................................... 34
(as) Full Disclosure................................................................................ 34
(at) Acquisition of Substantially All the Assets.................................................... 35
(au) Certain Representations of the ESOT............................................................ 35
2.2 Representations and Warranties of VAC and Vertex.................................................... 35
(a) Organization and Good Standing................................................................. 35
(b) Articles of Incorporation and Bylaws........................................................... 35
(c) Capitalization................................................................................. 35
(d) Vertex Exchange Shares......................................................................... 36
</TABLE>
(ii)
<PAGE> 5
<TABLE>
<S> <C>
(e) Maintenance of VAC............................................................................. 36
(f) Authorization.................................................................................. 36
(g) Compliance with Applicable Law................................................................. 36
(h) Consents and Approvals......................................................................... 37
(i) Noncontravention............................................................................... 37
(j) Securities Filings............................................................................. 38
(k) Financial Statements........................................................................... 38
(l) Absence of Undisclosed Liabilities............................................................. 38
(m) Absence of Certain Changes..................................................................... 38
(n) Title to Properties............................................................................ 39
(o) Sufficiency and Condition of Properties........................................................ 39
(p) Legal Proceedings.............................................................................. 40
(q) Finders........................................................................................ 40
(r) Accuracy of Information........................................................................ 40
2.3 Nature of Statements................................................................................ 40
2.4 Survival of Representations, Warranties, and Agreements............................................. 41
ARTICLE 3 COVENANTS........................................................................................... 42
3.1 Access to Properties, Records and Clients........................................................... 42
3.2 Consultation........................................................................................ 42
3.3 No Solicitation..................................................................................... 42
3.4 Special Meeting of Company Shareholders............................................................. 43
3.5 Conduct of the Business of the Company Prior to the Effective Date.................................. 43
(a) Ordinary Course of Business.................................................................... 43
(b) Maintenance of Assets.......................................................................... 43
(c) Insurance of Assets............................................................................ 43
(d) Contracts and Commitments...................................................................... 44
(e) Debts and Liabilities.......................................................................... 44
(f) Corporate Documents............................................................................ 44
(g) Employment Practices........................................................................... 44
(h) Goodwill....................................................................................... 44
(i) Litigation..................................................................................... 45
(j) Conflicts...................................................................................... 45
(k) Capital Stock.................................................................................. 45
(l) Tax Returns.................................................................................... 45
3.6 Confidential Information............................................................................ 45
(a) Return of Confidential Information............................................................. 45
(b) Non-Disclosure and Non-Use of Confidential Information......................................... 45
(c) Specific Performance........................................................................... 46
3.7 Hart-Scott-Rodino Act Notification.................................................................. 46
3.8 Best Efforts........................................................................................ 46
3.9 Public Announcements................................................................................ 46
3.10 Disclosure of Certain Matters....................................................................... 47
3.11 Delivery and Amendment of Schedules................................................................. 47
3.12 Registration of Vertex Exchange Shares.............................................................. 47
(a) Voluntary Registration by Vertex............................................................... 47
(b) Demand Registration Rights of Shareholders..................................................... 48
</TABLE>
(iii)
<PAGE> 6
<TABLE>
<S> <C>
3.13 Certain Tax Matters................................................................................. 48
(a) Preparation and Filing of Tax Returns.......................................................... 48
(1) Taxable Periods Ending on or Before the Effective Date.................................. 48
(2) Taxable Periods Commencing After the Effective Date..................................... 48
(3) Taxable Periods Commencing Before and Ending After the Effective Date................... 48
(b) Liability for Taxes............................................................................ 48
(1) Taxable Periods Ending on or Before the Effective Date.................................. 49
(2) Taxable Periods Commencing After the Effective Date..................................... 49
(3) Taxable Periods Commencing Before and Ending After the Effective Date................... 49
(c) Audit of Tax Returns........................................................................... 49
(d) Tax Treatment of Merger........................................................................ 49
3.14 Records of the Company.............................................................................. 50
ARTICLE 4 CONDITIONS PRECEDENT TO CLOSING..................................................................... 50
4.1 Conditions Precedent to Obligations of VAC and Vertex............................................... 50
(a) Representations and Warranties True............................................................ 50
(b) Performance of Obligations..................................................................... 50
(c) Absence of Litigation.......................................................................... 50
(d) Opinions of Counsel............................................................................ 50
(e) Consents and Approvals......................................................................... 51
(f) HSR Act Compliance............................................................................. 51
(g) Certificate of the Company..................................................................... 51
(h) No Adverse Change.............................................................................. 51
(i) Due Diligence Review........................................................................... 51
(j) Resignations................................................................................... 51
(k) Dissenting Shareholders........................................................................ 51
(l) Noncompetition Agreements...................................................................... 52
(m) Employment Agreements.......................................................................... 52
(n) Environmental Evaluation and Assessments....................................................... 52
(o) Contribution of Certain Shares or Interest..................................................... 52
(p) Escrow of Shares............................................................................... 52
(q) Amendment of TIW ESOP.......................................................................... 52
(r) Minimum Value of Vertex Exchange Shares........................................................ 53
(s) Payment of ESOP Loan........................................................................... 53
(t) Termination of Deferred Compensation Obligation................................................ 53
4.2 Conditions Precedent to Obligations of the Company.................................................. 53
(a) Delivery of Merger Consideration............................................................... 54
(b) Representations and Warranties True............................................................ 54
(c) Performance of Obligations..................................................................... 54
(d) Absence of Litigation.......................................................................... 54
(e) Opinion of Counsel............................................................................. 54
(f) Certificates of VAC and Vertex................................................................. 54
(g) No Adverse Change.............................................................................. 55
(h) Shareholder Approval........................................................................... 55
(i) Employment Agreements.......................................................................... 55
</TABLE>
(iv)
<PAGE> 7
<TABLE>
<S> <C>
(j) Minimum Value of Vertex Exchange Shares........................................................ 55
ARTICLE 5 CLOSING............................................................................................. 56
5.1 Time and Place of the Closing....................................................................... 56
5.2 Actions of the Company, the Controlling Shareholders and the ESOT at Closing........................ 56
(a) Certificates of Existence...................................................................... 56
(b) Resignations................................................................................... 56
(c) Corporate Records.............................................................................. 56
(d) Corporate Resolutions.......................................................................... 56
(e) Opinions of Counsel............................................................................ 56
(f) Noncompetition Agreements...................................................................... 56
(g) Employment Agreements.......................................................................... 56
(h) Certificate of the Company..................................................................... 57
(i) Escrow Agreement............................................................................... 57
(j) Surrender of TIW Certificates.................................................................. 57
(k) Articles of Merger............................................................................. 57
(l) Miscellaneous Documents........................................................................ 57
5.3 Actions of VAC and Vertex at Closing................................................................ 57
(a) Cash Portion of Merger Consideration........................................................... 57
(b) Vertex Exchange Shares......................................................................... 58
(c) Corporate Resolutions.......................................................................... 58
(d) Opinion of Vertex's Counsel.................................................................... 58
(e) Certificate of VAC............................................................................. 58
(f) Certificate of Vertex.......................................................................... 58
(g) Noncompetition Agreements...................................................................... 59
(h) Employment Agreements.......................................................................... 59
(i) Escrow Agreement............................................................................... 59
ARTICLE 6 TERMINATION......................................................................................... 59
6.1 Termination......................................................................................... 59
(a) Termination Prior to Effective Date............................................................ 59
(b) Termination Prior to Closing Date.............................................................. 59
6.2 Effect of Termination............................................................................... 60
ARTICLE 7 INDEMNIFICATION..................................................................................... 60
7.1 Indemnification by the Indemnifying Shareholders.................................................... 60
7.2 Indemnification by VAC.............................................................................. 61
7.3 Indemnification by Vertex........................................................................... 61
7.4 Indemnification by Holders.......................................................................... 61
7.5 Defense............................................................................................. 62
(a) Notification of Indemnification Claim.......................................................... 62
(b) Defense of Claim by Indemnifying Party......................................................... 62
(c) Defense of Claim by Aggrieved Party............................................................ 62
(d) Indemnification Threshold...................................................................... 63
7.6 Indemnification Despite Negligence, Strict Liability or Liability Without Fault..................... 63
7.7 Limitation on Obligations of Indemnifying Shareholders.............................................. 63
</TABLE>
(v)
<PAGE> 8
<TABLE>
<S> <C>
7.8 Offset for Insurance Proceeds....................................................................... 63
ARTICLE 8 MISCELLANEOUS....................................................................................... 63
8.1 Headings............................................................................................ 63
8.2 Notices............................................................................................. 64
8.3 Binding Effect; Assignment.......................................................................... 65
8.4 Further Assurances.................................................................................. 65
8.5 Complete Agreement.................................................................................. 65
8.6 Modifications, Amendments, and Waivers.............................................................. 65
8.7 Choice of Law and Venue............................................................................. 65
8.8 Remedies Not Exclusive.............................................................................. 65
8.9 Severability........................................................................................ 65
8.10 Memorandum of Plan of Merger........................................................................ 66
8.11 Counterparts and Facsimile Execution................................................................ 66
</TABLE>
Exhibits:
<TABLE>
<S> <C> <C>
A Articles of Merger........................................................................................A-1
B Merger Consideration Allocation Schedule..................................................................B-1
C Share Exchange and General Release Agreement..............................................................C-1
D Opinion of Company's Counsel..............................................................................D-1
E Luik Noncompetition Agreement.............................................................................E-1
F Becker Noncompetition Agreement...........................................................................F-1
G Luik Employment Agreement.................................................................................G-1
H Becker Employment Agreement...............................................................................H-1
I Opinion of Vertex's Counsel...............................................................................I-1
J Escrow Agreement..........................................................................................J-1
</TABLE>
(vi)
<PAGE> 9
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into at Kilgore, Gregg County, Texas by, between and among TIW SYSTEMS,
INC., a California corporation having its principal place of business in Santa
Clara County, California (the "Company"), VERTEX ACQUISITION CORPORATION, a
Nevada corporation ("VAC"), VERTEX COMMUNICATIONS CORPORATION, a Texas
corporation having its principal place of business in Gregg County, Texas
("Vertex"), HELDUR TONISSON, an individual resident of Baar, Switzerland
("Tonisson"), REIN LUIK, an individual resident of Santa Clara County,
California ("Luik"), and the TIW SYSTEMS INCORPORATED EMPLOYEE STOCK OWNERSHIP
TRUST, a trust having its principal place of business in California (the
"ESOT"), on this the 9th day of May, 1997 (the "Execution Date").
RECITALS
WHEREAS, the Company is currently engaged in the business of
manufacturing earth station satellite communications antenna, radio telescopes
and associated components (the "Acquired Business");
WHEREAS, as of the Execution Date, Tonisson, Luik and the ESOT own
approximately 39%, 18% and 31%, respectively, of all of the issued and
outstanding capital stock of the Company, subject to the community property
rights of their respective spouses, if any, and with respect to Luik, excluding
any beneficial ownership of any such shares arising from Luik being a
participant or beneficiary of the ESOT;
WHEREAS, Tonisson and Luik are each hereinafter individually referred to
as a "Controlling Shareholder" and collectively as the "Controlling
Shareholders";
WHEREAS, the remaining shares of the issued and outstanding capital stock
of the Company as of the Closing Date (as hereinafter defined) will be owned by
18 shareholders (the "Minority Shareholders");
WHEREAS, the Controlling Shareholders and the Minority Shareholders are
sometimes referred to herein as the "Shareholders";
WHEREAS, VAC is a wholly-owned subsidiary of Vertex;
WHEREAS, the respective Boards of Directors of the Company, Vertex and
VAC have determined that the transactions contemplated by this Agreement are
desirable and in the best interests of such entities and their respective
shareholders;
WHEREAS, the respective Board of Directors of the Company, Vertex and VAC
have approved the merger of the Company with and into VAC as a forward
triangular merger in accordance with the provisions of Sections 368(a)(1)(A)
and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"),
Articles 92A.005 et seq. of the Nevada General Corporation Law (the "NGCL"),
and Sections 1100 et seq. of the California General Corporation Law (the
"CGCL") upon the terms and conditions set forth in this Agreement (the
"Merger");
AGREEMENT AND PLAN OF REORGANIZATION - Page 1
<PAGE> 10
WHEREAS, the parties intend that the Merger shall constitute for United
States federal income tax purposes a reorganization under the Code and that
this Agreement, as it relates to the Merger, shall constitute a plan of
reorganization within the meaning of the applicable provisions of the Code; and
WHEREAS, the parties desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger;
NOW, THEREFORE, in consideration of the foregoing premises and the
respective representations, warranties, covenants, agreements and conditions
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE 1
TERMS OF MERGER
1.1 Merger. On the Effective Date (as hereinafter defined), in accordance
with the provisions of Articles 92A.005 et seq. of the NGCL, Sections 1100 et
seq. of the CGCL and Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code, the
Company shall be merged with and into VAC, which shall be sometimes referred to
herein as the "Surviving Corporation," upon the terms and subject to the
conditions set forth in the subsequent provisions of this Agreement and the
Articles of Merger and the Plan of Merger attached thereto (the "Articles of
Merger"), which Articles of Merger shall be in the form of the Articles of
Merger attached hereto as Exhibit "A" and incorporated herein by this
reference.
1.2 Effect of Merger. VAC, as the Surviving Corporation in the Merger,
will continue to be governed by the laws of the State of Nevada and the separate
corporate existence of VAC and all of its rights, privileges, immunities and
franchises, public or private, and all of its duties and liabilities as a
corporation organized under the NGCL will continue unaffected and unimpaired by
the Merger. At the close of business on the Effective Date the existence of the
Company as a distinct entity shall cease. At that time all rights, franchises
and interests of the Company in and to every type of property, whether real,
personal or mixed, and chooses in action shall be transferred to and vested in
VAC by virtue of the Merger without any deed or other transfer. VAC, without any
order or other action on the part of any court or otherwise, shall possess all
and singular the rights, privileges, powers and franchises, and shall be subject
to all the restrictions, disabilities and duties of the Company and VAC, and all
property, whether real, personal or mixed, of the Company and VAC, and as to
third parties all debts due to the Company or VAC on whatever account, and all
other things in action or belonging to each of said corporations, shall be
vested in VAC. All property, rights, privileges, powers and franchises, and all
and every other interest of the Company or VAC as of the Effective Date shall
thereafter be the property of VAC to the same extent and effect as such was of
said constituent corporations prior to the Effective Date, and the title to any
real estate vested by deed or otherwise in the Company and VAC shall not revert
or be in any way impaired by reason of the Merger; provided, however, that as to
third parties all rights of creditors and all liens upon any property of the
Company or VAC shall thenceforth attach to VAC and may be enforced against it to
the same extent as if said debts, liabilities, and duties had been incurred or
contracted by VAC. VAC shall carry on business with the assets of the Company
and VAC. The established offices and facilities of VAC and the Company
immediately prior to the Merger shall become the established offices and
facilities of VAC. Notwithstanding the preceding, as between the Controlling
Shareholders and VAC, the Controlling Shareholders shall be liable for any
Retained Liabilities (as defined in Section 1.12 hereof) of the Company that are
not discharged by the Company
AGREEMENT AND PLAN OF REORGANIZATION - Page 2
<PAGE> 11
or the Controlling Shareholders prior to the Effective Date in accordance with
the provisions of Section 1.12 hereof.
1.3 Effective Date of Merger. As soon as practicable following the
fulfillment or waiver of the conditions precedent to the Merger set forth in
Article 4 hereof, and provided that this Agreement has not been terminated or
abandoned pursuant to the applicable provisions of Article 6 hereof, the
Company and VAC will cause the Articles of Merger along with any other required
document to be filed with the Secretary of State of Nevada and the Secretary of
State of California pursuant to Article 92A.200 of the NGCL and Sections 1103
and 1108 of the CGCL, respectively. The Merger shall become effective upon the
date (the "Effective Date") which is the later of the date of (i) the filing of
Articles of Merger with, and issuance of a Certificate of Merger by, the
Secretary of State of Nevada pursuant to Article 92A.200 of the NGCL, or (ii)
the filing of Articles of Merger with, and issuance of a Certificate of Merger
by, the Secretary of State of California pursuant to Sections 1103 and 1108 of
the CGCL (the "Effective Time"). Each of the parties will use its Best Efforts
(as hereinafter defined) to cause the Merger to be consummated as soon as
practicable following the fulfillment or waiver of the conditions set forth in
Article 4 hereof.
1.4 Disposition and Conversion of Shares. Subject to the provisions of
this Section, at the Effective Time, by virtue of the Merger and without any
action on the part of VAC, Vertex, the Company or the shareholders of any of
the foregoing, the shares of the constituent corporations shall be converted as
follows:
(a) VAC Shares. Each share of the common stock, $.10 par value, of
VAC issued and outstanding immediately prior to the Effective Time shall
continue unchanged and remain issued and outstanding and shall be retained by
the shareholders of VAC as shares of the Surviving Corporation.
(b) Vertex Shares. Each share of the common stock, $.10 par value,
of Vertex (the "Vertex Common Stock") issued and outstanding immediately prior
to the Effective Time shall continue unchanged and remain issued and
outstanding and retained by the holders thereof.
(c) Company Shares. All of the shares of the issued and outstanding
common stock, without par value, of the Company (the "TIW Common Stock"), other
than any shares held by any Company Subsidiary (as hereinafter defined), shall
be converted into, and become exchangeable for (i) an aggregate amount of
574,359 shares of Vertex Common Stock (the "Vertex Exchange Shares"), and (ii)
cash in the aggregate amount of $7,892,824.00 (the "Cash Portion of the Merger
Consideration"), subject to (x) the payment of cash for fractional shares or
dissenting shares and (y) the payment of certain Retained Liabilities. Any
shares of the TIW Common Stock held by any Company Subsidiary shall be
cancelled and extinguished without any conversion thereof and no payment of any
kind shall be made with respect thereto. The number of the Vertex Exchange
Shares shall not be adjusted for any increase or decrease in the market price
of the Vertex Common Stock as reported on the Nasdaq Stock Market National
Market System, subject to the provisions of Section 1.4(d) hereof. The Vertex
Exchange Shares and the Cash Portion of the Merger Consideration, subject to
the payment of cash for fractional shares or dissenting shares and the payment
of the Retained Liabilities, shall be allocated to the Shareholders in
proportion to their stock ownership in the Company in accordance with the
Merger Consideration Allocation Schedule attached hereto as Exhibit "B" and
incorporated herein by this reference.
AGREEMENT AND PLAN OF REORGANIZATION - Page 3
<PAGE> 12
(d) No Dilution. If, on or before the Effective Date, Vertex (i)
declares any dividend payable in shares of Vertex Common Stock, or (ii) splits
or combines or reclassifies the outstanding shares of Vertex Common Stock, the
number of shares (or fraction of a share subject to the provisions of Section
1.4(e)(4) hereof) of Vertex Common Stock to be exchanged for each share of the
outstanding TIW Common Stock will be appropriately adjusted.
(e) Exchange of Company Capital Stock Certificates.
(1) Delivery of Vertex Exchange Shares. On or prior to the
Closing Date, Vertex or VAC shall make available to ChaseMellon Shareholder
Services, L.L.C. as the transfer agent of Vertex (the "Transfer Agent"), the
certificates representing the Vertex Exchange Shares along with the Cash
Portion of the Merger Consideration required to effect the exchange referred to
in Section 1.4(c) above. The Vertex Exchange Shares and the Cash Portion of the
Merger Consideration are hereinafter collectively referred to as the "Merger
Consideration."
(2) Exchange of TIW Common Stock Certificates. At the
Effective Time, the stock transfer books of the Company shall be closed as to
the holders of the TIW Common Stock and no transfer of the TIW Common Stock
shall thereafter be made or recognized. At the Closing (or as soon as
reasonably practicable thereafter), the Shareholders shall surrender the
certificate or certificates representing the TIW Common Stock issued and
outstanding at the Effective Time (the "TIW Certificates") to the Transfer
Agent or to Vertex. Upon the surrender to the Transfer Agent or to Vertex of
each TIW Certificate and related stock power duly completed and executed, the
Transfer Agent or Vertex shall pay the holder of such TIW Certificate the
applicable Merger Consideration in exchange therefor, and such TIW Certificate
shall forthwith be cancelled. Until so surrendered and exchanged, each such TIW
Certificate shall represent solely the right to receive the applicable
allocable share of the Merger Consideration therefor and any amounts to which
the holder thereof is entitled pursuant to Sections 1.4(e)(3) and 1.4(e)(4)
hereof. No interest shall be paid or accrued on the Merger Consideration. If
the allocable share of the Merger Consideration (or any portion thereof) is to
be delivered to any Person (as hereafter defined) other than the Person in
whose name the TIW Certificate surrendered in exchange therefor is registered,
it shall be a condition to such exchange that (i) the TIW Certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and (ii) the Person requesting such exchange shall pay to the Transfer
Agent any transfer or other taxes required by reason of the payment of the
allocable share of the Merger Consideration to a Person other than the
registered holder of the TIW Certificate surrendered or establish to the
satisfaction of the Transfer Agent that such tax has been paid or is not
applicable. Vertex may impose such other reasonable conditions upon the
exchange of TIW Certificates as it may deem necessary or desirable and as are
consistent with the provisions of this Agreement. The Vertex Common Stock into
which the TIW Common Stock shall be converted pursuant to this Agreement and
the Merger shall be deemed to have been issued at the Effective Time; provided,
however, that, subject to Applicable Law (as hereinafter defined), no holder of
an unsurrendered TIW Certificate shall be entitled, until the surrender of such
TIW Certificate, to vote the shares of the Vertex Common Stock into which such
holder's TIW Common Stock shall have been converted. of such TIW Certificate in
respect of the Vertex Common Stock represented thereby, but, subject to
applicable abandoned property, escheat, and similar laws, there shall be paid
to the holder
(3) Restriction on Receipt of Dividends. Unless and until a
TIW Certificate is surrendered, dividends payable to the holders of record of
the Vertex Common Stock shall not be paid to the holder
AGREEMENT AND PLAN OF REORGANIZATION - Page 4
<PAGE> 13
thereof (i) upon surrender of such TIW Certificate, the amount of any
dividends, the record date for the determination of the holders entitled to
which shall be after the Effective Time, which theretofore shall have become
payable with respect to the whole shares of Vertex Common Stock represented by
such TIW Certificate and issued in exchange upon its surrender, but without
interest on such dividends, and (ii) after surrender of such TIW Certificate,
the amount of any dividends with respect to such whole shares of Vertex Common
Stock, the record date for the determination of the holders entitled to which
shall be after the Effective Time but prior to the surrender of such TIW
Certificate, and the payment date of which shall be subsequent to such
surrender, such amount to be paid on such payment date.
(4) Fractional Shares. No certificates or scrip representing
fractional shares of Vertex Common Stock shall be issued upon the surrender for
exchange of any TIW Certificate. In lieu of any such fractional share of Vertex
Common Stock, each holder of a TIW Certificate whose aggregate number of shares
of TIW Common Stock are not convertible into a whole number of shares of Vertex
Common Stock shall be entitled to receive from the Transfer Agent or Vertex,
upon surrender of such holder's TIW Certificates for exchange as provided
above, an amount of cash rounded to the nearest cent (without interest)
determined by multiplying such fractional interest by $19.50. After the Closing
Date, Vertex shall deposit with the Transfer Agent, as and when required, cash
sufficient for the Transfer Agent to make payment of cash in lieu of fractional
shares in accordance with this Section 1.4(e)(4).
(5) Termination of Transfer Agent's Obligations. In the event
that all the TIW Common Stock has not been surrendered for exchange as stated
herein by the first anniversary of the Effective Date, then promptly following
the date which is one year after the Effective Date, the Transfer Agent shall
deliver to Vertex all cash, certificates, and other documents and instruments
in its possession relating to the transactions described in this Agreement, and
the Transfer Agent's duties with respect thereto shall terminate. Thereafter,
each holder of a TIW Certificate may surrender such TIW Certificate directly to
Vertex and (subject to applicable abandoned property, escheat, and similar
laws) receive in exchange the applicable allocable share of the Merger
Consideration therefor and any amounts to which such holder is entitled
pursuant to Sections 1.4(e)(3) and 1.4(e)(4) hereof, but such holder shall have
no greater rights against Vertex than may be accorded to general creditors of
Vertex under Applicable Law. Notwithstanding anything in this Agreement to the
contrary, neither the Transfer Agent nor any party hereto shall be liable to a
holder of shares of TIW Common Stock for any cash or other property delivered
to a public official pursuant to applicable abandoned property, escheat, or
similar laws.
(6) Lost TIW Certificates. In the event any TIW Certificate
shall have been lost, stolen, or destroyed, upon the making of an affidavit of
that fact by the Person claiming such TIW Certificate to be lost, stolen, or
destroyed, Vertex shall issue or cause to be issued in exchange for such lost,
stolen, or destroyed TIW Certificate the allocable share of the Merger
Consideration deliverable in respect thereof as determined in accordance with
Section 1.4(c). When authorizing the issue of such allocable share of the
Merger Consideration in exchange therefor, Vertex may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen, or destroyed TIW Certificate to give Vertex a bond in such sum as it
may direct as indemnity against any claim that may be made against Vertex or
the Surviving Corporation with respect to the TIW Certificate alleged to have
been lost, stolen, or destroyed.
(7) Withholding. Vertex shall be entitled to deduct and
withhold from the allocable share of the Merger Consideration otherwise payable
pursuant to this Agreement to any holder
AGREEMENT AND PLAN OF REORGANIZATION - Page 5
<PAGE> 14
of a TIW Certificate such amounts as Vertex is required to deduct and withhold
with respect to the making of such payment under the Code or any provision of
state, local, or foreign tax law. To the extent that amounts are so withheld by
Vertex, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the TIW Certificate in respect
of which such deduction and withholding was made by Vertex.
(f) Escrow of Shares. At the Closing, Tonisson and Luik shall
deposit in escrow 68,182 and 31,818 shares of Vertex Common Stock,
respectively, constituting a total of 100,000 shares of Vertex Common Stock
(the "Escrowed Shares"). The Escrowed Shares shall be held in escrow in
accordance with the terms and conditions set forth in Section 7.7 hereof. The
Escrowed Shares shall be deposited in escrow out of the Vertex Exchange Shares
allocable to Tonisson and Luik pursuant to the provisions of Section 1.4(c)
hereof in proportion to their stock ownership of the Company.
(g) Inspection of Books and Records. The Shareholders shall have
the right, at the expense of the Shareholders, to inspect the books and records
of Vertex to verify any adjustment required to be made pursuant to the
provisions of Section 1.4(d) in the number of shares of the Vertex Common Stock
owned by the Shareholders during the normal business hours of Vertex upon
reasonable request to Vertex.
1.5 Cancellation of Options and Warrants. At the Effective Time, each
outstanding and unexercised stock option and warrant to acquire shares of TIW
Common Stock to the extent not previously exercised shall automatically
terminate and be of no further force or effect, and the holder thereof shall
not be entitled to receive any compensation for such terminated stock option or
warrant.
1.6 Articles of Incorporation of Surviving Corporation. The Articles of
Incorporation of VAC, as existing on the Effective Date, shall continue in full
force and effect as the Articles of Incorporation of the Surviving Corporation
until altered or amended as provided by law, with the exception that as part of
the Articles of Merger the name of VAC shall be changed to TIW Systems, Inc.
1.7 Bylaws of Surviving Corporation. The Bylaws of VAC, as existing on
the Effective Date, shall continue in full force and effect as the Bylaws of
the Surviving Corporation until altered, amended or repealed as provided in
such Bylaws or as provided by law.
1.8 Directors of Surviving Corporation. The directors of the Surviving
Corporation as of the Effective Date shall be and become J. Rex Vardeman, James
D. Carter, and Rein Luik, until their successors shall be duly elected and
qualified or until their sooner death, resignation or removal. Vertex as the
sole shareholder of VAC hereby agrees to vote its shares of VAC so that the
foregoing individuals shall be elected as the directors of VAC until the first
annual or special meeting of the shareholders of VAC after the Effective Date.
1.9 Officers of Surviving Corporation. The officers of the Surviving
Corporation as of the Effective Date shall be as follows:
J. Rex Vardeman Chairman of the Board
Rein Luik President and Chief Executive Officer
AGREEMENT AND PLAN OF REORGANIZATION - Page 6
<PAGE> 15
Louis Becker Executive Vice President
Edward F. Kurz Vice President and Chief Financial
Officer
James D. Carter Secretary and Treasurer
Such individuals shall serve in such capacities until their successors shall be
duly elected and qualified or until their sooner death, resignation or removal.
1.10 Disclosure Schedule. Prior to or contemporaneously with the
execution of this Agreement, the Company and the Controlling Shareholders shall
prepare and deliver a Disclosure Schedule to Vertex. The Disclosure Schedule
shall consist of separate schedules corresponding to the lettered and numbered
paragraphs contained in Sections 1.11 and 2.1 hereof to the extent required by
said Sections and such other schedules or exhibits as are referenced in this
Agreement or in the Disclosure Schedule. If the same item is required to be
disclosed on more than one schedule to the Disclosure Schedule, such item may
be fully described on the principal schedule to which such item relates and
incorporated into another schedule by a specific cross reference on such other
schedule to the schedule on which such item is fully described. The Disclosure
Schedule shall set forth the exceptions, if any, to the representations and
warranties set forth in Section 2.1 hereof. Nothing in the Disclosure Schedule
shall be deemed adequate to disclose an exception to a representation or
warranty made herein unless the Disclosure Schedule identifies the exception
with reasonable particularity. Without limiting the generality of the
foregoing, the mere listing (or inclusion of a copy) of a document or other
item shall not be deemed adequate to disclose an exception to a representation
or warranty made herein (unless the representation or warranty has to do with
the existence of the document or other item itself or the copy adequately
describes the matter at issue).
1.11 Definition of Assets. Without limiting the provisions of Section 1.2
hereof, as the result of the Merger, VAC shall acquire all of the Assets (as
hereinafter defined) of the Company. As used herein the term "Assets" shall
mean all assets of the Company whether such assets are real, personal or mixed,
tangible or intangible, of every kind, nature and description wherever
situated, including, without limitation, all of the assets of the Company
identified on the Company's Consolidated Balance Sheet, dated December 31,
1996, as audited and certified by the Company's independent auditors, Deloitte
& Touche LLP (the "1996 TIW Balance Sheet"), subject only to changes in such
assets occurring in the Ordinary Course of Business (as hereinafter defined)
since the date of the 1996 TIW Balance Sheet. The Assets being acquired
hereunder as the result of the Merger include, but are not limited to, the
following:
(a) All real property owned by the Company as of the Effective
Date;
(b) All cash, time and demand deposits and cash equivalents of the
Company as of the Effective Date;
(c) All accounts receivable and notes receivable of the Company as
of the Effective Date;
(d) All equipment and other items of tangible personal property of
the Company and whether or not such items of tangible personal property are of
such character to be considered to be
AGREEMENT AND PLAN OF REORGANIZATION - Page 7
<PAGE> 16
fixtures, including without limitation, those items of tangible personal
property described in the Disclosure Schedule;
(e) All customer, security and utility deposits of the Company as
of the Effective Date, which deposits shall be identified by name and amount in
the Disclosure Schedule;
(f) All inventory of the Company as of the Effective Date;
(g) The interests of the Company in all commitments, contracts,
leases and agreements to which the Company is a party as of the Execution Date
pursuant to which the Company will either pay or receive at least $25,000.00
during the remaining life thereof (the "Contracts"), which Contracts shall be
described in the Disclosure Schedule;
(h) The interests of the Company in all licenses and permits held
by the Company relating to the ownership, development and operation of the
Acquired Business, including those licenses and permits identified in the
Disclosure Schedule;
(i) All insurance policies covering the ownership and operation of
the assets owned or leased by the Company or the operation of the Acquired
Business and any and all rights of the Company thereunder, including the
insurance policies identified in the Disclosure Schedule;
(j) All intellectual property consisting of patents, trademarks,
service marks, copyrights, trade secrets, know-how, technological information
and similar rights owned by the Company, including the intellectual property
identified in the Disclosure Schedule;
(k) All financial, customer, administrative and personnel records
(including, without limitation, all equipment records, administrative files,
customer lists and records, customer billing records, documents, catalogs,
books, records, files, operating manuals, and existing financial data) relating
to the ownership and operation of the Acquired Business;
(l) The interests of the Company in and to all personal property,
tangible or intangible, arising or acquired by the Company in the Ordinary
Course of Business between the Execution Date and the Effective Date;
(m) All prepaid expenses of the Company relating to the Acquired
Business;
(n) The interests of the Company in and to its telephone numbers:
(408) 654-5600 and its facsimile numbers (408) 654-5613 and (408) 654-5622;
(o) The interests of the Company in and to the name "TIW Systems,
Inc." and any variation thereof including TIW, and any related goodwill;
(p) All computer software and all computer disks and programs
owned, licensed or otherwise used in the Acquired Business; and
(q) The interest of the Company in each Company Subsidiary or other
entity in which the Company, directly or indirectly, owns an equity interest.
AGREEMENT AND PLAN OF REORGANIZATION - Page 8
<PAGE> 17
VAC shall acquire good and marketable title to the Assets and all parts
thereof from the Company free and clear of all Encumbrances (as hereinafter
defined), except as expressly provided herein or in the Disclosure Schedule to
the contrary.
1.12 Retained Liabilities. Notwithstanding the provisions of Section 1.2
hereof, as between the Company, the Controlling Shareholders and VAC, VAC will
not assume, and will not discharge or otherwise be liable for the Retained
Liabilities and as between the Company, the Controlling Shareholders and VAC
none of the Assets acquired as a result of the Merger shall be or become
obligated or subject to any Retained Liability. As used herein, the term
Retained Liabilities shall mean only the following liabilities:
(a) The liabilities or obligations of the Company for periods prior
to the Effective Date other than (i) those identified in the 1996 TIW Balance
Sheet to the extent set forth therein, (ii) those identified in the Disclosure
Schedule to the extent set forth therein, and (iii) those incurred by the
Company since the date of the 1996 TIW Balance Sheet in the Ordinary Course of
Business;
(b) Federal, state or local tax liabilities or obligations of the
Company, including, without limitation, any income tax, any tax recapture, and
any FICA, withholding tax, workers' compensation and any and all other taxes
accrued on or before the Effective Date other than those identified in the 1996
TIW Balance Sheet to the extent set forth therein and fully funded by a reserve
therefor;
(c) Liabilities or obligations of the Company or the Shareholders
for brokerage or other commissions, if any, relating to the Merger, this
Agreement or to the transactions contemplated hereunder; and
(d) The legal fees incurred by the Company in connection with the
transactions contemplated by this Agreement to the extent that such legal fees
exceed the sum of $65,000.00.
The Retained Liabilities identified in subparagraphs (a), (b) and (c)
above shall be discharged by the Company prior to the Effective Date out of the
Assets. The Retained Liability identified in subparagraph (d) above shall be
satisfied by the Controlling Shareholders prior to the Closing Date. Any
Retained Liability not satisfied as stated above shall be and remain the sole
responsibility of the Controlling Shareholders and as between the Controlling
Shareholders and VAC, VAC shall have no responsibility or liability for the
payment of such Retained Liabilities.
1.13 Brokerage Fees. The Company and VAC shall each pay on or prior to
the Closing Date any brokerage fees, finder fee or related obligation due, or
allegedly due, in connection with the transactions contemplated by this
Agreement which were incurred by such party. The Controlling Shareholders and
VAC shall each indemnify and hold harmless the other from and against all
liabilities, costs, damages and expenses (including reasonable attorneys'
fees), arising from any claims for fees or commissions or other similar fees of
brokers employed or alleged to have been employed by such indemnifying party or
by a corporation controlled by such indemnifying party in connection with the
transactions covered by this Agreement insofar as such claims shall be based
upon alleged arrangements or agreements made by the indemnifying party or on
the indemnifying party's behalf. Such indemnities shall survive the Closing or
any termination of the Agreement and shall not be merged therein.
AGREEMENT AND PLAN OF REORGANIZATION - Page 9
<PAGE> 18
1.14 Costs of Transaction. Whether or not the transactions contemplated
hereby shall be consummated, the parties agree as follows:
(a) The Company and the Controlling Shareholders will pay on or
prior to the Closing Date the fees, expenses, and disbursements of the Company
and the Controlling Shareholders and their respective agents, representatives,
accountants, and counsel incurred in connection with the subject matter hereof
and any amendments hereto, subject to the provisions of Section 1.12(d) hereof;
and
(b) VAC and Vertex shall pay the fees, expenses and disbursements
of VAC and Vertex and their respective agents, representatives, accountants and
counsel incurred in connection with the subject matter hereof and any
amendments hereto.
1.15 Release by Shareholders. Each Controlling Shareholder and the ESOT
as of the Closing on the Closing Date, with the intent of binding such
Controlling Shareholder and the ESOT and the heirs, executors, personal
representatives, successors and assigns of such Controlling Shareholder or the
ESOT, as applicable, hereby unconditionally releases, acquits and forever
discharges the Company, Vertex and VAC and their respective successors,
assigns, officers, directors, attorneys, accountants and insurers from any and
all claims, demands, actions, causes of action, debts, sums of money,
covenants, contracts, controversies, agreements, promises, obligations, costs,
expenses, damages, or any other claim or demand whatsoever of whatever kind,
character and description, whether based on facts presently known or hereafter
discovered, whether suspected or unsuspected, whether based upon statutory law
or common law, whether in contract, administrative or tort, whether liquidated
or unliquidated, matured or unmatured, disclosed and undisclosed, which has
accrued or which may ever accrue to such Controlling Shareholder or the ESOT or
the heirs, personal representatives, successors or assigns of such Controlling
Shareholder, or the ESOT, as applicable, for and on account of any matter,
cause or thing relating to, arising out of or in any way connected with the
ownership of TIW Common Stock of such Controlling Shareholder, or the ESOT, as
applicable, the employment, if applicable, of such Controlling Shareholder by
the Company or any Company Subsidiary prior to the Effective Date (except as to
compensation and benefits earned and accrued by the Controlling Shareholder but
unpaid by the Company), or the operation, acts or inactions of the Company
and/or any Company Subsidiary and their respective officers and directors from
the beginning of time until the Effective Date (the "Released Claims"). Each
Controlling Shareholder and the ESOT represents and warrants to the Company,
Vertex and VAC that such Controlling Shareholder or the ESOT, as applicable,
has not assigned or otherwise transferred expressly, impliedly or by operation
of law any Released Claim whatsoever released by such Controlling Shareholder
or the ESOT pursuant to this Section or any interest in or portion of any such
claim, and that all Released Claims of such Controlling Shareholder or the
ESOT, as applicable, are owned by such Controlling Shareholder or the ESOT, as
applicable, who has the sole authority to release them. This Release is for any
relief, no matter how denominated, including, but not limited to, distributions
pertaining to stock ownership (other than for such Controlling Shareholder's
share or the ESOT's share of (i) the Vertex Exchange Shares, (ii) the Cash
Portion of the Merger Consideration, and (iii) compensation and benefits earned
and accrued, if any, by the Controlling Shareholder but unpaid by the Company).
Notwithstanding any of the foregoing provisions to the contrary, the parties
hereto specifically acknowledge the foregoing provisions shall not relate to or
otherwise be effective in connection with any claims that any Controlling
Shareholder or the ESOT may have against Vertex or VAC for the failure of
Vertex or VAC to fulfill its obligations to such Controlling Shareholder as set
forth in this Agreement or the exhibits attached hereto, including the failure
of Vertex or VAC to make
AGREEMENT AND PLAN OF REORGANIZATION - Page 10
<PAGE> 19
any payments or distributions due such Controlling Shareholder or the ESOT in
accordance with the terms set forth in this Agreement. The ESOT and the
Controlling Shareholders agree and covenant that in no event will the ESOT or
such Controlling Shareholder commence any litigation or other legal or
administrative proceeding against the Company, Vertex, VAC and their respective
officers and directors, whether in law or equity, whether in contract,
administrative, or tort, relating to any and all Released Claims. The
Controlling Shareholders shall use their Best Efforts (as hereinafter defined)
to cause each Minority Shareholder other than the ESOT to similarly release any
Released Claims owned by such Minority Shareholder by executing and delivering
a Share Exchange and General Release Agreement in the form attached hereto as
Exhibit "C" and incorporated herein by this reference to Vertex at the Closing.
1.16 Certain Definitions. Unless otherwise defined herein or the context
otherwise requires, the terms defined in this Section 1.16 shall have the
meanings herein specified for all purposes of this Agreement, applicable to
both the singular and plural forms of any of the terms herein defined. Unless
otherwise indicated, any reference herein to a "Section," "Article," or
"Exhibit" shall mean the applicable section, article or exhibit of or to this
Agreement.
"ANCILLARY DOCUMENTS" shall mean each agreement, instrument, and document
(other than this Agreement) executed or to be executed by the Company, VAC or
Vertex or their respective shareholders in connection with the execution of
this Agreement or the consummation of the transactions contemplated hereby.
"APPLICABLE LAW" shall mean any statute, law, ordinance, rule, directive
or regulation or any judgment, order, award, writ, injunction, or decree of any
federal, state, municipal or other governmental or judicial body, agency,
regulatory authority, department, commission, board, bureau or instrumentality
or arbitrator to which a specified Person or property is subject.
"BEST EFFORTS" shall mean the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such
result is achieved as expeditiously as possible; provided, however, that an
obligation to use best efforts under this Agreement does not require the Person
subject to that obligation to take actions that would result in a materially
adverse change in the benefits to such Person of this Agreement and the
consummation of the transactions contemplated by this Agreement.
"COMMISSION" shall mean the Securities and Exchange Commission.
"COMPANY SUBSIDIARIES" shall mean all those corporations, associations,
or other business entities of which the entity in question either (i) owns or
controls 50% or more of the outstanding equity securities either directly or
through an unbroken chain of entities as to each of which 50% or more of the
outstanding equity securities is owned directly or indirectly by its parent
(provided, there shall not be included any such entity the equity securities of
which are owned or controlled in a fiduciary capacity), or (ii) in the case of
partnerships or joint ventures, serves as a general partner or as a joint
venturer. For purposes of this Agreement, Tarberaud A.S. shall be deemed a
Company Subsidiary due to the aggregate fifty-one percent (51%) equity interest
owned therein by the Company and Luik, collectively.
"ENCUMBRANCES" shall mean any lien, mortgage, pledge, reservation,
restriction, security interest, right of first refusal, option, conditional
sale agreement, default of title, easement, encroachment, hypothecation,
infringement, title retention or other security arrangement, or any adverse
right or interest,
AGREEMENT AND PLAN OF REORGANIZATION - Page 11
<PAGE> 20
charge, claim or other encumbrance of any nature whatsoever of, on, or with
respect to any property or property interest whether imposed by law, agreement,
understanding or otherwise, other than (i) encumbrances for current property
taxes not yet due and payable, and (ii) encumbrances which do not materially
impair the use of or title to the assets subject to such encumbrances.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and any regulations and rules issued pursuant to such Act.
"KNOWLEDGE" as used with respect to a Person (including references to
such Person being aware of a particular matter) shall mean those facts that are
known or should reasonably have been known after due inquiry by the chairman,
president, chief financial officer, general counsel, any assistant or deputy
general counsel, director of any business unit or division, or any senior,
executive or other vice president of such Person.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to any Person, any
change(s), effect(s), circumstance(s) or condition(s) that, individually or in
the aggregate, are or may reasonably be expected to be materially adverse to
(i) the assets, business, operations, income, prospects or condition (financial
or otherwise) of such Person or such Person and its affiliates taken as a
whole, or the transactions contemplated by this Agreement or (ii) the ability
of such Person to perform on a timely basis such Person's obligations under
this Agreement.
"ORDINARY COURSE OF BUSINESS" shall mean an action taken by a Person if:
(i) Such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day operations
of such Person;
(ii) Such action is not required to be authorized by the Board of
Directors of such Person and is not required to be specifically authorized by
the parent corporation, if any, of such Person; and
(iii) Such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the Board of Directors, in the
ordinary course of the normal day-to-day operations of other Persons that are
in the same line of business as such Person.
"PERSON" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting in a
representative capacity.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
AGREEMENT AND PLAN OF REORGANIZATION - Page 12
<PAGE> 21
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Company, the Controlling
Shareholders and the ESOT. As a material inducement to VAC and Vertex to enter
into this Agreement and perform their respective obligations hereunder, the
Company and each Controlling Shareholder hereby severally represents and
warrants to VAC and Vertex, except as otherwise set forth in the Disclosure
Schedule in a schedule thereto corresponding to the lettered and numbered
paragraphs of this Section 2.1, as set forth in Section 2.1(a) through 2.1(at)
below. In addition, as a material inducement to VAC and Vertex to enter into
this Agreement and perform their respective obligations hereunder, the ESOT
represents and warrants to VAC and Vertex as set forth in Sections 2.1(an),
2.1(ao), 2.1 (ap), 2.1(aq), and 2.1(au) below.
(a) Organization and Good Standing of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation, and the Company has the requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted. The Company is duly qualified to
do business as a foreign corporation and is in good standing under the laws of
each State or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by
it, requires such qualification. Neither the Company nor any Company Subsidiary
is an investment company as defined in Section 368(a)(2)(F)(iii) of the Code.
(b) Company Subsidiaries. Except for the Company Subsidiaries and
other entities in which the Company owns less than fifty percent of the equity
interest (the "TIW Minority Owned Entities") identified in the Disclosure
Schedule, the Company does not own, directly or indirectly, any capital stock
or other securities of any corporation or have any direct or indirect equity or
ownership interest in any other Person, whether organized as a corporation,
partnership, joint venture or otherwise. The Disclosure Schedule lists each
Company Subsidiary and each TIW Minority Owned Entity, the jurisdiction of
incorporation of each Company Subsidiary and each TIW Minority Owned Entity,
and the authorized and outstanding capital stock of each Company Subsidiary.
Each Company Subsidiary and each TIW Minority Owned Entity is a corporation or
partnership, duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation or formation. Each Company
Subsidiary and each TIW Minority Owned Entity has all requisite corporate power
and corporate authority (or the partnership equivalent thereof) to own, lease,
and operate its properties and to carry on its business as now being conducted.
No actions or proceedings to dissolve any Company Subsidiary are pending.
All the outstanding capital stock of each Company Subsidiary is owned
directly by the Company, free and clear of all Encumbrances. All outstanding
shares of capital stock of each Company Subsidiary have been validly issued and
are fully paid and nonassessable. No shares of capital stock of any Company
Subsidiary are subject to, nor have any been issued in violation of, preemptive
or similar rights.
There are (and as of the Closing Date there will be) outstanding (i) no
shares of capital stock or other voting securities of any Company Subsidiary
not owned directly by the Company, (ii) no securities of the Company or any
Company Subsidiary convertible into or exchangeable for shares of capital stock
or other voting securities of any Company Subsidiary, (iii) no options,
warrants or other rights (including
AGREEMENT AND PLAN OF REORGANIZATION - Page 13
<PAGE> 22
preemptive rights) to acquire from the Company or any Company Subsidiary, and
no obligation of the Company or any Company Subsidiary to issue or sell, any
shares of capital stock or other voting securities of any Company Subsidiary or
any securities convertible into or exchangeable for such capital stock or
voting securities, and (iv) no equity equivalents, interests in the ownership
or earnings, or other similar rights of or with respect to any Company
Subsidiary. There are (and as of the Closing Date there will be) no outstanding
obligations of the Company or any Company Subsidiary to repurchase, redeem, or
otherwise acquire any of the foregoing shares, securities, options, equity
equivalents, interests, or rights.
(c) Articles of Incorporation and Bylaws. The Company has
previously delivered to VAC true, accurate and complete copies of the Articles
of Incorporation and Bylaws of the Company and each Company Subsidiary, as
amended to date certified by the Secretary of State of the state of
incorporation of such corporation and the duly authorized and incumbent
Secretary or Assistant Secretary of the Company or the applicable Company
Subsidiary, respectively.
(d) Capitalization. The authorized capital stock of the Company
consists of 10,000,000 shares of TIW Common Stock. There are 6,457,935 shares
of TIW Common Stock issued and outstanding as of the Execution Date. As of the
Closing, there will be no more than 5,568,401 shares of TIW Common Stock issued
and outstanding after given effect to (i) the exercise of certain outstanding
stock options to purchase shares of TIW Common Stock and (ii) the surrender of
certain unallocated shares of TIW Common Stock owned at the Execution Date by
the ESOT in payment of the outstanding indebtedness of the ESOT to the Company.
There are no other class or series of capital stock of the Company authorized.
All issued and outstanding shares of the Company are, and at Closing shall be,
duly authorized and validly issued, fully paid, and nonassessable, and no
shares of the capital stock of the Company are subject to, nor have any shares
of capital stock been issued in violation of, preemptive or similar rights.
There are no subscriptions, options (other than certain stock options
outstanding to certain individuals which options shall be exercised or
cancelled prior to the Closing so that as of the Closing the representations
set forth in the prior provisions of this Section shall be true and correct),
warrants, calls, rights, contracts, stock appreciation rights, convertible
securities, commitments, understandings, restrictions (other than restrictions
imposed upon the transfer of unregistered securities by applicable securities
law), or arrangements of any kind (other than for certain outstanding stock
options to purchase up to a total of 75,000 shares of TIW Common Stock)
relating to the issuance, sale or transfer of any of the shares of the capital
stock of the Company, including any rights of purchase, conversion or exchange
under any outstanding securities or other instruments. There are no authorized,
outstanding or existing proxies, voting trusts, shareholder agreements,
buy-sell agreements, or other agreements or understandings of any kind relating
to the capital stock of the Company or any Company Subsidiary and no
shareholder of the Company or any other Person is entitled to registration,
preemptive or dissenters' rights with respect to issued and outstanding shares
of capital stock of the Company or any Company Subsidiary. The Company is not
under any obligation (arising under its Articles of Incorporation, by agreement
or otherwise) to redeem, retire or repurchase any shares or other securities of
the Company. All issuances, grants, offers, sales and repurchases by the
Company of shares of its capital stock and options have been, or will be,
effected in compliance with all Applicable Laws, including, without limitation,
applicable federal and state securities laws.
(e) Corporate Minutes. The corporate minute book(s), stock
certificate book(s), stock register(s) and other similar corporate records of
the Company and each Company Subsidiary are correct and complete in all
respects and completely and accurately reflect all proceedings of the
respective
AGREEMENT AND PLAN OF REORGANIZATION - Page 14
<PAGE> 23
shareholders and directors and any committees of the Board of Directors of the
Company and the Company Subsidiaries, as applicable, required by Applicable Law
to be reflected therein, and the signatures appearing on all documents
contained therein are the true signatures of the persons purporting to have
signed the same, and no meeting of any such shareholders, directors or
committee of the Board of Directors has been held for which minutes have not
been prepared and are not contained in such minute books. All actions reflected
in said books and records are duly and validly taken in compliance with the
laws of the applicable jurisdictions in effect at the time of the transaction.
The stock record books of the Company and the Company Subsidiaries contain
complete and accurate records of the stock ownership of the Company and the
Company Subsidiaries and the transfer of shares of its capital stock.
(f) Exclusive Operation of Business. The Company does not have any
direct or indirect equity or ownership interest in any corporation,
partnership, joint venture, or other entity which is involved, directly or
indirectly, in the conduct of the Acquired Business other than for the Company
Subsidiaries and the TIW Minority Owned Entities, and the Acquired Business is
conducted solely by the Company and the Company Subsidiaries and the TIW
Minority Owned Entities.
(g) Authorization. The Company has the requisite corporate power
and authority to execute, deliver and perform this Agreement and the Ancillary
Documents to which it is a party and, subject to the approval of this Agreement
by the Shareholders, to consummate the transactions contemplated hereby and
thereby. The Board of Directors of the Company has duly approved and authorized
the execution, delivery and performance of this Agreement and the Ancillary
Documents to which the Company is a party and the consummation of the
transactions contemplated hereby and thereby, and no other corporate
proceedings (other than the approval of this Agreement by the Shareholders) are
required on the part of the Company to authorize the execution, delivery and
performance by the Company of this Agreement and such Ancillary Documents and
the consummation of the transactions contemplated hereby or thereby. Each
individual Shareholder is over twenty-one (21) years of age, and each
Shareholder has the requisite authority and capacity to execute and comply with
the terms of this Agreement and to perform such Shareholder's obligations
contemplated by this Agreement. Assuming that this Agreement constitutes a
valid and binding agreement of VAC and Vertex, this Agreement and each
Ancillary Document executed and delivered by the Company or one or more of the
Shareholders hereunder, or to be executed by the Company, has been, or when
executed will be, duly executed and delivered by the Company and constitutes,
or when executed and delivered will constitute the valid and binding agreement
of the Company or such Shareholder, as applicable, enforceable in accordance
with their respective terms, except as the enforceability hereof or thereof may
be subject to applicable bankruptcy, insolvency, reorganization or other
similar laws affecting creditors' rights generally and to general principles of
equity which may limit the availability of certain equitable remedies (such as
specific performance) in certain instances.
(h) Compliance with Law. The business and operations of the Company
and the Company Subsidiaries have been, are being, and shall be at all times
prior to the Effective Date conducted in accordance with all Applicable Laws
(including without limitation, Applicable Laws relating to securities,
properties, business operations, products, manufacturing processes, advertising
and sales practices, employment practices, terms and conditions of employment,
wages and hours, safety, occupational safety, health, environmental protection
and civil rights), except for those which do not or will not either
individually or in the aggregate, have a Material Adverse Effect on the Company
or any Company Subsidiary. To the Knowledge of the Company and the Controlling
Shareholders, the Company has complied with all such laws. The Company is not
charged or, to the Knowledge of the
AGREEMENT AND PLAN OF REORGANIZATION - Page 15
<PAGE> 24
Company and the Controlling Shareholders, threatened with, or under
investigation with respect to, any alleged violation of any Applicable Law
relating to any aspect of the ownership or operation of the Acquired Business.
(i) Consents and Approvals. No consent, authorization or approval
of, or declaration, filing or registration with, any governmental or regulatory
authority, or any other Person or entity is necessary by the Company in order
to enable the Company to enter into and perform the Company's obligations under
this Agreement other than for the obtaining of the authorization and approval
of this Agreement, the Merger and the Ancillary Documents by the Shareholders
and the filing of appropriate Articles of Merger with the Secretary of the
State of California.
(j) Noncontravention. The Company and the Company Subsidiaries are
not in violation of any Applicable Law relating to the Company or any such
Company Subsidiary which, either individually or in the aggregate, would have a
Material Adverse Effect on the Company, any Company Subsidiary or the Acquired
Business or materially impair the ability of the Company to consummate the
transactions contemplated hereby. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will,
directly or indirectly (with or without notice or the passage of time):
(1) Be in violation of the Articles of Incorporation or Bylaws
or other organizational documents of the Company or any Company Subsidiary or
any resolutions adopted by the Board of Directors or shareholders of the
Company or any Company Subsidiary;
(2) Be in violation of any letter of intent, agreement or
other contract concerning a merger or possible merger of the Company or any
Company Subsidiary, or a sale or possible sale of the outstanding capital stock
of the Company or any Company Subsidiary, or a sale or possible sale of the
assets of the Company or any Company Subsidiary, which remains in effect or
which places any restrictions or obligations on the Acquired Business or on the
Company or any Company Subsidiary or the Shareholders or which could result in
any third party having a right to challenge this Agreement or the consummation
of the transactions contemplated hereby;
(3) Result in the creation, imposition or breach of any
Encumbrance upon any property or assets of the Company or any Company
Subsidiary or upon the common stock of the Company or any Company Subsidiary
under any agreement to which the Company, any Company Subsidiary or a
Shareholder is bound;
(4) Accelerate, or constitute an event entitling, or which
would on notice or lapse of time or both entitle, the holder of any material
indebtedness of the Company or any Company Subsidiary for borrowed money to
accelerate the maturity of any such indebtedness;
(5) Cause a default under any material mortgage or deed of
trust to which any property of the Company or any Company Subsidiary is
subject;
(6) Cause VAC, the Company or any Company Subsidiary to become
subject to, or to become liable for the payment of, any Tax (as hereinafter
defined in Section 2.1(t) hereof);
AGREEMENT AND PLAN OF REORGANIZATION - Page 16
<PAGE> 25
(7) Cause any of the assets owned by the Company or any
Company Subsidiary to be reassessed or revalued by any taxing authority or
other governmental body;
(8) Conflict with or result in the breach of any writ,
injunction, order or decree of any court or governmental instrumentality by
which the Company or any Company Subsidiary is bound;
(9) Conflict with or result in a violation or breach of, or
constitute (with or without the giving of notice or the passage of time or
both) a default under, or give to any Person or entity any right of
termination, cancellation, acceleration, or modification in or with respect to
any contract, note, license, franchise, permit, lease, agreement or other
instrument or obligation to which the Company or any Company Subsidiary is a
party or by which any of the assets or properties of the Company or any Company
Subsidiary may be bound, and as to which any such conflicts, violations,
breaches, defaults, or rights individually or in the aggregate have or may
reasonably be expected to have a Material Adverse Effect on the validity or
enforceability of this Agreement or on the ability of the Company to perform
the Company's obligations under this Agreement; or
(10) Result in the loss of any benefit to, or privilege or
right of the Company or otherwise attributable to the Acquired Business or the
Assets which either individually or in the aggregate would have a Material
Adverse Effect on the Company or the Acquired Business.
(k) Financial Statements. The audited consolidated balance sheet
and the related consolidated statements of income and changes in stockholders'
equity and cash flow for each of the years ended December 31, 1994, December
31, 1995, and December 31, 1996 for the Company and its Subsidiaries, as
audited and certified by Deloitte & Touche LLP, independent certified public
accountants (the "Audited Financial Statements"), along with the unaudited
consolidated balance sheet and related consolidated statements of income and
changes in stockholders' equity for the period ended March 31, 1997
(hereinafter referred to individually as the "Interim Balance Sheet" and the
"Interim Income Statement," respectively, and collectively as the "Interim
Financial Statements") certified as fairly presenting the financial position of
the Company for the three months then ended by the chief financial officer of
the Company have been delivered to Vertex. The Audited Financial Statements and
the Interim Financial Statements referred to above in this Paragraph are
sometimes hereinafter collectively referred to as the "TIW Financial
Statements." Except as set forth in the notes to the TIW Financial Statements,
the TIW Financial Statements are in accordance with the books and records of
the Company and the Company Subsidiaries, correctly reflect valid transactions
and present fairly the financial position and the results of operations, the
assets, liabilities and shareholders' equity and cash flows of the Company and
the Company Subsidiaries as of the respective dates and for the respective
fiscal periods set forth therein in conformity with generally accepted
accounting principles, including the related notes and schedules thereto,
consistently applied during the periods involved, except as otherwise stated
therein, and contain and reflect, in accordance with generally accepted
accounting principles consistently applied (i) reserves for all liabilities and
costs in excess of expected receipts and (ii) all discounts and refunds in
respect of services and products already rendered or sold that are reasonably
anticipated and based on events or circumstances in existence or likely to
occur in the future with respect to any of the contracts or commitments of the
Company and the Company Subsidiaries, subject, as to the unaudited Interim
Financial Statements, to the absence of footnotes and normal year-end
adjustments, which adjustments will not be material either individually or in
the aggregate. The statements of income included in the TIW Financial
Statements do not contain any items of special or nonrecurring income, and the
Interim
AGREEMENT AND PLAN OF REORGANIZATION - Page 17
<PAGE> 26
Balance Sheet does not reflect any write-up or revaluation increasing the book
value of the assets, nor have there been any transactions since the date of the
Interim Balance Sheet giving rise to special or nonrecurring income or any such
write-up or revaluation. All financial projections, forecasts and other
forward-looking information provided by or at the direction of the Company or
the Controlling Shareholders to Vertex or VAC were, as of their respective
dates, proposed in good faith and on a basis that the Controlling Shareholders
and management of the Company believed to be reasonable. The TIW Financial
Statements include all liability, valuation and other reserves required by
generally accepted accounting principles, including without limitation,
reserves for environmental liabilities, ERISA obligations, and inventory and
accounts receivable valuation, and all such reserves are adequate.
(l) Absence of Undisclosed Liabilities. The Disclosure Schedule
contains a true and complete list of all notes and accounts payable of the
Company as of the date identified in the Disclosure Schedule. Except as, and to
the extent reflected or disclosed (or adequately reserved for or against) in
the 1996 TIW Balance Sheet, or except as specifically provided by this
Agreement, neither the Company nor any Company Subsidiary has any liabilities
or obligations of any nature, whether known or unknown, accrued, unliquidated,
contingent or absolute, required by this Agreement to be described in the
Disclosure Schedule or by generally accepted accounting principles to be
reflected in the TIW Financial Statements, except for contractual liabilities
or obligations which were incurred in the Ordinary Course of Business since the
date of the 1996 TIW Balance Sheet, none of which either individually or in the
aggregate has had a Material Adverse Effect on the Company.
(m) Absence of Certain Changes. Since the date of the 1996 TIW
Balance Sheet, the Acquired Business has been conducted in the Ordinary Course
of Business. Except as contemplated by this Agreement, since the date of the
1996 TIW Balance Sheet, neither the Company nor any Company Subsidiary has (i)
incurred or suffered any liability (whether accrued, unliquidated, absolute,
contingent or otherwise) or any change which had a Material Adverse Effect on
the Company or such Company Subsidiary, (ii) incurred or suffered as to its
physical property or assets, any physical loss, change, damage, destruction or
other casualty (whether or not covered by insurance) which had a Material
Adverse Effect on the Company or such Company Subsidiary, (iii) entered into
any commitment, contractual obligation, or transaction other than in the
Ordinary Course of Business and other than for those contemplated by this
Agreement, (iv) issued or sold any stock, bond, or other corporate securities
other than shares of TIW Common Stock issued upon exercise of certain stock
options outstanding as of the Execution Date, (v) made any material change in
the conduct or nature of the business or operations of the Company or such
Company Subsidiary, (vi) made any material change in the accounting methods
employed by the Company or such Company Subsidiary, including any such change
in the valuation and recording of assets and liabilities, (vii) incurred any
obligation or liability to any Person for borrowed money or other indebtedness,
except for trade account payables incurred in the Ordinary Course of Business,
or advances or loans under the Company's revolving line of credit which were
exercised by the Company in the Ordinary Course of Business or legal or
accounting fees or fees to a purchaser representative selected by the Board of
Directors of the Company incurred in connection with the Merger, (viii) sold,
distributed or otherwise transferred or committed to sell, distribute or
transfer any of its tangible assets, except for sales of inventory in the
Ordinary Course of Business for full value consistent with past practices, (ix)
cancelled any debts or claims, or waived any rights of substantial value, (x)
sold, assigned or transferred any licenses, trademarks, trade names, patents,
copyrights or other intangible assets, (xi) written off as uncollectible, any
notes or accounts receivable or portions thereof, (xii) to the Knowledge of the
Company and the Controlling Shareholders, incurred any change (or development)
which is likely to have a Material Adverse Effect within the next six (6)
months on the Company or any
AGREEMENT AND PLAN OF REORGANIZATION - Page 18
<PAGE> 27
Company Subsidiary; (xiii) taken, or will take, any action that would be
contrary to or in violation of the covenants of the Company and such Company
Subsidiary set forth in Section 3.5; or (xiv) entered into an agreement
(whether in writing or otherwise) to do any of the foregoing.
(n) Books and Records. All the books and records of the Company and
the Company Subsidiaries, including all personnel files, employee data, and
other materials relating to employees are substantially complete and correct,
and have been maintained in all material respects in accordance with all
Applicable Laws, and in the case of the books of account, have been prepared
and maintained in accordance with generally accepted accounting principles.
Such books and records accurately and fairly reflect, in reasonable detail, all
transactions, revenues, expenses, assets and liabilities of the Company and the
Company Subsidiaries, except to the extent failure to do so would not have a
Material Adverse Effect on the Company or any Company Subsidiary.
(o) Accounts Receivable. The notes receivable and accounts
receivable of the Company and the Company Subsidiaries shown on the 1996 TIW
Balance Sheet, and all notes receivable and accounts receivable thereafter
acquired prior to the Closing Date are or will be, (i) bona fide notes
receivable or accounts receivable of the Company and the Company Subsidiaries
arising out of actual business transactions with the Persons or entities
identified in the books and records of the Company and the Company Subsidiaries
involving the bona fide sale of products or the performance of services by the
Company or the Company Subsidiaries for which bills have been submitted for
payment, and (ii) are collectible in the Ordinary Course of Business in the
recorded amounts thereof within 90 days after the day on which it first becomes
due and payable without valid defense, setoff or counterclaim without referral
to an attorney or collection agency, subject only to a reserve or allowance for
bad debts as reflected on the 1996 TIW Balance Sheet or on the accounting
records of the Company and the Company Subsidiaries as of the Closing Date
(which reserves are adequate and calculated consistent with past practices and,
in the case of the reserve as of the Closing Date, will not represent a greater
percentage of the accounts receivable as of the Closing Date than the reserve
reflected in the 1996 TIW Balance Sheet represented of the accounts receivable
reflected therein and will not represent a material adverse change in the
composition of such accounts receivable in terms of ageing). Neither the
Company nor any Controlling Shareholder has received any notice or threat that
any items previously shipped by the Company or any Company Subsidiary for which
payment has not yet been received are to be returned for any reason, other than
returns made in the Ordinary Course of Business, and neither the Company nor
any Controlling Shareholder has any reason to believe that unusual returns of
any such items will occur subsequent to the Effective Date.
(p) Legal Proceedings. The Disclosure Schedule sets forth a true
and complete description of all pending or threatened litigation or outstanding
judgments, orders, writs or decrees of any judicial or other governmental
authority against the Company or any Company Subsidiary along with a summary of
the status of, and potential liabilities arising from, such litigation, claim,
judgment or order. Except as disclosed in the Disclosure Schedule, there is (i)
no investigation or review by any domestic or foreign governmental entity or
self-regulatory authority with respect to the Company or any Company Subsidiary
or any of their respective employees or representatives (insofar as any such
investigation or review relates to their activities with the Company or any
Company Subsidiary) actually pending or, to the Knowledge of the Company and
the Controlling Shareholders, threatened, nor has any governmental authority
indicated to the Company or any Company Subsidiary an intention to conduct the
same, (ii) no claim, action, suit or proceeding (including any claim, action,
suit or proceeding pertaining to product liability, patent infringement or
bodily injury) pending, or, to the Knowledge of the Company
AGREEMENT AND PLAN OF REORGANIZATION - Page 19
<PAGE> 28
and the Controlling Shareholders, threatened against or affecting the Company
or any Company Subsidiary, the business or the assets of the Company or any
Company Subsidiary or any of the directors, shareholders, employees or
representatives of the Company or any Company Subsidiary (insofar as any such
matters relate to their activities with the Company or any Company Subsidiary)
at law or in equity, or before any federal, state, municipal, or other
governmental entity or arbitrator or arbitration panel which, if adversely
decided, would, either individually or in the aggregate, have a Material
Adverse Effect on the Company or any Company Subsidiary or materially impede
the ability of the Company to consummate the transactions contemplated hereby,
and (iii) no outstanding orders, judgments, injunctions, awards, or decrees of
any court, public body or authority, arbitration panel or arbitrator by which
the Company or any Company Subsidiary or their respective business is bound or
by which any of the employees or representatives of the Company or any Company
Subsidiary is prohibited or restricted from engaging in or otherwise conducting
the business of the Company or any Company Subsidiary as presently conducted,
which, either individually or in the aggregate, have a Material Adverse Effect
on the Company or any Company Subsidiary or materially impede the ability of
the Company to consummate the transactions contemplated hereby.
(q) Illegal Payments. Neither the Company nor any Company
Subsidiary nor any Controlling Shareholder nor, to the Knowledge of the
Controlling Shareholders, any director, officer, employee or agent of the
Controlling Shareholders or the Company nor any Company Subsidiary, has,
directly or indirectly, paid or delivered any fees, commission, or other sum of
money or item of property however characterized to any broker, finder, agent,
government official, or other person, in the United States of America (the
"United States") or any other country, in any manner related to the business or
operations of the Company or any Company Subsidiary, which the Controlling
Shareholders or any director, officer, employee, or agent of the Company nor
any Company Subsidiary knows or has reason to believe to have been illegal
under any Applicable Law.
(r) Product Warranty. Each product manufactured, sold, or delivered
by the Company or any Company Subsidiary has been in conformity with all
applicable contractual commitments and all express and implied warranties, and,
to the Knowledge of the Company and the Controlling Shareholders, neither the
Company nor any Company Subsidiary has any liability (and there is no
reasonable basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against the Company or any
Company Subsidiary giving rise to any liability) for replacement or repair
thereof or other damages in connection therewith, subject only to the reserve
for product warranty claims set forth on the face of the 1996 TIW Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance and consistent with the past custom and practice
of the Company.
(s) Outstanding Claims. There are no product liability, patent
infringement, or related claim, demand or action, either asserted or to each
Controlling Shareholder's Knowledge after due inquiry of appropriate officers
of the Company overtly threatened in writing but unasserted, against the
Company or any Company Subsidiary for injuries and/or damages arising out of
the products manufactured or assembled by the Company.
(t) Taxes and Tax Returns.
(1) For purposes of this Agreement, (i) the term "Taxes" shall
mean all taxes imposed by the United States, or any state, local or foreign
government or subdivision or agency thereof,
AGREEMENT AND PLAN OF REORGANIZATION - Page 20
<PAGE> 29
whether imputed on a unitary, combined or any other basis, and such term shall
include any income, franchise, sales, use, ad valorem property, employment and
payroll tax and any interest and penalties or additions to tax; and (ii) the
term "Tax Return" shall mean any report, return or other information required
to be filed with, supplied to or otherwise made available to a taxing authority
in connection with Taxes.
(2) The Company and each Company Subsidiary have accurately
reported and duly filed, or will accurately prepare and file or cause to be
filed, with the appropriate taxing authorities all Tax Returns required to be
filed by or with respect to any of them, either separately by or as a member of
a group of corporations on or before the Effective Date within the time and in
the manner prescribed by law. The Company and each Company Subsidiary has
complied with all Applicable Laws relating to the payment and withholding of
Taxes and has timely withheld from employees' wages and paid over to the proper
governmental authorities amounts required to be so withheld and paid over for
all periods under all Applicable Laws. The Company and each Company Subsidiary
has paid or reserved for payment all Taxes due and payable as of the Execution
Date, and will pay or fund a reserve for payment of all Taxes due as of the
Effective Date. The amounts established as funded reserves for the payment of
any unpaid Taxes are an adequate reserve for such Taxes under generally
accepted accounting principles.
(3) Neither the Company nor any Company Subsidiary has had any
tax deficiencies proposed or assessed against the Company, any Company
Subsidiary or its assets which have not been paid in full (including any
interest and penalties thereon). There are no federal, state, local or foreign
audits or other administrative proceedings or court proceedings currently
pending with regard to any Taxes or any Tax Return.
(4) Neither the Company nor any Company Subsidiary has
executed any waiver of the statute of limitations on the assessment or
collection of any Tax from or by any taxing authority that is still in effect
as of the Effective Date nor are any requests for such waiver or consent
pending.
(5) There are no liens for Taxes upon the assets of the
Company or any Company Subsidiary, except liens for Taxes not yet due.
(6) Neither the Company nor any Company Subsidiary is a party
to any tax-sharing or allocation agreement, nor does the Company or any Company
Subsidiary owe any amount under any tax- sharing or allocation agreement.
(7) The Merger and the transactions contemplated by this
Agreement will not result in the payment of any "excess parachute payment"
within the meaning of Section 280G of the Code, and there is no agreement, plan
or arrangement covering any employee of the Company or any Company Subsidiary
that would give rise to any payments that would not be deductible pursuant to
Section 280G or Section 162 of the Code.
(8) Neither the Company nor any Company Subsidiary nor any
Controlling Shareholder has entered into any closing agreement (within the
meaning of Section 7121 of the Code or any analogous provision of state or
local tax law) which will have any continuing effect with respect to the
Company or any Company Subsidiary after the Effective Date.
AGREEMENT AND PLAN OF REORGANIZATION - Page 21
<PAGE> 30
(9) The Company has not filed a consolidated income tax return
with any corporation other than a Company Subsidiary for any taxable period
which is not now closed by the applicable statute of limitations. The Company
and the Company Subsidiaries do not have (i) any gain on any intercompany
transaction under Treasury Regulation ss. 1.1502-13 or any predecessor
provision, or (ii) any excess loss account under Treasury Regulation ss.
1.1502-19.
(10) No Shareholder (other than Tonisson) is a person other
than a United States person within the meaning of the Code.
(u) Real Property.
(1) The Disclosure Schedule contains a complete and accurate
description of each real property lease under which the Company or any Company
Subsidiary occupies or has the right to occupy and use its present office or
manufacturing facilities (the "Facility Leases"). The Company has provided
Vertex an opportunity to review true, correct and complete copies of the
Facility Leases (including all modifications, amendments and supplements
thereof). Each Facility Lease is a valid and binding upon the Company or a
Company Subsidiary, as applicable, and, to the Knowledge of the Company and the
Controlling Shareholders, upon the lessor and is in full force and effect, and,
all rent and other sums and charges payable by the Company or a Company
Subsidiary as lessee thereunder are current.
(2) No notice of material default or termination under any
Facility Lease is outstanding. No termination event or condition or uncured
material default on the part of the Company or any Company Subsidiary, or to
the Knowledge of the Company and the Controlling Shareholders, on the part of
the lessor exist under any Facility Lease, and no event has occurred and no
condition exists, and the consummation of the transactions contemplated by this
Agreement will not create or result in an event or condition, which, with the
giving of notice or the lapse of time or both, would constitute such a material
default or termination event or condition other than for the necessity to
obtain the lessor's consent to the transfer of the Facility Lease, if required
by the terms of such lease.
(3) Neither the Company nor any Company Subsidiary owns or has
any interest in real property other than as lessee under the Facility Leases
and other than for that certain tract of real property commonly known as 1255
Coors Boulevard S.W., Albuquerque, New Mexico 87121, which is owned by a
Company Subsidiary and used as a manufacturing facility (the "Albuquerque
Facility"). During the past ten (10) years, the Company and the Company
Subsidiaries did not own, lease or have any ownership or possessory interest in
or to any real property, other than the leased premises described in the
Facility Leases, the Albuquerque Facility or as otherwise disclosed in the
Disclosure Schedule.
(4) The Albuquerque Facility and the premises leased by the
Company and the Company Subsidiaries are in good condition, ordinary wear and
tear excepted, and are suitable for the current business purposes of the
Company and the Company Subsidiaries.
(v) Leased Personal Property. The Disclosure Schedule sets forth a
list of all leases under which the Company or any Company Subsidiary is the
lessee of personal property. The Company and each Company Subsidiary has good
and valid leasehold interests in all such properties held by it under lease.
The Company and each Company Subsidiary has been in peaceable possession (or
remedied
AGREEMENT AND PLAN OF REORGANIZATION - Page 22
<PAGE> 31
any claims relating thereto) of the property covered by each such lease since
the commencement of the original term of such lease. No waiver, indulgence, or
postponement of the obligations of the Company or any Company Subsidiary under
any such lease has been granted by the lessor or of the lessor's obligations
thereunder by the Company or any Company Subsidiary. Neither the Company nor
any Company Subsidiary is in breach of or in default under, nor has any event
occurred which (with or without the giving of notice or the passage of time or
both) would constitute a default by the Company or any Company Subsidiary
under, any of such leases, and neither the Company nor any Company Subsidiary
has received any notice from, or given any notice to, any lessor indicating
that the Company or any Company Subsidiary or such lessor is in breach of or in
default under any of such leases. To the Knowledge of the Company and the
Controlling Shareholders, none of the lessors under any of such leases is in
breach thereof or in default thereunder. The Company and each Company
Subsidiary has full right and power to occupy or possess, as the case may be,
all the property covered by each such lease.
(w) Intellectual Property. As used herein, the term "Intellectual
Property" means the Company's name and all assumed business names, all patents,
trademarks, service marks, trade names, copyrights, trade secrets, know-how,
technical information, technology, inventions, computer software (including
documentation and object and source codes), and similar rights, and all
registrations, applications, licenses and rights with respect to any of the
foregoing. The Disclosure Schedule contains a list of all Intellectual Property
owned, held, or used by the Company or any Company Subsidiary. The Disclosure
Schedule specifies, as applicable: (i) the nature of such Intellectual
Property; (ii) the owner of such Intellectual Property; (iii) the jurisdictions
by or in which such Intellectual Property is recognized without regard to
registration or has been issued or registered or in which an application for
such issuance or registration has been filed, including the respective
registration or application numbers; and (iv) all licenses, sublicenses, and
other agreements to which the Company or any Company Subsidiary is a party and
pursuant to which the Company, any Company Subsidiary, or any other Person is
authorized to use such Intellectual Property, including the identity of all
parties thereto, a description of the nature and subject matter thereof, the
applicable royalty, and the term thereof. All maintenance fees/annuities have
been paid and renewals thereof have been duly made with respect to such
applications, patents and registrations.
The listed Intellectual Property constitutes all Intellectual
Property necessary for the operation of the Company's business and that of the
Company Subsidiaries as presently conducted. The Company or a Company
Subsidiary has good and indefeasible title to or is validly licensed to use all
such Intellectual Property. Each item of such Intellectual Property is in full
force and effect, the Company or such Company Subsidiary is in compliance with
all its obligations with respect thereto, and, to the Knowledge of the Company
and the Controlling Shareholders, no event has occurred which permits, or upon
the giving of notice or the passage of time or otherwise would permit,
revocation or termination of any interest or right in any item of Intellectual
Property. During the prosecution of the United States patents listed in the
Disclosure Schedule, the Company complied with its Rule 56 disclosure
obligations. There are no (i) proceedings pending against the Company or any
Company Subsidiary, (ii) to the Knowledge of the Company and the Controlling
Shareholders, proceedings threatened against the Company or any Company
Subsidiary, or (iii) to the Knowledge of the Company and the Controlling
Shareholders, notices received by the Company or any Company Subsidiary from
another Person, asserting that (x) use by the Company or a Company Subsidiary
of any of such Intellectual Property (y) the making, producing, using or
selling of any commercial product of the Company or any Company Subsidiary, or
(z) the making, producing, using or selling of any experimental product of the
Company or any Company Subsidiary, infringes the rights of any other Person. To
the Knowledge of the Company and the Controlling Shareholders, the (x) use by
the Company or a Company Subsidiary of any of such Intellectual Property (y)
the making, producing, using or selling of any commercial product of the
Company or any Company Subsidiary, or (z) the making, producing, using or
selling of any experimental product of the Company or any Company Subsidiary,
does not infringe the rights of any other Person. To the Knowledge of the
Company and the Controlling Shareholders, none of such Intellectual Property is
being infringed upon by any other Person. None of such Intellectual Property
owned by the Company or any Company Subsidiary and, to the Knowledge of the
Company
AGREEMENT AND PLAN OF REORGANIZATION - Page 23
<PAGE> 32
and the Controlling Shareholders, none of such Intellectual Property held or
used by the Company or any Company Subsidiary is subject to any outstanding
judgment, order, writ, injunction, or decree of any governmental entity, or any
agreement, arrangement, or understanding, written or oral, restricting the
scope or use thereof. To the Knowledge of the Company and the Controlling
Shareholders, the conduct of the businesses of the Company and the Company
Subsidiaries at any time prior to the Closing Date did not, and the conduct of
such businesses on a basis consistent with past practice as of the Closing Date
will not, infringe upon or otherwise misappropriate any Intellectual Property
of any other Person.
(x) Title to Properties. The Disclosure Schedule contains a
complete and accurate list of all real property, leaseholds, or other interests
therein owned by the Company and each Company Subsidiary. The Controlling
Shareholders have delivered or made available to Vertex copies of the deeds and
other instruments (as recorded) by which the Company and each Company
Subsidiary, as applicable, acquired such real property and interests, and
copies of all title insurance policies, opinions, abstracts, and surveys in the
possession of the Company or the applicable Company Subsidiary and relating to
such property or interests. The Company and each Company Subsidiary own (with
good and marketable title in the case of real property, subject only to the
matters permitted by the following sentence) all the properties and assets
(whether real, personal, or mixed and whether tangible or intangible) that they
purport to own located in the facilities owned or operated by the Company or
the applicable Company Subsidiary or reflected as owned in the books and
records of the Company and the Company Subsidiaries, including all of the
properties and assets reflected in the 1996 TIW Balance Sheet (except for
assets held under capitalized leases disclosed or not required to be disclosed
in the Disclosure Schedule and personal property sold since the date of the
1996 TIW Balance Sheet, as the case may be, in the Ordinary Course of
Business), and all of the properties and assets purchased or otherwise acquired
by the Company and the Company Subsidiaries since the date of the 1996 TIW
Balance Sheet (except for personal property acquired and sold since the date of
the 1996 TIW Balance Sheet in the Ordinary Course of Business), which
subsequently purchased or acquired properties and assets (other than inventory
and short-term investments) are listed in the Disclosure Schedule. All material
properties and assets reflected in the 1996 TIW Balance Sheet and the Interim
Balance Sheet are free and clear of all Encumbrances and are not, in the case
of real property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations, or limitations of any nature except, with
respect to all such properties and assets, (a) mortgages or security interests
shown on the 1996 TIW Balance Sheet or the Interim Balance Sheet as securing
specified liabilities or obligations, with respect to which no default (or
event that, with notice or lapse of time or both, would constitute a default)
exists, (b) mortgages or security interests incurred in connection with the
purchase of property or assets after the date of the Interim Balance Sheet
(such mortgages and security interests being limited to the property or assets
so acquired), with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (c) liens for
current taxes not yet due, and (d) with respect to real property, (i) minor
imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value or impairs the use of the property subject
thereto, or impairs the operations of the Company or any Company Subsidiary,
and (ii) zoning laws and other land use restrictions that do not impair the
present or anticipated use of the
AGREEMENT AND PLAN OF REORGANIZATION - Page 24
<PAGE> 33
property subject thereto. All buildings, plants, and structures owned by the
Company or the Company Subsidiary lie wholly within the boundaries of the real
property owned by the Company or such Company Subsidiary and do not encroach
upon the property of, or otherwise conflict with the property rights of, any
other Person.
(y) Sufficiency and Condition of Properties. The properties owned,
leased, or used by the Company and the Company Subsidiaries are (i) in the case
of tangible assets and properties, in good operating condition and repair
(ordinary wear and tear excepted) and have been maintained in accordance with
standard industry practice, (ii) suitable for the purposes used, and (iii)
adequate and sufficient for the normal operation of the Acquired Business, as
presently conducted. Such properties and their uses conform to all Applicable
Laws, except for such minor variations as do not impair or interfere with the
use of such properties for the purposes for which they are employed and neither
the Company, any Company Subsidiary nor the Controlling Shareholders have
received any notice to the contrary. All such tangible properties are in the
possession or under the control of the Company or a Company Subsidiary.
(z) Permits. The Disclosure Schedule sets forth a true and complete
list of all permits owned or held by the Company or any Company Subsidiary.
Except as set forth in the Disclosure Schedule, (i) the Company and the Company
Subsidiaries hold all the permits materially necessary or required for the
conduct of the business of the Company and the Company Subsidiaries as
currently conducted; (ii) each of such permits is in full force and effect, the
Company and the Company Subsidiaries are in compliance with all their
obligations with respect thereto, and, to the Knowledge of the Company and the
Controlling Shareholders, no event has occurred which allows, or with or
without the giving of notice or the passage of time or both would allow, the
revocation or termination of any such permit; and (iii) no notice has been
issued by any governmental entity and no proceeding is pending or, to the
Knowledge of the Company and the Controlling Shareholders, threatened with
respect to any alleged failure by the Company and the Company Subsidiaries to
have any permit the absence of which would have a Material Adverse Effect on
the Company or any Company Subsidiary.
(aa) Contracts.
(1) Neither the Company nor any Company Subsidiary is a party
to or bound by any agreement, contract or commitment:
(A) With management or any employee for personal
services that is not by its terms immediately terminable at will by the
employer without cost or liability to the Company or any Company Subsidiary at
or at any time after the Effective Date (subject to any rights an employee may
have by statute or regulation);
(B) With any labor union or employees' association;
(C) Under which the Company or any Company Subsidiary
has borrowed any money or issued any note, bond, indenture, loan, credit
agreement or other evidence of indebtedness or direct or indirect guarantee or
assumption of indebtedness, liabilities or obligations of others (other than
overdraft accounts or similar obligations used in the normal course of
business) which will not be discharged on or before the Effective Date;
AGREEMENT AND PLAN OF REORGANIZATION - Page 25
<PAGE> 34
(D) Relating to a mortgage, pledge, security agreement,
deed of trust or other document granting a lien over any material property
owned by the Company or any Company Subsidiary;
(E) Relating to any bonus, retirement, deferred
compensation, pension, profit sharing, stock options, life and health
insurance, hospitalization or employee savings or retirement agreements,
policies or plans except as set forth in this Agreement;
(F) That contains any severance pay liability or
obligations to any employee or former employee; and
(G) With respect to noncompetition agreements or
arrangements by which the Company or any Company Subsidiary or their respective
executive officers or key employees are bound.
(2) The Disclosure Schedule sets forth a true, correct and
complete list of all material contracts and other material instruments to which
the Company or any Company Subsidiary is a party, separately identifying those
material contracts and other material instruments which are terminable at will
or upon less than 60 days' written notice. There have been delivered to Vertex
true, complete and correct copies of all of the contracts and agreements
(together with all amendments and supplements thereto except as otherwise
disclosed in the Disclosure Schedule) set forth in the Disclosure Schedule and
there are no other material terms of such contracts or other instruments,
except as set forth on such copies. All of such contracts and other instruments
are valid, subsisting in full force and effect and binding upon the Company or
the Company Subsidiary, as applicable, and, to the Knowledge of the Company and
the Controlling Shareholders, upon the other party or parties thereto, in
accordance with their terms, subject to the qualifications that enforcement of
the rights and remedies created thereby is subject to (i) bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors, and (ii) general principles of
equity (regardless of whether such enforcement is considered in a proceeding in
equity or at law); and neither the Company nor any Company Subsidiary is in
default under any of them, nor does any condition exist that with notice or
lapse of time or both would constitute such a default by the Company or any
Company Subsidiary, except where such default is not material with respect to
such contract or agreement and would not give rise to any right of, or result
in any, termination, cancellation or modification of such contract or
agreement. To the Knowledge of the Company and the Controlling Shareholders, no
other party to any such contract or other agreement is in material default
thereunder.
(3) Neither the Company nor any Company Subsidiary nor the
Controlling Shareholders have received any notice of any plan or intention of
any other party to any agreement to which the Company or any Company Subsidiary
is a party to exercise any right of offset with respect to, or any right to
cancel or terminate, any such agreement, and neither the Company nor any
Company Subsidiary nor the Controlling Shareholders know of any fact or
circumstance that would justify the exercise by any such other party of such a
right other than the automatic termination of such agreement in accordance with
its terms. Neither the Company nor any Company Subsidiary nor the Controlling
Shareholders currently contemplates, or has reason to believe any other person
currently contemplates, any amendment or change to any agreement to which the
Company or any Company Subsidiary is a party.
AGREEMENT AND PLAN OF REORGANIZATION - Page 26
<PAGE> 35
(ab) Inventory. All inventory and related supplies attributed any
value on the 1996 TIW Balance Sheet or thereafter acquired and not disposed of
in the Ordinary Course of Business is in good condition and is merchantable for
sale in the Ordinary Course of Business of the Company or the Company
Subsidiary, as applicable, as first quality goods at normal mark-ups, subject
to any reserves reflected on the 1996 TIW Balance Sheet. None of such inventory
is obsolete, discontinued, returned, damaged, excess or of below standard
quality or merchantability, except for items that have been written down to
realizable market value. Each item of such inventory is reflected in the books
and records of the Company or the Company Subsidiary in accordance with
generally accepted accounting principles consistently applied. The present
quantity of such inventory is sufficient to serve adequately the customers of
the Company and the Company Subsidiaries in the Ordinary Course of Business.
(ac) Backlog. To the Knowledge of the Controlling Shareholders,
after due inquiry of appropriate personnel of the Company and the Company
Subsidiaries, there is no threatened cancellation or termination of any of the
contracts, purchase orders and other agreements constituting the backlog of
unfilled orders of the Company or any Company Subsidiary as of the Execution
Date, which in the aggregate would have a Material Adverse Effect upon the
operations or profitability of the Company or any Company Subsidiary.
(ad) Employees. The Disclosure Schedule contains a complete list
setting forth the name and position of all employees of the Company and each
Company Subsidiary employed as of February 1, 1997 whose annual rate of
compensation for the calendar year 1996 was $50,000 or more, together with the
salary and bonus, if any, paid to each such employee for the 1996 calendar
year. The Company and each Company Subsidiary is in compliance in all material
respects with all Applicable Laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and the
Company and each Company Subsidiary have not engaged in any unfair labor
practice. There are no charges of discrimination or harassment (relating to
age, sex, race, national origin, religion, creed, handicaps or veteran status)
or unfair labor practice charges or complaints against the Company or any
Company Subsidiary pending, or to the Knowledge of the Company and the
Controlling Shareholders threatened, against or affecting the Company or any
Company Subsidiary and there have not been any such charges or complaints.
(ae) Labor Organization. Neither the Company nor any Company
Subsidiary is a party to any collective bargaining agreement with any labor
union or similar organization nor has the Company, any Company Subsidiary, nor
the Controlling Shareholders received any notice that any such organization
currently represents or claims to represent any of the employees of the Company
or any Company Subsidiary or currently intends to organize any of the employees
of the Company or any Company Subsidiary.
(af) Qualified Employee Benefit Plans. Neither the Company nor any
other corporation or trade or business which, together with the Company, is
treated as a single employer under Section 414 of the Code (an "ERISA
Affiliate"), sponsors, maintains or otherwise is a party or contributes to or
participates in any pension, profit sharing, thrift or other retirement plan,
or employee stock ownership plan that has been or is intended to be qualified
under Section 401(a) of the Code other than the TIW Systems, Incorporated
401(k) Plan (the "Profit Sharing Plan"), the TIW Systems Incorporated Employee
Stock Ownership Plan (the "TIW ESOP"), and the TIW Systems, Inc. Money Purchase
Pension Plan (the "Pension Plan"). The Profit Sharing Plan, the TIW ESOP, and
the Pension Plan are each sometimes referred to herein as a "Qualified Plan."
Each Qualified Plan is currently
AGREEMENT AND PLAN OF REORGANIZATION - Page 27
<PAGE> 36
covered under a favorable determination letter issued by the Internal Revenue
Service finding that such Qualified Plan is a qualified plan under the
provisions of Section 401(a) of the Code and that each trust forming a part of
such Qualified Plan is exempt from Tax pursuant to Section 501(a) of the Code.
Nothing has occurred which might cause the loss of such qualification or the
imposition of any liability, penalty or tax thereunder with respect to the
operation of any such Qualified Plan. The Profit Sharing Plan has operated as a
qualified cash or deferred arrangement within the meaning of Section 401(k) of
the Code. The Company has delivered to Vertex true, correct and complete copies
of each Qualified Plan and any related funding agreements, including all
amendments, supplements, and modifications thereto, all of which are legally
valid and binding and in full force and effect, and not in default in any
respect and copies of the most recent determination letter received from the
Internal Revenue Service and the most recent Form 5500 Annual Report with
respect to each such Qualified Plan. All contributions (including without
limitation all employer contributions and all employee salary reduction
contributions) which are due have been paid to each Qualified Plan, and all
contributions for any period ending on or before the Effective Time which are
not yet due have been paid to each such Qualified Plan or accrued in accordance
with past custom and practice of the Company.
(ag) Employee Benefits.
(1) Neither the Company nor any ERISA Affiliate sponsors,
maintains, or otherwise is a party or contributes to, participates in, or is in
default under, or has any accrued obligations under any pension, profit
sharing, thrift or other retirement plan, employee stock ownership plan,
deferred compensation, stock option, stock purchase, performance share, bonus
or other incentive plan, severance plan, health, medical, vision, dental, group
life insurance or other welfare plan, or other similar plan, agreement, policy
or understanding, including without limitation any "employee benefit plan"
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), whether formal or informal and whether
legally binding or not, under which the Company or any ERISA Affiliate has any
current or future obligation or liability to any present or former employee of
the Company or any Company Subsidiary or to such present or former employee's
dependents or beneficiaries (each such plan, agreement, policy or understanding
being hereinafter severally referred to as a "Plan" and collectively as the
"Plans"). The Company has delivered to Vertex true, correct and complete copies
of each Plan and any related funding agreements, including all amendments,
supplements, and modifications thereto; all of which are legally valid and
binding and in full force and effect and not in default in any respect, and the
most recent Form 5500 Annual Report with respect to each such Plan. Neither the
Company nor any ERISA Affiliate has any formal plan or commitment, whether
legally binding or not, to create any additional Plan or modify or change any
existing Plan that would affect any present or former employee of the Company
or any Company Subsidiary, or such present or former employee's dependents or
beneficiaries. None of the Plans in the Disclosure Schedule is a multi-employer
plan (as defined in Section 3(37) of ERISA), and during the last six years
neither the Company nor any ERISA Affiliate has made or been obligated to make
contributions to such a multiemployer plan. There are no accumulated funding
deficiencies as defined in Section 412 of the Code (whether or not waived) with
respect to any Plan. Neither the Company nor any ERISA Affiliate has incurred
any material liability under Title IV of ERISA arising in connection with the
termination of, or complete or partial withdrawal from, any Plan covered or
previously covered by Title IV of ERISA. The Company and each ERISA Affiliate
have paid and discharged promptly when due all liabilities and obligations
arising under ERISA or the Code of a character which if unpaid or unperformed
might result in the imposition of a lien against any of the assets of the
Company or any ERISA Affiliate.
AGREEMENT AND PLAN OF REORGANIZATION - Page 28
<PAGE> 37
(2) Each of the Plans has been maintained and administered in
all material respects in accordance with its terms and the requirements of
Applicable Law, including but not limited to the Age Discrimination in
Employment Act, as amended, Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1986, as amended ("COBRA"), ERISA and the Code, and all
reports required by any governmental agency with respect to each of the Plans
covering any employee or former employee of the Company or any ERISA Affiliate
have been timely filed.
(3) There are no pending, and to the Knowledge of the Company
and the Controlling Shareholders, threatened or anticipated claims or actions
with respect to any Plan (other than routine claims for benefits by employees
covered under any such Plan and their beneficiaries) or by any participant
therein, alleging a breach or breaches of fiduciary duties or violations of any
Applicable Law which could result in liability on the part of the Company or
any ERISA Affiliate or their respective officers, directors, or employees or
such Plan, under ERISA or any other Applicable Law and there is no basis for
any such claim. To the Knowledge of the Company, nothing done or omitted to be
done and no transaction or holding of any asset under or in connection with any
Plan has or will make the Company or any ERISA Affiliate or any director,
officer or employee of the Company or any ERISA Affiliate subject to any
liability under Title I of ERISA or liable for any Tax pursuant to Section 4975
of the Code. No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code has occurred with respect to any Plan, excluding
transactions effected pursuant to a statutory or administrative exemption.
(4) No tax under Sections 4980B or 5000 of the Code has been
incurred, or is reasonably expected to be incurred, in respect of any Plan that
is a group health plan.
(5) The Company and each ERISA Affiliate do not provide, and
are not obligated to provide, benefits, including without limitation death,
health, medical, or hospitalization benefits (whether or not insured), with
respect to current or former employees, their dependents or beneficiaries
beyond their retirement or other termination of employment other than (i)
coverage mandated by Applicable Law, (ii) death benefits or retirement benefits
under any Qualified Plan, (iii) deferred compensation benefits accrued as
liabilities on the books of the Company, or (iv) benefits the full cost of
which is borne by the current or former employees (or their beneficiaries).
(6) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or officer of the
Company or any ERISA Affiliate to severance pay, unemployment compensation or
any other payment, (ii) accelerate the time of payment, or increase the amount
of compensation due any such employee or officer, (iii) cause any amounts
payable by the Company or an ERISA Affiliate to be disallowed as a deduction
pursuant to Section 162(m) or Section 280G of the Code, or (iv) result in any
prohibited transaction described in Section 406 of ERISA or Section 4975 of the
Code for which an exemption is not available.
(7) With respect to each Plan that is funded wholly or
partially through an insurance policy, there will be no liability of the
Company or any ERISA Affiliate, as of the Effective Date, under any such
insurance policy or ancillary agreement with respect to such insurance policy
in the nature of a retroactive rate adjustment, loss sharing arrangement or
other actual or contingent liability arising wholly or partially out of events
occurring prior to the Effective Date.
AGREEMENT AND PLAN OF REORGANIZATION - Page 29
<PAGE> 38
(8) There has been no amendment, written interpretation, or
announcement (whether or not written) by the Company or any ERISA Affiliate of
or relating to, or change in employee participation or coverage under, any Plan
which would increase materially the expenses of maintaining such Plan above the
level of expense incurred in respect thereof for the fiscal year ended December
31, 1996.
(ah) Insurance. The Company and each Company Subsidiary has
insurance covering casualty, fire, liability, workers' compensation and
employee disability (the "Policies") providing coverage and having limitations
and deductibles that are customary for a business of the type operated by the
Company and such Company Subsidiary and sufficient for compliance with all
requirements of law and of all agreements to which the Company or any Company
Subsidiary is a party, and such Policies will be in full force and effect for
all periods up to and including the Closing, and no notice of cancellation or
termination has been received with respect to any of the Policies. The
Disclosure Schedule contains a complete description of the Policies, and the
Company has delivered a true and complete copy of each Policy to Vertex. There
are no claims filed under or relating to any of the Policies. Neither the
Company nor any Company Subsidiary has been refused any insurance coverage for
which it has applied since January 1, 1993.
(ai) No Dividends; Accruals and Reserves. Since the date of the
1996 TIW Balance Sheet, neither the Company nor any Company Subsidiary has
declared, paid or set aside any dividends or other distributions (whether in
cash, capital stock or other property or any combination thereof) to the
Shareholders or the employees of the Company or any Company Subsidiary other
than for reasonable compensation payments to the employees of the Company or a
Company Subsidiary consistent with the past practices of the Company or
applicable Company Subsidiary. Neither the Company nor any Company Subsidiary
has any accruals or reserves recorded on its books and records with respect to
the declaration, payment or setting aside of dividends or other distributions
or the declaration or payment of cash bonuses, other incentive payments or
employee benefits, and neither the Company nor any Company Subsidiary has any
obligation or commitment to do so, whether under generally accepted accounting
principles or otherwise.
(aj) Bank Accounts. The Disclosure Schedule contains a complete
list of all bank accounts, lock boxes, safe deposit boxes and other
depositories of the Company and the Company Subsidiaries by the name of the
banking institution and account or other identifying number with a list of each
authorized person with signature authority over the funds held in each such
account.
(ak) Customer Relationships. The Disclosure Schedule sets forth a
complete and accurate list of all customer accounts presently held by the
Company and the Company Subsidiaries and required to be disclosed in accordance
with the terms of the Disclosure Schedule. The Company and each Company
Subsidiary uses commercially reasonable efforts to maintain a satisfactory
relationship with each of its customers and has not received a notice of
termination from any customer and has no present Knowledge or other reason to
believe any customer will not agree to become a customer of the Surviving
Corporation or remain a customer of a Company Subsidiary or will within the
next six (6) months terminate its business relationship with the Surviving
Corporation or any Company Subsidiary as a result of the transactions
contemplated by this Agreement or otherwise.
(al) Finders. Neither the Controlling Shareholders nor the Company,
nor any affiliate of the Company, is obligated to pay any fee or commission to
any broker, finder or intermediary for or
AGREEMENT AND PLAN OF REORGANIZATION - Page 30
<PAGE> 39
on account of the transactions provided for in this Agreement, and neither any
Controlling Shareholder nor the Company has had any communications with any
person which would obligate VAC to any such a fee or commission.
(am) Environmental Compliance. Except as disclosed in the
Disclosure Schedule, (i) the conduct of the business of the Company and each
Company Subsidiary and their respective predecessors, if any, in connection
with the ownership, use, maintenance or operation of the real property owned or
leased by the Company or any Company Subsidiary or any predecessor thereof and
the conduct of business thereon, complies with, and neither the Company nor any
Company Subsidiary nor any predecessor thereof is in violation of, and no
situation, condition, or event exists or has occurred that now or with the
passage of time would constitute a violation of, any Applicable Law, including
permits (granted to the Company or any Company Subsidiary) and orders (naming
the Company or any Company Subsidiary) of any governmental authorities relating
to environmental matters, including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980 ("CERCLA"), the
Resource Conservation and Recovery Act of 1976 ("RCRA"), the Clean Air Act, the
Federal Water Pollution Control Act of 1972, the Superfund Amendments and
Reauthorization Act of 1986, the Toxic Substances Control Act ("TSCA"), the
Safe Drinking Water Act, the Pollution Prevention Act of 1990, the National
Environmental Policy Act ("NEPA"), the Hazardous Materials Transportation Act,
and any other law, statute, ordinance or regulation relating to other
protection of the public health and/or the environment, whether promulgated by
the United States, any state, municipality and/or other governmental body, and
any applicable common law, each as amended (hereinafter collectively referred
to as "Environmental Laws"), (ii) the conduct of the business by the Company
and each Company Subsidiary and any predecessor thereof is and has at all times
been performed in conformance with all Environmental Laws and regulations
pertaining thereto, and all permits or other documents required for the conduct
of the business in accordance with the Environmental Laws are and at all times
have been in full force and effect; (iii) there are no physical or
environmental conditions existing on any property owned or leased by the
Company or any Company Subsidiary or resulting from the operations, practices,
or activities, past or present, of the Company or any Company Subsidiary or any
predecessor thereof, at any location, that could reasonably be expected to
cause the Company or any Company Subsidiary to become subject to any on-site or
off-site remedial, removal, response, cleanup, study or investigation
obligations under any applicable Environmental Laws; (iv) since the effective
date of the relative requirements of applicable Environmental Laws, all
hazardous materials, hazardous wastes, solid wastes, toxic substances,
pollutants, contaminants and any and all other materials regulated under
applicable Environmental Laws (the "Hazardous Materials") generated by the
Company or any Company Subsidiary or any predecessor thereof or used in
connection with its properties, operations, or activities have been transported
only by carriers authorized under applicable Environmental Laws to transport
such Hazardous Materials, and have been disposed of only at treatment, storage,
and disposal facilities authorized under applicable Environmental Laws to
treat, store, or dispose of such Hazardous Materials, and, to the Knowledge of
the Company and the Controlling Shareholders, such carriers and facilities have
been and are operating in compliance with such authorizations and are not the
subject of any existing, pending, or threatened proceeding in connection with
any applicable Environmental Laws; (v) there has been no exposure of any person
or property to Hazardous Materials, nor has there been any release of hazardous
materials into the environment, by the Company or any Company Subsidiary or any
predecessor thereof or in connection with its properties, operations, or
activities that could reasonably be expected to give rise to any claim against
the Company or any Company Subsidiary for damages or compensation; (vi) there
are no notices of violation of any Environmental Laws requiring any work,
repairs, construction, capital expenditures or that may impose any fine,
sanction or penalty with respect
AGREEMENT AND PLAN OF REORGANIZATION - Page 31
<PAGE> 40
to the business of the Company or any Company Subsidiary or any predecessor
thereof which have been received by the Company or any Company Subsidiary, and
there are no writs, notices, injunctions, decrees, orders, liens or judgments
outstanding, no lawsuits based upon either the Environmental Laws, claims,
proceedings or investigations pending relating to the operations of the Company
or any Company Subsidiary or any predecessor thereof with respect to the
disposal of hazardous wastes or hazardous substances by the Company or any
Company Subsidiary or any predecessor thereof, (vii) there has been no release
(as defined in CERCLA), discharge, disposal, dumping, or emission of a
hazardous substance (as defined in CERCLA), hazardous waste (as defined in
RCRA) or any other Hazardous Materials to the extent prohibited by or that
would result in liability under the Environmental Laws, at or on any premises
owned or leased by the Company or any Company Subsidiary or any predecessor
thereof, nor have such premises to the Knowledge of the Company and the
Controlling Shareholders been used at any time by any Person as a landfill or a
waste disposal site for any hazardous substances, hazardous wastes or other
Hazardous Materials; and (viii) there have not been and there are not any
events, conditions, circumstances, activities, practices, incidents, actions or
plans which may reasonably be expected to interfere with or prevent continued
compliance, or which may reasonably be expected to give rise to any common law
or legal liability, or otherwise form the basis of any claim, investigation or
action based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling, or the emission,
discharge, release, dumping or threatened release into the environment, of any
Hazardous Material or chemical, or any industrial, hazardous, or toxic material
or waste, including any liability arising under any Environmental Law.
(an) Shareholder Access to Information. Each Controlling
Shareholder and the ESOT by executing this Agreement, and each Minority
Shareholder by executing the Share Exchange and General Release Agreement
attached hereto as Exhibit "C," represents and warrants to Vertex that such
Shareholder has (i) been given the opportunity to review the SEC Filings (as
defined in Section 2.2(j)) made by Vertex, (ii) been given the opportunity to
ask questions of, and receive answers from, Vertex concerning the business,
assets, results of operation, and financial condition of Vertex and the terms
and conditions of the Merger and the issuance of the Merger Consideration in
exchange for the TIW Common Stock, (iii) been given the opportunity to obtain
any additional information about the business and financial condition of Vertex
which is necessary to verify the accuracy of the information contained in the
SEC Filings and which Vertex possesses or can reasonably obtain without the
expenditure of undue time or expense, which additional information has been
timely and satisfactorily received by such Shareholder, and (iv) approved this
Agreement and the Merger with full knowledge and understanding of the terms and
conditions set forth in this Agreement.
(ao) Investment Representations. Each Controlling Shareholder and
the ESOT by executing this Agreement, and each Minority Shareholder by
executing the Share Exchange and General Release Agreement attached hereto as
Exhibit "C," represents and warrants to Vertex, that such Shareholder is
acquiring the Vertex Exchange Shares hereunder for such Shareholder's own
account for investment, with no present intention of reselling or otherwise
distributing the same, except (i) pursuant to an offering of shares duly
registered under the Securities Act, or (ii) under other circumstances which in
the opinion of counsel to Vertex at the time does not require registration
under the Securities Act; provided, however, the ESOT may distribute shares of
the Vertex Exchange Shares owned by the ESOT to the participants in the TIW
ESOP or the beneficiaries thereof to the extent necessary to comply with the
provisions of the TIW ESOP. Each Controlling Shareholder by executing this
Agreement, and each Minority Shareholder by executing the Share Exchange
General Release Agreement attached hereto as Exhibit "C," further covenants and
represents that none of the Vertex Exchange Shares that will be issued
AGREEMENT AND PLAN OF REORGANIZATION - Page 32
<PAGE> 41
to such Shareholder pursuant to this Agreement will be offered, sold, assigned,
pledged, transferred, or otherwise disposed of by such Shareholder except after
full compliance with all of the applicable provisions of the Securities Act and
the rules and regulations of the Commission. Each Shareholder hereby confers
full authority upon Vertex to instruct its transfer agent not to transfer any
of the Vertex Exchange Shares until it has received written approval from
Vertex to the effect that the provisions of this Paragraph have been satisfied.
Each Shareholder acknowledges that Vertex shall place a stop transfer order
against the transfer of the Vertex Exchange Shares owned by a Shareholder until
such Shareholder satisfies one of the conditions set forth in this Paragraph.
All stock certificates representing the Vertex Exchange Shares shall be
endorsed with the following restrictive legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW BUT HAVE BEEN ACQUIRED FOR THE
PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE
OFFERED, SOLD OR TRANSFERRED UNTIL EITHER (i) A
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (ii) THE CORPORATION
HAS RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE
CORPORATION AND ITS COUNSEL THAT REGISTRATION UNDER SUCH
SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED OFFER,
SALE OR TRANSFER.
(ap) Title to TIW Common Stock. Each Controlling Shareholder, the
ESOT and each Minority Shareholder to the Knowledge of the Controlling
Shareholders, owns beneficially and of record, free and clear of any
Encumbrances the shares of TIW Common Stock set forth opposite such
Shareholder's name in the Merger Consideration Allocation Schedule attached
hereto as Exhibit "B," and has the unrestricted right, power and authority to
sell, assign, transfer and deliver the TIW Common Stock to Vertex in exchange
for such Shareholder's allocable share of the Merger Consideration as set forth
herein.
(aq) Continuity of Interest. Each Controlling Shareholder and the
ESOT by executing this Agreement, and each Minority Shareholder by executing
the Share Exchange and General Release Agreement attached hereto as Exhibit
"C," acknowledges that it is the intent of the parties hereto that for federal
income tax purposes the Merger be treated as a reorganization within the
meaning of Section 368 of the Code and that one of the requirements thereof is
that the Shareholders satisfy what is commonly known under federal tax law as
the continuity of interest doctrine. Consequently, each Controlling Shareholder
and the ESOT by executing this Agreement, and each Minority Shareholder by
executing the Share Exchange and General Release Agreement attached hereto as
Exhibit "C," covenants and represents that, for a period of one (1) year after
the Effective Date, such Shareholder will not sell, transfer or otherwise
dispose of any shares of the Vertex Exchange Shares received and owned by each
Shareholder as a result of the Merger; provided, however the ESOT may
distribute shares of the Vertex Exchange Shares owned by the ESOT to the
participants in the TIW ESOP or the beneficiaries thereof to the extent
necessary to comply with the provisions of the TIW ESOP. Each Shareholder
acknowledges that Vertex
AGREEMENT AND PLAN OF REORGANIZATION - Page 33
<PAGE> 42
shall be duly authorized and empowered to place a stop transfer order against
the transfer of the aggregate number of Vertex Exchange Shares allocated to and
owned by such Shareholder as a result of the Merger until the first anniversary
of the Effective Date, subject to the right of the ESOT to distribute shares of
the Vertex Exchange Shares owned by the ESOT to the participants in the TIW
ESOP or the beneficiaries thereof to the extent necessary to comply with the
provisions of the TIW ESOP. The certificate or certificates representing such
Vertex Exchange Shares shall be endorsed with the following restrictive legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A MINIMUM HOLDING PERIOD OF
ONE YEAR BY THE HOLDER HEREOF AND MAY NOT BE OFFERED,
SOLD OR TRANSFERRED UNTIL AFTER ONE YEAR FROM THE DATE
OF THIS CERTIFICATE.
In addition, to the Knowledge of the Company and the Controlling
Shareholders, there is no current plan or intention by the Shareholders to
sell, exchange or otherwise dispose of any shares of Vertex Exchange Shares
received by the Shareholders in the Merger. For purposes of this
representation, shares of TIW Common Stock exchanged for cash or other
property, or surrendered by dissenters, or exchanged for cash in lieu of
fractional shares of Vertex Exchange Shares, will be treated as outstanding TIW
Common Stock on the Effective Date. Moreover, for purposes of this
representation, shares of TIW Common Stock presently held by the Shareholders
and otherwise sold, redeemed or disposed of prior to the Merger (including, but
not limited to, the shares of TIW Common Stock surrendered by the ESOT after
the Execution Date as payment against the outstanding indebtedness of the ESOT
to the Company) will be considered outstanding as of the Effective Date.
(ar) Conflicts of Interest. Except as a result of ownership of
securities of publicly-held companies, none of the officers or directors of the
Company or any Company Subsidiary has (i) any material direct or indirect
interest in any entity that does business with the Company or any Company
Subsidiary, (ii) any direct or indirect interest in any property, asset or
right which is used by the Company or any Company Subsidiary in the conduct of
its business, or (iii) any contractual relationship with the Company or any
Company Subsidiary, other than such relationships which occur from being an
officer, director or shareholder of the Company or any Company Subsidiary.
(as) Full Disclosure. No representation, warranty or statement of
the Company or any Controlling Shareholder set forth in this Agreement or any
exhibit or schedule hereto or any other document, statement or certificate
furnished by or on behalf of the Company by an officer of the Company or by the
Controlling Shareholders to Vertex or VAC pursuant hereto or in connection with
the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. There is no fact now
known to the Company or the Controlling Shareholders which adversely affects,
or which in the future is expected by the Controlling Shareholders (so far as
the Controlling Shareholders can now reasonably foresee) to adversely affect,
any of the Assets, or the operation of the Acquired Business, or the business
of any Company Subsidiary that has not been set forth herein or hereafter
communicated to Vertex in writing prior to the Effective Date.
AGREEMENT AND PLAN OF REORGANIZATION - Page 34
<PAGE> 43
(at) Acquisition of Substantially All the Assets. In the Merger,
VAC will acquire Assets which will comprise at least 85% of the fair market
value of the net assets of, and at least 70% of the fair market value of the
gross assets of, the Company held by the Company immediately prior to the
Merger. In addition, in the Merger, VAC will acquire all of the operating
assets of the Company held by the Company immediately prior to the Merger. For
purposes of these representations, assets of the Company (or of any Company
Subsidiary) used to pay the Company's Merger expenses, amounts paid by the
Company to dissenters, if any, and all redemptions and distributions made by
the Company immediately prior to the Merger (including, but not limited to, the
receipt by the Company of shares of TIW Common Stock surrendered by the ESOT as
payment against the ESOT's indebtedness to the Company, will be included as
assets of the Company immediately prior to the Merger.
(au) Certain Representations of the ESOT. The TIW ESOP has received
a favorable determination letter from the Internal Revenue Service evidencing
that the TIW ESOP currently satisfies the qualification requirements of
Sections 401(a) and 4975(e)(7) of the Code and is exempt from federal income
tax pursuant to Section 501(a) of the Code. No event has occurred with respect
to the TIW ESOP which might cause the loss of such exemption or result in the
imposition of any tax, penalty or other liability upon the Company, its
officers, directors or employees, the TIW ESOP or any fiduciary with respect to
the TIW ESOP under any Applicable Law, including but not limited to ERISA and
the Code. The TIW ESOP has operated in compliance with its terms and the
requirements of all Applicable Laws, including but not limited to ERISA and the
Code. All contributions which are due to the TIW ESOP have been paid to the TIW
ESOP. In addition, the ESOT has no present plan or intention to sell, exchange,
or otherwise dispose of any of the Vertex Exchange Shares received and owned by
the ESOT as a result of the Merger; provided, however, that the ESOT may
distribute shares of the Vertex Exchange Shares owned by the ESOT to
participants in the TIW ESOP or the beneficiaries thereof to the extent
necessary to comply with the provisions of the TIW ESOP.
2.2 Representations and Warranties of VAC and Vertex. As a material
inducement to the Company and the Shareholders to enter into this Agreement and
perform their respective obligations hereunder, VAC and Vertex severally
represent and warrant to the Company and the Shareholders as follows:
(a) Organization and Good Standing. VAC and Vertex are each a
corporation duly organized, validly existing and in good standing under the
laws of the States of Nevada and Texas, respectively. VAC and Vertex have the
requisite corporate power and authority to own, operate and lease their
respective properties and to carry on their respective businesses as now being
conducted. VAC and Vertex are each duly qualified to do business and in good
standing in each jurisdiction where the conduct of their respective businesses
or the nature and ownership of their respective properties require such
qualification. VAC is a wholly-owned subsidiary of Vertex. Neither Vertex nor
VAC is an investment company as defined in Section 368(a)(2)(F)(iii) of the
Code.
(b) Articles of Incorporation and Bylaws. VAC and Vertex each has
previously delivered to the Company true, accurate and complete copies of its
Articles of Incorporation and Bylaws, as amended to date certified by its duly
authorized and incumbent Secretary.
(c) Capitalization. The authorized capital stock of VAC consists of
One Hundred Thousand (100,000) shares of common stock, $.10 par value, of which
One Thousand (1,000) shares are issued and outstanding as of the date hereof,
all of which are owned by Vertex. There are no other class
AGREEMENT AND PLAN OF REORGANIZATION - Page 35
<PAGE> 44
or series of capital stock of VAC authorized. The authorized capital stock of
Vertex consists of 20,000,000 shares of Vertex Common Stock. As of March 28,
1997, Vertex had 4,476,689 shares of Vertex Common Stock issued and
outstanding, exclusive of shares reserved for issuance under various stock
compensation plans. There are no other class or series of capital stock of
Vertex authorized. The Vertex Common Stock is listed on the Nasdaq Stock
Market, National Market System, under the symbol VTEX. Vertex has adopted three
stock option plans: the Stock Option Plan for Key Employees, the 1995 Stock
Compensation Plan, and the Outside Directors Stock Option Plan under which
155,800, 482,467, and 25,000 shares of Vertex Common Stock remain reserved for
issuance, respectively.
(d) Vertex Exchange Shares. Vertex does not know of any reason that
would preclude Vertex from registering the Vertex Exchange Shares in accordance
with the provisions of Section 3.12 hereof. The issuance of the Vertex Exchange
Shares has been duly authorized and, when issued and delivered pursuant to this
Agreement, such shares will have been legally and validly issued and will be
fully paid and nonassessable and no shareholder of Vertex or VAC will have any
preemptive right of subscription or purchase in respect thereof. Neither Vertex
nor VAC has any current plan or intention to reacquire any of the Vertex
Exchange Shares.
(e) Maintenance of VAC. Vertex has no current plan or intention
prior to the first anniversary of the Effective Date to (i) liquidate VAC, (ii)
sell or otherwise dispose of the capital stock of VAC, or (ii) cause VAC to
sell or otherwise dispose of any of the Assets of the Company acquired in the
Merger, except for dispositions in the Ordinary Course of Business or transfers
described in Section 368(a)(2)(C) of the Code.
(f) Authorization. VAC and Vertex each has full corporate power and
authority to execute, deliver and perform this Agreement and the Ancillary
Documents to which said corporation is a party and to consummate the
transactions contemplated hereby and thereby. The respective Boards of
Directors of VAC and Vertex and the sole shareholder of VAC have duly approved
and authorized the execution, delivery and performance of this Agreement and
the Ancillary Documents and the consummation of the transactions contemplated
hereby and thereby, and no other corporate proceedings are required on the part
of VAC or Vertex to authorize the execution, delivery and performance by VAC or
Vertex of their respective duties and obligations pursuant to this Agreement
and such Ancillary Documents and the consummation of the transactions
contemplated hereby or thereby. Assuming that this Agreement constitutes a
valid and binding agreement of the Company, the Controlling Shareholders and
the ESOT, this Agreement and each Ancillary Document executed and delivered by
VAC or Vertex hereunder, or to be executed by VAC or Vertex, as applicable, has
been, or when executed will be, duly executed and delivered by VAC or Vertex,
as applicable, and constitutes, or when executed and delivered will constitute,
the valid and binding agreement of VAC or Vertex, as applicable, enforceable in
accordance with their respective terms, except as the enforceability hereof or
thereof may be subject to applicable bankruptcy, insolvency, reorganization or
other similar laws affecting creditors rights generally and to general
principles of equity which may limit the availability of certain equitable
remedies (such as specific performance) in certain instances.
(g) Compliance with Applicable Law. The business and operations of
Vertex have been, are being, and shall be at all times prior to the Effective
Date conducted in accordance with all Applicable Laws (including without
limitation, Applicable Laws relating to securities, properties, business
operations, products, manufacturing processes, advertising and sales practices,
employment practices, terms and conditions of employment, wages and hours,
safety, occupational safety, health, environmental
AGREEMENT AND PLAN OF REORGANIZATION - Page 36
<PAGE> 45
protection and civil rights), except for those which do not either individually
or in the aggregate have a Material Adverse Effect on Vertex. Vertex is not
charged or, to the Knowledge of Vertex, threatened with, or under investigation
with respect to, any alleged violation of any Applicable Law relating to any
aspect of the ownership or operation of its business.
(h) Consents and Approvals. No consent, authorization or approval
of, or declaration, filing or registration with, any governmental or regulatory
authority, or any other Person or entity, is necessary in order to enable VAC
or Vertex to enter into and perform their respective obligations under this
Agreement other than for (i) Vertex's obligation to file a registration
statement covering the Vertex Exchange Shares with the Commission prior to
February 28, 1998 as set forth in Section 3.12 hereof, (ii) the filing of any
premerger notification form required by the HSR Act (iii) the filing of
appropriate Articles of Merger with the Secretary of State of California and
the Secretary of State of Nevada, (iv) filings with various state blue sky
authorities, and (v) the filing with the Nasdaq Stock Market, National Market
System, of an application for listing of the Vertex Exchange Shares to be
issued in the Merger.
(i) Noncontravention. VAC and Vertex are not in violation of any
Applicable Law relating to VAC or Vertex with respect to any matter that would
have a Material Adverse Effect on VAC or Vertex or otherwise materially impair
the ability of VAC or Vertex to consummate the transactions contemplated
hereby. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (or with the passage
of time or the giving of notice will):
(1) Be in violation of the Articles of Incorporation or
Bylaws or other organizational documents of VAC or Vertex;
(2) Result in the creation, imposition or breach of any
Encumbrance upon any property or assets of VAC or Vertex or under any agreement
to which VAC or Vertex is bound;
(3) Accelerate, or constitute an event entitling, or which
would on notice or lapse of time or both entitle, the holder of any material
indebtedness of VAC or Vertex for borrowed money to accelerate the maturity of
any such indebtedness;
(4) Cause a default under any material mortgage or deed of
trust to which any property of VAC or Vertex is subject;
(5) Conflict with or result in the breach of any writ,
injunction or decree of any court or governmental instrumentality by which VAC
or Vertex is bound; or
(6) Conflict with or result in a violation or breach of, or
constitute (with or without the giving of notice or the passage of time or
both) a default under, or give to any Person or entity any right of
termination, cancellation, acceleration, or modification in or with respect to
any contract, note, license, franchise, permit, lease, agreement or other
instrument or obligation to which VAC or Vertex is a party or by which any of
the assets or properties of VAC or Vertex may be bound, and as to which any
such conflicts, violations, breaches, defaults, or rights individually or in
the aggregate have or may reasonably be expected to have a Material Adverse
Effect on the validity or enforceability of this Agreement or on the ability of
VAC or Vertex to perform their respective obligations under this Agreement.
AGREEMENT AND PLAN OF REORGANIZATION - Page 37
<PAGE> 46
(j) Securities Filings. Vertex has delivered to the Company copies
of the following documents previously filed by Vertex with the Commission: (i)
Vertex's annual report on Form 10-K for each of the fiscal years ended
September 30, 1994, September 30, 1995 and September 30, 1996, (ii) all proxy
statements relating to annual meetings of the shareholders of Vertex held since
December 31, 1994, and (iii) Vertex's quarterly report on Form 10-Q for the
quarter ended December 31, 1996. Vertex has filed all reports, registration
statements and other documents required to be filed by it under the Securities
Act and the Exchange Act (the "SEC Filings"). Vertex has delivered to or made
available for inspection by the Company and the Shareholders accurate and
complete copies of all the SEC Filings in the form filed by Vertex with the
Commission since October 1, 1993. The SEC Filings were prepared in accordance
and complied in all material respects with the applicable requirements of the
Securities Act or the Exchange Act, as applicable. None of such forms, reports
and statements, including, without limitation, any financial statements,
exhibits and schedules included therein and incorporated therein by reference,
at the time filed, declared effective or mailed, as the case may be, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent information contained in any of the SEC
Filings has been revised, corrected or superseded by a later-filed form, report
or document, none of the SEC Filings filed after October 1, 1993 currently
contains any untrue statement of a material fact or omits a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(k) Financial Statements. VAC was incorporated on March 5, 1997 and
has not yet commenced business and has no assets as of the date hereof other
than for the sum of $1,000.00. The audited consolidated balance sheet (the
"1996 Vertex Balance Sheet") and the related consolidated statements of
earnings and retained earnings and changes in stockholders' equity and cash
flow for the fiscal year ended September 30, 1996 of Vertex as certified by
Arthur Andersen LLP (the "1996 Vertex Financial Statements") have been
delivered to the Company as part of Vertex's annual report on Form 10-K for the
fiscal year ended September 30, 1996 as filed with the Commission. Except as
set forth in the notes to the 1996 Vertex Financial Statements, such financial
statements are in accordance with the books and records of Vertex, correctly
reflect valid transactions and present fairly the respective financial position
and the results of operations of Vertex as of the respective dates and for the
respective fiscal periods set forth therein in conformity with generally
accepted accounting principles (including the related notes and schedules
thereto) consistently applied during the periods involved (except as otherwise
stated therein).
(l) Absence of Undisclosed Liabilities. Except as, and to the
extent reflected or disclosed (or adequately reserved for or against) in the
1996 Vertex Balance Sheet, or except as specifically provided by this
Agreement, Vertex does not have any liabilities or obligations of any nature,
whether known or unknown, accrued, unliquidated, contingent or absolute,
required by generally accepted accounting principles to be reflected on the
1996 Vertex Balance Sheet, except for contractual liabilities or obligations
which were incurred in the Ordinary Course of Business since the date of the
1996 Vertex Balance Sheet, none of which either individually or in the
aggregate would have a Material Adverse Effect on Vertex.
(m) Absence of Certain Changes. Since the date of the 1996 Vertex
Balance Sheet, the business of Vertex has been conducted in the Ordinary Course
of Business, and Vertex has not (i) incurred or suffered any liability (whether
accrued, unliquidated, absolute, contingent or otherwise), or
AGREEMENT AND PLAN OF REORGANIZATION - Page 38
<PAGE> 47
any change which had a Material Adverse Effect on Vertex, (ii) incurred or
suffered as to its physical property or assets, any physical loss, change,
damage, destruction or other casualty (whether or not covered by insurance)
which had a Material Adverse Effect on Vertex, (iii) entered into any
commitment, contractual obligation, or transaction other than in the Ordinary
Course of Business and other than for those contemplated by this Agreement,
(iv) made any material change in the conduct or nature of the business or
operations of Vertex other than for those contemplated by this Agreement, (v)
made any material change in the accounting methods employed by Vertex,
including any such change in the valuation and recording of assets and
liabilities, (vi) incurred any obligation or liability to any Person for
borrowed money or other indebtedness, except for trade account payables
incurred in the Ordinary Course of Business or legal or accounting fees
incurred in connection with the Merger, (vii) sold, distributed or otherwise
transferred or committed to sell, distribute or transfer any of its tangible
assets, except for sales of inventory in the Ordinary Course of Business for
full value consistent with past practices, (viii) cancelled any debts or
claims, or waived any rights of substantial value, (ix) sold, assigned or
transferred any licenses, trademarks, trade names, patents, copyrights or other
intangible assets, (x) written off as uncollectible, any notes or accounts
receivable or portions thereof other than in the Ordinary Course of Business,
or (xi) to the Knowledge of Vertex incurred any change (or development) which
is likely to have a Material Adverse Effect within the next six (6) months on
Vertex.
(n) Title to Properties. Vertex owns (with good and marketable
title in the case of real property, subject only to the matters permitted by
the following sentence) all the properties and assets (whether real, personal,
or mixed and whether tangible or intangible) that it purports to own located in
the facilities owned or operated Vertex or reflected as owned in the books and
records of Vertex, including all of the properties and assets reflected in the
1996 Vertex Balance Sheet (except for assets held under capitalized leases and
personal property sold since the date of the 1996 Vertex Balance Sheet, as the
case may be, in the Ordinary Course of Business), and all of the properties and
assets purchased or otherwise acquired by Vertex since the date of the 1996
Vertex Balance Sheet (except for personal property acquired and sold since the
date of the 1996 Vertex Balance Sheet in the Ordinary Course of Business). All
material properties and assets reflected in the 1996 Vertex Balance Sheet are
free and clear of all Encumbrances and are not, in the case of real property,
subject to any rights of way, building use restrictions, exceptions, variances,
reservations, or limitations of any nature except, with respect to all such
properties and assets, (a) mortgages or security interests shown on the 1996
Vertex Balance Sheet as securing specified liabilities or obligations, with
respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (b) mortgages or security interests
incurred in connection with the purchase of property or assets after the date
of the 1996 Vertex Balance Sheet (such mortgages and security interests being
limited to the property or assets so acquired), with respect to which no
default (or event that, with notice or lapse of time or both, would constitute
a default) exists, (c) liens for current taxes not yet due, and (d) with
respect to real property, (i) minor imperfections of title, if any, none of
which is substantial in amount, materially detracts from the value or impairs
the use of the property subject thereto, or impairs the operations of Vertex,
and (ii) zoning laws and other land use restrictions that do not impair the
present or anticipated use of the property subject thereto. All buildings,
plants, and structures owned by Vertex lie wholly within the boundaries of the
real property owned by Vertex and do not encroach upon the property of, or
otherwise conflict with the property rights of, any other Person.
(o) Sufficiency and Condition of Properties. Except as disclosed in
writing to the Company and the Controlling Shareholders and the ESOT prior to
the execution of this Agreement, the properties owned, leased, or used by
Vertex are (i) in the case of tangible assets and properties, in good
AGREEMENT AND PLAN OF REORGANIZATION - Page 39
<PAGE> 48
operating condition and repair (ordinary wear and tear excepted) and have been
maintained in accordance with standard industry practice, (ii) suitable for the
purposes used, and (iii) adequate and sufficient for the normal operation of
Vertex's business as presently conducted. Such properties and their uses
conform to all Applicable Laws, except for such minor variations as do not
impair or interfere with the use of such properties for the purposes for which
they are employed and Vertex has not received any notice to the contrary.
(p) Legal Proceedings. Except as otherwise disclosed in Vertex's
annual report as filed with the Commission on Form 10-K for its fiscal year
ended September 30, 1996 or as disclosed in writing by VAC or Vertex to the
Company, the Controlling Shareholders and the ESOT prior to the Execution Date,
(i) no investigation or review by any domestic or foreign governmental entity
or self-regulatory authority with respect to VAC or Vertex or any of the
employees thereof (insofar as any such investigation for review relates to
their activities with VAC or Vertex) is pending or to the Knowledge of VAC or
Vertex, threatened, nor has any governmental authority indicated to VAC or
Vertex an intention to conduct the same, (ii) there is no claim, action, suit,
or proceeding pending, or, to the Knowledge of VAC or Vertex, threatened
against or affecting VAC or Vertex or any of their respective employees
(insofar as any such matters relate to their activities with VAC or Vertex) at
law or in equity, or before any federal, state, municipal, or other
governmental entity or arbitrator or arbitration panel which if adversely
decided, would, either individually or in the aggregate, have a Material
Adverse Effect on VAC or Vertex or materially impede the ability of VAC or
Vertex to consummate the transactions contemplated hereby and (iii) there are
no outstanding orders, judgments, injunctions, awards or decrees of any court,
public body or authority, arbitration panel or arbitrator by which VAC or
Vertex is bound or by which any of their respective employees are prohibited or
restricted from engaging in its business, which, either individually or in the
aggregate, have a Material Adverse Effect on VAC or Vertex or materially impede
the ability of VAC or Vertex to consummate the transactions contemplated
hereby.
(q) Finders. Neither VAC nor Vertex is obligated to pay any fee or
commission to any broker, finder or intermediary for or on account of the
transactions provided for in this Agreement.
(r) Accuracy of Information. No representation, warranty or
statement of VAC or Vertex set forth in this Agreement or any Ancillary
Document, statement or certificate furnished by or on behalf of VAC or Vertex
to the Company or the Shareholders pursuant hereto or in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact required to
be stated herein or therein or necessary in order to make the statements
contained herein or therein, in light of the circumstances under which they
were made, not misleading.
2.3 Nature of Statements. All statements contained herein or in any
schedule attached to this Agreement or in any certificate or other instrument
delivered by or on behalf of any party hereto pursuant to this Agreement at the
Closing shall be deemed representations and warranties. All representations,
warranties, covenants and agreements made by any Controlling Shareholder or by
the Company shall be deemed to be made by both the Controlling Shareholders and
the Company and shall be deemed to be several. Notwithstanding the foregoing
sentence, except for fraud or as otherwise set forth in this Agreement, in the
event of a breach by the Company or the Controlling Shareholders of a
representation, warranty, covenant or agreement, the Controlling Shareholders
shall have sole responsibility for any loss or damage from such breach subject
to the limitations set forth in Section 7.7 hereof, and neither the
AGREEMENT AND PLAN OF REORGANIZATION - Page 40
<PAGE> 49
Company nor any Company Subsidiary nor the Surviving Corporation nor the ESOT
shall have any liability for contribution or otherwise.
2.4 Survival of Representations, Warranties, and Agreements. All
representations and warranties, covenants and agreements of the parties
contained in this Agreement or in any Ancillary Document delivered pursuant
hereto or contemplated hereby shall survive the Closing. Any investigation at
any time made by VAC or Vertex or on behalf of VAC or Vertex shall not
constitute or operate as a waiver, defense, or limitation of any
representation, warranty, covenant or agreement made by the Company, the ESOT
or any Controlling Shareholder hereunder. Similarly, any investigation at any
time made by the Company, the ESOT or any Controlling Shareholder on behalf of
the Company, the ESOT or the Controlling Shareholders shall not constitute or
operate as a waiver, defense or limitation of any representation, warranty,
covenant or agreement made by VAC or Vertex hereunder. All representations,
warranties, covenants and agreements of the parties contained in this Agreement
shall expire, terminate and be of no force and effect on and after the
expiration of the close of business on the second anniversary of the Effective
Date, except that:
(a) The representations, warranties and covenants regarding
capitalization, title to the Assets and title to the TIW Common Stock contained
in Sections 2.1(d), 2.1(x) and 2.1(ap), respectively, shall survive forever;
(b) The representations, warranties and covenants regarding the
Taxes, Tax Return filings and payments of Taxes, contained in Section 2.1(t)
hereof shall survive until ninety (90) days after the expiration of the
applicable statutory period of limitation (including extensions thereto granted
prior to the Effective Date);
(c) The representations, warranties and covenants regarding
cooperation and consultation with respect to tax matters, contained in Section
3.13 hereof, and access to Company records contained in Section 3.14 hereof,
shall survive for a period coextensive with the period specified in Section
2.4(b) hereof; and
(d) The covenants set forth in Section 3.6 pertaining to
Confidential Information shall survive for a period of four (4) years from the
Effective Date.
Any right of indemnification pursuant to Article 7 hereof with
respect to a claimed breach of any representation, covenant or warranty shall
expire or terminate on the date of expiration or termination of the
representation, covenant or warranty claimed to be breached (each an
"Expiration Date"), unless on or prior to the Expiration Date written notice
asserting such breach has been given to the party from whom indemnification is
sought and provided suit is commenced within the period authorized by the
applicable statute of limitations; and, provided further, that if such a
claimed breach is timely made and such a suit is timely filed, it may be
continued to be asserted beyond the Expiration Date of the representation,
covenant, warranty or agreement to which such claim relates.
AGREEMENT AND PLAN OF REORGANIZATION - Page 41
<PAGE> 50
ARTICLE 3
COVENANTS
3.1 Access to Properties, Records and Clients. During the period from the
date of this Agreement to the Effective Date (the "Pre-Merger Period"), the
Company will provide, and the Company will cause each Company Subsidiary to
provide, VAC and Vertex and their respective accountants, counsel and other
authorized representatives, and responsible financial institutions designated
by VAC and Vertex as their representatives, full access, during reasonable
business hours (upon reasonable notice) and under reasonable circumstances to
(i) all of the properties, contracts, commitments, insurance policies, loans,
books, records, Tax Returns, pertinent corporate minute books and stock
transfer records, and other information and business documents of the Company
and the Company Subsidiaries, (ii) customers of the Company or any Company
Subsidiary as may reasonably be designated by VAC or Vertex, (iii) such
relevant information with respect to the business affairs and properties of the
Company and the Company Subsidiaries in the possession of the Company as VAC or
Vertex, or their counsel, may from time to time reasonably request, provided
that VAC and Vertex shall at all times relevant hereto exercise due diligence
to safeguard, maintain and otherwise secure the confidential nature of the
information so furnished to VAC or Vertex or their representative by the
Company or any Company Subsidiary, and (iv) allow VAC and Vertex or their
agents to enter upon the premises of the Company or any Company Subsidiary for
the purpose of inspecting the assets and facilities of any such entity and the
condition thereof, provided that access to the premises shall be permitted only
with the prior consent of the Company (which consent shall not unreasonably be
withheld). During the Pre-Merger Period, VAC and Vertex will have the full
cooperation of the Controlling Shareholders and the Company in confirming the
nature of the relationships between the Company or any Company Subsidiary and
their respective customers and suppliers, including whether or not such
relationships are satisfactory and whether or not such relationships are
expected to continue after the Merger. The Company shall have the right to have
a representative present at all times of any such inspections, interviews and
communications conducted by Vertex, VAC or by the representatives of Vertex or
VAC. Neither any investigation conducted by Vertex or VAC or their respective
representatives pursuant to this Section nor the results thereof shall affect
any representation or warranty of the Company or the Shareholders contained in
this Agreement or in any Ancillary Document delivered pursuant hereto or in
connection herewith, or the ability of VAC or Vertex to rely thereon.
3.2 Consultation. Upon the request of VAC and Vertex, the Company and the
Controlling Shareholders will consult with VAC and Vertex at all reasonable
times up to and including the Effective Date with respect to the operation and
conduct of the Acquired Business, provided that no party hereto shall incur any
liability to anyone as a result of the advice or suggestions offered in this
connection.
3.3 No Solicitation. Unless and until this Agreement shall have been
terminated by either party in accordance with the provisions of Section 6.1
hereof, the Company and the Controlling Shareholders shall not, and shall not
authorize or permit any of its officers, directors, employees or
representatives, without first obtaining the written consent of Vertex to,
solicit, initiate, encourage, negotiate or conclude any transaction which
entails the sale of all or any part of the assets of the Company or any Company
Subsidiary (other than sales in the Ordinary Course of Business), any merger or
consolidation of the Company or any Company Subsidiary with any Person or
entity other than the Company, Vertex or VAC, the sale or other transfer of any
outstanding capital stock of the Company or any Company Subsidiary to any
Person or entity other than the Company, Vertex or VAC or the issuance and sale
of any authorized but unissued shares of capital stock (other than upon
exercise of
AGREEMENT AND PLAN OF REORGANIZATION - Page 42
<PAGE> 51
presently outstanding rights, options or conversion privileges) to any third
party. In the event the Company or the Controlling Shareholders receive or
learn that any of the Company's officers, directors, employees or
representatives has received, from any third party any offer to enter into any
such prohibited transaction, then the Company and the Controlling Shareholders
shall promptly communicate to Vertex the material terms of such offer and the
identity of the third party making such offer.
3.4 Special Meeting of Company Shareholders. The Company shall take all
action necessary in accordance with the CGCL and the Company's Articles of
Incorporation and Bylaws to duly call, give notice of, convene, and hold a
special meeting of the Shareholders (the "Special Meeting") as promptly as
practicable after the date hereof to consider and vote upon the adoption and
approval of this Agreement and the Merger. The Board of Directors of the
Company shall, subject to its fiduciary obligations to the Company's
Shareholders under Applicable Law as advised by counsel, (i) recommend to the
Shareholders that they vote in favor of the adoption and approval of this
Agreement and the Merger, (ii) use its Best Efforts to solicit from the
Shareholders proxies in favor of such adoption and approval, and (iii) take all
other action reasonably necessary to secure a vote of the Shareholders in favor
of such adoption and approval.
3.5 Conduct of the Business of the Company Prior to the Effective Date.
Except as contemplated by this Agreement or as set forth in the Disclosure
Schedule or as expressly agreed to in writing by VAC, during the Pre-Merger
Period, the Company and the Company Subsidiaries shall conduct their respective
operations in the Ordinary Course of Business, subject to the following
conditions:
(a) Ordinary Course of Business. The business of the Company and
each Company Subsidiary shall be conducted diligently and only in the Ordinary
Course of Business in substantially the same manner as the Company or each
Company Subsidiary has heretofore conducted its business and neither the
Company nor any Company Subsidiary shall make any material change in personnel,
operations, finance, accounting policies, or real or personal property. Neither
the Company nor any Company Subsidiary nor the Controlling Shareholders shall
adopt a plan of complete or partial liquidation or resolutions providing for or
authorizing a liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization other than for the liquidation of any
Company Subsidiary into the Company. The Company and the Company Subsidiary
shall not acquire, or enter into any agreement or commitment to acquire (by
merger, consolidation or acquisition of stock or assets or otherwise) any
corporation, partnership or other business organization, or any interest
therein or division thereof.
(b) Maintenance of Assets. The Company and each Company Subsidiary
shall maintain its assets and all parts thereof in as good working order and
condition as at present, ordinary wear and tear excepted, consistent with past
practices and shall not sell, lease or otherwise dispose of any of its assets
other than in the Ordinary Course of Business for full value consistent with
past practice or as otherwise permitted by this Agreement. The Company and each
Company Subsidiary shall not make any capital expenditures or capital additions
or betterments, except as may be involved in ordinary repairs, maintenance and
replacement of its assets.
(c) Insurance of Assets. The Company and each Company Subsidiary
shall maintain in full force and effect present insurance policies or other
comparable insurance coverage with respect to the assets and potential
liabilities thereof.
AGREEMENT AND PLAN OF REORGANIZATION - Page 43
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(d) Contracts and Commitments. The Company and each Company
Subsidiary shall not make or renew, extend, amend, modify, or waive any
material provisions of any contract or commitment or relinquish or waive any
material contract rights or agree to the termination of any material contract,
except in the Ordinary Course of Business. The Company and each Company
Subsidiary shall use its Best Efforts to perform all obligations under
agreements relating to or affecting its business or their respective assets.
The Company and each Company Subsidiary shall not sell, transfer, license or
otherwise dispose of or lease any material part of their respective assets,
including any Intellectual Property.
(e) Debts and Liabilities. The Company and each Company Subsidiary
shall not (i) create or incur any liabilities other than current liabilities
incurred in the Ordinary Course of Business and liabilities to its attorneys or
accountants in connection with the Merger; (ii) discharge or satisfy any lien,
charge, encumbrance, nor pay any obligation or liability, absolute or
contingent, except liabilities shown on the 1996 TIW Balance Sheet, Retained
Liabilities, liabilities incurred since the date of the 1996 TIW Balance Sheet
in the Ordinary Course of Business, or liabilities to its attorneys or
accountants in connection with the Merger; (iii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other Person; (iv) make any loans,
advances or capital contributions to, or investments in, any other Person other
than a Company Subsidiary; (v) enter into or modify any contract to do any of
the foregoing; or (vi) mortgage or pledge any of their respective assets.
(f) Corporate Documents. Neither the Company nor any Company
Subsidiary shall amend its Articles of Incorporation or Bylaws.
(g) Employment Practices. The Company and each Company Subsidiary
shall use its Best Efforts to maintain and preserve its business organization
intact and retain in its employ its current employees. The Company and each
Company Subsidiary shall not (i) willfully pay or agree to pay, conditionally
or otherwise, any bonus, extra compensation, extraordinary reimbursement for
expenses, pension, or severance payment to any director or shareholder,
officer, consultant, agent, or employee under any retirement plan or otherwise
or increase the compensation paid by the Company or any Company Subsidiary to
any officer, director, agent, consultant, or employee from the amount of such
compensation being paid on the date of the 1996 TIW Balance Sheet, except in
the Ordinary Course of Business and consistent and in conformity with the past
practices of the Company or such Company Subsidiary; or (ii) enter into, adopt,
or (except as may be required by Applicable Law) amend or terminate any bonus,
profit sharing, compensation, severance, termination, stock option, stock
appreciation right, restricted stock, pension, retirement, deferred
compensation, employment, or other employee benefit agreement, trust, plan,
fund or other arrangement for the benefit or welfare of any director, officer
or employee.
(h) Goodwill. The Company and each Company Subsidiary shall use its
Best Efforts to preserve the goodwill of its suppliers, customers, employees
and those having business relations with the Company or any such Company
Subsidiary and shall use its Best Efforts to retain their respective
relationship with all of such Persons or entities; provided, however, the
Company and the Company Subsidiary shall not be restricted or prohibited from
taking all reasonable efforts consistent with past practices to collect
outstanding accounts receivable.
AGREEMENT AND PLAN OF REORGANIZATION - Page 44
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(i) Litigation. The Company and each Company Subsidiary shall not
institute, settle, or agree to settle any action or proceeding pending before
any Court or governmental body.
(j) Conflicts. The Company and each Company Subsidiary shall not
enter into any transactions or take any acts which if perfected or performed
prior to the Effective Date, would constitute a breach of the representations,
warranties and agreements of the Company contained herein.
(k) Capital Stock. The Company and each Company Subsidiary shall
not: (i) declare or pay any dividend (whether in cash, stock or property or any
combination thereof) on or make any other distribution upon, or purchase,
retire, or redeem any shares of its capital stock, or set aside any funds for
any such purpose; (ii) issue or sell or obligate itself to issue or sell any
additional shares of its capital stock (other than pursuant to certain stock
options outstanding as of the Execution Date), whether or not such shares have
been previously authorized or issued, or issue or sell any warrants, rights, or
options to acquire any such shares or to acquire any stock of any corporation
or any interest in any business enterprise; (iii) split, combine or reclassify
any shares of its capital stock; or (iv) purchase or redeem or otherwise
acquire any outstanding shares of capital stock or securities convertible into
any such shares, or any rights, warrants or options to acquire any such shares
or convertible securities; provided, however, the Company may accept the
surrender of certain shares of TIW Common Stock owned by the ESOT from the ESOT
and apply the fair market value of such surrendered shares against the
outstanding indebtedness (principal plus accrued interest) of the ESOT to the
Company.
(l) Tax Returns. The Company and each Company Subsidiary shall not
amend any Tax Return, except to the extent required by Applicable Law, or make
any Tax election or settle or compromise any federal, state, local or foreign
Tax liability material to the Company or any Company Subsidiary.
3.6 Confidential Information.
(a) Return of Confidential Information. In the event of the
termination of this Agreement, for any reason or by any party, VAC and Vertex
shall immediately return to the Company all written information and
documentation (and all copies thereof) in the possession or under the control
of VAC or Vertex or any of the representatives of VAC or Vertex, concerning any
aspect of the business operations of the Company or any Company Subsidiary,
obtained at any time during VAC's or Vertex's due diligence investigation of
the Company or any Company Subsidiary, whether prior to or following the
execution of this Agreement, or derived or compiled therefrom by VAC or Vertex
or any of VAC's or Vertex's representatives, all of which is acknowledged to
contain confidential information of the Company or such Company Subsidiary, as
applicable. Such information and documentation in written form, together with
all information concerning the Company and the Company Subsidiary and their
respective business operations, and customer lists shall be hereinafter
referred to as "Confidential Information."
(b) Non-Disclosure and Non-Use of Confidential Information. VAC and
Vertex shall, at all times, keep strictly confidential, and shall not disclose
or permit the disclosure to any third person or entity, of any or all
Confidential Information, and shall not, in any manner or at any time, except
in connection with the conduct of litigation arising out of this Agreement or
any of the transactions contemplated herein, use or permit the use of any such
Confidential Information, for the benefit of itself or others.
AGREEMENT AND PLAN OF REORGANIZATION - Page 45
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(c) Specific Performance. VAC and Vertex specifically acknowledge
that all Confidential Information received, derived, or compiled by it is
proprietary, unique, and confidential information of the Company or the
applicable Company Subsidiary, and that a violation of the covenants and
agreements of VAC or Vertex contained in subsections (a) and (b) of this
Section will cause continuing and irreparable harm to the Company or such
Company Subsidiary. Therefore, the Company shall, in addition to any other
rights or remedies available to the Company, at law or in equity, have the
right to apply to a court of competent jurisdiction for an injunction to
restrain the violation or continuing violation of such covenants and agreements
by VAC and Vertex.
3.7 Hart-Scott-Rodino Act Notification. To the extent required by the HSR
Act, each of the parties hereto shall (i) file or cause to be filed, as
promptly as practicable after the execution and delivery of this Agreement,
with the Federal Trade Commission and the United States Department of Justice,
all reports and other documents, if any, required to be filed by such party
under the HSR Act concerning the transactions contemplated hereby and (ii)
promptly comply with or cause to be complied with any requests by the Federal
Trade Commission or the United States Department of Justice for additional
information concerning such transactions, in each case so that the waiting
period applicable to this Agreement and the transactions contemplated hereby
under the HSR Act shall expire as soon as practicable after the execution and
delivery of this Agreement. Prior to making any filing under the HSR Act, each
party will obtain the consent of the other party to the content of such filing,
which consent shall not be unreasonably withheld. Each party hereto agrees to
request, and to cooperate with the other party or parties in requesting, early
termination of any applicable waiting period under the HSR Act. The filing fees
and other costs of compliance with the HSR Act (other than each party's
attorneys' and accountant's fees and other third party expenses) shall be borne
equally by Vertex and the Company.
3.8 Best Efforts. Each party hereto agrees that such party will not
voluntarily undertake any course of action inconsistent with the provisions or
intent of this Agreement and will use such party's Best Efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
reasonably necessary, proper, or advisable under Applicable Laws to consummate
the transactions contemplated by this Agreement, including, without limitation,
(i) cooperation in the preparation and filing of the Registration Statement
described in Section 3.12 hereof; (ii) causing the Registration Statement to be
declared effective by the Commission as promptly as practicable after filing;
(iii) cooperation in determining whether any consents, approvals, orders,
authorizations, waivers, declarations, filings, or registrations of or with any
governmental entity or third party are required in connection with the
consummation of the transactions contemplated hereby; (iv) obtaining any such
consents, approvals, orders, authorizations, and waivers required to consummate
the transactions contemplated by this Agreement and to effect any such
declarations, filings, and registrations, including, without limitation, the
execution and filing of appropriate Articles of Merger with the Secretary of
State of California and the Secretary of State of Nevada; (v) causing the
conditions set forth in Sections 4.1 and 4.2, as applicable, to be satisfied on
or prior to the Closing Date; (vi) causing to be lifted or rescinded any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated hereby; (vii)
defending, and cooperating in defending, all lawsuits or other legal
proceedings challenging this Agreement or the consummation of the transactions
contemplated hereby; and (viii) the execution and delivery of any additional
Ancillary Documents necessary to effectuate and consummate the transactions
contemplated hereby.
3.9 Public Announcements. VAC, Vertex and the Company shall not issue any
press release or otherwise make any public statement with respect to the
transactions contemplated herein without the
AGREEMENT AND PLAN OF REORGANIZATION - Page 46
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agreement of the other party to the release and disclosure and to its contents
(which consent shall not be unreasonably withheld). Notwithstanding anything to
the contrary contained herein, either party prior to or after Closing or
termination of this Agreement, as applicable, may issue any press release or
make any public statement without approval of the other as may be required by
law, provided the party issuing the press release or making such statement
shall give first prior notice thereof to the other party and consult with the
other party as to the contents thereof.
3.10 Disclosure of Certain Matters. During the Pre-Merger Period, the
Company will give prompt written notice to Vertex of any event or development
which occurs during the Pre-Merger Period which (i) had it existed or been
known on the Execution Date of this Agreement, would have been required to be
disclosed under this Agreement, (ii) would cause any of the representations and
warranties of the Company or the Shareholders contained herein to be inaccurate
or otherwise misleading, or (iii) materially relates to the satisfaction of the
conditions set forth in Section 4.1 hereof. Similarly, during the Pre-Merger
Period, VAC and Vertex will give prompt written notice to the Company, the ESOT
and the Controlling Shareholders of any event or development which occurs
during the Pre-Merger Period which (i) had it existed or been known on the
Execution Date of this Agreement, would have been required to be disclosed
under this Agreement, (ii) would cause any of the representations and
warranties of VAC or Vertex contained herein to be inaccurate or otherwise
misleading, or (iii) materially relates to the satisfaction of the conditions
set forth in Section 4.2 hereof. The delivery of any notice purchase to this
Section shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, (ii) modify the conditions set
forth in Sections 4.1 or 4.2 hereof, or (iii) limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
3.11 Delivery and Amendment of Schedules. The Company and Vertex shall
each deliver any required schedules relating to the representations and
warranties of such party contained in this Agreement to the other party prior
to or simultaneously with the execution of this Agreement. Any date on which a
party delivers any such schedule is referred to as a "Schedule Delivery Date"
for such party. Each party hereto agrees that, with respect to the
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing to supplement or
amend promptly the schedules delivered by such party hereunder with respect to
any matter hereafter arising or discovered which, if existing or known on a
Schedule Delivery Date, would have been required to be set forth or described
in the schedules, including, without limitation, any material development with
respect to any pending on threatened litigation or governmental proceeding
previously disclosed in the schedules. For all purposes of this Agreement,
including without limitation for purposes of determining whether the conditions
set forth in Sections 4.1 and 4.2 have been fulfilled, the schedules hereto
shall be deemed to include only that information contained therein on a
Schedule Delivery Date and shall be deemed to exclude all information contained
in any supplement or amendment thereto.
3.12 Registration of Vertex Exchange Shares.
(a) Voluntary Registration by Vertex. Vertex shall file a
registration statement (the "Registration Statement") with the Commission under
the Securities Act on Form S-3 or other permissible form suitable for a
secondary offering on or before February 28, 1998 and will use its Best Efforts
to obtain the effectiveness of such Registration Statement. The Registration
Statement will include therein at the cost and expense of Vertex (except for
(i) the fees and expenses of counsel to the holders of the Vertex Exchange
Shares and (ii) the underwriting commissions, discounts and other fees, if any,
payable to any underwriter with respect to the Shareholders' Registrable Shares
as hereinafter defined, which
AGREEMENT AND PLAN OF REORGANIZATION - Page 47
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amounts shall be paid by the Shareholders) the Vertex Exchange Shares and any
additional shares of the Vertex Common Stock received by a holder of the Vertex
Exchange Shares (the "Holder") as the result of a stock split or a stock
dividend pertaining to the common stock of Vertex, which additional shares, if
any, shall be considered part of the Vertex Exchange Shares for purposes of
this Section (collectively, the "Shareholders' Registrable Shares"). Vertex, at
its own expense, will cause the prospectus included in such Registration
Statement to meet the requirements of the Securities Act for such period of
time, not exceeding nine (9) months after the effective date of the
Registration Statement, as may be necessary to effect the sale of the
Shareholders' Registrable Shares.
(b) Demand Registration Rights of Shareholders. In the event Vertex
does not file the Registration Statement required to be filed by Vertex
pursuant to the provision of Section 3.12(a) hereof, the Shareholders shall
have the one time right upon written notice to Vertex at any time after
February 28, 1998 and prior to December 31, 1998 to require Vertex to file with
the Commission a Registration Statement under the Securities Act covering only
(i) the offering and sale of the Shareholders' Registrable Shares, and (ii) the
minimum number of shares of the Vertex Common Stock required to be sold by
Vertex in order for Vertex to recoup its expenses incurred in filing such
Registration Statement or such greater number of shares of the Vertex Common
Stock that an underwriter states can be sold on a firm commitment basis without
interfering with the sale of the Shareholders' Registrable Shares. Vertex will
use its Best Efforts to cause such Registration Statement to become effective
as expeditiously as possible. In connection with the registration of the
Shareholders' Registrable Shares effected pursuant to this Section, Vertex
shall bear all costs and expenses of such registration and inclusion of the
Shareholders' Registrable Shares therein, except for (i) the fees and expenses
of counsel to the Shareholders, and (ii) the underwriting commissions,
discounts and other fees, if any, payable to any underwriter with respect to
the Shareholders' Registrable Shares, which amounts shall be paid by the
Shareholders. The rights of the Shareholders pursuant to this Section shall be
specifically enforceable by the Shareholders.
3.13 Certain Tax Matters.
(a) Preparation and Filing of Tax Returns.
(1) Taxable Periods Ending on or Before the Effective Date.
The Controlling Shareholders shall be responsible for preparing and filing, or
causing the Company to prepare and file, the Tax Returns for the Company and
the Company Subsidiaries on a timely basis for all taxable periods ending on or
before the Effective Date.
(2) Taxable Periods Commencing After the Effective Date. VAC
shall be responsible for preparing and filing, or causing the Company and the
Company Subsidiaries to prepare and file, the Tax Returns for the Company and
the Company Subsidiaries for all taxable periods commencing after the Effective
Date.
(3) Taxable Periods Commencing Before and Ending After the
Effective Date. VAC shall be responsible for preparing and filing, or causing
the Company and the Company Subsidiaries to prepare and file, the Tax Returns
for the Company and the Company Subsidiaries for all taxable periods commencing
before and ending after the Effective Date.
(b) Liability for Taxes.
AGREEMENT AND PLAN OF REORGANIZATION - Page 48
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(1) Taxable Periods Ending on or Before the Effective Date.
Subject to the limitations set forth in Section 7.7 hereof, the Controlling
Shareholders shall be solely liable for, and shall indemnify and hold harmless
Vertex and the Company against, all unpaid Taxes of the Company and the Company
Subsidiaries due for all taxable years and periods ending on or before the
Effective Date and for the portion of any Straddle Period (as defined below)
ending on the Effective Date; provided, however, that the Controlling
Shareholders shall not be liable for Taxes specifically recorded and fully
reserved on the 1996 TIW Balance Sheet or the Interim Balance Sheet.
(2) Taxable Periods Commencing After the Effective Date. The
Surviving Corporation or the applicable Company Subsidiary shall be solely
liable for all Taxes of the Surviving Corporation or such Company Subsidiary,
as applicable, for all taxable years and periods commencing after the Effective
Date. The Surviving Corporation shall indemnify and hold harmless the
Controlling Shareholders against any and all Taxes for any taxable year or
taxable period commencing after the Effective Date due or payable by the
Surviving Corporation.
(3) Taxable Periods Commencing Before and Ending After the
Effective Date. Vertex shall cause the Surviving Corporation and the Company
Subsidiaries to pay all Taxes due for any taxable year or taxable period
commencing before and ending after the Effective Date (the "Straddle Period").
Subject to the limitations set forth in Section 7.7 hereof, the Controlling
Shareholders shall pay to the Surviving Corporation an amount equal to the
excess, if any, of (i) the Taxes that would have been due if the Straddle
Period had ended on the Effective Date (using an interim-closing-of-the-books
method, except that exemptions, allowances, and deductions that are otherwise
calculated on an annual basis [such as deductions for real estate Taxes,
depreciation, and depletion] shall be apportioned on a per diem basis) over
(ii) the sum of (a) the Taxes for the Straddle Period paid prior to the
Effective Date by the Company or by the Controlling Shareholders with respect
to the Company and (b) the Taxes specifically recorded and fully reserved on
the Interim Balance Sheet.
(c) Audit of Tax Returns. In the event that a taxing or
governmental authority should audit the Company's Tax Returns for periods
ending no later than the Effective Date, Vertex shall cause the Surviving
Corporation to cooperate with the Controlling Shareholders and make available
to the Controlling Shareholders certain records of the Company as set forth in
Section 3.14 hereof. Concerning the results of such an audit:
(1) Subject to the limitations set forth in Section 7.7
hereof, the Controlling Shareholders shall be liable for any additional Taxes
that the Company may owe relating to periods ending no later than the Effective
Date; and
(2) The Controlling Shareholders shall be due any tax refunds
and interest that the Company may receive relating to periods ending no later
than the Effective Date; provided, however, the Controlling Shareholders shall
not be entitled to any refund to the extent such refund is generated using loss
carrybacks from taxable periods beginning after the Effective Date.
(d) Tax Treatment of Merger. Each of the parties hereto shall use
such party's Best Efforts to cause the Merger, and to take no action which
would cause the Merger not, to qualify for treatment as a reorganization within
the meaning of Section 368(a) of the Code for federal income tax purposes,
except to the extent that cash is distributed to the Shareholders in exchange
for the TIW Common Stock.
AGREEMENT AND PLAN OF REORGANIZATION - Page 49
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3.14 Records of the Company. Following the Effective Date hereof, VAC
will make available to the Shareholders, at such time or times as the
Shareholders may reasonably request, for inspection and copying, all books,
records, memoranda and other financial data of the Company relating to the
transactions and business of the Company prior to or on the Effective Date as
the Shareholders shall deem necessary or desirable for any tax or other
appropriate business purpose.
ARTICLE 4
CONDITIONS PRECEDENT TO CLOSING
4.1 Conditions Precedent to Obligations of VAC and Vertex. The
obligations of VAC and Vertex hereunder are, at the option of VAC or Vertex, as
applicable, subject to and conditioned upon the satisfaction and fulfillment by
the Company and the Shareholders, as applicable, on or prior to the Closing
Date, of each of the following conditions, unless waived by VAC or Vertex as
provided herein:
(a) Representations and Warranties True. The representations and
warranties of the Company, the Controlling Shareholders and the ESOT contained
in this Agreement, and in any Ancillary Document delivered pursuant hereto or
in connection herewith on or prior to the Closing Date, shall be true and
correct in all material respects as of the date hereof and shall be true and
correct in all material respects as if made on the Closing Date (except to the
extent that any representations and warranties of the Company, the Controlling
Shareholders or the ESOT specifically relate to an earlier date, in which case
such representation or warranty shall have been true and correct in all
material respects as of such earlier date).
(b) Performance of Obligations. The Company, the Controlling
Shareholders and the Minority Shareholders shall have performed and complied
with all agreements, covenants or conditions required by this Agreement to be
performed and complied with by each such party prior to or on the Closing Date.
Without limiting the generality of the foregoing, all liquidated Retained
Liabilities of the Company shall have been paid either outright or through the
establishment of a funded reserve therefor or otherwise discharged in full, and
each Minority Shareholder other than the ESOT shall have executed and delivered
a Share Exchange and General Release Agreement in the form attached hereto as
Exhibit "C" to VAC.
(c) Absence of Litigation. No order, stay, judgment, or decree
shall have been issued by any court or any governmental entity restraining or
prohibiting the consummation of the transactions contemplated by this
Agreement. No action or proceeding before a court or any other governmental
agency or body shall have been instituted or threatened to restrain or prohibit
the consummation of the transactions herein contemplated or which would in any
material way adversely affect the Assets, business or prospects of the Company
or any Company Subsidiary, and no governmental agency or body shall have taken
any other action or made any request of the Company, VAC or Vertex which would
have a material adverse effect on the transactions contemplated hereby.
(d) Opinions of Counsel. Vertex shall have received an opinion of
Fenwick & West LLP, counsel for the Company, dated the Closing Date,
substantially in the form of Exhibit "D" attached hereto. In addition, Vertex
shall have received an opinion of Gray Cary Ware & Freidenrich, P.C., counsel
for the ESOT, dated the Closing Date, in form and substance reasonably
acceptable to Vertex covering the authority of the ESOT to enter into this
Agreement and perform the ESOT's obligations
AGREEMENT AND PLAN OF REORGANIZATION - Page 50
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under this Agreement, the binding effect of this Agreement on the ESOT and such
other matters pertaining to the ESOT as Vertex may reasonably request.
(e) Consents and Approvals. All consents, waivers, approvals and
authorizations of third parties which are necessary in the reasonable opinion
of Vertex, effectively to complete the transactions herein contemplated shall
have been obtained and will be in form and substance reasonably satisfactory to
Vertex.
(f) HSR Act Compliance. The waiting period under the HSR Act, if
such Act is applicable to the Merger, shall have expired or been terminated.
(g) Certificate of the Company. The Company shall have delivered to
Vertex a certificate, which shall be dated as of the Closing Date and which
shall be signed by a duly authorized officer of the Company certifying (i) the
authority of the Company to enter into and consummate the transactions
contemplated by this Agreement, (ii) the authority of the officers of the
Company to execute and deliver this Agreement and any Ancillary Documents
contemplated by this Agreement on behalf of the Company, (iii) the
representations and warranties of the Company and the Controlling Shareholders
contained in Section 2.1 hereof were true and correct when made and are true
and correct as of the Closing Date (except to the extent that any
representation or warranty of the Company or the Controlling Shareholders
specifically relates to an earlier date, in which case such representation or
warranty shall have been true and correct in all material respects as of such
earlier date), and (iv) each and every covenant and agreement of the Company
contained in the Agreement to be performed by the Company on or prior to the
Closing Date has been performed by the Company.
(h) No Adverse Change. No material adverse change in the results of
operations, financial condition or business of the Company and the Company
Subsidiaries shall have occurred, and neither the Company nor the Company
Subsidiaries shall have suffered any material change, loss or damage to the
assets, business or prospects of such entity, whether or not covered by
insurance, since the date of the 1996 TIW Balance Sheet.
(i) Due Diligence Review. The due diligence review to be conducted
by Vertex prior to the Closing with respect to the Assets, business,
operations, income, prospects or condition (financial or otherwise) of the
Company and the Company Subsidiaries and the representations, warranties and
covenants of the Company and the Controlling Shareholders set forth herein
shall be completed and the results thereof shall not have caused Vertex or its
representatives to become aware of any material facts relating thereto, which,
in the good faith judgment of Vertex, makes it inadvisable for Vertex to
proceed with the transactions contemplated hereby; provided, however, that this
condition shall be deemed to have been satisfied unless Vertex shall notify the
Company in writing before 5:00 P.M. Central Daylight Time on the earlier of (a)
the 10th business day after the Execution Date, or (b) the day immediately
preceding the Closing Date, of Vertex's determination that it is inadvisable to
proceed with the transactions contemplated by this Agreement.
(j) Resignations. VAC shall have received the written resignation
of each of the directors of the Company other than Luik.
(k) Dissenting Shareholders. Shareholders owning not less than
ninety-two percent (92%) of the issued and outstanding capital stock of the
Company shall have approved the Agreement and
AGREEMENT AND PLAN OF REORGANIZATION - Page 51
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the Merger, so that the dissenting shareholders, if any, shall not own more
than eight percent (8%) of the issued and outstanding capital stock of the
Company.
(l) Noncompetition Agreements. Luik and Louis Becker ("Becker")
shall have each entered into a Noncompetition Agreement with Vertex
substantially in the form of the Noncompetition Agreements attached hereto as
Exhibits "E" and "F," respectively, and incorporated herein by this reference.
(m) Employment Agreements. Luik and Becker shall have each entered
into an Employment Agreement with VAC (which will then be known as TIW Systems,
Inc. due to a change of VAC's corporate name pursuant to the Merger), effective
as of the Effective Date, substantially in the form of the Employment
Agreements attached hereto as Exhibits "G" and "H," respectively, and
incorporated herein by this reference.
(n) Environmental Evaluation and Assessments. Vertex shall have
obtained, at Vertex's expense, not later than two business days prior to the
Closing Date, an environmental assessment, audit and review, in form and
content reasonably satisfactory to Vertex with respect to all material real
estate owned, leased or operated by the Company or any Company Subsidiary
(other than leased real estate used exclusively for executive office purposes).
The Company and the Company Subsidiaries shall allow Vertex and its
representatives, agents, consultants, and attorneys access to any and all
properties owned, leased, or operated by the Company and the Company
Subsidiaries, and shall make available for review any and all relevant
documents and any and all employees for interviews for purposes of any and all
environmental inspections, audits, assessments, studies, sampling, testing, or
other environmental due diligence activities Vertex in its sole discretion
shall deem appropriate.
(o) Contribution of Certain Shares or Interest. Luik shall have
contributed to the Company, without additional compensation therefor, Luik's
entire interest in any shares of capital stock or other equity interest or
license held by Luik as nominee for the Company, including, but not limited to,
Luik's interest in Tarberaud A.S. Notwithstanding the preceding, Luik and his
wife shall have entered into a binding Letter Agreement with VAC to sell and
deliver all their shares of capital stock in TIW Communications, Inc. (a
corporation in which Luik is the sole shareholder of record and which holds FCC
licenses for experimental transmissions and which is in the process of
acquiring a FCC license as a domestic and international carrier) to VAC at the
Closing for an aggregate consideration in the amount of $10.00. Said Letter
Agreement shall also provide that Luik shall use his Best Efforts and cooperate
with VAC in effectuating the transfer of the FCC license to VAC.
(p) Escrow of Shares. Tonisson and Luik shall have executed and
delivered the Escrow Agreement substantially in the form of the Escrow
Agreement attached hereto as Exhibit "J" and shall have deposited the Escrowed
Shares in escrow pursuant to the terms and conditions of said Escrow Agreement.
(q) Amendment of TIW ESOP. The Company shall have amended the TIW
ESOP, including the provisions of Sections 5.2(f) and 6.2(b) thereof, so as to
permit or facilitate the consummation of the transactions contemplated by this
Agreement and converting the ESOP to a stock bonus plan and shall have executed
and delivered an appropriate amendment to the TIW ESOP evidencing such
amendments to Vertex.
AGREEMENT AND PLAN OF REORGANIZATION - Page 52
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(r) Minimum Value of Vertex Exchange Shares. The aggregate fair
market value of the Vertex Exchange Shares on the Effective Date, based upon
the closing sales price of a share of Vertex Common Stock as listed on the
Nasdaq Stock Market, National Market System, shall not be less than 40% of the
aggregate fair market value of the Merger Consideration as of the Effective
Date. In addition, the aggregate fair market value of the Vertex Exchange
Shares on the Effective Date, based upon the closing sales price of a share of
Vertex Common Stock as listed on the Nasdaq Stock Market, National Market
System, received by the holders of the Historic Shares of the Company (as
hereinafter defined) shall not be less than 40% of the aggregate fair market
value of the Vertex Common Stock and cash received, or deemed received, by the
Shareholders or the Company after taking into consideration (i) any decrease in
the fair market value of a share of Vertex Common Stock as of the Effective
Date from the fair market value of a share of Vertex Common Stock as of January
21, 1997, said date being the date the Letter of Intent pertaining to the
transactions contemplated by this Agreement was executed by the parties hereto,
(ii) any cash paid to a Shareholder in lieu of a fractional share of Vertex
Common Stock, (iii) the aggregate amount of that part of the Merger
Consideration payable to any record or beneficial owner of TIW Common Stock who
voted against the Merger, and (iv) the fair market value of the unallocated
shares of TIW Common Stock owned by the ESOT which were surrendered by the ESOT
to the Company after the Execution Date in payment of the outstanding
indebtedness of the ESOT to the Company. For purposes of this Agreement, the
Historic Shares of the Company shall mean all shares of TIW Common Stock
outstanding at any time after the Execution Date other than the following: (i)
the 50,000 shares of TIW Common Stock acquired by Robert Wallace by exercising
a stock option previously granted to him by the Company, (ii) the 25,000 shares
of TIW Common Stock acquired by John Griffiths by exercising a stock option
previously granted to him by the Company, (iii) the allocated but unvested
shares of TIW Common Stock held of record by the ESOT, and (iv) the unallocated
shares of TIW Common Stock surrendered by the ESOT after the Execution Date as
payment against the outstanding indebtedness of the ESOT to the Company.
(s) Payment of ESOP Loan. Vertex shall have received evidence from
the Company that the outstanding indebtedness (principal, plus all accrued
interest thereon to date of payment) of the ESOT to the Company has been paid
in full by the ESOT.
(t) Termination of Deferred Compensation Obligation. Vertex shall
have received a written agreement executed by the Company, Luik and Becker
acknowledging that the obligations of the Company or its successors to make any
additional contributions to the STEP Multiple Employer Supplemental Benefit
Plan ("TIW Supplemental Benefit Plan") previously adopted by the Company on
February 26, 1996 has been terminated by the mutual agreement of the Company,
Luik and Becker, that the Company has no further obligations to Luik or Becker
thereunder, and neither Luik nor Becker has any claim against the Company or
its successors arising from or related to the TIW Supplemental Benefit Plan
other than for the paid up benefits due Luik or Becker as of the Execution
Date, which benefits will be paid by a third party to Luik and Becker upon
their termination of employment in accordance with the provisions of the TIW
Supplemental Benefit Plan and which paid up benefits will not exceed the sum of
$60,000 for Luik and $__________ for Becker.
4.2 Conditions Precedent to Obligations of the Company. The obligations
of the Company and the Shareholders hereunder are, at the option of the Company
and the Shareholders, subject to and conditioned upon the satisfaction and
fulfillment by VAC or Vertex, as applicable, on or prior to the Closing Date,
of each of the following conditions, unless waived by the Company as provided
herein:
AGREEMENT AND PLAN OF REORGANIZATION - Page 53
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(a) Delivery of Merger Consideration. VAC or Vertex shall have
delivered to either the Transfer Agent, Luik or counsel for the Company a duly
executed stock certificate or certificates evidencing the Vertex Exchange
Shares to be issued to the Shareholders in accordance with the provisions of
Section 1.4 hereof along with certified or cashier's checks or wire transfers
in the aggregate amount of the Cash Portion of the Merger Consideration and a
letter of instructions directing either the Transfer Agent, Luik or counsel for
the Company, as applicable, to deliver the certificates evidencing the
ownership of the Vertex Exchange Shares and the Cash Portion of the Merger
Consideration to the respective Shareholders in accordance with the provisions
of Section 1.4 hereof. VAC shall have delivered a copy of the aforesaid letter
of instructions to the Controlling Shareholders.
(b) Representations and Warranties True. The representations and
warranties of VAC and Vertex contained in this Agreement, and in any agreement,
instrument or document delivered pursuant hereto or in connection herewith on
or prior to the Closing Date, shall be true and correct in all material
respects as of the date hereof and shall be true and correct in all material
respects as if made on the Closing Date (except to the extent that any
representations and warranties of VAC or Vertex specifically relates to an
earlier date in which case such representation or warranty shall have been true
and correct in all material respects as of such earlier date).
(c) Performance of Obligations. VAC and Vertex shall have each
performed and complied with all agreements and conditions required by this
Agreement to be performed and complied with by VAC or Vertex, respectively,
prior to or on the Closing Date.
(d) Absence of Litigation. No order, stay, judgment or decree shall
have been issued by any court or governmental entity restraining or prohibiting
the consummation of the transactions contemplated by this Agreement. No action
or proceeding before a court or any other governmental agency or body shall
have been instituted or threatened to restrain or prohibit the consummation of
the transactions herein contemplated or which would in any material way
adversely affect the assets, business or prospects of Vertex, and no
governmental agency or body shall have taken any other action or made any
request of the Company, VAC or Vertex which would have a Material Adverse
Effect on the transactions contemplated hereby.
(e) Opinion of Counsel. The Company, the Controlling Shareholders
and the ESOT shall have received an opinion of Thompson & Knight, P.C., counsel
for VAC and Vertex, dated the Closing Date, substantially in the form of the
attached Exhibit "I."
(f) Certificates of VAC and Vertex. VAC and Vertex shall have each
delivered to the Company a certificate, which shall be dated as of the Closing
Date and which shall be signed by a duly authorized officer of VAC or Vertex,
as applicable, certifying (i) the authority of VAC or Vertex, as applicable, to
enter into and consummate the transactions contemplated by this Agreement, (ii)
the authority of the respective designated officers of VAC and Vertex to
execute and deliver this Agreement and any Ancillary Document contemplated by
this Agreement on behalf of VAC or Vertex, as applicable, (iii) the
representations and warranties of VAC and Vertex contained in Section 2.2
hereof were true and correct when made and are true and correct as of the
Closing Date (except to the extent that any representation or warranty of VAC
or Vertex specifically relates to an earlier date, in which case such
representation or warranty shall have been true and correct in all material
respects as of such earlier date), and (iv) each and every covenant and
agreement of VAC and Vertex contained in the Agreement
AGREEMENT AND PLAN OF REORGANIZATION - Page 54
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to be performed by VAC or Vertex on or prior to the Closing Date has been
performed by VAC or Vertex, as applicable.
(g) No Adverse Change. No material adverse change in the results of
operations, financial condition or business of VAC or Vertex shall have
occurred, and VAC and Vertex shall not have suffered any material change, loss
or damage to their respective assets, whether or not covered by insurance,
since March 17, 1997 (the date of organization of VAC) in the case of VAC and
since the date of the 1996 Vertex Balance Sheet in the case of Vertex.
(h) Shareholder Approval. This Agreement and the Merger shall have
been duly and validly adopted and approved by the requisite vote of the holders
of the TIW Common Stock in accordance with the Articles of Incorporation and
Bylaws of the Company. The Controlling Shareholders and the ESOT, to the extent
of the unallocated shares of TIW Common Stock owned by the ESOT, hereby
represent and warrant to Vertex that they will vote their TIW Common Stock to
approve the Agreement and the Merger.
(i) Employment Agreements. VAC (which will then be known as TIW
Systems, Inc. due to a change of VAC's corporate name pursuant to the Merger)
shall have entered into an Employment Agreement with Luik and Becker, effective
as of the Effective Date, substantially in the form of the Employment
Agreements attached hereto as Exhibits "G" and "H," respectively.
(j) Minimum Value of Vertex Exchange Shares. The aggregate fair
market value of the Vertex Exchange Shares on the Effective Date, based upon
the closing sales price of a share of Vertex Common Stock as listed on the
Nasdaq Stock Market, National Market System, shall not be less than 40% of the
aggregate fair market value of the Merger Consideration as of the Effective
Date. In addition, the aggregate fair market value of the Vertex Exchange
Shares on the Effective Date, based upon the closing sales price of a share of
Vertex Common Stock as listed on the Nasdaq Stock Market, National Market
System, received by the holders of the Historic Shares of the Company (as
hereinafter defined) shall not be less than 40% of the aggregate fair market
value of the Vertex Common Stock and cash received, or deemed received, by the
Shareholders or the Company after taking into consideration (i) any decrease in
the fair market value of a share of Vertex Common Stock as of the Effective
Date from the fair market value of a share of Vertex Common Stock as of January
21, 1997, said date being the date the Letter of Intent pertaining to the
transactions contemplated by this Agreement was executed by the parties hereto,
(ii) any cash paid to a Shareholder in lieu of a fractional share of Vertex
Common Stock, (iii) the aggregate amount of that part of the Merger
Consideration payable to any record or beneficial owner of TIW Common Stock who
voted against the Merger, and (iv) the fair market value of the unallocated
shares of TIW Common Stock owned by the ESOT which were surrendered by the ESOT
to the Company after the Execution Date in payment of the outstanding
indebtedness of the ESOT to the Company. For purposes of this Agreement, the
Historic Shares of the Company shall mean all shares of TIW Common Stock
outstanding at any time after the Execution Date other than the following: (i)
the 50,000 shares of TIW Common Stock acquired by Robert Wallace by exercising
a stock option previously granted to him by the Company, (ii) the 25,000 shares
of TIW Common Stock acquired by John Griffiths by exercising a stock option
previously granted to him by the Company, (iii) the allocated but unvested
shares of TIW Common Stock held of record by the ESOT, and (iv) the unallocated
shares of TIW Common Stock surrendered by the ESOT after the Execution Date as
payment against the outstanding indebtedness of the ESOT to the Company.
AGREEMENT AND PLAN OF REORGANIZATION - Page 55
<PAGE> 64
ARTICLE 5
CLOSING
5.1 Time and Place of the Closing. Subject to the provisions of Section
4.1 and 4.2 hereof, the closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Vertex's counsel, Thompson &
Knight, P.C., 1700 Pacific Avenue, Suite 3300, Dallas, Texas 75201 at 10:00
a.m., Central Daylight Time, on June 11, 1997, or at such other place, date or
time as the parties may mutually agree upon in writing for the Closing to take
place. The date on which the Closing occurs is herein referred to as the
"Closing Date." All Closing transactions shall be deemed to have occurred
simultaneously as of the close of business at 5:00 P.M. Central Daylight Time
on the Closing Date.
5.2 Actions of the Company, the Controlling Shareholders and the ESOT at
Closing. At the Closing, the Company, the Controlling Shareholders or the ESOT,
as applicable, shall deliver, or caused to be delivered, to Vertex, VAC or the
Escrow Agent, as applicable, the following:
(a) Certificates of Existence. The Company shall deliver to Vertex
certificates of existence and good standing issued by the appropriate state
official of the state of incorporation of the Company and each Company
Subsidiary and each state in which the Company or any Company Subsidiary is
qualified to conduct business.
(b) Resignations. The Company shall deliver to Vertex the written
and executed resignations of all directors of the Company other than Luik,
dated as of the Closing Date.
(c) Corporate Records. The Company shall deliver to Vertex the
minute book(s), stock issue and transfer records and any corporate seal of the
Company and each of the Company Subsidiaries, each in complete and current
condition as of the Closing Date.
(d) Corporate Resolutions. The Company shall deliver to Vertex
copies of the resolutions duly adopted by the Board of Directors of the Company
and by the Shareholders authorizing and approving this Agreement, the Merger
and the Company's performance of the transactions contemplated hereby and the
execution and delivery of this Agreement and the Ancillary Documents described
herein, and certificates of incumbency for the officers of the Company making
certification for Closing, each certified as true and in full force as of the
Closing by an authorized officer of the Company.
(e) Opinions of Counsel. The Company shall deliver to Vertex and
VAC an opinion letter from Fenwick & West LLP, counsel for the Company, in the
form attached hereto as Exhibit "D." In addition, the ESOT shall deliver to
Vertex and VAC an opinion letter from Gray Cary Ware & Freidenrich, P.C.,
counsel for the ESOT, in form and substance reasonably acceptable to Vertex.
(f) Noncompetition Agreements. The Company shall deliver to Vertex
Noncompetition Agreements in the forms attached hereto as Exhibit "E" and "F"
executed by Luik and Louis Becker, respectively.
(g) Employment Agreements. The Company shall deliver to VAC
Employment Agreements duly executed by Luik and Becker, respectively, which
Employment Agreements shall be in the form attached hereto as Exhibits "G" and
"H," respectively.
AGREEMENT AND PLAN OF REORGANIZATION - Page 56
<PAGE> 65
(h) Certificate of the Company. The Company shall have delivered to
Vertex a certificate, which shall be dated as of the Closing Date and which
shall be signed by a duly authorized officer of the Company certifying (i) the
authority of the Company to enter into and consummate the transactions
contemplated by this Agreement, (ii) the authority of the officers of the
Company to execute and deliver this Agreement and any Ancillary Document
contemplated by this Agreement on behalf of the Company, (iii) the
representations and warranties of the Company and the Controlling Shareholders
contained in Section 2.1 hereof, and in any agreement, instrument or document
delivered pursuant hereto or in connection herewith, were true and correct when
made and are true and correct as of the Closing Date (except to the extent that
any representation or warranty of the Company or the Controlling Shareholders
specifically relates to an earlier date, in which case such representation or
warranty shall have been true and correct in all material respects as of such
earlier date), and (iv) each and every covenant and agreement of the Company
contained in the Agreement to be performed by the Company on or prior to the
Closing Date has been performed by the Company.
(i) Escrow Agreement. The Company shall deliver to Vertex the
Escrow Agreement referred to in Section 7.7 hereof in the form attached hereto
as Exhibit "J" executed by Tonisson and Luik, and Tonisson and Luik shall
deposit the Escrowed Shares in escrow pursuant to the terms and conditions of
said Escrow Agreement. The Escrow Agreement shall also be executed by the
Escrow Agent.
(j) Surrender of TIW Certificates. The Company shall deliver to
Vertex or the Transfer Agent the TIW Certificates evidencing all the TIW Common
Stock owned by the Shareholders along with stock powers duly completed and
executed by the Shareholders as appropriate.
(k) Articles of Merger. The Company shall deliver to Vertex
Articles of Merger duly executed by the Company to be filed with the Secretary
of State of California and the Secretary of State of Nevada.
(l) Miscellaneous Documents. The Company, the Controlling
Shareholders or the ESOT, as applicable, shall deliver or cause to be delivered
to Vertex duly executed counterparts of the documents, or other evidence of
compliance with the conditions precedent to the Closing, described in Sections
4.1(o) (pertaining to contribution of certain shares or interests by Luik),
4.1(q) (pertaining to the amendment of the TIW ESOP), 4.1(s) (pertaining to
payment of the ESOP loan), and 4.1(t) (pertaining to termination of the
Company's obligations under the TIW Supplemental Benefit Plan).
5.3 Actions of VAC and Vertex at Closing. At the Closing, VAC or Vertex
shall deliver, or cause to be delivered, to the Company, the Transfer Agent,
the Escrow Agent, Tonisson and Luik, as applicable, the following:
(a) Cash Portion of Merger Consideration. VAC or Vertex shall
deliver to either the Transfer Agent, Luik, or counsel for the Company a
certified or cashier's checks or wire transfers in the aggregate amount of the
Cash Portion of the Merger Consideration along with a letter of instructions to
distribute such amounts to the Shareholders of the Company in accordance with
the Merger Consideration Allocation Schedule attached hereto as Exhibit "B," on
or after the Effective Date upon receipt by the Transfer Agent or Vertex of the
certificates representing the shares of the TIW Common Stock owned by such
individuals in accordance with the provisions of Section 1.4 hereof. VAC shall
deliver a copy of the aforesaid letter of instructions to the Controlling
Shareholders.
AGREEMENT AND PLAN OF REORGANIZATION - Page 57
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(b) Vertex Exchange Shares. VAC or Vertex shall deliver to either
the Transfer Agent, Luik or counsel for the Company a duly executed stock
certificate or certificates evidencing the ownership of the Vertex Exchange
Shares to be issued to the Shareholders in accordance with the provisions of
Section 1.4 hereof along with an irrevocable letter of instructions to
distribute such certificates to the Shareholders in accordance with the
provisions of Section 1.4 hereof on or after the Effective Date upon receipt by
the Transfer Agent or Vertex of the TIW Certificates, subject to the retention
of the Escrowed Shares (as defined in Section 1.4(f)) in escrow pursuant to the
provisions of Section 7.7 hereof. VAC shall deliver a copy of the aforesaid
letter of instructions to the Controlling Shareholders.
(c) Corporate Resolutions. VAC shall deliver to the Company copies
of the resolutions duly adopted by the Board of Directors of VAC and Vertex
authorizing and approving this Agreement, the Merger and the performance by VAC
and Vertex of the transactions contemplated hereby and the execution and
delivery of this Agreement and the documents described herein and certificates
of incumbency for the officers of VAC and Vertex making certifications for
Closing, each certified as true and in full force and effect as of the Closing
by an authorized officer of VAC and Vertex, as applicable.
(d) Opinion of Vertex's Counsel. Vertex shall deliver to the
Company, the Controlling Shareholders and the ESOT an opinion letter from
Thompson & Knight, P.C., counsel for VAC and Vertex, in the form attached
hereto as Exhibit "I."
(e) Certificate of VAC. VAC shall deliver to the Company a
certificate, which shall be dated as of the Closing Date and which shall be
signed by a duly authorized officer of VAC certifying (i) the authority of VAC
to enter into and consummate the transactions contemplated by this Agreement,
(ii) the authority of the officers of VAC to execute and deliver this Agreement
and any Ancillary Document contemplated by this Agreement on behalf of VAC,
(iii) the representations and warranties of VAC contained in Section 2.2
hereof, and in any agreement, instrument or document delivered pursuant hereto
or in connection herewith, were true and correct when made and are true and
correct as of the Closing Date (except to the extent that any representation or
warranty of VAC specifically relates to an earlier date, in which case such
representation or warranty shall have been true and correct in all material
respects as of such earlier date), and (iv) each and every covenant and
agreement of VAC contained in the Agreement to be performed by VAC on or prior
to the Closing Date has been performed by VAC.
(f) Certificate of Vertex. Vertex shall deliver to the Company a
certificate, which shall be dated as of the Closing Date and which shall be
signed by a duly authorized officer of Vertex certifying (i) the authority of
Vertex to enter into and consummate the transactions contemplated by this
Agreement, (ii) the authority of the officers of Vertex to execute and deliver
this Agreement and Ancillary Document contemplated by this Agreement on behalf
of Vertex, (iii) the representations and warranties of Vertex contained in
Section 2.2 hereof were true and correct when made and are true and correct as
of the Closing Date (except to the extent that any representation or warranty
of Vertex specifically relates to an earlier date, in which case such
representation or warranty shall have been true and correct in all material
respects as of such earlier date), and (iv) each and every covenant and
agreement of Vertex contained in the Agreement to be performed by Vertex on or
prior to the Closing Date has been performed by Vertex.
AGREEMENT AND PLAN OF REORGANIZATION - Page 58
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(g) Noncompetition Agreements. Vertex shall deliver to Luik and
Becker a duly executed counterpart of each such individual's Noncompetition
Agreement in the form attached hereto as Exhibits "E" and "F," respectively.
(h) Employment Agreements. VAC shall deliver to Luik and Becker a
duly executed counterpart of each such individual's Employment Agreement in the
form attached hereto as Exhibits "G" and "H," respectively.
(i) Escrow Agreement. Vertex and VAC shall deliver to Tonisson,
Luik and the Escrow Agent a duly executed counterpart of the Escrow Agreement
in the form attached hereto as Exhibit "J." The Escrow Agreement shall also be
executed by the Escrow Agent.
ARTICLE 6
TERMINATION
6.1 Termination.
(a) Termination Prior to Effective Date. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Date:
(1) By mutual written consent of Vertex and the Company; or
(2) By Vertex on the one hand or the Company on the other
hand, if any court of competent jurisdiction in the United States or other
United States governmental body or any regulatory agency in the United States
shall have issued an order, decree, regulation or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby and such order, decree, regulation, ruling or other action
shall not have been vacated or reversed or set aside on appeal, with prejudice
against the party seeking to restrain the transaction.
(b) Termination Prior to Closing Date. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Closing
Date:
(1) By either Vertex on the one hand or the Company on the
other hand, if the Closing shall not have occurred by June 30, 1997, provided
that the failure to consummate the transactions contemplated hereby is not
primarily a result of the failure by the party so electing to terminate the
Agreement to perform any of its obligations hereunder;
(2) By Vertex in the event that one or more of the conditions
set forth in Section 4.1 hereof is not satisfied at or prior to the Closing;
and
(3) By the Company in the event that one or more of the
conditions set forth in Section 4.2 hereof is not satisfied at or prior to the
Closing.
The date on which this Agreement is terminated pursuant to this section
is herein referred to as the "Termination Date."
AGREEMENT AND PLAN OF REORGANIZATION - Page 59
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6.2 Effect of Termination. In the event that this Agreement shall be
terminated pursuant to the provisions of Section 6.1 hereof, all obligations of
the parties hereto under the Agreement shall terminate and there shall be no
liability, except for any breach of this Agreement prior to such termination,
of any party to another party and except for breach of the provisions of
Section 3.6 hereof. In the event that VAC shall fail to consummate the Merger
in accordance with the terms and conditions of this Agreement, for any reason
whatsoever other than the Company's default hereunder or pursuant to a right of
termination granted Vertex in Section 6.1 hereof, the Company may (i) enforce
specific performance of this Agreement, or (ii) terminate this Agreement and
obtain such legal or equitable relief to which the Company may be entitled, in
law or in equity, as a result of such breach of Vertex. In the event the
Company shall fail to consummate the Merger in accordance with the terms and
conditions of this Agreement for any reason whatsoever other than Vertex's
default hereunder or pursuant to a right of termination granted the Company in
Section 6.1 hereof, Vertex may (i) enforce specific performance of this
Agreement, or (ii) terminate this Agreement and obtain such legal or equitable
relief to which Vertex may be entitled, in law or in equity, as a result of
such breach of the Company.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification by the Indemnifying Shareholders. Subject to the
provisions of Section 7.5(d) and 7.7 hereof, Luik and Tonisson (the
"Indemnifying Shareholders") hereby jointly and severally agree that
notwithstanding any investigation which may have been made by or on behalf of
VAC and Vertex prior to the Closing, the Indemnifying Shareholders shall
jointly and severally indemnify, defend and hold harmless VAC and Vertex (and
any affiliated party of VAC or Vertex) at any time after consummation of the
Merger, from and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, judgments, settlements, costs and
expenses including, subject to this Article 7, interest, penalties, court
costs, and reasonable attorneys' fees and expenses of any nature whatsoever,
whether denominated as actual, consequential or otherwise (collectively, the
"Damages") asserted against, resulting to, imposed upon or otherwise incurred
by VAC or Vertex or any affiliated party, directly or indirectly, caused by
reason of or resulting from or arising out of (i) any misrepresentation or any
breach or nonfulfillment of any representation or warranty of the Company or
the Controlling Shareholders contained in or pursuant to this Agreement or made
in any Ancillary Document executed and delivered pursuant to or in connection
with this Agreement; (ii) any breach or nonfulfillment of any covenant,
undertaking or agreement of the Company or the Controlling Shareholders
contained in or made pursuant to this Agreement, (iii) any Retained Liability,
(iv) any breach by the Company prior to the Effective Date of its duties or
obligations under any contract or other agreement including, but not limited
to, acts or omissions of the Company constituting negligence or gross
negligence, except to the extent that adequate reserves against the Damages
incurred have been specifically recorded in the 1996 TIW Balance Sheet or the
Interim Balance Sheet and funded; (v) any products manufactured, distributed or
sold by the Company in connection with the Acquired Business on or prior to the
Effective Date, except to the extent that adequate reserves against the Damages
incurred have been specifically recorded in the 1996 TIW Balance Sheet or the
Interim Balance Sheet and funded; (vi) the ownership, operation, management, or
use of the Company, the Assets, or the Acquired Business prior to the Effective
Date, except to the extent that adequate reserves against the Damages incurred
have been specifically recorded in the 1996 TIW Balance Sheet or the Interim
Balance Sheet and funded; (vii) the administration, operation, qualification or
benefits or other amounts paid or payable under any Qualified Plan, except that
no indemnification is hereby made with respect to any loss, damage, or
AGREEMENT AND PLAN OF REORGANIZATION - Page 60
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expense incurred by VAC arising from or relating to the direct transfer or
"roll-over" by any participant of accrued benefits or account balances under
any Qualified Plan into any plan maintained or operated by VAC or any ERISA
Affiliate of Vertex; and (viii) any failure of the Company prior to the
Effective Date to comply with the requirements of COBRA. Notwithstanding the
preceding, in no event shall the Indemnifying Shareholders be obligated,
jointly or severally, to indemnify VAC and Vertex (and any affiliated party of
VAC or Vertex) in an amount in excess of the amount set forth in Section 7.7
hereof. If the Merger is consummated, the Indemnifying Shareholders shall not
be entitled to any indemnity, contribution or other reimbursement from the
Company or the Surviving Corporation with respect to the payments made by the
Indemnifying Shareholders pursuant to this Article.
7.2 Indemnification by VAC. Subject to the provisions of Section 7.5(d)
hereof, VAC hereby agrees to indemnify, defend and hold harmless the
Controlling Shareholders at any time after consummation of the Merger, from and
against all Damages asserted against, resulting to, imposed upon or otherwise
incurred by the Controlling Shareholders, directly or indirectly, caused by
reason of or resulting from or arising out of (i) any misrepresentation or any
breach or nonfulfillment of any representation or warranty made by VAC in or
pursuant to this Agreement or in any agreement, document or instrument executed
by VAC and delivered pursuant to or in connection with this Agreement, or (ii)
any breach or nonfulfillment of any covenant, undertaking or agreement of VAC
contained in or made pursuant to this Agreement.
7.3 Indemnification by Vertex. Subject to the provisions of Section
7.5(d) hereof, Vertex will indemnify each holder of the Vertex Exchange Shares
(the "Holder") and hold such Holder harmless against any Damages to which such
Holder may become subject in connection with (i) the registration of the Vertex
Exchange Shares pursuant to the provisions of Section 3.12 hereof, in
accordance with the applicable provisions of the Securities Act, or any similar
federal statute, or the securities laws of any state which recognizes listing
on the Nasdaq Stock Market, National Market System, as an exemption from the
securities registration requirements under such state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of, or are based upon, any untrue statement or alleged untrue statement
under which the Vertex Exchange Shares were registered under the Securities Act
or similar federal statute or such state securities laws, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereto, or arise out of, or are based upon, the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) the failure of
Vertex to comply with the provisions of Section 3.12 hereof, or (iii) the
falsity of the representation set forth in Section 2.2(d) hereof. Vertex will
reimburse such Holder for any legal or any other expenses reasonably incurred
by such Holder in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that to the extent that
any such loss, claim, damage or liability arises out of, or is based upon, an
untrue statement or alleged untrue statement or omission or alleged omission
made in said Registration Statement, said preliminary prospectus or said final
prospectus or any said amendment or supplement in reliance upon, and in
conformity with, written information furnished to Vertex through an instrument
duly executed by such Holder specifically for use in the preparation thereof,
Vertex shall not be so liable to such Holder.
7.4 Indemnification by Holders. Subject to the provisions of Section
7.5(d) hereof, each Holder shall indemnify and hold harmless Vertex, its
directors and officers, and each other Person, if any, who controls Vertex,
against any Damages, joint or several, to which Vertex or any such director or
officer or any such person may become subject under the Securities Act, or any
other statute or at
AGREEMENT AND PLAN OF REORGANIZATION - Page 61
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common law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any statement or omission
which was made in the Registration Statement or related prospectus in reliance
upon information furnished in writing to Vertex by such Holder expressly for
use in such Registration Statement.
7.5 Defense.
(a) Notification of Indemnification Claim. Promptly after the
receipt by any person entitled to indemnification under this Article 7 of
notice of (i) any claim or (ii) the commencement of any action or proceeding,
such party (the "Aggrieved Party") will, if claim with respect thereto is made
against any party obligated to provide indemnification pursuant to this Article
7 (the "Indemnifying Party") , give such Indemnifying Party written notice of
such claim or the commencement of such action or proceeding and shall permit
the Indemnifying Party to assume the defense of any such claim or any
proceeding or litigation resulting from such claim, unless the action or
proceeding seeks an injunction or other similar relief against the Aggrieved
Party or there is a conflict of interest between the Aggrieved Party and the
Indemnifying Party in the conduct of the defense of such action. Failure by the
Indemnifying Party to notify the Aggrieved Party of the Indemnifying Party's
election to defend any such proceeding or action within a reasonable time, but
in no event more than thirty (30) days after written notice thereof shall have
been given to the Indemnifying Party, shall be deemed a waiver by the
Indemnifying Party of the Identifying Party's right to defend such action.
Failure by the Aggrieved Party to notify the Indemnifying Party of any claim
for indemnification shall not relieve the Indemnifying Party of any liability
that the Indemnifying Party may have to the Aggrieved Party except to the
extent the Indemnifying Party demonstrates that the defense of such claim or
action has been prejudiced thereby.
(b) Defense of Claim by Indemnifying Party. If the Indemnifying
Party assumes the defense of any such claim or litigation resulting therefrom
with counsel reasonably acceptable to the Aggrieved Party, the obligations of
the Indemnifying Party as to such claim shall be limited to taking all steps
necessary in the defense or settlement of such claim or litigation resulting
therefrom and to holding the Aggrieved Party harmless from and against any
losses, damages and liabilities caused by or arising out of any settlement or
any judgment in connection with such claim or litigation resulting therefrom.
The Aggrieved Party may participate, at the Aggrieved Party's expense, in the
defense of such claim or litigation provided that the Indemnifying Party shall
direct and control the defense of such claim or litigation. The Aggrieved Party
shall cooperate and make available all books and records reasonably necessary
and useful in connection with the defense. The Indemnifying Party shall not, in
the defense of such claim or any litigation resulting therefrom, consent to
entry of any judgment, except with the written consent of the Aggrieved Party,
or enter into any settlement, except with the written consent of the Aggrieved
Party.
(c) Defense of Claim by Aggrieved Party. If the Indemnifying Party
shall not assume the defense of any such claim or litigation resulting
therefrom, the Aggrieved Party may defend against such claim or litigation in
such manner as the Aggrieved Party may deem appropriate and reasonably
satisfactory to the Aggrieved Party. The Indemnifying Party shall promptly
reimburse the Aggrieved Party for the amount of all reasonable expenses, legal
or otherwise, incurred by the Aggrieved Party in connection with the defense
against or settlement of such claim or litigation. No settlement of claim or
litigation shall be made without the consent of the Indemnifying Party, which
consent shall not be unreasonably withheld. If no settlement of the claim or
litigation is made, the Indemnifying Party shall promptly reimburse the
Aggrieved Party for the amount of any judgment rendered with respect to such
AGREEMENT AND PLAN OF REORGANIZATION - Page 62
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claim or in such litigation and of all expenses, legal or otherwise, incurred
by the Aggrieved Party in the defense against such claim or litigation.
(d) Indemnification Threshold. Notwithstanding any provision to the
contrary contained herein, the rights to indemnification hereunder (i) shall
apply only to claims of any amount made by the Aggrieved Party from and after
the point at which a single claim or an aggregate of several claims equals
Fifty Thousand and No/100 Dollars ($50,000.00) (the "Basket Amount"), in which
case the Indemnifying Party shall be obligated to indemnify the Aggrieved Party
for all Damages incurred by the Aggrieved Party, including the Basket Amount,
provided that claims pursuant to Sections 1.12(b), 1.12(c), 1.12(d), and
3.13(b) shall not be subject to the Basket Amount; and (ii) apply to claims
made by any party against the other whereby written notice of the claim has
been made and delivered within the period of the applicable statute of
limitations.
7.6 Indemnification Despite Negligence, Strict Liability or Liability
Without Fault. It is the express intention of the parties hereto that each
person to be indemnified pursuant to this Article 7 shall be indemnified and
held harmless from and against all Damages as to which indemnity is provided
for under this Article 7 notwithstanding that any such Damages arise out of or
result from the ordinary, strict, sole, or contributory negligence, strict
liability or other liability without fault of such person and regardless of
whether any other person (including another party to this Agreement) is or is
not also negligent or otherwise liable with respect to the matter in question,
except to the extent such ordinary, strict, sole, or contributory negligence,
strict liability or other liability without fault arises solely from events
which occur after the Effective Date.
7.7 Limitation on Obligations of Indemnifying Shareholders.
Notwithstanding any other provision of this Agreement to the contrary, the
obligation of the Indemnifying Shareholders to indemnify or hold Vertex and VAC
harmless from Damages shall be limited to the Escrowed Shares and the
Indemnifying Shareholders collectively shall have no obligation to indemnify or
hold Vertex and VAC harmless from Damages in excess of the value, from time to
time, of the Escrowed Shares (as defined in Section 1.4(f) hereof), and any
Damages incurred by Vertex or the Surviving Corporation in excess of the then
value of the Escrowed Shares held in escrow shall be borne by the Surviving
Corporation. In order to secure the obligation of the Indemnify Shareholders to
indemnify or hold Vertex and VAC harmless from any Damages up to the value,
from time to time, of the Escrowed Shares, the Indemnifying Shareholder shall
deposit the Escrowed Shares in escrow on the Effective Date for a period of two
years pursuant to the terms and conditions set forth in the Escrow Agreement
attached hereto as Exhibit "J" and incorporated herein by this reference.
7.8 Offset for Insurance Proceeds. In determining the amount of any
indemnity under this Article 7, there shall be taken into account any insurance
proceeds received by the Aggrieved Party hereunder in satisfaction of any
Damages, but there shall not be taken into account any tax benefit realized,
directly or indirectly, by the Aggrieved Party.
ARTICLE 8
MISCELLANEOUS
8.1 Headings. The descriptive headings of the several Articles and
sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
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<PAGE> 72
8.2 Notices. Any notices or other communications required or permitted
hereunder shall be given in writing and shall be delivered or sent personally,
by facsimile transmission (with confirmation by either personal delivery or by
certified or registered mail postage prepaid) or by certified or registered
mail, postage prepaid, addressed as follows:
If to VAC to: Vertex Acquisition Corporation
2600 N. Longview Street
Kilgore, Texas 75662
Attn: Mr. J. Rex Vardeman
Chairman
Telefax: (903) 984-2090
If to Vertex to: Vertex Communications Corporation
2600 N. Longview Street
Kilgore, Texas 75662
Attn: Mr. J. Rex Vardeman
President
Telefax: (903) 984-2090
Copy to: Thompson & Knight, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Attn: Mr. Bill Womble
Telefax: (214) 969-1751
If to the Company: TIW Systems, Inc.
2211 Lawson Lane
Santa Clara, California 95054
Attn: Dr. Rein Luik
Telefax: (408) 654-5622
Copy to: Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Attn: Mr. Bruce W. Jenett
Telefax: (415) 494-1417
If to Controlling
Shareholders: Dr. Rein Luik
c/o TIW Systems, Inc.
2211 Lawson Lane
Santa Clara, California 95054
Telefax: (415) 494-1417
or to such other address as shall be furnished in writing by such party, and
any such notice or communication shall be effective and be deemed to have been
given as of the date so delivered or sent
AGREEMENT AND PLAN OF REORGANIZATION - Page 64
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(provided confirmation is given as set forth above); provided, however, that
any notice or communication changing any of the addresses set forth above shall
be effective and deemed given only upon its receipt.
8.3 Binding Effect; Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the respective parties
hereto and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto without the prior written consent of the
other parties hereto.
8.4 Further Assurances. Consistent with the terms and conditions hereof,
each party hereto will execute and deliver such instruments, certificates and
other documents and take such other action from time to time following the
Closing and without further consideration as any other party hereto may
reasonably require in order to effectuate the terms and provisions of this
Agreement and the transactions contemplated hereby.
8.5 Complete Agreement. This Agreement and the Disclosure Schedule and
the Ancillary Documents and other writings referred to herein or delivered
pursuant hereto, contain the entire understanding of the parties with respect
to the transactions contemplated hereby and supersede all prior or
contemporaneous representations, understandings or agreements, oral or written,
with respect thereto. There are no representations, agreements, promises,
warranties, covenants or undertakings other than those expressly set forth
herein or therein.
8.6 Modifications, Amendments, and Waivers. At any time prior to the
Closing (i) the parties hereto may, by written agreement, modify, amend or
supplement any term or provision of this Agreement and (ii) any term or
provision of this Agreement may be waived in writing by the party which is
entitled to the benefits thereof.
8.7 Choice of Law and Venue. THIS AGREEMENT IS MADE AND ENTERED INTO AND
IS PERFORMABLE IN KILGORE, GREGG COUNTY, TEXAS, AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. ANY LITIGATION, SPECIAL PROCEEDING
OR OTHER PROCEEDING AS BETWEEN THE PARTIES THAT MAY BE BROUGHT, OR ARISE OUT
OF, IN CONNECTION WITH OR BY REASON OF THIS AGREEMENT SHALL BE BROUGHT IN THE
APPLICABLE FEDERAL OR STATE COURT IN AND FOR GREGG COUNTY, TEXAS, WHICH COURTS
SHALL BE THE EXCLUSIVE COURTS OF JURISDICTION AND VENUE.
8.8 Remedies Not Exclusive. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law. The
rights and remedies of any party based upon, arising out of, or otherwise in
respect of any inaccuracy in or breach of any representation, warranty,
covenant, or agreement contained in this Agreement shall in no way be limited
by the fact that the act, omission, occurrence, or other state of facts upon
which any claim of any such inaccuracy or breach is based may also be the
subject matter of any other representation, warranty, covenant, or agreement
contained in this Agreement (or in any other agreement between the parties) as
to which there is no inaccuracy or breach.
8.9 Severability. In the event any provision of this Agreement is held to
be invalid, illegal or unenforceable for any reason and in any respect by a
court of competent jurisdiction, such invalidity,
AGREEMENT AND PLAN OF REORGANIZATION - Page 65
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illegality or unenforceability shall in no event affect, prejudice or disturb
the validity of the remainder of this Agreement, which shall be in full force
and effect, enforceable in accordance with its terms and the provision held to
be void, illegal or unenforceable shall be limited so that it shall remain in
effect to the extent permissible by law.
8.10 Memorandum of Plan of Merger. The parties shall have the right to
file an abbreviated form of a Plan of Merger with the Articles of Merger
required to be filed with the Secretary of State of Nevada or the Secretary of
State of California. Such Plan of Merger shall be in the form of the Plan of
Merger attached to the Articles of Merger attached hereto as Exhibit "A."
8.11 Counterparts and Facsimile Execution. This Agreement may be executed
in two or more counterparts, all of which shall be considered one and the same
agreement and each of which shall be deemed an original. In order to facilitate
the Closing, an executed counterpart of the signature page or pages to this
Agreement may be delivered by facsimile transmission to the other parties
hereto and such facsimile signature shall be deemed an original signature for
purposes of this Agreement and shall be binding on the parties hereto. An
original executed counterpart of said signature page shall be promptly
forwarded to the other parties hereto.
IN WITNESS WHEREOF, each of the corporate or entity parties hereto has
caused this Agreement to be executed and delivered by its duly authorized
officers or trustees, as applicable, and in the case of he Controlling
Shareholders, by each Controlling Shareholder, as of the day and year first
above written.
COMPANY:
TIW SYSTEMS, INC.
By: /s/ Rein Luik
--------------------------------------
REIN LUIK,
President and Chief Executive Officer
By: /s/ Edward F. Kurz
--------------------------------------
EDWARD F. KURZ,
Assistant Secretary
VAC:
VERTEX ACQUISITION CORPORATION
By: /s/ J. Rex Vardeman
--------------------------------------
J. REX VARDEMAN,
President
AGREEMENT AND PLAN OF REORGANIZATION - Page 66
<PAGE> 75
VERTEX:
VERTEX COMMUNICATIONS CORPORATION
By: /s/ J. Rex Vardeman
--------------------------------------
J. REX VARDEMAN,
President
CONTROLLING SHAREHOLDERS:
/s/ Heldur Tonisson
--------------------------------------------
HELDUR TONISSON, Individually
/s/ Rein Luik
--------------------------------------------
REIN LUIK, Individually
TIW SYSTEMS INCORPORATED EMPLOYEE
STOCK OWNERSHIP TRUST:
By: /s/ Rein Luik
--------------------------------------
REIN LUIK, Trustee
By: /s/ Edward F. Kurz
--------------------------------------
EDWARD F. KURZ, Trustee
AGREEMENT AND PLAN OF REORGANIZATION - Page 67
<PAGE> 76
CONSENT AND AGREEMENT OF SPOUSES
We, the undersigned, do severally certify that we are the respective
spouses of the Controlling Shareholders identified in the foregoing Agreement
and Plan of Reorganization, which Controlling Shareholders entered into and
signed the foregoing Agreement. Each of us has read the foregoing Agreement and
we understand its provisions, purposes and effect. We severally approve and
consent to the foregoing Agreement including the various rights of setoff of
VAC or Vertex. We do not hereby or otherwise assume any liability or other
obligation, including without limitation, the obligation of indemnification
other than to the extent of our interest, if any, in the Escrowed Shares as
defined in the foregoing Agreement and Plan of Reorganization. We do not join
in any warranty, representation, covenant or assertion made by any Controlling
Shareholder or the Company in this Agreement. We do, however, disclaim any
ownership interest, whether legal or beneficial, either in the shares of the
TIW Common Stock or the assets of the Company other than to the extent of that
portion of the Cash Portion of the Merger Consideration and the Vertex Exchange
Shares or other shares of Vertex transferred to our respective spouses
hereunder.
/s/ Marje Luik
--------------------------------------
--------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION - Page 68
