REGISTRATION NO. 333-
As filed with the Securities and Exchange Commission on November 8, 1996
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GLENAYRE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 3669 98-0085742
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
5935 CARNEGIE BOULEVARD
CHARLOTTE, NORTH CAROLINA 28209
704/553-0038
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
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STANLEY CIEPCIELINSKI
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
5935 CARNEGIE BOULEVARD
CHARLOTTE, NORTH CAROLINA 28209
704/553-0038
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
A. ZACHARY SMITH III, ESQ. RICHARD A. TULLI, ESQ.
KENNEDY COVINGTON LOBDELL & HICKMAN, L.L.P. GARDERE & WYNNE, L.L.P.
NATIONSBANK CORPORATE CENTER 3000 THANKSGIVING TOWER
100 NORTH TRYON STREET, SUITE 4200 DALLAS, TEXAS 75201-4761
CHARLOTTE, N.C. 28202 214/999-4676
704/331-7400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. ( )
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO TO BE OFFERING AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE FEE
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Common Stock, $.02 par value 370,000(1) $22.50(2) $8,325,000 $2,523
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(1) Includes 59,791 shares issuable upon exercise of stock options.
(2) Determined in accordance with Rule 457(f)(1) based upon the fair market
value of a share of Common Stock of Glenayre Technologies, Inc. on
November 6, 1996. Estimated solely for the purpose of calculating the
registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, or
until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
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CROSS-REFERENCE SHEET
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Item Number and Form S-4 Caption Location in Prospectus
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1. Forepart of Registration Statement and Outside Front Cover Facing Page of Registration Statement; Cross-
Page of Prospectus reference sheet; Outside front cover page of
Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Page of Prospectus Available Information; Incorporation of Certain
Documents by Reference; Inside Front Cover
Page of Proxy Statement/Prospectus; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Summary; Selected Consolidated Financial Data;
Information Comparative Per Share Data; Glenayre Risk
Factors
4. Terms of the Transaction Summary; The Merger; The Acquisition
Agreement and Plan of Merger; Comparative
Rights of CNET Shareholders; Certain Federal
Tax Consequences of the Merger
5. Pro Forma Financial Information Not Applicable
6. Material Contacts with the Company Being Acquired The Merger
7. Additional Information Required for Reoffering by Persons and Not Applicable
Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification for Not Applicable
Securities Act Liabilities
10. Information with Respect to S-3 Registrants Not Applicable
11. Incorporation of Certain Documents by Reference Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2 or S-3 Registrants Not Applicable
13. Incorporation of Certain Documents by Reference Not Applicable
14. Information with Respect to Registrants Other than S-3 or S-2 Not Applicable
Registrants
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3 Companies Not Applicable
17. Information with Respect to Companies Other than S-3 or S-2 CNET, Inc.; Security Ownership of Certain
Companies Beneficial Owners of CNET Common Stock;
Selected Consolidated Financial Data; CNET,
Inc. Management's Discussion and Analysis of
Financial Condition and Results of Operations
18. Information if Proxies, Consents or Authorizations are to be CNET Shareholders' Meeting; The Merger;
Solicited Security Ownership of Certain Beneficial Owners
of CNET Common Stock; Rights of CNET
Shareholders Electing to Exercise Their Rights to
Dissent; Incorporation of Certain Documents by
Reference
19. Information if Proxies, Consents or Authorizations are not be Not Applicable
solicited or in an Exchange Offer
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CNET, INC.
4975 Preston Park Boulevard, Suite 800
Plano, Texas 75093
November [ ], 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
CNET, Inc. ("CNET") which will be held at 9:00 a.m., local time, on December 20,
1996, at the offices of CNET, 4975 Preston Park Boulevard, Suite 800, Plano,
Texas.
At the Special Meeting, holders of the Common Stock of CNET ("CNET Common
Stock") will be asked to consider and vote upon a proposal to approve and adopt
an Acquisition Agreement and Plan of Merger dated as of October 16, 1996 (the
"Agreement") among Glenayre Technologies, Inc., a Delaware corporation
("Glenayre"); CNET Acquisition Corp., a Texas corporation and wholly-owned
subsidiary of Glenayre ("Glenayre Sub"); CNET; and David M. Zumwalt, Scott R.
Greenwell and Charles D. Staggs (collectively, the "Principal Shareholders").
The Agreement provides for the merger of Glenayre Sub with and into CNET, with
CNET continuing as the surviving corporation and a wholly-owned subsidiary of
Glenayre and the approval and appointment of the Shareholders' Representative
(as defined and described below) (the "Merger"). Under the Agreement, each share
of CNET Common Stock, other than shares, if any, held by shareholders who
perfect their rights to dissent under the Texas Business Corporation Act (the
"TBCA"), will be converted into the right to receive (i) a fraction of one share
of Glenayre Common Stock ("Glenayre Common Stock") equal to the Stock Exchange
Ratio (as defined below) and (ii) cash equal to $1,000,000 divided by the number
of shares of CNET Common Stock outstanding immediately prior to the
effectiveness of the Merger. Cash will be paid in lieu of fractional shares of
Glenayre Common Stock. Each stock option right to purchase one share of CNET
Common Stock (a "CNET Stock Option") will be converted into the right to
purchase a fraction of one share of Glenayre Common Stock equal to the Option
Exchange Ratio (as defined below) and the option exercise price will be adjusted
by dividing the current option exercise price by the Option Exchange Ratio. No
portion of the cash will be received by holders of CNET Stock Options. The
Option Exchange Ratio is a fraction determined by dividing 400,000 by the sum of
the number of shares of CNET Common Stock outstanding immediately prior to the
effectiveness of the Merger and the number of shares of CNET Common Stock
subject to CNET Stock Options at the same time. On November 15, 1996, the Option
Exchange Ratio was .0433005, subject to adjustment for changes in the number of
shares of CNET Common Stock outstanding immediately prior to the effectiveness
of the Merger and the number of shares subject to CNET Stock Options at the same
time. As of November 15, 1996, the number of shares of Glenayre Common Stock
reserved for issuance upon exercise of the CNET Stock Options, after conversion
to options to purchase Glenayre Common Stock upon the effectiveness of the
Merger (the "Glenayre Option Shares"), would be 59,791. The Stock Exchange Ratio
is a fraction determined by dividing 370,000 less the Glenayre Option Shares by
the number of shares of CNET Common Stock outstanding immediately prior to the
effectiveness of the Merger. As of November 15, 1996, the Stock Exchange Ratio
was .0394823, subject to adjustment for changes in the number of shares of CNET
Common Stock outstanding immediately prior to the effectiveness of the Merger
and the number of Glenayre Option Shares.
The Merger is intended to be tax-free to holders of CNET Common Stock
("CNET Shareholders") for federal income tax purposes to the extent shares of
CNET Common Stock are exchanged for shares of Glenayre Common Stock. Cash
received will be taxable to holders of CNET Common Stock.
Under the Agreement, CNET Shareholders who receive Glenayre Common Stock
pursuant to the Merger (the "Indemnifying Shareholders") will be required, for
indemnity claims made prior to the expiration of the "Indemnity Period," to
indemnify Glenayre against certain potential losses specified in the Agreement
incurred by Glenayre or CNET, to the extent such losses exceed $150,000 in the
aggregate. For this purpose, the "Indemnity Period" shall mean the period
beginning on the effective date of the Merger and expiring on (i) the date of
completion of the first audit of the financial statements containing the
combined operations of Glenayre and CNET for those matters that would be
expected to be encountered in the audit process and (ii) 12 months after the
effective date of the Merger for all other matters. A portion of the shares of
Glenayre Common Stock issued in connection with the Merger will be issued in the
name of the
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Shareholders' Representative, as agent for the CNET Shareholders, and placed in
escrow (the "Escrowed Shares") and will be subject to forfeiture upon
application to satisfy the foregoing indemnification obligations. The number of
Escrowed Shares will be 40,000 multiplied by the ratio of the number of shares
of CNET Common Stock outstanding immediately prior to the effectiveness of the
Merger to the sum of the number of shares of CNET Common Stock outstanding
immediately prior to the effectiveness of the Merger and the number of shares of
CNET Common Stock which are subject to CNET Stock Options at the same time. A
proportionate percentage of the Escrowed Shares will be held in the name of the
Shareholders' Representative for the account of each Indemnifying Shareholder.
The Indemnifying Shareholders' indemnification obligation is limited to the
assets held in escrow.
The approval of the Agreement by the Indemnifying Shareholders will also
constitute (a) the approval of the Agreement, including the indemnification
obligations of the Indemnifying Shareholders and the liability of the
Indemnifying Shareholders for one-half of CNET's Merger expenses in excess of
$300,000, if any, (b) the approval of the Escrow Agreement (as defined below)
and all of the arrangements relative thereto, including the escrow of the
Escrowed Shares, (c) the approval and appointment of David M. Zumwalt (or his
successor) as agent for the Indemnifying Shareholders pursuant to the terms of
the Agreement (the "Shareholders' Representative") and (d) the approval and
authorization for all of the arrangements relating thereto, including without
limitation: (i) Glenayre's issuance of the Escrowed Shares in the name of the
Shareholders' Representative, as agent for the Indemnifying Shareholders; (ii)
the entering into and performance of the related escrow agreement by the
Shareholders' Representative (the "Escrow Agreement"); (iii) the execution by
the Shareholders' Representative of a blank stock power on behalf of the
Indemnifying Shareholders with respect to the Escrowed Shares; (iv) the
distribution by the Shareholders' Representative of the assets held in escrow,
including the Escrowed Shares, to the Indemnifying Shareholders upon his receipt
thereof, after deducting his expenses as Shareholders' Representative; (v) the
compromise and settlement by the Shareholders' Representative of claims under
the Agreement or in connection with the Merger; (vi) payments by the
Shareholders' Representative from the escrow; and (vii) the Indemnifying
Shareholders' liability for expenses incurred by the Shareholders'
Representative in connection with the performance of his obligations as
Shareholders' Representative, and all Indemnifying Shareholders shall thereby be
bound by the terms of the Agreement and the Escrow Agreement.
On November [ ], 1996, the closing sale price of Glenayre Common Stock on
the Nasdaq Stock Market was $[25] per share. Based on such price, and after
applying the Stock Exchange Ratio as of November 15, 1996 for each share of CNET
Common Stock, the value of each share of CNET Common Stock after the Merger
would be $[.99] per share, or an aggregate of approximately $[7,778,000] for all
shares of CNET Common Stock. The value of each share of CNET Common Stock at the
actual closing of the Merger could be higher or lower than $[.99], depending on
the market price of Glenayre Common Stock at the effective time of the Merger.
You are urged to review the current stock price of Glenayre Common Stock during
the period leading up to the meeting. In addition, the holder of each such share
of CNET Common Stock would be entitled to receive $.127 per share of the
$1,000,000 cash based on the number of shares of CNET Common Stock outstanding
as of November 15, 1996.
The Principal Shareholders, who together own approximately 79.0% of the
CNET Common Stock issued and outstanding on the record date, have indicated they
intend to vote in favor of the Merger. If they do vote in favor of the Merger,
their votes will be sufficient to assure approval of the Merger under the TBCA.
Although the Principal Shareholders are not contractually obligated to vote in
favor of the Merger, they have granted to Glenayre an option to purchase all of
their shares of CNET Common Stock if the Merger is not consummated for certain
reasons (including the failure of the CNET Shareholders to approve the Merger
under certain circumstances) or the Agreement is terminated for certain reasons.
Consequently, the Principal Shareholders may have different incentives and
reasons for voting in favor of the Merger than the other CNET Shareholders.
Neither CNET nor Glenayre sought or received a fairness opinion with
respect to the terms of the Merger. See the discussion in the Proxy
Statement/Prospectus at "The Acquisition Agreement and Plan of Merger--Fairness
Opinion."
The proposed Merger is described more completely in the accompanying
Proxy Statement/Prospectus, the forepart of which includes a summary of the
terms of the Merger and certain other information relating to the proposed
transaction
2
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and provides specific information concerning the Special Meeting. I urge you to
review carefully the Proxy Statement/Prospectus and the accompanying Annexes and
the information contained therein.
The CNET Board of Directors has determined that the Merger is in the best
interests of CNET and the CNET Shareholders. We are enthusiastic about the
combination with Glenayre, which we believe carries distinct advantages for CNET
and the CNET Shareholders.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE ACQUISITION AGREEMENT AND PLAN OF MERGER AND RELATED TRANSACTIONS,
INCLUDING THE APPOINTMENT AND GRANT OF AUTHORITY TO THE SHAREHOLDERS'
REPRESENTATIVE, AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
ACQUISITION AGREEMENT AND PLAN OF MERGER.
It is very important that your shares be represented at the Special
Meeting, regardless of whether or not you plan to attend in person. The
affirmative vote of the holders of two-thirds of the outstanding shares of CNET
Common Stock entitled to vote at the Special Meeting is required to approve the
Merger. Consequently, a failure to vote will have the same effect as a vote
against the proposal. Therefore, please complete, sign and date the accompanying
proxy card and promptly return it in the enclosed prepaid envelope to ensure
that your shares will be voted at the Special Meeting. If you are present at the
meeting you may, if you wish, withdraw your proxy and vote in person.
If you elect to vote in favor of the Merger, you should also fill out the
enclosed Transmittal Letter (Shareholders) and return it, along with your
certificates for shares of CNET Common Stock, to CNET in the enclosed prepaid
envelope. Also, each holder of a CNET Stock Option should fill out the enclosed
Acknowledgment (Option Holders) and return it to CNET in the enclosed prepaid
envelope.
Sincerely,
David M. Zumwalt
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
3
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CNET, INC.
4975 PRESTON PARK BOULEVARD, SUITE 800
PLANO, TEXAS 75093
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 20, 1996
To the Shareholders of CNET, Inc.:
NOTICE IS HEREBY GIVEN that, pursuant to the call of its Board of
Directors, a Special Meeting of Shareholders (the "Special Meeting") of CNET,
Inc., a Texas corporation ("CNET"), will be held on December 20, 1996, at the
offices of CNET, 4975 Preston Park Boulevard, Suite 800, Plano, Texas,
commencing at 9:00 a.m., local time, to consider and vote upon the following:
A proposal to approve and adopt an Acquisition Agreement and Plan of Merger
dated as of October 16, 1996 (the "Agreement") among Glenayre Technologies,
Inc., a Delaware corporation ("Glenayre"), CNET Acquisition Corp., a Texas
corporation and wholly-owned subsidiary of Glenayre ("Glenayre Sub"), CNET, and
David M. Zumwalt, Scott R. Greenwell and Charles D. Staggs, providing for the
merger of Glenayre Sub with and into CNET, with CNET continuing as the surviving
corporation and a wholly-owned subsidiary of Glenayre, and the approval and
appointment of David M. Zumwalt as the Shareholders' Representative (the
"Merger"). Under the Agreement, each share of CNET Common Stock, other than
shares, if any, held by shareholders who perfect their rights to dissent under
the Texas Business Corporation Act (the "TBCA"), will be converted into the
right to receive (i) a fraction of one share of Glenayre Common Stock equal to
the Stock Exchange Ratio and (ii) cash equal to $1,000,000 divided by the number
of shares of CNET Common Stock outstanding immediately prior to the
effectiveness of the Merger. Each stock option right to purchase one share of
CNET Common Stock (a "CNET Stock Option") will be converted into the right to
purchase a fraction of one share of Glenayre Common Stock equal to the Option
Exchange Ratio and the option exercise price will be adjusted by dividing the
current option exercise price by the Option Exchange Ratio. No portion of the
cash will be received by holders of CNET Stock Options. The Option Exchange
Ratio is a fraction determined by dividing 400,000 by the sum of the number of
shares of CNET Common Stock outstanding immediately prior to the effectiveness
of the Merger and the number of shares of CNET Common Stock subject to CNET
Stock Options at the same time. The Glenayre Option Shares is the number of
shares of Glenayre Common Stock that would be reserved for issuance upon
exercise of the CNET Stock Options, after conversion to options to purchase
Glenayre Common Stock upon the effectiveness of the Merger. The Stock Exchange
Ratio is a fraction determined by dividing 370,000 less the Glenayre Option
Shares by the number of shares of CNET Common Stock outstanding immediately
prior to the effectiveness of the Merger.
The Merger and other related matters are more fully described in the
accompanying Proxy Statement/Prospectus and Annexes thereto, which form a part
of this Notice. The Board of Directors unanimously recommends that the holders
of CNET Common Stock vote in favor of the Agreement.
Approval of the Merger requires the affirmative vote of the holders of
two-thirds of the outstanding shares of CNET Common Stock. Only shareholders of
record at the close of business on November 15, 1996, the record date for the
Special Meeting, are entitled to notice of and to vote at the Special Meeting
and any adjournment or postponements thereof.
A summary of certain provisions of Articles 5.11 through 5.13 of the TBCA
pertaining to the rights of dissenting shareholders in connection with the
Merger is included in the Proxy Statement/Prospectus in the section entitled
"Rights of CNET Shareholders Electing to Exercise Their Rights to Dissent." The
complete text of Articles 5.11 through 5.13 of the TBCA is set forth in Annex B
to the Proxy Statement/Prospectus.
Whether or not you plan to attend the Special Meeting, please fill in,
sign, date and return the enclosed form of proxy card promptly. If you elect to
vote in favor of the Merger, you should also fill out the enclosed Transmittal
Letter (Shareholders) and return it, along with your certificates for shares of
CNET Common Stock. Each holder of a CNET Stock Option should fill out and return
the enclosed Acknowledgment (Option Holders). A return envelope is enclosed for
your convenience and requires no postage for mailing in the United States.
Sincerely,
David M. Zumwalt
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
November [ ], 1996
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YOUR VOTE IS IMPORTANT
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND MAIL
IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
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PROXY STATEMENT
CNET, INC.
SPECIAL MEETING TO BE HELD ON DECEMBER 20, 1996
PROSPECTUS
GLENAYRE TECHNOLOGIES, INC.
370,000 SHARES
COMMON STOCK
$.02 PAR VALUE
This Proxy Statement/Prospectus and the accompanying form of proxy are
being first furnished on or about November [ ], 1996 to the holders of the
Common Stock of CNET, Inc., a Texas corporation ("CNET"), in connection with the
solicitation of proxies by the CNET Board of Directors, to be used at the
Special Meeting of Shareholders of CNET to be held on December 20, 1996 at 9:00
a.m., local time, and at any adjournments or postponements thereof (the "Special
Meeting"). At the Special Meeting, the holders of CNET Common Stock (the "CNET
Shareholders") will be asked to consider and vote upon a proposal to approve and
adopt an Acquisition Agreement and Plan of Merger (the "Agreement"), attached
hereto as Annex A, dated as of October 16, 1996, by and among Glenayre
Technologies, Inc., a Delaware corporation ("Glenayre"); CNET Acquisition Corp.,
a Texas corporation and a wholly-owned subsidiary of Glenayre ("Glenayre Sub");
CNET; and David M. Zumwalt, Scott R. Greenwell and Charles D. Staggs
(collectively, the "Principal Shareholders"). The Agreement provides for the
merger of Glenayre Sub with and into CNET with CNET continuing as the surviving
corporation and a wholly-owned subsidiary of Glenayre, and the approval and
appointment of the Shareholders' Representative (as defined and described below)
(the "Merger"). This Proxy Statement/Prospectus is also being provided to the
holders of options to purchase CNET Common Stock on or about November [ ], 1996,
accompanied by the Acknowledgement (Option Holders).
Pursuant to the terms of the Agreement, each share of CNET Common Stock
outstanding as of the time the Merger is consummated (the "Effective Time"),
except for shares as to which dissenters' rights have been perfected under the
Texas Business Corporation Act (the "TBCA"), will be converted into the right to
receive (i) a fraction of one share of Glenayre Common Stock, $.02 par value
("Glenayre Common Stock"), equal to the Stock Exchange Ratio (as defined below)
and (ii) cash equal to $1,000,000 divided by the number of shares of CNET Common
Stock outstanding immediately prior to the Effective Time. Cash will also be
paid in lieu of fractional shares of Glenayre Common Stock. The Option Exchange
Ratio is a fraction determined by dividing 400,000 by the sum of the number of
shares of (Cover continued on next page)
CONSIDERATION SHOULD BE GIVEN TO THE FACTORS SET FORTH UNDER THE CAPTION
"GLENAYRE RISK FACTORS."
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THE SECURITIES ISSUABLE PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMIS-
SION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THIS PROXY STATEMENT/PROSPECTUS AND THE ACCOMPANYING FORM OF PROXY,
TRANSMITTAL LETTER (SHAREHOLDERS) AND ACKNOWLEDGMENT (OPTION HOLDERS) ARE
FIRST BEING MAILED OR DELIVERED TO SHAREHOLDERS AND OPTION HOLDERS OF
CNET ON OR ABOUT NOVEMBER [ ], 1996.
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THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS NOVEMBER [ ], 1996.
1
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(continued from previous page)
CNET Common Stock outstanding immediately prior to the Effective Time and the
number of shares of CNET Common Stock subject to options granted under the CNET,
Inc. 1995 Stock Option Plan (the "CNET Option Plan") or under separate
agreements to purchase CNET Common Stock ("CNET Stock Options") at the same
time. On November 15, 1996, the Option Exchange Ratio was .0433005, subject to
adjustment for changes in the number of shares of CNET Common Stock outstanding
immediately prior to the Effective Time and the number of shares subject to CNET
Stock Options at the same time. In connection with the Merger, CNET Stock
Options will be converted into options to purchase that number of shares of
Glenayre Common Stock equal to the number of shares of CNET Common Stock covered
by the CNET Stock Options multiplied by the Option Exchange Ratio and the
exercise price will be adjusted by dividing the exercise price of the CNET Stock
Options by the Option Exchange Ratio. No portion of the cash will be received by
the holders of CNET Stock Options. As of November 15, 1996, the number of shares
of Glenayre Common Stock reserved for issuance upon exercise of the CNET Stock
Options, after conversion to options to purchase Glenayre Common Stock upon the
Effective Time (the "Glenayre Option Shares"), would be 59,791. The Stock
Exchange Ratio is a fraction determined by dividing 370,000 less the Glenayre
Option Shares by the number of shares of CNET Common Stock outstanding
immediately prior to the Effective Time. As of November 15, 1996, the Stock
Exchange Ratio was .0394823, subject to adjustment for changes in the number of
shares of CNET Common Stock outstanding immediately prior to the effectiveness
of the Merger and the number of Glenayre Option Shares. As of November 15, 1996,
a total of 310,209 shares of Glenayre Common Stock would be issued in the Merger
in exchange for CNET Common Stock (subject to adjustment for payments in cash to
dissenting CNET Shareholders, payment of fractional shares and for any exercise
of CNET Stock Options prior to the Effective Time) and 59,791 shares of Glenayre
Common Stock would be reserved for issuance upon exercise of CNET Stock Options
(subject to adjustment for the exercise of CNET Stock Options prior to the
Effective Time). See "The Merger--Conflicts of Interest."
The CNET Shareholders who receive Glenayre Common Stock pursuant to the
Merger (the "Indemnifying Shareholders") will be obligated to indemnify
Glenayre, for indemnity claims made prior to the expiration of the "Indemnity
Period" (defined below), against losses which in the aggregate exceed $150,000
that Glenayre or CNET may incur as a result of the incorrectness or breach of
any representations, warranties or covenants of a CNET Shareholder, a CNET
Option Holder (as defined below) or CNET contained in the Agreement, the
Transmittal Letter (Shareholders) (the "Transmittal Letters") executed by each
of the CNET Shareholders pursuant to the Agreement, the Acknowledgment (Option
Holders) (the "Acknowledgments") executed by each holder of CNET Stock Options
(the "CNET Option Holders") or any other document, certificate or agreement
entered into or furnished by CNET, any CNET Shareholder or any CNET Option
Holder pursuant to the Agreement. For this purpose, the "Indemnity Period" shall
mean the period beginning at the Effective Time and expiring on (i) the date of
completion of the first audit of the financial statements containing the
combined operations of Glenayre and CNET for those matters that would be
expected to be encountered in the audit process and (ii) 12 months after the
Effective Time for all other matters. A portion of the shares of Glenayre Common
Stock issued in connection with the Merger will be issued in the name of the
Shareholders' Representative, as agent for the Indemnifying Shareholders, and
held in escrow and may be applied to satisfy such indemnification obligations
(the "Escrowed Shares"). The Escrowed Shares will be issued and outstanding
shares of Glenayre Common Stock registered in the name of David M. Zumwalt, as
agent for the Indemnifying Shareholders pursuant to the terms of the Agreement
and the related Escrow Agreement (the "Shareholders' Representative"). The
number of Escrowed Shares will be 40,000 multiplied by the ratio of the number
of shares of CNET Common Stock outstanding immediately prior to the Effective
Time to the sum of the number of shares of CNET Common Stock outstanding
immediately prior to the Effective Time and the number of shares of CNET Common
Stock which are subject to CNET Stock Options at the same time. A proportionate
percentage of the Escrowed Shares will be held in the name of the Shareholders'
Representative for the account of each Indemnifying Shareholder. The respective
Indemnifying Shareholders will be entitled to direct the voting and sale of, and
to receive cash dividends, if any, on the Escrowed Shares, provided that any
proceeds, stock dividends or other distributions of property issued or
distributed with respect to the Escrowed Shares (other than cash dividends, if
any) will be placed in escrow until the expiration of the escrow period. The
Indemnifying Shareholders' indemnification obligation is limited to the shares
escrowed, the proceeds thereof and certain distributions of property related
thereto.
The approval of the Agreement by the Indemnifying Shareholders will also
constitute (a) the approval of the Agreement, including the indemnification
obligations of the Indemnifying Shareholders and the liability of the
Indemnifying Shareholders for one-half of CNET's Merger expenses in excess of
$300,000, if any, (b) the approval of the Escrow
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Agreement (as defined below) and all of the arrangements relative thereto,
including the escrow of the Escrowed Shares, (c) the approval and appointment of
David M. Zumwalt (or his successor) as the Shareholders' Representative pursuant
to the terms of the Agreement and (d) the approval and authorization for all of
the arrangements relating thereto, including without limitation: (i) Glenayre's
issuance of the Escrowed Shares in the name of the Shareholders' Representative,
as agent for the Indemnifying Shareholders; (ii) the entering into and
performance of the related escrow agreement by the Shareholders' Representative;
(iii) the execution by the Shareholders' Representative of a blank stock power
on behalf of the Indemnifying Shareholders with respect to the Escrowed Shares;
(iv) the distribution by the Shareholders' Representative of the assets held in
escrow, including the Escrowed Shares, to the Indemnifying Shareholders upon his
receipt thereof, after deducting his expenses as Shareholders' Representative;
(v) the compromise and settlement by the Shareholders' Representative of claims
under the Agreement or in connection with the Merger; (vi) payments by the
Shareholders' Representative from the escrow; and (vii) the Indemnifying
Shareholders' liability for expenses incurred by the Shareholders'
Representative in connection with the performance of his obligations as
Shareholders' Representative, and all Indemnifying Shareholders shall thereby be
bound by the terms of the Agreement and the Escrow Agreement. See "The
Acquisition Agreement and Plan of Merger--Indemnification" and "The Acquisition
Agreement and Plan of Merger-- Representations and Warranties."
Glenayre Common Stock is traded on the Nasdaq Stock Market under the
symbol "GEMS." On November [ ], 1996, the closing price of Glenayre Common Stock
as reported on the Nasdaq Stock Market was $[25]. Glenayre has filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
(the "Registration Statement") on Form S-4 pursuant to the Securities Act of
1933, as amended (the "Securities Act"), with respect to up to 370,000 shares of
Glenayre Common Stock issuable in connection with the Merger, of which this
Proxy Statement/Prospectus is a part and a reference to this document as a Proxy
Statement/Prospectus shall also constitute a reference to it as a prospectus.
ALL INFORMATION CONCERNING GLENAYRE CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS HAS BEEN FURNISHED BY GLENAYRE AND ALL INFORMATION
CONCERNING CNET PRIOR TO THE MERGER CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
HAS BEEN FURNISHED BY CNET. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY GLENAYRE, CNET OR ANY OTHER PERSON. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN
ANY CHANGE IN THE ASSETS, PROPERTIES OR AFFAIRS OF GLENAYRE OR CNET SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
Glenayre is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World
Trade Center, Suite 1300, New York, New York 10048. In addition, copies of such
materials may be obtained from the Public Reference Section of the Commission,
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Reports, proxy statements, registration statements and other information
filed with the Commission through the Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system are publicly available through the Commission's
Internet website (http://www.sec.gov).
Glenayre has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the shares of Glenayre Common Stock
to be issued, and upon exercise of options to purchase Glenayre Common Stock
proposed to be issued, in the Merger. This Proxy Statement/Prospectus does not
contain all of the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. For further information with respect to Glenayre and the
Glenayre Common Stock, reference is made to the Registration Statement,
including the exhibits thereto, copies of which may be obtained upon payment of
the prescribed fees
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or examined without charge at the Commission's principal office in Washington,
D.C. Statements contained in this Proxy Statement/Prospectus as to the contents
of any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents (and any amendments thereto) filed by Glenayre
with the Commission (File No. 0-15761) pursuant to the Exchange Act are
incorporated in this Proxy Statement/Prospectus by reference:
1. Glenayre's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
2. Glenayre's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996;
3. Glenayre's Current Reports on Form 8-K dated March 5, 1996 and
November 7, 1996; and
4. The description of Glenayre's Common Stock contained in
Glenayre's registration statement filed pursuant to Section 12
of the Exchange Act (and including any amendment or report for
the purpose of updating such description).
All documents filed by Glenayre pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement/Prospectus and
prior to the Special Meeting shall be deemed to be incorporated by reference in
this Proxy Statement/Prospectus and to be a part hereof from the respective
dates of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (INCLUDING THE
SCHEDULES TO THE AGREEMENT), OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS, ARE
AVAILABLE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST MADE
TO GLENAYRE TECHNOLOGIES, INC., ATTENTION: STANLEY CIEPCIELINSKI, 5935 CARNEGIE
BOULEVARD, CHARLOTTE, NORTH CAROLINA 28209 (TELEPHONE 704/553-0038). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE DELIVERED TO
GLENAYRE BY DECEMBER [13], 1996, FIVE BUSINESS DAYS PRIOR TO THE MEETING. THESE
DOCUMENTS (INCLUDING THE SCHEDULES TO THE AGREEMENT) MAY ALSO BE INSPECTED AT
THE OFFICES OF CNET, 4975 PRESTON PARK BOULEVARD, SUITE 800, PLANO, TEXAS.
4
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
AVAILABLE INFORMATION.................................................................................................. 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................................ 4
SUMMARY OF PROXY STATEMENT/PROSPECTUS.................................................................................. 8
Shareholder Approval............................................................................................ 8
The Companies................................................................................................... 9
Effect of the Merger; Consideration............................................................................. 9
Recommendations of the Boards of Directors...................................................................... 10
Effective Time of the Merger.................................................................................... 10
Option to Acquire Majority Interest in CNET..................................................................... 10
Representations and Warranties.................................................................................. 10
Indemnification and Escrow Arrangements......................................................................... 11
CNET Stock Options.............................................................................................. 12
Approval and Conditions to Consummation of the Merger........................................................... 12
Termination of the Acquisition Agreement and Plan of Merger; No-Shop Provisions................................. 13
Transaction Costs............................................................................................... 13
Dissenters' Rights.............................................................................................. 13
Federal Income Tax Consequences of the Merger................................................................... 13
Accounting Treatment............................................................................................ 14
Effects of Merger on Rights of CNET Shareholders................................................................ 14
Conflicts of Interest........................................................................................... 14
Listing on the Nasdaq Stock Market.............................................................................. 14
Market Value Information........................................................................................ 15
SELECTED CONSOLIDATED FINANCIAL DATA................................................................................... 16
Glenayre Technologies, Inc...................................................................................... 16
CNET, Inc....................................................................................................... 18
COMPARATIVE PER SHARE DATA............................................................................................. 19
GLENAYRE RISK FACTORS.................................................................................................. 20
Potential Market Changes Resulting from Rapid Technological Advances............................................ 20
Competition..................................................................................................... 20
Variability of Quarterly Results................................................................................ 20
Volatility of Stock Price....................................................................................... 20
Limits on Protection of Proprietary Technology and Infringement Claims.......................................... 21
Potential Changes in Government Regulation...................................................................... 21
Financing Customer Purchases For Development of NPCS Market..................................................... 21
International Business Risks.................................................................................... 22
Possible Anti-takeover Effect of Glenayre's Charter and Bylaws and Delaware Law................................. 22
Lack of Dividends............................................................................................... 22
CNET SHAREHOLDERS' MEETING............................................................................................. 23
Meeting of CNET Shareholders.................................................................................... 23
Purpose of Meeting.............................................................................................. 23
Record Date; Voting Requirements at Meeting..................................................................... 23
Proxies ....................................................................................................... 23
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THE MERGER............................................................................................................. 24
Background and Reasons for the Merger........................................................................... 24
Accounting Treatment............................................................................................ 29
Operations After the Merger..................................................................................... 30
Conflicts of Interest........................................................................................... 30
Option to Acquire Majority Interest in CNET..................................................................... 31
THE ACQUISITION AGREEMENT AND PLAN OF MERGER........................................................................... 32
The Merger...................................................................................................... 32
Effective Time of the Merger.................................................................................... 32
Consideration to be Received in the Merger...................................................................... 32
Surrender of Certificates....................................................................................... 33
Certain Covenants of CNET and Principal Shareholders............................................................ 33
No-Shop Provisions.............................................................................................. 34
Restrictions on Sales of Stock.................................................................................. 34
Certain Covenants of Glenayre................................................................................... 35
Conditions to Consummation of the Merger........................................................................ 35
Indemnification................................................................................................. 36
Representations and Warranties.................................................................................. 37
Transaction Costs............................................................................................... 44
Amendment and Waiver............................................................................................ 44
Termination..................................................................................................... 44
Fairness Opinion................................................................................................ 44
CNET, INC.............................................................................................................. 45
General ....................................................................................................... 45
Industry Background............................................................................................. 45
General Development of CNET..................................................................................... 46
Products and Services........................................................................................... 46
Customer Service and Support.................................................................................... 47
Customers....................................................................................................... 47
Marketing and Sales............................................................................................. 47
Research and Development........................................................................................ 47
Proprietary Rights and Licenses................................................................................. 47
Backlog ....................................................................................................... 48
Competition..................................................................................................... 48
Regulation...................................................................................................... 48
Facilities...................................................................................................... 48
Employees....................................................................................................... 48
Litigation...................................................................................................... 48
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
OF CNET COMMON STOCK................................................................................................... 49
CNET, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................................................. 51
COMPARATIVE RIGHTS OF CNET SHAREHOLDERS................................................................................ 57
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER.................................................................. 59
Qualification of the Merger as a Tax-Free Reorganization........................................................ 60
Federal Income Tax Consequences to CNET Shareholders and CNET Option Holders.................................... 60
RIGHTS OF CNET SHAREHOLDERS ELECTING TO EXERCISE THEIR RIGHTS TO DISSENT............................................... 61
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LEGAL MATTERS.......................................................................................................... 62
EXPERTS................................................................................................................ 63
CNET, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..................................................................F-1
ANNEX A................................................................................................................A-1
ANNEX B................................................................................................................B-1
</TABLE>
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SUMMARY OF PROXY STATEMENT/PROSPECTUS
The following is a summary of information contained elsewhere in the
Proxy Statement/Prospectus. This summary does not contain a complete description
of the terms of the Merger and the other matters summarized herein and is
qualified in its entirety by, and is subject to, the more detailed information
and financial statements, including the notes thereto, contained elsewhere in
reference to this Proxy Statement/Prospectus and its Annexes. Except as
otherwise noted, all applicable information contained in this Proxy
Statement/Prospectus has been adjusted retroactively to reflect the following
stock splits, each effected in the form of a stock dividend paid by Glenayre
with respect to Glenayre Common Stock: a three-for-two stock split effected in
the form of a 50% stock dividend paid on May 14, 1993, a two-for-one stock split
effected in the form of a 100% stock dividend paid on November 29, 1993, a
three-for-two stock split effected in the form of a 50% stock dividend paid on
January 5, 1995, a three-for-two stock split effected in the form of a 50% stock
dividend paid on June 19, 1995 and a three-for-two stock split effected in the
form of 50% stock dividend paid on December 29, 1995. With respect to CNET, all
applicable information herein has been retroactively adjusted to reflect a
thirty-for-one stock split effected in the form of a conversion on July 10, 1995
after which each such original share of CNET Common Stock was converted into
thirty new shares of CNET Common Stock.
SHAREHOLDER APPROVAL
This Proxy Statement/Prospectus is being furnished to the CNET
Shareholders in connection with the solicitation of proxies by and on behalf of
the CNET Board of Directors for use at the Special Meeting to be held at 9:00
a.m., local time, on December 20, 1996 at the offices of CNET, 4975 Preston Park
Boulevard, Suite 800, Plano, Texas and any adjournments or postponements
thereof. The close of business on November 15, 1996 is the record date (the
"Record Date") for determining the CNET Shareholders entitled to vote at the
Special Meeting. As of the Record Date, there were 7,856,912 shares of CNET
Common Stock, each holder of which is entitled to one vote per share with
respect to each matter to be voted on at the Special Meeting. This Proxy
Statement/Prospectus and the enclosed proxy are first being sent to CNET
Shareholders on or about November [ ], 1996.
All proxies that are properly executed and received prior to the Special
Meeting will be voted in accordance with the instructions noted thereon. ANY
PROXY THAT DOES NOT SPECIFY TO THE CONTRARY WILL BE VOTED IN FAVOR OF THE
MERGER. Any CNET Shareholder who submits a proxy will have the right to revoke
it, at any time before it is voted, by filing with the Secretary of CNET written
notice of revocation or a duly executed later-dated proxy, or by attending the
Special Meeting and voting such CNET Common Stock in person.
At the Special Meeting, CNET Shareholders will consider and vote upon a
proposal to approve and adopt the Agreement pursuant to which Glenayre Sub will
be merged with and into CNET with CNET being the surviving corporation and
continuing as a wholly-owned subsidiary of Glenayre. Approval and adoption of
the Agreement require the affirmative vote of the holders of two-thirds of the
outstanding shares of CNET Common Stock. The Principal Shareholders, who
together own approximately 79.0% of the CNET Common Stock outstanding as of the
Record Date, have indicated that they intend to vote in favor of the Merger. If
they do vote in favor of the Merger, their votes will be sufficient to assure
approval of the Merger under the TBCA. Although the Principal Shareholders are
not contractually obligated to vote in favor of the Merger, they have granted to
Glenayre an option to purchase for cash all of their shares of CNET Common Stock
if the Merger is not consummated for certain reasons (including the failure of
the CNET Shareholders to approve the Merger under certain circumstances) or the
Agreement is terminated for certain reasons. Consequently, the Principal
Shareholders may have different incentives and reasons for voting in favor of
the Merger than the other CNET Shareholders.
CNET Shareholders will be entitled to dissenters' rights with respect to
the Merger as provided for in Article 5.11, et seq. of the TBCA, subject to
satisfaction by such shareholders of the conditions for dissenters' rights
established by Article 5.11 et seq. See "Rights of CNET Shareholders Electing to
Exercise Their Rights to Dissent."
The directors and executive officers of CNET beneficially owned
(excluding options), as of the Record Date, an aggregate of 7,028,427 shares of
CNET Common Stock or approximately 89.5% of the CNET Common Stock outstanding as
of the Record Date.
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Holders of Glenayre Common Stock are not entitled to vote on the approval
of the Merger nor are they entitled to dissenters' rights with respect to the
Merger. As of the Record Date, there were [59,862,834] shares of Glenayre Common
Stock outstanding.
THE COMPANIES
Glenayre. Glenayre is a leading worldwide supplier of telecommunications
equipment and related software used by service providers in the paging and other
wireless personal communication markets. Glenayre designs, manufactures, markets
and services its products principally under the Glenayre name. These products
include switches, transmitters, receivers, controllers, software and other
equipment used in personal communications systems (including paging, voice
messaging, cellular and message management and mobile data systems), microwave
communications systems and radio telephone systems. Glenayre markets its
products in over 80 countries through 29 domestic and international offices
directly to major paging, cellular and telephone operating companies and to
governmental agencies.
Glenayre's executive offices are located at 5935 Carnegie Boulevard,
Charlotte, North Carolina 28209. Its telephone number is 704/553-0038.
CNET. CNET provides operational support, network management and network
planning software products, services and equipment to the worldwide wireless
communications industry, primarily to large corporate customers. CNET licenses
its products to cellular, paging and personal communications services ("PCS")
operators and wireless equipment manufacturers worldwide. CNET's products
include software applications which enable wireless communications system
operators to plan, manage and expand their physical networks. These products
provide system operators the ability to bring information about the status and
activity of network equipment to a central location and to make this information
available to the operators, engineers and operations management. CNET's
integration of strategic operational support systems ("OSS"), network management
applications and radio frequency ("RF") software provides a single, unified
advanced information tool to wireless system operators. Wireless equipment
manufacturers utilize CNET's software to help them differentiate their wireless
switching products and related RF site equipment. CNET also provides a variety
of professional services for its customers including system analysis and design,
software installation and software maintenance and support. Approximately 57% of
CNET's revenues for its fiscal year ended January 31, 1996 was derived from
network products, including revenues from the licensing of CNET's Basic
Operations System ("BOS(TM)"). Approximately 36% of CNET's revenues for its
fiscal year ended January 31, 1996 was from professional services.
CNET's principal executive offices are located at 4975 Preston Park
Boulevard, Suite 800, Plano, Texas 75093. Its telephone number is 972/867-3333.
EFFECT OF THE MERGER; CONSIDERATION
Upon consummation of the Merger, Glenayre Sub will be merged with and
into CNET with CNET being the surviving corporation and continuing as a
wholly-owned subsidiary of Glenayre. At the Effective Time (defined below), each
share of CNET Common Stock issued and outstanding immediately prior to the
Effective Time (other than dissenting shares, if any) will be converted into the
right to receive (i) a fraction of one share of Glenayre Common Stock equal to
the Stock Exchange Ratio (as defined below) and (ii) cash equal to $1,000,000
divided by the number of shares of CNET Common Stock outstanding immediately
prior to the Effective Time. Cash will also be paid in lieu of fractional shares
of Glenayre Common Stock. Each outstanding CNET Stock Option will be converted
into an option to acquire shares of Glenayre Common Stock at a price per share
and for a number of shares based on the Option Exchange Ratio (as defined
below). No portion of the cash will be received by holders of CNET Stock
Options. The Option Exchange Ratio is a fraction determined by dividing 400,000
by the sum of the number of shares of CNET Common Stock outstanding immediately
prior to the Effective Time and the number of shares of CNET Common Stock
subject to CNET Stock Options at the same time. As of November 15, 1996, the
Option Exchange Ratio was .0433005, subject to adjustment for changes in the
number of shares of CNET Common Stock outstanding immediately prior to the
Effective Time and the number of shares subject to CNET Stock Options at the
same time. As of November 15, 1996, the number of shares of Glenayre Common
Stock reserved for issuance upon exercise of the CNET Stock Options, after
conversion to options to purchase Glenayre Common Stock at the Effective Time
(the "Glenayre Option Shares"), would be 59,791. The Stock Exchange Ratio is a
fraction determined by dividing 370,000 less the Glenayre Option Shares by the
number of shares
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of CNET Common Stock outstanding immediately prior to the Effective Time. As of
November 15, 1996, the Stock Exchange Ratio was .0394823, subject to adjustment
for changes in the number of shares of CNET Common Stock outstanding immediately
prior to the Effective Time and the number of Glenayre Option Shares. See "The
Acquisition Agreement and Plan of Merger--The Merger" and "The Acquisition
Agreement and Plan of Merger--Consideration to be Received in the Merger."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Glenayre and CNET Boards of Directors have approved and adopted the
Acquisition Agreement and Plan of Merger, and the CNET Board of Directors has
recommended that the CNET Shareholders vote in favor of the Acquisition
Agreement and Plan of Merger. See "The Merger--Background and Reasons for the
Merger" and "The Merger--Conflicts of Interest."
EFFECTIVE TIME OF THE MERGER
If the Merger is approved by the requisite vote of the CNET Shareholders
and the other conditions to the consummation of the Merger are satisfied or,
where permissible, waived, the Merger will become effective at the time the
Articles of Merger are duly filed with the Secretary of State of the State of
Texas or at such later time as may be specified in such Articles of Merger (the
"Effective Time"). It is anticipated that the Articles of Merger will be filed
as soon as practicable after the satisfaction or, where permissible, waiver of
the conditions in the Agreement. See "The Acquisition Agreement and Plan of
Merger--Effective Time of the Merger."
OPTION TO ACQUIRE MAJORITY INTEREST IN CNET
On October 16, 1996, the Principal Shareholders were required, as a
condition to Glenayre entering into the Agreement, to enter into an Amended and
Restated Stock Option Agreement with Glenayre (the "Amended and Restated Stock
Option Agreement") pursuant to which the Principal Shareholders granted to
Glenayre an option to acquire an aggregate of 6,208,380 shares of CNET Common
Stock (approximately [79.0]% of the CNET Common Stock), exercisable in the event
either the Merger is not consummated for certain reasons (including the failure
of the CNET Shareholders to approve the Merger under certain circumstances) or
the Agreement is terminated for certain reasons. The exercise price per share of
such option is payable in cash and is the product of the Stock Exchange Ratio,
calculated as of the date immediately preceding the date notice of exercise of
the option is given by Glenayre, multiplied by the average of the closing prices
of Glenayre Common Stock on the 25 trading days immediately preceding the date
such notice is given by Glenayre, plus an amount of cash equal to $1,000,000
divided by the total number of outstanding shares of CNET Common Stock
immediately preceding the date such notice is given by Glenayre. See "The
Merger--Option to Acquire Majority Interest in CNET."
REPRESENTATIONS AND WARRANTIES
Pursuant to the Agreement, CNET, the Principal Shareholders and the other
CNET Shareholders will make certain representations and warranties to Glenayre,
which will survive the Effective Time and terminate on (a) the date of
completion of the first audit of the financial statements containing the
combined operations of Glenayre and CNET for those matters that would be
expected to be encountered in the audit process and (b) the first anniversary of
the Effective Time for all other matters. Such period is referred to herein as
the "Indemnity Period." The representations and warranties pertain, among other
things, to the following matters: (i) the organization and capitalization of
CNET and CNET GmbH ("CNET Sub"); (ii) the financial statements of CNET and CNET
Sub; (iii) the employee benefit plans and arrangements of CNET; (iv) the title
to, and operation and condition of, all of the assets of CNET and CNET Sub,
including equipment, receivables, intellectual property and contract rights; (v)
information concerning CNET's material contracts and transactions; (vi) the
absence of any violation of any law, order, note, bond, mortgage, contract or
similar instrument or obligation; (vii) compliance with and disclosure of all
warranty obligations of CNET and CNET Sub; (viii) the absence of certain known
impending changes in the business, assets, liabilities or relations with
employees or suppliers or customers of CNET or CNET Sub or in any governmental
actions or regulations affecting CNET's or CNET Sub's business that would have a
material adverse effect on the business of CNET and CNET Sub; and (ix) each CNET
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Shareholder's title to, and absence of liens or encumbrances on, such
shareholder's CNET Common Stock. See "The Acquisition Agreement and Plan of
Merger--Representations and Warranties."
INDEMNIFICATION AND ESCROW ARRANGEMENTS
Pursuant to the Agreement, each Indemnifying Shareholder will indemnify
Glenayre for claims made during the Indemnity Period with respect to
indemnifiable losses which exceed in the aggregate $150,000 that Glenayre or
CNET may suffer as a result of the incorrectness or breach of any
representation, warranty or covenant by any CNET Shareholder, any CNET Option
Holder or CNET contained in the Agreement, the Transmittal Letters, the
Acknowledgments or any other agreement or document entered into in connection
with the Agreement or the Merger. In accordance with the terms of the Agreement,
Glenayre and not the Shareholders' Representative nor any Indemnifying
Shareholder will control the defense of any third-party litigation that may
result in indemnification obligations of the Indemnifying Shareholders. Although
Glenayre is obligated under the Agreement to conduct any such defense as would a
reasonable and prudent person to whom no indemnity is available, through its
control of such litigation and any settlement thereof, Glenayre will have
significant influence and control over the application of the Escrowed Shares.
A portion of the shares of Glenayre Common Stock issued in connection
with the Merger will be issued in the name of the Shareholders' Representative,
as agent for the Indemnifying Shareholders, and placed in escrow pursuant to an
Escrow Agreement (the "Escrow Agreement") among Glenayre, the Shareholders'
Representative and First Union National Bank of North Carolina (the "Escrow
Agent") and may be applied to satisfy the indemnification obligations of the
Indemnifying Shareholders under the Agreement. The number of Escrowed Shares
will be 40,000 multiplied by the ratio of the number of shares of CNET Common
Stock outstanding immediately prior to the Effective Time to the sum of the
number of shares of CNET Common Stock outstanding immediately prior to the
Effective Time and the number of shares of CNET Common Stock which are subject
to CNET Stock Options at the same time. A proportionate percentage of the
Escrowed Shares will be issued in the name of the Shareholders' Representative
for the account of each Indemnifying Shareholder. The Escrowed Shares, and any
cash or other property held in escrow under the Escrow Agreement, are
collectively referred to herein as the "Escrow." Each Indemnifying Shareholder's
indemnification obligation will not exceed such Indemnifying Shareholder's share
of the Escrow. The Escrow will be released on the first anniversary of the
Effective Time (the "Release Date"), except for any portion of the Escrow
subject to being applied to the satisfaction, resolution or liquidation of
pending indemnity claims. The approval of the Agreement by the Indemnifying
Shareholders will also constitute (a) approval of the Agreement, including the
indemnification obligations of the Indemnifying Shareholders, (b) the approval
of the Escrow Agreement and all of the arrangements relative thereto, including
the escrow of the Escrowed Shares, (c) the approval and appointment of David M.
Zumwalt (or his successor) as the Shareholders' Representative and (d) the
approval and authorization for all of the arrangements relating thereto,
including without limitation: (i) Glenayre's issuance of the Escrowed Shares in
the name of the Shareholders' Representative, as agent for the Indemnifying
Shareholders; (ii) the entering into and performance of the Escrow Agreement by
the Shareholders' Representative; (iii) the execution by the Shareholders'
Representative of a blank stock power on behalf of the Indemnifying Shareholders
with respect to the Escrowed Shares; (iv) the distribution by the Shareholders'
Representative of the assets held in escrow, including the Escrowed Shares, to
the Indemnifying Shareholders upon his receipt thereof, after deducting his
expenses as Shareholders' Representative; (v) the compromise and settlement by
the Shareholders' Representative of claims under the Agreement or in connection
with the Merger; (vi) payments by the Shareholders' Representative from the
Escrow; and (vii) the Indemnifying Shareholders liability for expenses incurred
by the Shareholders' Representative in connection with the performance of his
obligations as Shareholders' Representative, and all Indemnifying Shareholders
shall thereby be bound by the terms of the Agreement and the Escrow Agreement.
See "The Acquisition Agreement and Plan of Merger--Indemnification" and "The
Acquisition Agreement and Plan of Merger-- Representations and Warranties."
All Escrowed Shares will be issued and outstanding shares of Glenayre
Common Stock registered in the name of the Shareholders' Representative, and the
respective Indemnifying Shareholders will be entitled to direct the voting and
sale of, and to receive cash dividends, if any, on, the Escrowed Shares,
provided that any proceeds from the sale of the Escrowed Shares and stock
dividends will be placed in escrow until the Release Date.
11
<PAGE>
CNET STOCK OPTIONS
At the Effective Time, CNET's obligations with respect to outstanding
CNET Stock Options will be assumed by Glenayre. The number of shares of Glenayre
Common Stock to be received with respect to each CNET Stock Option will be
determined by multiplying the number of shares subject to each CNET Stock Option
by the Option Exchange Ratio and the option price will be determined by dividing
the current option price by the Option Exchange Ratio. Such options will in all
other respects be subject to the same terms and conditions, except that the
vesting of certain options will be automatically accelerated as a result of the
Merger. No portion of the cash will be received by the holders of the CNET Stock
Options. See "The Merger--Conflicts of Interest" and "The Acquisition Agreement
and Plan of Merger-- Indemnification."
APPROVAL AND CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Glenayre and CNET to consummate the Merger are subject
to the satisfaction or waiver of certain conditions set forth in the Agreement,
including, among others, obtaining the requisite approval of the Agreement by
the CNET Shareholders, the effectiveness of the Registration Statement and the
absence of any stop order related thereto or proceedings for such stop order,
the receipt of any required consents of governmental authorities, commissions,
boards or other regulatory bodies required in connection with the Merger and the
approval for listing on the Nasdaq Stock Market (subject to official notice of
issuance) of the shares of Glenayre Common Stock issuable in connection with the
Merger. It is also a condition to consummation of the Merger that Glenayre, the
Shareholders' Representative and the Escrow Agent enter into the Escrow
Agreement governing the terms and conditions of the investment and distribution
of the Escrow.
The obligation of CNET to consummate the Merger is subject to certain
additional conditions, including, among others, the performance by Glenayre of
its obligations under the Agreement required to be performed by it at or prior
to the Effective Time; the accuracy in all material respects of the
representations and warranties of Glenayre contained in the Agreement; the
absence of any material adverse change in the financial condition, business or
operations of Glenayre from the date of the Agreement through the Effective
Time, other than any change that affects CNET, CNET Sub and Glenayre in a
substantially similar manner. Consummation of the Merger by CNET is also
conditioned upon CNET's receipt of a written opinion of Gardere & Wynne, L.L.P.,
CNET's counsel, at the Effective Time, substantially to the effect that on the
basis of certain facts and representations, the Merger will constitute a
reorganization in accordance with Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code").
The obligation of Glenayre to consummate the Merger is also subject to
certain additional conditions, including, among others, the performance by CNET
and the Principal Shareholders of their obligations under the Agreement required
to be performed by them at or prior to the Effective Time; the accuracy in all
material respects of the representations and warranties of CNET and the
Principal Shareholders contained in the Agreement; the receipt by Glenayre from
Ernst & Young LLP of "comfort letters" with respect to the procedures undertaken
by Ernst & Young LLP in connection with the financial statements of CNET
contained in the Registration Statement; the absence of any material adverse
change in the financial condition, business or operations or prospects of CNET
and CNET Sub; the receipt of required consents; the conversion of CNET Stock
Options into options to purchase Glenayre Common Stock; the receipt of a letter
from each affiliate of CNET agreeing to be bound by certain restrictions on
resale of Glenayre Common Stock; the receipt by Glenayre of a good standing
certificate from Texas for CNET; the execution of noncompetition agreements by
David M. Zumwalt and Scott R. Greenwell; the termination of all shareholder,
voting or similar agreements with respect to CNET Common Stock; the receipt by
Glenayre from CNET of certified resolutions adopted by the Board of Directors
and the CNET Shareholders in connection with the Merger; the receipt of
agreements to pay off all loans or advances from CNET or CNET Sub (other than
routine travel advances) to any shareholders, directors, officers or employees
of CNET; the receipt by Glenayre of a schedule of all travel advances made by
CNET or CNET Sub as of the date of consummation of the Merger; and the receipt
by Glenayre of an aged accounts receivable report of CNET.
For a description of the conditions to the Merger, see "The Acquisition
Agreement and Plan of Merger--Conditions to Consummation of the Merger."
12
<PAGE>
TERMINATION OF THE ACQUISITION AGREEMENT AND PLAN OF MERGER; NO-SHOP PROVISIONS
The Agreement may be terminated (i) at any time by the mutual consent of
Glenayre and CNET; (ii) by either Glenayre or CNET if (a) the Merger is not
consummated prior to February 28, 1997; (b) the approval of the Merger by the
CNET Shareholders is not obtained; or (c) a federal or state court or agency
prohibits the transactions contemplated by the Agreement; (iii) by CNET if (a)
there is a breach by Glenayre or Glenayre Sub of any representation or warranty
set forth in the Agreement which would have or would be reasonably likely to
have a material adverse effect on Glenayre; or (b) there has been a material
breach of any covenant or agreement by Glenayre or Glenayre Sub that has not
been cured after notice; or (iv) by Glenayre if (a) there is a breach by CNET or
CNET Sub of any representation or warranty set forth in the Agreement which
would have or would be reasonably likely to have a material adverse effect on
CNET; or (b) there has been a material breach of any covenant or agreement by
CNET or CNET Sub that has not been cured after notice.
CNET has agreed not to solicit or enter into negotiations with respect to
a merger, sale of assets or similar transaction with any other entity prior
February 28, 1997, or the date of termination of the Agreement if earlier
terminated, subject to the exercise by the CNET Board of Directors of its
fiduciary duties required under applicable law. See "The Acquisition Agreement
and Plan of Merger--No Shop Provisions" and "The Acquisition Agreement and Plan
of Merger--Termination."
In addition, the Principal Shareholders were required by Glenayre to
grant to Glenayre an option to purchase their shares of CNET Common Stock in
certain circumstances (including the failure of the CNET Shareholders to approve
the Merger under certain circumstances). See "The Merger--Option to Acquire
Majority Interest in CNET."
TRANSACTION COSTS
CNET has agreed that, if the Merger is consummated, it will pay the first
$300,000 of expenses of the Merger and 50% of any expenses in excess of
$300,000, with the Indemnifying Shareholders collectively paying the remaining
50% of such expenses in excess of $300,000. Such expenses shall include services
provided by CNET's attorneys, accountants, consultants and other advisers in
connection with the consummation of the Merger and the transactions contemplated
by the Agreement. CNET will bear the expenses of any employees of CNET and of
any attorneys, accountants or other consultants or advisers engaged by CNET or
CNET Sub in connection with such transactions in the event the Merger is not
consummated. The Indemnifying Shareholders will pay all other fees and expenses
incurred by them in connection with the Agreement or consummation of the
transactions contemplated thereby. See "The Acquisition Agreement and Plan of
Merger-- Transaction Costs."
DISSENTERS' RIGHTS
Under the TBCA, holders of CNET Common Stock who properly dissent and
vote against or abstain from voting with respect to the Merger have the right to
obtain a cash payment for the "fair value" of their shares (excluding any
element of value arising from the accomplishment or expectation of the Merger).
See "Rights of CNET Shareholders Electing to Exercise Their Rights to Dissent."
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
In connection with the filing of the Registration Statement, Kennedy
Covington Lobdell & Hickman, L.L.P., counsel to Glenayre, delivered an opinion
to Glenayre (the "KCL&H Tax Opinion") to the effect that, although not free from
doubt, the Merger should be a tax-free transaction under the reorganization
provisions of the Code, resulting in no gain or loss to the Indemnifying
Shareholders with respect to the exchange of shares of CNET Common Stock for
shares of Glenayre Common Stock. Realized gain, but not loss (except for any
cash received for fractional shares), however, will be required to be recognized
with respect to the receipt of cash in connection with the Merger. The KCL&H Tax
Opinion is conditioned upon certain assumptions and the accuracy of certain
representations to be made by certain parties to the Agreement. If the facts
differ from such representations, the Merger may be entirely taxable. See
"Certain Federal Income Tax Consequences of the Merger."
13
<PAGE>
The conclusions expressed above are not binding on either the Internal
Revenue Service or the courts and the opinion of Kennedy Covington Lobdell &
Hickman, L.L.P. was delivered only to Glenayre and only Glenayre is entitled to
rely thereon. There can be no assurance that the Internal Revenue Service will
not take a contrary position and sustain such position in court.
CNET's obligation to consummate the Merger is conditioned upon, among
other things, the receipt by the CNET Shareholders of a written opinion (the
"Tax Opinion") of Gardere & Wynne, L.L.P., substantially to the effect that the
Merger will constitute a reorganization in accordance with Section 368(a) of the
Code. In connection with the Tax Opinion, Gardere & Wynne, L.L.P. will rely on
such factual assumptions as are customary in similar tax opinions and on certain
representations made by CNET and Glenayre in the Agreement, and by CNET and
certain CNET Shareholders to Gardere & Wynne, L.L.P., in connection with the
Merger. The Tax Opinion will be delivered to the CNET Shareholders at the
Effective Time and may be relied upon only by CNET prior to the Merger and the
CNET Shareholders and only if the factual assumptions and representations upon
which the Tax Opinion will be conditioned are accurate. No ruling from the
Internal Revenue Service concerning the tax consequences of the Merger has been
(or will be) requested by CNET, and the Tax Opinion will not be binding upon the
Internal Revenue Service or the courts. Each CNET Shareholder is urged to
consult with his own tax adviser with respect to the potential foreign, federal,
state and local tax consequences of the Merger as they relate to his own
particular circumstances.
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase business combination" for
accounting and financial reporting purposes. See "The Merger--Accounting
Treatment."
EFFECTS OF MERGER ON RIGHTS OF CNET SHAREHOLDERS
The rights of the holders of CNET Common Stock are generally similar to
the rights of holders of Glenayre Common Stock, except that CNET is a Texas
corporation and Glenayre is a Delaware corporation and Glenayre has taken
certain actions that may serve to make an unsolicited takeover of Glenayre less
likely. See "Comparative Rights of CNET Shareholders."
CONFLICTS OF INTEREST
In considering the recommendation of CNET's Board of Directors with
respect to the Merger, the CNET Shareholders should be aware that one member of
CNET's Board of Directors (Gregory S. Oslan) will continue as a director of CNET
after the Merger, members of CNET's management (including Gregory S. Oslan) will
continue as employees of CNET after the Merger, and David M. Zumwalt will
continue as an employee of CNET until December 31, 1996 to assist in the
transition of the business. Consequently, certain members of CNET's Board of
Directors and management may have certain interests in the Merger in addition to
those of holders of shares of CNET Common Stock generally. In addition, although
the Principal Shareholders are not contractually obligated to vote in favor of
the Merger, they were required by Glenayre to grant to Glenayre an option to
purchase for cash all of their shares of CNET Common Stock if the Merger is not
consummated for certain reasons (including the failure of the CNET Shareholders
to approve the Merger under certain circumstances) or the Agreement is
terminated for certain reasons. Consequently, the Principal Shareholders may
have different incentives to vote in favor of the Merger than the other CNET
Shareholders. CNET's Board of Directors was aware of these interests and
considered them, among other factors, in approving the Merger and the Agreement.
See "The Merger--Conflicts of Interest."
LISTING ON THE NASDAQ STOCK MARKET
Application will be made for the listing on the Nasdaq Stock Market of
the shares of Glenayre Common Stock to be issued in connection with the Merger.
14
<PAGE>
MARKET VALUE INFORMATION
The last sale price as reported on the Nasdaq Stock Market of Glenayre
Common Stock was $38.375 per share on August 13, 1996, the last trading day
preceding the announcement of the proposed Merger, and was $[25] on November
[ ], 1996. There is no public market for CNET Common Stock.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
GLENAYRE TECHNOLOGIES, INC.
The following selected consolidated financial data for each of the five
years in the period ended December 31, 1995 have been derived from the audited
consolidated financial statements of Glenayre. The financial statements for the
year ended December 31, 1995 have been audited by Ernst & Young LLP, independent
auditors. The financial statements for the four years ended December 31, 1994
have been audited by other independent auditors. The financial data for the nine
month periods ended September 30, 1995 and 1996 are derived from unaudited
financial statements. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals, which Glenayre considers
necessary for a fair presentation of the financial position and the results of
operations for these periods. Operating results for the nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1996. Glenayre acquired its
telecommunications equipment and related software business (the "the GEMS
Business") on November 10, 1992 from Glentel, Inc. (the "Acquisition"). Prior to
the Acquisition, Glenayre had been in the real estate development business and
in oil and gas pipeline construction. This Selected Consolidated Financial Data
reflects the operating results of the GEMS Business only from November 10, 1992,
the date of the Acquisition, thus the operating results for fiscal years 1991
and 1992 are not comparable to the operating results for subsequent years. The
year ended December 31, 1991 reflects only discontinued operations while the
year ended December 31, 1992 reflects only 51 days of the operating results of
the GEMS Business following the Acquisition. The results for 1995 include the
results of Western Multiplex Corporation from April 25, 1995, the date of its
acquisition by Glenayre. This Selected Consolidated Financial Data for Glenayre
should be read in conjunction with the Consolidated Financial Statements,
related notes, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the other financial data regarding Glenayre included
elsewhere herein or incorporated herein by reference.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------------------------ ---------------------------------
1991 1992(1) 1993 1994 1995 1995 1996
------------------------------------------------------------------ ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................... $ -- $ 15,586 $136,139 $172,107 $321,404 $222,945 $286,035
Gross profit................ -- 8,269 75,578 99,199 182,631 126,878 156,606
Selling, general and
administrative expense..... 2,102 6,145 31,638 41,079 56,579 39,657 58,226
Income (loss) from continuing
operations before
extraordinary item(2)...... (183) 865 23,700 33,095 76,448 64,359 67,828
Discontinued operations..... 687 (7,990) 100 388 -- -- --
Extraordinary item.......... -- -- (1,695) -- -- -- --
Net income (loss)........... 504 (7,125) 22,105 33,483 76,448 53,066 53,740
Primary Per Share Data:
Income from continuing
operations before
extraordinary item......... -- .02 .48 .56 1.22 .85 .84
Net income (loss)........... .01 (.19) .45 .57 1.22 .85 .84
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
As of
AS OF DECEMBER 31, September 30,
------------------------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1996
------------------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-
term investments............... $ 47,564 $ 5,681 $ 66,099 $ 91,505 $114,654 $148,058
Working capital................ 48,575 20,217 94,898 135,209 223,487 285,989
Total assets................... 80,650 169,476 228,244 284,961 447,580 499,886
Long-term debt, including
current portion............... 1,751 67,981 3,451 2,019 2,147 911
Minority interest in
consolidated subsidiaries..... 6,180 3,565 -- -- -- --
Stockholders' equity........... 59,964 64,022 198,708 245,435 390,694 437,854
</TABLE>
- ---------------
(1) Reflects 51 days of operating results for the GEMS Business following the
Acquisition. Effective December 31, 1992 and July 6, 1993, Glenayre adopted
formal plans to dispose of its oil and gas pipeline construction and real
estate operations, respectively. These operations are accounted for as
discontinued for all periods presented. See Note 1 to Glenayre's
Consolidated Financial Statements contained in its Annual Report on Form
10-K for the fiscal year ended December 31, 1995 and incorporated herein by
reference.
(2) Income (loss) from continuing operations prior to November 10, 1992,
resulted primarily from interest income and gains (losses) related to
Glenayre's cash and marketable securities and other income and expenses
unrelated to the discontinued operations.
17
<PAGE>
CNET, INC.
The following selected consolidated financial data for the five years in
the period ended January 31, 1996 have been derived from the audited
consolidated financial statements of CNET. The financial statements for the two
years ended January 31, 1996 have been audited by Ernst & Young LLP, independent
auditors. The financial statements for the three years ended January 31, 1994
have been audited by other independent auditors. The financial data for the six
month periods ended July 31, 1995 and 1996 are derived from unaudited financial
statements. The unaudited interim financial statements include all adjustments,
consisting of normal recurring accruals, which CNET considers necessary for a
fair presentation of the financial position and the results of operations for
these periods. Operating results for the six months ended July 31, 1996 are not
necessarily indicative of the results that may be expected for the entire year
ending Janu- ary 31, 1997. The Selected Consolidated Financial Data for CNET
should be read in conjunction with the Consolidated Financial Statements,
related notes, "CNET, Inc. Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the other financial data regarding
CNET included elsewhere herein.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, JULY 31,
------------------------------------------------------------------- ------------------------------
1992 1993 1994 1995 1996 1995 1996
------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues................... $ 3,404 $ 4,127 $ 6,494 $ 6,082 $ 6,516 $ 2,851 $ 2,580
Gross margin............... 1,974 2,401 3,458 2,615 3,472 1,230 1,247
Net income (loss).......... 251 20 38 (833) 19 (225) (1,120)
Net income (loss)
per share................. 0.03 0.00 0.01 (0.11) 0.00 (0.03) (0.14)
As of January 31, As of July 31,
------------------------------------------------------------------- ------------------------------
1992 1993 1994 1995 1996 1996
------------------------------------------------------------------- ------------------------------
BALANCE SHEET DATA:
Cash....................... $ 214 $ 59 $ 67 $ 15 $ 49 $ 181
Working capital (deficit).. 659 430 (757) (625) 368 (428)
Total assets............... 1,796 2,015 4,675 3,866 3,061 2,206
Long-term debt, including
current maturities....... 27 260 -- -- 539 956
Capital lease obligations,
including current
maturities............... 131 377 366 242 130 234
Shareholders' equity
(deficit).................. 1,055 1,075 1,113 497 594 (488)
</TABLE>
18
<PAGE>
COMPARATIVE PER SHARE DATA
The following tabulation reflects (a) the historical net income per
share of Glenayre Common Stock in comparison with the pro forma net income per
share after giving effect to the Merger as a "purchase business combination"
assuming the Merger had been effective on January 1, 1995; (b) the historical
net income per share of CNET Common Stock in comparison with the pro forma net
income attributable to .0394823 of one share of Glenayre Common Stock which
would be issued in the Merger for each share of CNET Common Stock as of November
15, 1996; and (c) the historical book value per share of Glenayre Common Stock
and CNET Common Stock in comparison with, in the case of Glenayre, the pro forma
book value per share after giving effect to the Merger and, in the case of CNET,
the pro forma book value attributable to .0394823 of one share of Glenayre
Common Stock. Neither Glenayre nor CNET has paid cash dividends during the year
ended December 31, 1995 and January 31, 1996, respectively, or during any
interim periods thereafter. The information presented in this tabulation should
be read in conjunction with the consolidated financial statements and the notes
thereto of Glenayre incorporated herein by reference and of CNET included
elsewhere herein.
GLENAYRE TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, September 30,
------------------- -----------------------
1995 1996
------------------- -----------------------
<S> <C> <C>
Primary income per share from continuing operations before extraordinary item
Historical.................................................................... $ 1.22 $ .84
Pro forma(1).................................................................. 1.20 .82
Fully diluted income per share from continuing operations before extraordinary item
Historical.................................................................... 1.22 .84
Pro forma(1).................................................................. 1.19 .81
Book value per share(2)
Historical.................................................................... 6.51 7.31
Pro forma..................................................................... 6.48 7.27
CNET, INC. Year ended Nine months ended
January 31, July 31,
----------------- -----------------------
1996 1996
----------------- -----------------------
Primary income (loss) per share from continuing operations before extraordinary item
Historical...................................................................... $ .00 $ (.13)
Equivalent of .0394823 of pro forma net income per share of Glenayre Common Stock(1) .05 .03
Book value (deficit) per share(2)
Historical...................................................................... .08 (.06)
Equivalent of .0394823 of pro forma book value per share of Glenayre Common Stock .26 .29
</TABLE>
- ----------------------------
(1) With respect to the fiscal year data, the net income per share of Glenayre
Common Stock is reflected by combining, on a pro forma basis, the results
of operations of Glenayre for the year ended December 31, 1995 with the
results of operations of CNET for the year ended January 31, 1996. With
respect to the data for the nine month period ended September 30, 1996, the
net income per share of Glenayre Common Stock is reflected by combining, on
a pro forma basis, the results of operations of Glenayre for the nine
months ended September 30, 1996 with the results of operations of CNET for
the nine months ended July 31, 1996. The CNET equivalent primary income per
share for the period ended July 31, 1996 is based on the pro forma net
income per share of the Glenayre Common Stock for the nine months ended
September 30, 1996. The results of operations of CNET for the three month
period ended January 31, 1996, which are not significant, are included in
the pro forma consolidated results of operations for the nine month period
ended September 30, 1996 and for the year ended 1995.
(2) Historical book value per share is computed by dividing the total
stockholders' equity by the number of shares of common stock outstanding at
the end of the period. Pro forma book value per share is computed by
dividing pro forma stock- holders' equity by the pro forma number of shares
of Glenayre Common Stock outstanding after giving effect to the Merger.
19
<PAGE>
GLENAYRE RISK FACTORS
CNET Shareholders should carefully consider the following risk factors
as well as the other information set forth in this Proxy Statement/Prospectus.
POTENTIAL MARKET CHANGES RESULTING FROM RAPID TECHNOLOGICAL ADVANCES
Glenayre's business is primarily focused on paging and is subject to
competition from alternative forms of communication. In addition, Glenayre's
business is also focused on the wireless telecommunications industry. The
wireless telecommunications industry is characterized by, and subject to, rapid
and significant technological change and future technological advances,
including digital-based cellular telephone systems, which may result in the
availability of new services or products which compete, directly or indirectly,
with Glenayre's products or the services provided by its customers. The effect
of such technological advances on the business of Glenayre cannot be predicted,
and there can be no assurance that such technological advances will not
adversely affect Glenayre. While the introduction of more advanced forms of
telecommunication may provide opportunities to Glenayre for the development of
new products, these advanced forms of telecommunication may reduce the demand
for pagers and thus the type of paging transmission systems and related software
designed and sold by Glenayre. In addition, there can be no assurance that
Glenayre will be able to develop successfully these new products or to provide
additional enhancements to its existing products.
COMPETITION
Glenayre currently faces competition from a number of other equipment
manufacturers, certain of which are larger and have significantly greater
resources than Glenayre and there can be no assurance that Glenayre will be able
to compete successfully in the future. In addition, manufacturers of wireless
telecommunications equipment, including those in the cellular telephone
industry, certain of which are larger and have significantly greater resources
than Glenayre, could elect to enter into Glenayre's markets and compete with
Glenayre's products. Glenayre also faces indirect competition from alternative
wireless telecommunications technologies, including cellular telephone services,
mobile satellite systems, specialized and private mobile radio systems,
digital-based cellular telephone systems and broadband personal communication
services. These technologies, among others, are currently in use or under
development. Although these technologies are higher priced than traditional
paging services or are not yet commercially available, technological
improvements could result in increased capacity and efficiency for wireless
two-way communication and, accordingly, could result in increased competition
for Glenayre. See "Risk Factors- Potential Market Changes Resulting from Rapid
Technological Advances."
VARIABILITY OF QUARTERLY RESULTS
Glenayre's financial results in any quarter are highly dependent upon
various factors, including the timing and size of customer orders and the
shipment of products for large orders. Large orders from customers can account
for a significant portion of products shipped in any quarter. Accordingly, the
shipment of products in fulfillment of such large orders can dramatically affect
the results of operations of any single quarter. Sales to one customer totalled
approximately 13% and 16% of 1994 and 1995 fiscal year net sales, respectively.
The customers with whom Glenayre does the largest amount of business generally
change from year to year as a result of the timing for development and expansion
of its customers' systems. Furthermore, if a customer delays or accelerates its
delivery requirements or a product's completion is delayed or accelerated,
revenues expected in a given quarter may be deferred or accelerated into
subsequent or earlier quarters. Therefore, annual financial results are more
indicative of Glenayre's performance than quarterly results, and results of
operations in any quarterly period may not be indicative of results likely to be
realized in the following quarterly periods. In addition, comparisons to the
results of the Glenayre's prior quarterly periods may not be appropriate
indicators of future quarterly period results.
VOLATILITY OF STOCK PRICE
The market price of Glenayre Common Stock is volatile. The market price
of Glenayre Common Stock could be subject to significant fluctuations in
response to variations in Glenayre's quarterly operating results and other
factors such as announcements of technological developments or new products by
Glenayre, developments in Glenayre's relationships
20
<PAGE>
with its customers, technological advances by existing and new competitors,
general market conditions in the industry and changes in government regulations.
In addition, in recent years conditions in the stock market in general and
shares of technology companies in particular have experienced significant price
and volume fluctuations which have often been unrelated to the operating
performance of these specific companies. Such market fluctuations and economic
conditions unrelated to Glenayre may adversely affect the market price of
Glenayre's Common Stock.
LIMITS ON PROTECTION OF PROPRIETARY TECHNOLOGY AND INFRINGEMENT CLAIMS
Glenayre owns or licenses numerous patents used in its operations.
Glenayre believes that, while these patents are useful to Glenayre, they are not
critical or valuable on an individual basis. The collective value of the
intellectual property of Glenayre is comprised of its patents, blueprints,
specifications, technical processes and cumulative employee knowledge. Although
Glenayre attempts to protect its proprietary technology through a combination of
trade secrets, patent law, nondisclosure agreements and technical measures, such
protection may not preclude competitors from developing products with features
similar to Glenayre's products. The laws of some foreign countries in which
Glenayre sells or may sell its products, including The Republic of Korea, The
People's Republic of China, Saudi Arabia, Thailand, Dubai, India and Brazil, do
not protect Glenayre's proprietary rights in the products to the same extent as
do the laws of the United States. Although Glenayre believes that its products
and technology do not infringe on the proprietary rights of others, Glenayre is
currently party to certain infringement claims, and there can be no assurance
that third parties will not assert additional infringement claims against
Glenayre in the future. If such litigation resulted in Glenayre's inability to
use technology, Glenayre might be required to expend substantial resources to
develop alternative technology or to license the prior technology. There can be
no assurance that Glenayre could successfully develop alternative technology or
license the prior technology on commercially reasonable terms. Glenayre does not
believe, however, that an adverse resolution of the pending claims would have a
material adverse effect on Glenayre.
POTENTIAL CHANGES IN GOVERNMENT REGULATION
Many of Glenayre's products operate on radio frequencies. Radio
frequency transmissions and emissions, and certain equipment used in connection
therewith, are regulated in the United States, Canada and internationally.
Regulatory approvals generally must be obtained by Glenayre in connection with
the manufacture and sale of its products, and by Glenayre's paging service
provider and other wireless customers to operate Glenayre's products. There can
be no assurance that appropriate regulatory approvals will continue to be
obtained, or that approvals required with respect to products being developed
for the personal communications services market will be obtained. The enactment
by federal, state, local or international governments of new laws or regulations
or a change in the interpretation of existing regulations could affect the
market for Glenayre's products. Although recent deregulation of international
telecommunications industries along with recent radio frequency spectrum
allocations made by the Federal Communications Commission ("FCC") in the United
States have increased the demand for Glenayre's products by providing users of
those products with opportunities to establish new paging and other wireless
personal communications services, there can be no assurance that the trend
toward deregulation and current regulatory developments favorable to the
promotion of new and expanded personal communications services will continue or
that other future regulatory changes will have a positive impact on Glenayre. In
February, 1996, the FCC released a notice of proposed rule making covering a
licensing rule and procedure change on the 929 MHz and 931 MHz as well as
certain other paging frequencies which included a freeze on its acceptance of
new applications for paging system licenses. In April, 1996, the FCC partially
lifted this freeze to permit paging service providers to submit expansion
applications for paging transmitter sites within 40 miles of their existing
sites. As the issuance of new paging system licenses stimulates demand for
Glenayre's products, this freeze may adversely affect sales and the timing of
sales of Glenayre's products in the United States.
FINANCING CUSTOMER PURCHASES FOR DEVELOPMENT OF NPCS MARKET
Glenayre expects to finance customer purchases of its products for
development of the narrowband personal communications services ("NPCS") market
for the build-out of NPCS networks by its customers who recently acquired NPCS
licenses auctioned by the FCC (the "NPCS License Holders"). Glenayre has
provided customer financing in the past on a selected basis but generally has
not extended credit except in accordance with the usual and customary terms of
the industry. The NPCS market, including two-way paging, is still in the
developmental stages and will require the application of new technology. There
can be no assurances that this technology will be developed, that NPCS will be
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accepted in the marketplace or that NPCS will be commercially viable. The
development of the NPCS market will be affected by matters beyond the control of
Glenayre such as technological changes in wireless messaging services,
regulatory developments and general economic conditions. Many of the NPCS
License Holders with whom Glenayre expects to enter into customer financing
arrangements have limited operating histories, significant debt related to the
acquisition of their NPCS licenses and start-up expenses, negative cash flows
from operations and some have never generated an operating profit. There can be
no assurance that these customers will be able to repay Glenayre for the
equipment sold under customer financing arrangements. Glenayre plans to retain a
lien on any equipment for which it provides financing. There can be no assurance
that the equipment will be returned in the event of a default or be saleable
upon recovery.
INTERNATIONAL BUSINESS RISKS
Approximately 35% of 1995 fiscal year net sales were generated in
markets outside of the United States. International sales are subject to the
customary risks associated with international transactions, including political
risks, local laws and taxes, the potential imposition of trade or currency
exchange restrictions, tariff increases, transportation delays, difficulties or
delays in collecting accounts receivable, and, to a lesser extent, exchange rate
fluctuations. Although a substantial portion of the international sales of the
Glenayre's products and services for fiscal year 1995 was negotiated in U.S.
dollars, there can be no assurance that Glenayre will be able to maintain such a
high percentage of U.S. dollar denominated international sales. Glenayre seeks
to mitigate its currency exchange fluctuation risk by entering into currency
hedging transactions. Glenayre also acts to mitigate certain risks associated
with international transactions through the purchase of political risk insurance
and the use of letters of credit.
POSSIBLE ANTI-TAKEOVER EFFECT OF GLENAYRE'S CHARTER AND BYLAWS AND DELAWARE LAW
Glenayre's Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), and Restated Bylaws (the "Bylaws") and the
Delaware General Corporation Law (the "DGCL") contain provisions which may have
the effect of delaying or preventing a change in control of Glenayre. Glenayre's
Certificate of Incorporation provides for: (i) a classified Board of Directors,
(ii) limitations on stockholder actions and (iii) blank check preferred stock
(the terms of which may be fixed by the Board of Directors without stockholder
approval). These provisions can limit the ability of any person to gain control
of Glenayre's Board of Directors and provide Glenayre with the ability to alter
Glenayre's capital structure without further stockholder approval. See
"Comparative Rights of CNET Shareholders."
LACK OF DIVIDENDS
Glenayre has not paid cash dividends since 1982 and currently intends to
reinvest any earnings to finance its future growth.
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CNET SHAREHOLDERS' MEETING
MEETING OF CNET SHAREHOLDERS
This Proxy Statement/Prospectus is being furnished to the CNET
Shareholders in connection with the solicitation of proxies by and on behalf of
the CNET Board of Directors for use at the Special Meeting of Shareholders of
CNET to be held at 9:00 a.m., local time, on December 20, 1996 at the offices of
CNET, 4975 Preston Park Boulevard, Suite 800, Plano, Texas and any adjournments
or postponements thereof. The close of business on November 15, 1996 is the
record date for determining the CNET Shareholders entitled to vote at the
Special Meeting. This Proxy Statement/Prospectus, the attached Notice of Special
Meeting and the accompanying form of Proxy, Transmittal Letters and
Acknowledgments are first being sent to the CNET Shareholders and CNET Option
Holders on or about November [ ], 1996.
PURPOSE OF MEETING
At the Special Meeting, CNET Shareholders will consider and vote upon
the Merger, including without limitation, the appointment of, and grant of
authority to, the Shareholders' Representative, and a proposal to approve and
adopt the Agreement pursuant to Article 5.03 of the TBCA. The CNET Board of
Directors unanimously approved the Agreement, having concluded that the Merger
and the Agreement are fair to and in the best interests of CNET and the CNET
Shareholders. The CNET Board of Directors recommends that the CNET Shareholders
vote FOR the approval and adoption of the Agreement. For further information,
see "The Merger--Background and Reasons for the Merger."
RECORD DATE; VOTING REQUIREMENTS AT MEETING
Only CNET Shareholders of record at the close of business on November
15, 1996 (the "Record Date") will be entitled to notice of and to vote at the
Special Meeting. Approval of the Merger requires the affirmative vote of the
holders of two-thirds of the outstanding shares of CNET Common Stock. As of the
Record Date, there were 28 CNET Shareholders of record and 7,856,912 shares of
CNET Common Stock outstanding and entitled to vote.
The directors and executive officers of CNET and their affiliates
beneficially owned (excluding options), as of the Record Date, 7,028,427 shares
or approximately 89.5% of the outstanding shares of CNET Common Stock.
The Principal Shareholders, who together beneficially owned
approximately 79.0% of the CNET Common Stock issued and outstanding on the
record date, have indicated they intend to vote in favor of the Merger. If they
vote in favor of the Merger, their votes will be sufficient to assure the
approval of the Merger under the TBCA. Although the Principal Shareholders are
not contractually obligated to vote in favor of the Merger, they were required,
as a condition to Glenayre entering into the Agreement, to grant Glenayre an
option to purchase for cash all of their shares of CNET Common Stock if the
Merger is not consummated for certain reasons (including the failure of the CNET
Shareholders to approve the Merger under certain circumstances) or the Agreement
is terminated for certain reasons. Consequently, the Principal Shareholders may
have different incentives to vote in favor of the Merger than the other CNET
Shareholders.
PROXIES
All proxies that are properly executed by CNET Shareholders and received
by CNET prior to the Special Meeting, and not subsequently revoked, will be
voted in accordance with the instructions noted thereon. A proxy that does not
specify to the contrary will be voted FOR approval and adoption of the Agreement
and the appointment of, and grant of authority to, the Shareholders'
Representative. Any CNET Shareholder who submits a proxy will have the right to
revoke it, at any time before it is voted, by filing with the Secretary of CNET
written notice of revocation or a duly executed later-dated proxy, or by
attending the Special Meeting and voting such CNET Common Stock in person.
All costs relating to the solicitation of proxies of CNET Shareholders
will be borne by CNET. Proxies may be solicited by officers, directors and
regular employees of CNET personally, by mail or by telephone or otherwise.
It is important that proxies, Transmittal Letters and Acknowledgments be
returned promptly. CNET Shareholders are urged to mark, sign and date the
accompanying proxy, and mail it in the enclosed postage paid return envelope,
along
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with the enclosed Transmittal Letter and the shareholder's certificates for
shares of CNET Common Stock if the shareholder is voting in favor of the Merger.
CNET Option Holders are urged to sign and date the Acknowledgment and mail it in
the enclosed envelope.
THE MERGER
The detailed terms of the Merger are contained in the Acquisition
Agreement and Plan of Merger attached as Annex A to this Proxy
Statement/Prospectus. The following discussion describes the more important
aspects of the Merger and the terms of the Agreement. This description is not
complete and is qualified by reference to the Agreement which is incorporated by
reference herein.
BACKGROUND AND REASONS FOR THE MERGER
Background. Glenayre was contacted by CNET at the Personal
Communications Industry Association ("PCIA") trade show in Orlando, Florida in
September 1995 for Glenayre to discuss Glenayre's licensing of certain CNET
products. In mid-November 1995, Glenayre visited CNET's offices for further
presentations by CNET sales and management personnel on its products and
business activities. During this meeting, the possibility of an investment by
Glenayre in CNET was briefly discussed. In late November 1995, an initial
technical evaluation meeting was held at CNET's offices between the technical
staffs of Glenayre and CNET. Prior to November 1995, CNET had been seeking
equity investors for the expansion of its business.
In December 1995, following Glenayre's review of CNET's financial and
product information, Glenayre proposed and discussed with CNET an acquisition of
CNET. In late December 1995, CNET sent Glenayre an outline of CNET's
expectations for an acceptable equity transaction. On January 4, 1996, Glenayre
senior management and CNET senior management, including inside directors, held
an initial meeting in Glenayre's Charlotte, North Carolina office for CNET
senior management to give a presentation of CNET's business and to explore, in
general terms, the possible benefits of a merger.
As Glenayre continued to conduct due diligence with respect to CNET,
several meetings and negotiations occurred between CNET and Glenayre. During an
industry trade show on March 26, 1996, Glenayre and CNET management met to
discuss a forthcoming proposal from Glenayre to CNET, which was subsequently
sent to CNET on March 27, 1996. At that meeting, certain of the principal
economic terms were agreed to on a non-binding basis, which provided Glenayre
with a basis to begin preparation of an agreement between the parties. On April
2, 1996, members of Glenayre's and CNET's management, including an inside and
outside director, met and discussed Glenayre's proposal, including certain terms
that were unacceptable to CNET. On April 22, 1996, Glenayre sent a revised
proposal for consideration by CNET. On April 23 and 24, 1996, Glenayre visited
CNET for further negotiations.
In connection with its accounting and financial due diligence review,
Glenayre management developed a list of accounting and financial procedures to
be completed. Glenayre personnel visited CNET on a three-day site visit from May
15 through 17, 1996. Specific procedures performed by Glenayre included review
of CNET's audited financial statements, review of CNET books and records,
inquiries of CNET management personnel, analysis of financial statements and
records and review of working papers prepared by independent accountants.
Glenayre provided CNET with an initial draft of an Acquisition Agreement
(the "Prior Agreement") on June 26, 1996. In order to address unresolved issues
in the Prior Agreement, from June 26 through August 14, 1996, numerous telephone
conferences were held among senior members of Glenayre and CNET management,
including inside directors, as well as attorneys for both companies. On July 17,
1996, a revised draft of the Prior Agreement was provided to CNET including
revisions based on negotiations to date. On July 23, 1996, a telephone
conference occurred among senior members of Glenayre and CNET management, as
well as attorneys for both companies, to resolve continuing issues in the July
17 draft of the Prior Agreement. From July 23 through August 5, 1996, efforts
continued to resolve the remaining differences on the Prior Agreement with final
agreement being reached, subject to the approval of the respective Boards of
Directors of Glenayre and CNET, through telephonic meetings between Glenayre and
CNET senior management and respective counsel on August 4 and 5, 1996. Following
the final review of the Prior Agreement, the Glenayre Board
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of Directors and the CNET Board of Directors unanimously approved the terms of
the Prior Agreement on August 6 and August 12, 1996, respectively.
On August 14, 1996, the Prior Agreement was executed. In addition,
Glenayre and the Principal Shareholders entered into a stock option agreement
(the "Prior Stock Option Agreement") on August 14, 1996. On August 14, 1996, the
last reported sales price of Glenayre Common Stock on the Nasdaq Stock Market
was $40.375 per share.
The Prior Agreement provided, among other things, for up to an aggregate
of 400,000 shares of Glenayre Common Stock to be issued to the CNET Shareholders
in exchange for their CNET Common Stock and upon exercise of the CNET Stock
Options. No cash consideration was payable to CNET Shareholders under the Prior
Agreement except for fractional shares, and Glenayre's consummation of the
Merger under the terms of the Prior Agreement was conditioned upon the
qualification of the transaction as a "pooling of interests" for accounting
purposes.
Under the terms of the Prior Stock Option Agreement, the Principal
Shareholders granted Glenayre the option to purchase all their shares of CNET
Common Stock (approximately 79.0% of the outstanding shares). This option was
exercisable by Glenayre upon the occurrence of certain events that were
substantially the same as the events that trigger Glenayre's right to exercise
the option under the Amended and Restated Stock Option Agreement, including the
failure of the CNET Shareholders to approve the Merger under certain
circumstances. The exercise price of the option was payable in cash and equaled
the product of the exchange ratio determined in accordance with the Prior
Agreement multiplied by the average of the closing prices of Glenayre Common
Stock for the 25 trading days immediately preceding the exercise.
On July 31, 1996, Glenayre and CNET entered into an Evaluation Software
License Agreement for CNET's BOS software product. Under this license, Glenayre
received certain rights to use and prepare derivative works from BOS for nine
months. As part of the license, CNET will also provide training and maintenance
support to Glenayre for the evaluation. CNET retains all proprietary rights in
the BOS product and Glenayre's license does not provide it with any rights to
sell or sublicense such software. During the term of the license, Glenayre's
engineers will investigate the incorporation of portions of the BOS software
into Glenayre's Modular Voice Processing ("MVP") product line. Any incorporation
of BOS into the MVP product line would require an additional license from CNET.
On August 16, 1996, Glenayre and CNET entered into a Software License
Agreement for the use of CNET's WiNGS product which is a radio frequency ("RF")
propagation tool. The WiNGS product was selected by the Technical Services
Department of Glenayre's Wireless Messaging Group after extensive evaluation of
several competing packages. The WiNGS package will be used to provide RF
propagation analysis for Glenayre's customers in support of large equipment
sales to those customers.
Glenayre paid CNET an aggregate of $500,000 for the Evaluation Software
License Agreement and the Software License Agreement described above. In the
second and third years of the Software License Agreement, additional amounts
will be paid by Glenayre for maintenance support. The terms of each license were
negotiated at arm's length between Glenayre and CNET. The terms of the
Evaluation Software License Agreement for the BOS software product are
comparable to prior licensing arrangements between CNET and its other customers.
The license fee under the Software License Agreement for the WiNGS RF
propagation tool was comparable with quotations received from other vendors
considered by Glenayre.
After the execution of the Prior Agreement and the Prior Stock Option
Agreement, Glenayre and CNET began preparing a joint proxy statement, prospectus
and registration statement (the "Registration Statement") for filing with the
Securities and Exchange Commission as contemplated in the Prior Agreement.
During this same period, Glenayre and CNET held numerous conference calls and
meetings regarding the integration of CNET into Glenayre's organization
following the consummation of the merger contemplated by the Prior Agreement. On
September 6, 1996, Glenayre informed CNET that it wanted to delay the filing of
the Registration Statement until, among other reasons, it had an opportunity to
study CNET's interim results.
During its meeting on September 11, 1996, the Board of Directors of CNET
affirmed its desire to consummate the transactions contemplated in the Prior
Agreement but expressed concern regarding the delay imposed by Glenayre.
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On September 13, 1996, Glenayre publicly announced that its net income
for the quarter ending September 30, 1996 would be 40-45% below net income for
the same quarter in 1995. On September 16, 1996, the last reported sale price of
Glenayre Common Stock on the Nasdaq Stock Market was $20 per share. Beginning
September 19, 1996, Glenayre repurchased approximately 1.5 million shares of
Glenayre Common Stock on the open market. On September 25, 1996, Glenayre
announced that its Executive Committee had authorized the repurchase of an
additional 2.5 million shares of Glenayre Common Stock.
As a result of the stock repurchases, Glenayre could not account for the
Merger as a "pooling of interests" for accounting purposes. Although CNET and
Glenayre each expressed interest in consummating the Merger, they began the
process of renegotiating the Merger consideration and certain other provisions
of the Prior Agreement and addressing other issues that arose from the delay in
the consummation of the Merger.
These negotiations culminated with the termination of the Prior
Agreement and the Prior Stock Option Agreement, CNET and Glenayre entering into
the Agreement, and Glenayre and the Principal Shareholders entering into the
Amended and Restated Stock Option Agreement on October 16, 1996. The CNET Board
of Directors approved the termination of the Prior Agreement and the Agreement
and the transactions contemplated thereunder as of October 11, 1996.
As of October 15, 1996, Glenayre's Board of Directors approved the
Agreement and the Amended and Restated Stock Option Agreement and the
termination of the Prior Agreement.
During the negotiation of the Prior Agreement, CNET informed Glenayre of
its projected working capital requirements beginning in the fiscal quarter
ending October 31, 1996 and reviewed with Glenayre its available financing
alternatives. At that time Glenayre requested that CNET not pursue any of these
alternatives and agreed in principle to provide, or assist in obtaining, working
capital financing for CNET in the event and to the extent CNET required such
financing prior to the consummation of the Merger. Following the delay in filing
the Registration Statement, the management of CNET and Glenayre negotiated an
agreement for Glenayre to provide CNET a $1,000,000 revolving line of credit
(the "Line of Credit"). On October 9, 1996, the CNET Board of Directors reviewed
the terms of the Line of Credit and approved the Line of Credit as of October
11, 1996. As of October 17, 1996, the Glenayre Board of Directors approved the
Line of Credit. See "CNET, Inc. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Financial Condition and
Liquidity."
On October 17, 1996, CNET and Glenayre executed the agreements
documenting the Line of Credit. As of November [4], CNET had borrowed $[493,000]
thereunder.
The terms of the Agreement and the Amended and Restated Stock Option
Agreement, including the consideration to be paid, were negotiated on an arm's
length basis by senior members of management of Glenayre and CNET, including the
Principal Shareholders. During the negotiations, Glenayre based its valuation of
CNET on (i) its assessment of valuation parameters of companies in the same or
related business as CNET; (ii) CNET's product offerings and markets served; and
(iii) the potential effects that a transaction would have on Glenayre's
financial results. Glenayre did not retain a financial adviser to advise it
regarding the valuation of CNET or to provide a fairness opinion. Glenayre's
decision not to utilize a financial adviser was based on the size of the
transaction relative to the market capitalization of Glenayre and the experience
of certain Glenayre officers and directors in merger and acquisition
transactions. CNET's decision not to utilize a financial adviser for this
transaction was based on CNET's recent experience with venture capitalists,
business intermediaries and investment bankers, all of whom helped CNET
establish methods for determining a fair market value for CNET, and the
experience of certain of CNET's directors in merger and acquisition
transactions. See "CNET's Reasons for Merger" below. Additionally, the three
Principal Shareholders are on the CNET Board of Directors.
The form of consideration to be utilized in the transaction was chosen
by Glenayre and CNET to satisfy both parties' desire to achieve a transaction
that will be tax-free to the CNET Shareholders with respect to the exchange of
shares of CNET Common Stock for shares of Glenayre Common Stock.
The following two sections set forth the factors considered by the
Glenayre and CNET Boards of Directors, respectively, in their decisions to
approve the terms of the Agreement.
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Glenayre's Reasons for Merger. Since 1993, Glenayre has been seeking to
make acquisitions of companies engaged in similar or related businesses in order
to expand its product lines and to expand its presence in the wireless personal
communications marketplace. Glenayre believes acquisitions provide an
opportunity for revenue and earnings growth in addition to the growth that can
be achieved internally. Prior to the execution of the Agreement and the Amended
and Restated Stock Option Agreement, the Board of Directors of Glenayre
considered, among others things: (i) information concerning CNET's product
offerings and technical competencies; (ii) the current and future potential of
the markets in which CNET competes and CNET's competitive position within such
markets; (iii) the proposed terms and structure of the Merger; (iv) the benefits
that Glenayre and CNET could bring to each other as a result of the Merger and
(v) information concerning the financial performance and condition and business
operations of CNET. As part of its consideration, Glenayre's Board of Directors
reviewed financial data, the results of due diligence examinations conducted by
Glenayre's management and outside advisers and management's plans for the
operation of CNET as a subsidiary of Glenayre following the Merger.
In connection with its review and evaluation of CNET, Glenayre engaged
David Rubin & Associates, Inc. ("Rubin") in June 1996 to assess and review
CNET's products and technology and to assess CNET customer satisfaction and
enhancements that CNET customers desire for CNET products. Rubin is an
independent consulting firm that provides services to the wireless
communications industry. Rubin has not otherwise been engaged by Glenayre in the
previous two years but Glenayre agreed in December 1995 to pay Rubin a finders
fee for any acquisition introduced to Glenayre by Rubin and completed by
Glenayre. Rubin did not introduce CNET to Glenayre and has not introduced any
other potential acquisition to Glenayre. Rubin was paid approximately $13,000
for its services to Glenayre in connection with its report on CNET products and
customers. Rubin interviewed representatives of principal customers of CNET in
preparing its report.
Rubin concluded that CNET's products are competitive products and CNET
is a successful supplier of its products. Rubin recommended that CNET should
grow and maintain its products and should prioritize its product development
efforts to respond to specific, identified customer needs. Rubin concluded that
CNET's products are successful software products in the wireless industry and
positioned for even greater success in the future.
The positive factors considered by the Glenayre Board included the
competitive synergy of CNET product and service offerings with existing Glenayre
products and businesses; the opportunity to expand Glenayre's presence into new
markets not currently being served; the integration of CNET product capabilities
into Glenayre products that Glenayre would otherwise have had to develop to meet
market demands and the time necessary to complete such internal development; the
ability of Glenayre to broaden the distribution of CNET's products through
Glenayre's worldwide sales organization and customer base; Glenayre's ability to
use its financial strength to finance CNET's growth and the additional revenue
and profitability potential from both the current CNET product offerings and
additional sales of current Glenayre products from the combined product
offerings. The negative factors considered by the Glenayre Board of Directors
following a review of CNET's historical financial results and its operational
practices included risks associated with the competitive nature of CNET's
industry, such assessment being based upon the customer survey discussed above
and Glenayre management's investigation of the industry; the lack of resources
available to CNET to develop and introduce additional product enhancements on a
timely basis to maintain the competitiveness of its products and CNET's
historical financial performance. Glenayre's Board of Directors did not assign
relative weights to any of these factors. Rather, the decision of Glenayre's
Board of Directors to approve the Merger was based on a general conclusion that,
after weighing both the positive and negative aspects of the Merger, the Merger
would be beneficial to the shareholders of Glenayre.
CNET's Reasons for the Merger. In the past few years, the wireless
industry has experienced explosive growth and change, evidenced by the
introduction of PCS, the expansion of the global market and the emergence of
global competition and increasingly diverse technological standards. CNET's
Board of Directors recognized that this evolving industry landscape requires
CNET to aggressively seek broader distribution channels and additional capital
to fund future product and market development in order to fully realize its
growth potential.
Throughout its 10 year history, CNET has been a closely-held corporation
and has been internally financed with the exception of the use of bank lines of
credit, capital leases and a $500,000 Small Business Administration loan
obtained in February 1996. As a closely-held corporation, no public market has
existed for CNET's Common Stock. Nonetheless, CNET has utilized incentive based
compensation programs, relying heavily upon CNET Common Stock and CNET Stock
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Options, to motivate and retain high caliber employees, officers and directors.
As the relative size of these investments has grown, it became increasingly
important to CNET's Board of Directors to consider re-capitalization strategies
for CNET that would strengthen CNET's access to needed capital for growth and to
provide a means for greater shareholder liquidity and an ongoing opportunity for
positive employee and investor relations.
Before entering into the Prior Agreement, CNET's Board of Directors and
certain of its officers reviewed alternative strategies for obtaining capital
for CNET and providing CNET Shareholders with securities that were readily
marketable. Commencing in May 1995, CNET held discussions with several venture
capital firms regarding investments in CNET and more serious discussions with
two of these firms commencing in February 1996. In addition, commencing in
November 1995, CNET held discussions with three investment banking firms
regarding a public offering of CNET Common Stock and discussions with one of
these firms regarding an issuance of debt securities of CNET. Although CNET's
Board of Directors decided not to pursue any of these alternatives, these
discussions and the valuation models that were prepared for CNET in connection
therewith provided useful information to CNET's Board of Directors in
establishing an estimated value for CNET and evaluating the terms of the Merger.
In May 1995, CNET reaffirmed its corporate strategy and redefined its
objectives for its products and services, based on direct customer input
regarding the types of network management and information access problems that
they were facing in their businesses. To execute its strategic and operational
plans, CNET renewed its commitment to finding a strategic and financial partner
that shared CNET's industry vision. CNET sought a partner that was financially
strong with access to capital, complementary products and services and had a
well established multinational sales distribution network.
In September 1995, at the PCIA trade show in Orlando, CNET met with
representatives from Glenayre to discuss the possibility of Glenayre licensing
certain CNET products. As the two companies learned more about each other's
businesses over the next several months, a mutual recognition of complementary
strategies and products emerged.
After discussions with Glenayre regarding its potential acquisition of
CNET, due diligence by CNET of Glenayre and consideration by CNET's Board of
Directors and key management, CNET determined that Glenayre met substantially
all of CNET's strategic and financial criteria for a partner and that the Merger
offered greater liquidity to CNET Shareholders and CNET Option Holders than the
alternatives that had been considered.
In August and October 1996, the CNET Board of Directors determined that,
in its opinion, the Merger is in the best interests of CNET and the CNET
Shareholders and unanimously recommended that the CNET Shareholders approve the
Prior Agreement and the Agreement. In arriving at this conclusion, the CNET
Board of Directors evaluated the price and terms being offered in light of the
following factors, although it did not assign any specific or relative weight to
these factors in its consideration:
(bullet) the costs and risks, as a closely-held corporation, of obtaining
long-term financing to fund CNET's growth and its significant
software development initiatives in an increasingly competitive
wireless telecommunications market;
(bullet) the CNET Board of Directors' review, with its legal advisers, of
the provisions of the Prior Agreement and the Agreement;
(bullet) the improved liquidity afforded the CNET Shareholders by the
trading of Glenayre Common Stock on the Nasdaq Stock Market;
(bullet) the ability to provide increased incentives to its employees with
stock options based on a publicly traded security;
(bullet) the qualification of the Merger as a tax-free exchange for
federal income tax purposes for the CNET Shareholders (other than
in respect of the cash consideration to be paid for CNET Common
Stock and any cash paid in lieu of fractional shares);
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(bullet) Glenayre's financial strength, management depth, wireless
telecommunications equipment manufacturing expertise and
international sales experience; and
(bullet) CNET's financial condition, results of operations, current
business and expansion opportunities and constraints and
projections of future performance and earnings.
In addition, in determining to recommend the Merger to the CNET
Shareholders, the CNET Board of Directors analyzed the differences between the
Agreement and the Prior Agreement, the material changes to which relate to the
Merger consideration, and the Amended and Restated Stock Option Agreement
compared to the Prior Stock Option Agreement. Under the Agreement, upon
consummation of the Merger, (a) each CNET Shareholder (other than Dissenting
Shareholders as defined herein) will be entitled to receive its proportionate
share of $1,000,000 in cash and, subject to the requirements for escrowing the
Escrowed Shares, its proportionate share of 370,000 shares of Glenayre Common
Stock less the Glenayre Option Shares, and (b) the holders of CNET Stock Options
will, upon exercise, be entitled to the same number of shares of Glenayre Common
Stock that they would have received under the terms of the Prior Agreement.
Thus, the holders of CNET Stock Options are not affected by the changes to the
Merger consideration in the Agreement and the CNET Shareholders will receive
cash in lieu of a portion of the shares of Glenayre Common Stock that they would
have received under the Prior Agreement.
The events that trigger Glenayre's right to exercise its option to
acquire the Principal Shareholders' shares of CNET Common Stock are the same in
the Amended and Restated Stock Option Agreement as they were in the Prior Stock
Option Agreement. Under both the Amended and Restated Stock Option Agreement and
the Prior Stock Option Agreement, the exercise price payable by Glenayre for the
CNET Common Stock of the Principal Shareholders corresponds to the Merger
consideration payable under the Agreement and the Prior Agreement, respectively,
except that the exercise price is payable totally in cash and is based on the
average trading price of Glenayre Common Stock over the immediately preceding 25
trading days. See "The Merger -- Option to Acquire Majority Interest in CNET."
In its analysis, the CNET Board of Directors considered, among other
things, the following factors: (a) under the Agreement, the CNET Shareholders
would exchange the right to receive the additional 30,000 shares of Glenayre
Common Stock provided for in the Prior Agreement for cash in the amount of
$33.33 per share of Glenayre Common Stock, representing a premium over the
market price of Glenayre Common Stock as of the date of the Agreement; (b) the
cash component of the Merger consideration is currently taxable upon receipt and
the receipt of additional shares of Glenayre Common Stock would not have been
taxable upon receipt (see "Certain Federal Income Taxes of the Merger"); (c) the
cash component of the Merger consideration provided in the Agreement and the
absence of certain trading restrictions imposed by "pooling of interests"
accounting will provide the CNET Shareholders with greater liquidity than
provided in the Prior Agreement; (d) because of the cash component of the Merger
consideration in the Agreement, the CNET Shareholders are not subject to the
same market risk with respect to Glenayre Common Stock as they would have been
under the Prior Agreement; and (e) the short-term impact of industry factors
that CNET believes similarly affected both Glenayre's and CNET's third quarter
financial performance.
In the view of CNET's Board of Directors, Glenayre satisfied virtually
all of the original criteria established by CNET for a strategic and financial
partner, and also appears to add a like-minded management team and work force.
The CNET Board believes the value of the consideration to be paid to the CNET
Shareholders in the Merger is comparable to the valuations of CNET reflected in
CNET's previous discussions with venture capitalists and investment bankers. In
addition, because of the size of Glenayre and the amount of its stock held by
the public, the Glenayre Common Stock that the CNET Shareholders will receive in
the Merger should be more readily marketable than shares of CNET Common Stock
would be in the foreseeable future, even if CNET determined to go public.
ACCOUNTING TREATMENT
The merger will be treated as a "purchase business combination" by
Glenayre for accounting and financial reporting purposes. The purchase price
will be allocated to the assets and liabilities of CNET based on estimated fair
market value of the assets and liabilities of CNET and the excess of the
purchase price, estimated at approximately $[8.0] million, will be recorded as
goodwill. The goodwill will be amortized over a seven-year period. The results
of CNET's operations will be included in the consolidated results of operations
of Glenayre only from and after the Effective Time.
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OPERATIONS AFTER THE MERGER
After the consummation of the Merger, Glenayre expects that CNET
generally will continue to operate its business as presently conducted. Glenayre
has no present plans for any merger, reorganization or liquidation or any sale
or transfer of a material amount of assets of CNET to any unaffiliated third
party. Changes in business and economic conditions and other facts may result in
Glenayre's reconsideration of its plans.
Glenayre currently expects that certain executive officers of CNET will
continue to serve, along with certain Glenayre officers, as executive officers
of CNET after the Merger and one member of CNET's Board of Directors will
continue to serve, along with certain Glenayre officers and directors, as
directors of CNET following the Merger. After the Merger, the employment by CNET
of one of the Principal Shareholders will continue and the employment of another
will terminate. In addition, in connection with the Merger, Glenayre has agreed
that CNET will continue to employ the third Principal Shareholder, David M.
Zumwalt, through December 31, 1996 to assist in the post-Merger business
transition. During this period, Mr. Zumwalt will be compensated at his current
salary rate and retain his current benefits. In addition, Glenayre has agreed to
extend Mr. Zumwalt's health benefits until June 30, 1998 or until Mr. Zumwalt
obtains health insurance coverage from another source.
CONFLICTS OF INTEREST
In considering the recommendation of CNET's Board of Directors with
respect to the Merger, the CNET Shareholders should be aware that one member of
CNET's Board of Directors (Gregory S. Oslan) will continue as a director of CNET
after the Merger, members of CNET's management (including Gregory S. Oslan) will
continue as employees of CNET after the Merger, and David M. Zumwalt will
continue as an employee of CNET until December 31, 1996 to assist in the
transition of the business. Consequently, certain members of CNET's Board of
Directors and management may have certain interests in the Merger that are in
addition to the interests of the CNET Shareholders generally. The Board of
Directors of CNET was aware of these interests and considered them, among other
factors, in approving the Agreement.
At the Effective Time, the CNET Stock Options will be converted, based
on the Option Exchange Ratio, into options to purchase Glenayre Common Stock
(rounded to the nearest share). The exercise price per share of Glenayre Common
Stock under the CNET Stock Options shall be equal to the exercise price per
share before the Effective Time divided by the Option Exchange Ratio (rounded up
to the nearest cent). Such options shall in all other respects remain subject to
the same terms and conditions set forth in the CNET Option Plan and agreements
pursuant to which they were granted.
The table below sets forth certain information with respect to the CNET
Stock Options held by the executive officers and directors of CNET. The table
reflects the number of shares of CNET Common Stock subject to options and the
exercise price and assumes conversion of the CNET Stock Options into options to
acquire Glenayre Common Stock at the Option Exchange Ratio and the net amount
realizable upon exercise of such vested options based on the fair market value
of Glenayre Common Stock at October 16, 1996 (the date of the Agreement) and
November 15, 1996 (the record date).
<TABLE>
<CAPTION>
Net Amount Realizable
Name of Director or Exercise Price Vested Unvested Upon Exercise
Executive Officer Per Share Shares Shares 10/16/96(1) 11/15/96(1)
- ------------------- -------------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Michael Bernique $1.00 4,000 0 $0 $
Anthony J. LeVecchio $1.00 4,000 0 $0 $
Gordon Matthews $1.00 51,328 0 $0 $
Gregory S. Oslan $1.00 503,000 (2) 66,000 $0 $
W. Lance Shipp $1.00 268,100 (2) 0 $0 $
</TABLE>
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<PAGE>
- --------------------------
(1) Represents the positive difference, if any, between the average of
the high and low for Glenayre Common Stock on October 16, 1996 and November 15,
1996 and the adjusted exercise prices multiplied by the number of shares subject
to options. The net amount realized upon exercise of the CNET Stock Options
could be higher or lower depending on the market price of Glenayre Common Stock
at the time such stock options are exercised.
(2) Includes shares that vest upon the effectiveness of the Merger.
The Principal Shareholders have granted to Glenayre an option to purchase
their CNET Common Stock in certain circumstances. See "The Merger--Option to
Acquire Majority Interest in CNET."
OPTION TO ACQUIRE MAJORITY INTEREST IN CNET
On October 16, 1996, the Principal Shareholders were required, as a
condition to Glenayre entering into the Agreement, to enter into the Amended and
Restated Stock Option Agreement with Glenayre pursuant to which Glenayre has the
right to acquire an aggregate of 6,208,380 shares of CNET Common Stock
(approximately 79.0% of the CNET Common Stock) (the "Glenayre Option") upon the
occurrence of an Exercise Event (as defined below). The purpose of the Amended
and Restated Stock Option Agreement is to ensure Glenayre that it will
consummate the Merger or otherwise acquire control of CNET. The exercise price
per share of the Glenayre Option will be equal to the product of the Stock
Exchange Ratio, calculated as of the date immediately preceding the date notice
of exercise of the option is given by Glenayre, multiplied by the average
closing price of Glenayre Common Stock on the Nasdaq Stock Market for the 25
trading days immediately preceding the date such notice is given by Glenayre,
plus an amount of cash equal to $1,000,000 divided by the total number of
outstanding shares of CNET Common Stock immediately preceding the date such
notice is given by Glenayre.
The Glenayre Option is exercisable in whole within 30 days of the
occurrence of an Exercise Event. An "Exercise Event" is the occurrence of any
one of the following: (a) CNET or any CNET Shareholder enters into an agreement,
arrangement or understanding, without Glenayre's consent, with any person or
entity with respect to a merger, consolidation or similar transaction involving
CNET or the acquisition of 5% or more of the assets or voting securities of CNET
(subject to certain exceptions for purchases by CNET); (b) the acquisition by
any person or entity other than Glenayre of the beneficial ownership of or the
right to acquire beneficial ownership of 5% of the voting power or other
economic interests of CNET (subject to certain exceptions for purchases by
CNET); (c) the withdrawal by the CNET Board of Directors of its recommendation
that the CNET Shareholders approve the Merger or the failure of the CNET
Shareholders to approve the Merger (subject to certain exceptions); (d) the
termination of the Agreement by Glenayre because of a breach by CNET of certain
covenants contained in the Agreement, including the no-shop provisions, the
failure of CNET to use its best efforts to convene the Special Meeting, and CNET
knowingly taking any action which would cause the obligations of the parties to
effect the Merger not to be fulfilled; or (e) the termination of the Agreement
by Glenayre or CNET because of the existence of a final court or other
governmental order or ruling permanently restraining, enjoining or prohibiting
the Merger, unless such action was not initiated or controlled, directly or
indirectly, by CNET or a Principal Shareholder. The Glenayre Option expires and
shall no longer be exercisable upon the occurrence of any one of the following
(each an "Expiration Event"): (i) the Effective Time; (ii) the termination of
the Agreement upon the mutual consent of Glenayre and CNET; (iii) the
termination of the Agreement by CNET because the Effective Time of the Merger
has not occurred by February 28, 1997 (subject to extension in certain events);
(iv) the termination of the Agreement by CNET pursuant to a material breach by
Glenayre of its covenants or representations and warranties contained in the
Agreement; (v) the conclusive determination that any required governmental
approval for the exercise of the option cannot be obtained or (vi) the
termination by CNET of the Agreement in the event of certain court or other
governmental orders or rulings prohibiting the Merger.
The Principal Shareholders have agreed not to transfer the shares of
CNET Common Stock subject to the Glenayre Option except pursuant to the exercise
of the Glenayre Option by Glenayre or to any person or entity who agrees to be
bound by the terms of the Amended and Restated Stock Option Agreement. The
shares of CNET Common Stock subject
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<PAGE>
to the Glenayre Option have been placed in escrow pursuant to the terms of the
Amended and Restated Stock Option Agreement, but the Principal Shareholders are
entitled to vote their shares of CNET Common Stock held in escrow.
THE ACQUISITION AGREEMENT AND PLAN OF MERGER
The following is a summary description of certain terms of the
Agreement, which is attached as Annex A to this Proxy Statement/Prospectus and
is incorporated herein by reference. Such description does not purport to be
complete and is qualified in its entirety by reference to the Agreement. The
approval of the Agreement by the Indemnifying Shareholders will constitute (a)
the approval of the Agreement, including the indemnification obligations of the
Indemnifying Shareholders and the liability of the Indemnifying Shareholders for
one-half of CNET's Merger expenses in excess of $300,000, if any, (b) the
approval of the Escrow Agreement and all of the arrangements relative thereto,
including the escrow of the Escrowed Shares, (c) the approval and appointment of
David M. Zumwalt (or his successor) as Shareholders' Representative and agent
for the Indemnifying Shareholders pursuant to the terms of the Agreement and (d)
the approval and authorization for all of the arrangements relating thereto,
including without limitation: (i) Glenayre's issuance of the Escrowed Shares in
the name of the Shareholders' Representative, as agent for the Indemnifying
Shareholders; (ii) the entering into and performance of the related Escrow
Agreement by the Shareholders' Representative; (iii) the execution by the
Shareholders' Representative of a blank stock power on behalf of the
Indemnifying Shareholders with respect to the Escrowed Shares; (iv) the
distribution by the Shareholders' Representative of the assets held in escrow,
including the Escrowed Shares, to the Indemnifying Shareholders upon his receipt
thereof, after deducting his expenses as Shareholders' Representative; (v) the
compromise and settlement by the Shareholders' Representative of claims under
the Agreement or in connection with the Merger; (vi) payments by the
Shareholders' Representative from the Escrow; and (vii) the Indemnifying
Shareholders' liability for expenses incurred by the Shareholders'
Representative in connection with the performance of his obligations as
Shareholders' Representative. Pursuant to the terms of the Agreement, all
Indemnifying Shareholders shall thereby be bound by the terms of the Agreement
and the Escrow Agreement.
THE MERGER
The Agreement provides that, upon the satisfaction or waiver of certain
conditions, Glenayre Sub will be merged with and into CNET, with CNET continuing
as the surviving corporation and a wholly-owned subsidiary of Glenayre.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective at the time of filing of the Articles
of Merger, incorporating the Agreement, with the Texas Secretary of State or at
such later time as the parties shall have agreed upon and designated in the
Articles of Merger as the Effective Time; provided, however, the Merger shall
not become effective prior to the effectiveness of the Registration Statement.
From and after the Effective Time, the surviving corporation will possess all
the assets, rights, privileges, powers and franchises and be subject to all the
liabilities, restrictions and duties of Glenayre Sub and CNET, as provided under
the TBCA. At the Effective Time, Glenayre Sub will not have any significant
liabilities, restrictions or duties other than pursuant to the Agreement.
Until the Effective Time occurs, CNET Shareholders will retain their
rights as shareholders to vote on matters submitted to them by the CNET Board of
Directors.
CONSIDERATION TO BE RECEIVED IN THE MERGER
In the Merger, each share of CNET Common Stock outstanding immediately
prior to the Effective Time, other than shares of CNET Common Stock with respect
to which dissenters' rights shall be perfected in accordance with the TBCA (the
"Dissenting Shares"), will be converted into the right to receive (i) a fraction
of one share of Glenayre Common Stock equal to the Stock Exchange Ratio and (ii)
cash equal to $1,000,000 divided by the number of shares of CNET Common Stock
outstanding immediately prior to the Effective Time. No fractional shares of
Glenayre Common Stock will be issued in connection with the Merger. In lieu of
fractional shares, a cash payment (without interest) will be made equal to the
fractional interest which a CNET Shareholder would otherwise receive multiplied
by the closing price of Glenayre Common Stock on the Nasdaq Stock Market on the
trading day immediately before the Effective Time. At the Effective Time, CNET
Stock Options will be converted, based on the Option Exchange Ratio, into
options to purchase
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<PAGE>
Glenayre Common Stock (rounded to the nearest whole number of shares). The
exercise price per share of Glenayre Common Stock of the CNET Stock Options
shall be equal to the exercise price per share immediately before the Effective
Time divided by the Option Exchange Ratio (rounded up to the nearest cent). The
CNET Stock Options shall otherwise continue to have, and be subject to, the same
terms, except that the vesting of certain CNET Stock Options will be accelerated
automatically as a result of the Merger. The total number of shares of Glenayre
Common Stock issued or reserved for issuance in the Merger, including the shares
exchanged for CNET Stock Options, shall in the aggregate be no more than
370,000, less the number of Dissenting Shares multiplied by the Stock Exchange
Ratio and the sum of all fractional shares of Glenayre Common Stock for which
cash is paid. If prior to the Effective Time the outstanding shares of Glenayre
Common Stock or CNET Common Stock are increased, decreased, or changed into a
different number or kind of shares or securities through a change in Glenayre's
or CNET's capitalization, then an appropriate and proportionate adjustment in
the Stock Exchange Ratio and the Option Exchange Ratio will be made. For a
discussion of the rights of holders of Dissenting Shares, see "Rights of CNET
Shareholders Electing to Exercise Their Rights to Dissent."
SURRENDER OF CERTIFICATES
Upon surrender of one or more duly endorsed certificates for CNET Common
Stock and an accompanying Transmittal Letter, there will be issued and delivered
to the holder of such stock a certificate or certificates representing the
number of shares of Glenayre Common Stock to which such holder is entitled in
accordance with the terms of the Agreement, if any, subject to any retention of
certain shares of such Glenayre Common Stock pursuant to the escrow provisions
described below, a check for the portion of the $1,000,000 cash payment to which
such holder is entitled in accordance with the terms of the Agreement, and,
where applicable, a check for the amount representing any fractional shares
determined in the manner described above.
No dividend or other distribution payable after the Effective Time with
respect to Glenayre Common Stock will be paid to the holder of any unsurrendered
shares of CNET Common Stock until the holder surrenders the certificate(s)
therefor and an accompanying Transmittal Letter, at which time the holder will
be entitled to receive all previously withheld dividends and distributions,
without interest.
After the Effective Time, there will be no transfers on CNET's stock
transfer books of shares of CNET Common Stock issued and outstanding at the
Effective Time.
If a certificate for CNET Common Stock has been lost, stolen or
destroyed, Glenayre will issue the consideration properly payable in accordance
with the Agreement upon receipt of appropriate evidence as to such loss, theft
or destruction and appropriate evidence as to the ownership of such certificate
by the claimant. Glenayre may require such shareholder to give Glenayre a bond
(or other adequate security) sufficient to indemnify it and CNET against any
claim on account of such alleged loss, theft or destruction or the issuance of
the Glenayre stock certificate in exchange therefor.
Glenayre, CNET or the transfer agent for Glenayre, is authorized to
deduct and withhold from the cash and shares of Glenayre Common Stock paid to a
Shareholder or CNET Option Holder as consideration for the Merger any amount it
may be required by applicable tax laws to deduct and withhold with respect to
making such payments.
CERTAIN COVENANTS OF CNET AND PRINCIPAL SHAREHOLDERS
CNET has agreed that prior to the Effective Time CNET and CNET Sub will
operate their businesses substantially as presently operated and only in the
ordinary course. CNET and the Principal Shareholders have agreed that neither
CNET nor CNET Sub will, without the prior written consent of Glenayre or as
expressly contemplated by the Agreement, (i) change any provision of its
Articles of Incorporation or Bylaws (or equivalent organizational document);
(ii) change the number of shares of the authorized, issued or outstanding
capital stock of CNET or CNET Sub including the issuance of or the grant of any
option with respect to the capital stock of CNET or CNET Sub, except for the
issuance of CNET Common Stock pursuant to the exercise of any CNET Stock Option,
or declare, set aside or pay any dividend or other distribution in cash or in
kind with respect to the capital stock of CNET or CNET Sub; (iii) incur any
liabilities or obligations, whether directly, indirectly or by way of guaranty,
except in the ordinary course of business consistent with past practices and
prior periods; (iv) except as previously disclosed in the Agreement, make any
capital expenditure (or
33
<PAGE>
enter into any lease required to be capitalized) individually in excess of
$20,000 or in the aggregate in excess of $50,000; (v) pay any bonuses or
commission to any employee of CNET or CNET Sub, except as previously disclosed
in the Agreement, or enter into any new or amend any existing employment
agreement with any person, adopt any new or amend any existing employee benefit
plan, except as may be otherwise required by law, purchase any additional key
man life insurance covering any employee or director of CNET or CNET Sub or any
other person, grant any increase in compensation or benefits to its employees,
officers or directors, except regularly scheduled increases in the ordinary
course of business and consistent with past practices and policies, or effect
any change in the retirement benefits of any class of employees or officers,
except as otherwise required by law; (vi) sell, mortgage, pledge or otherwise
dispose of or encumber any asset owned by CNET or CNET Sub except in the
ordinary course of business consistent with past practices and prior periods;
(vii) incur or collect receivables, or extend loans or advances, or incur or pay
trade payables or accrued liabilities in any manner other than consistent with
past practices and prior periods and in the ordinary course of business; (viii)
cancel without payment or satisfaction in full, waive or extend the time of
performance of any indebtedness or other obligation inuring to the benefit of
CNET or CNET Sub unless such cancellation or termination occurs in the ordinary
course of business of CNET or CNET Sub consistent with past practices or unless
such cancellations or terminations, individually or in the aggregate, would have
only an immaterial effect on the business, results of operations or financial
condition of CNET and CNET Sub, taken as a whole; (ix) make any material
modification of or material amendment to any of the contracts or agreements of
CNET or CNET Sub listed or described in the Agreement; (x) fail to use
commercially reasonable efforts to maintain in full force and effect all
insurance carried by CNET or CNET Sub at the time of the Agreement; (xi)
institute any changes in management personnel or any material change in any
management policy; (xii) make any agreement or commitment by or on behalf of
CNET or CNET Sub to do or take any of the actions referred to in items (i)
through (xi); (xiii) knowingly take any action which would cause or would be
reasonably likely to cause the conditions to the consummation of the Merger not
to be fulfilled, including taking, causing to be taken, or permitting or
suffering to be taken or to exist any action, condition or thing which would
cause the representations and warranties of CNET or CNET Sub made in the
Agreement to be untrue at any time between the date of the Agreement and the
Effective Time. In addition, CNET has agreed not to take knowingly any action,
including entering into any contract or other arrangement, or knowingly fail to
take any action that would jeopardize either the qualification of the Merger as
a reorganization within the meaning of Section 368(a)(2)(E) of the Code.
NO-SHOP PROVISIONS
CNET and the Principal Shareholders have agreed that, until February 28,
1997 (or the date of termination of the Agreement if earlier terminated), CNET
and the Principal Shareholders will not, and will use commercially reasonable
efforts to cause CNET's shareholders, directors, officers, employees and certain
other representatives not to, solicit or encourage any inquiries or the making
or implementation of any proposal or offer with respect to a merger, acquisition
or similar transaction involving a significant portion of the assets (other than
in the ordinary course of business of CNET and CNET Sub) or any equity
securities of CNET or CNET Sub or engage in any negotiations concerning, or
provide confidential information to or, other than as may be required by their
fiduciary duties under applicable law, have any discussions with any party
concerning such a proposal, or otherwise facilitate any effort or attempt to
make or implement such proposal or otherwise consider the adoption of such a
proposal. CNET and the Principal Shareholders are also obligated to terminate
any existing activities, discussions or negotiations with respect to any such
inquiries or proposals and to notify Glenayre immediately if any such inquiries
or proposals are received, sought to be initiated or continued by any of them.
See also "The Merger--Option to Acquire Majority Interest in CNET."
RESTRICTIONS ON SALES OF STOCK
Shares of Glenayre Common Stock to be received by CNET Shareholders who
are deemed to be "affiliates" (as such term is defined in Rule 144 under the
Securities Act) of CNET prior to the Merger ("CNET Affiliates" and such shares
of Glenayre Common Stock received by CNET Affiliates referred to herein as the
"Restricted Securities") may be resold by them only pursuant to an effective
registration statement under the Securities Act covering such securities or in
transactions permitted by the resale provisions of Rule 145(d) under the
Securities Act or as otherwise permitted under the Securities Act. Under Rule
144 under the Securities Act, an "affiliate" of CNET is a person that directly
or indirectly controls or is controlled by or is under common control with CNET
and may include certain officers and directors of CNET, principal shareholders
of CNET and certain other shareholders with special relationships with CNET.
This Proxy Statement/Prospectus may not be used by such affiliates in connection
with any resale of their Restricted Securities.
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Rule 145 requires that, in a resale of the Restricted Securities, CNET
Affiliates comply with volume restrictions and other restrictions on the manner
of sale and that certain information about Glenayre be currently available to
the public. The volume restrictions limit the number of shares that a CNET
Affiliate may transfer, in the aggregate, within any three-month period to the
greater of (i) 1% of the outstanding Glenayre Common Stock or (ii) the average
weekly reported trading volume in the Glenayre Common Stock during the preceding
four calendar weeks. A CNET Affiliate may sell its shares without regard to the
volume restrictions and restrictions on the manner of sale if it has owned the
shares for at least two years, certain information about Glenayre is currently
available to the public and the CNET Affiliate is not then an affiliate of
Glenayre. A CNET Affiliate may also sell its shares of Glenayre Common Stock
without regard to the foregoing restrictions (including the requirement that
certain information about Glenayre is currently available to the public) if it
has held its shares for a period of at least three years and such CNET Affiliate
has not been an affiliate of Glenayre for at least three months.
At least 30 days prior to the closing of the Merger, CNET will deliver
to Glenayre a list of CNET Affiliates, as determined in the reasonable judgment
of CNET, and prior to the Effective Time will deliver to Glenayre a letter from
each CNET Affiliate acknowledging certain restrictions on the resale of Glenayre
Common Stock received in the Merger. Any Restricted Securities to be received by
CNET Affiliates will bear a legend referencing such restrictions on transfer.
CERTAIN COVENANTS OF GLENAYRE
Glenayre has agreed (i) that it will not take knowingly any action,
including entering into any contract or other arrangement, or knowingly fail to
take any action that would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a)(2)(E) of the Code, (ii) that
it will prepare and submit to the Nasdaq Stock Market a listing application
covering the shares of Glenayre Common Stock issuable in the Merger, and use
commercially reasonable efforts to obtain, prior to the Effective Time, approval
for the listing of such Glenayre Common Stock, subject to official notice of
issuance, (iii) that, without the prior written consent of CNET, Glenayre will
not knowingly take any action which would cause or be reasonably likely to cause
the conditions to the consummation of the Merger not to be fulfilled and (iv)
that promptly after the Effective Time, it will use commercially reasonable
efforts to cause all officers, directors and employees of CNET to be released
from all guaranties of CNET's indebtedness and shall indemnify such officer,
directors and employees against all loss in connection therewith.
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is conditioned upon the approval by the
holders of two-thirds of the issued and outstanding shares of CNET Common Stock
in accordance with the Articles of Incorporation and Bylaws of CNET and the
TBCA.
The obligations of Glenayre and CNET to consummate the Merger are
further conditioned, unless waived, upon (i) the absence of any action or
proceeding by a court or other governmental body or authority to restrain or
prohibit the transactions contemplated by the Agreement or to obtain an amount
of damages or other material relief in connection with the execution of the
Agreement or consummation of the Merger, and the absence of any notice from a
governmental body or authority that the transactions contemplated by the
Agreement constitute a violation of law or that it intends to commence
proceedings to restrain consummation of the Merger; (ii) the effectiveness of
the Registration Statement under the Securities Act, which shall not be subject
to any Commission stop order, proceedings for that purpose or any threatened
stop order; (iii) the receipt of all required governmental consents and
approvals with respect to the Merger, except for the filing of the Articles of
Merger and where the failure to receive such consents or approvals would not
have a material adverse effect on the combined business of Glenayre and CNET,
taken as a whole, following the Effective Time; (iv) the Nasdaq Stock Market
shall have approved the listing of the shares of Glenayre Common Stock issuable
or reserved for issuance in connection with the Merger or the CNET Stock
Options; (v) the execution and delivery of the Articles of Merger and all
appropriate certificates for filing with the Secretary of State of Texas from
Glenayre, Glenayre Sub and CNET; and (vi) the execution of the Escrow Agreement
by Glenayre, the Shareholders' Representative and the Escrow Agent.
The obligation of Glenayre to consummate the Merger is further
conditioned, unless waived by Glenayre, upon (i) the accuracy in all material
respects of the representations and warranties, as updated pursuant to the
Agreement, by
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CNET and the Principal Shareholders contained in the Agreement, or certain
certificates provided pursuant thereto, and the performance by CNET and the
Principal Shareholders of all of their covenants and agreements contained in the
Agreement; (ii) the receipt by Glenayre of opinions of counsel with respect to
certain legal matters, including the organization and good standing of CNET and
the due authorization of the Agreement by CNET and CNET Sub; (iii) the receipt
by Glenayre from Ernst & Young LLP of "comfort" letters with respect to the
procedures undertaken by Ernst & Young LLP in connection with the financial
statements of CNET contained in the Registration Statement; (iv) the absence of
any change in the financial condition, business or operations of CNET or CNET
Sub that would be reasonably likely to have a material adverse effect on CNET or
CNET Sub, taken as a whole; (v) the receipt of all required consents; (vi) the
receipt by Glenayre of an affiliate letter from each CNET Affiliate; (vii) the
receipt by Glenayre of executed noncompetition agreements from David M. Zumwalt
and Scott R. Greenwell; (viii) the receipt by Glenayre of an executed
Acknowledgment from each CNET Option Holder; (ix) the receipt by Glenayre of
good standing certificates for CNET from the appropriate authorities where it is
qualified to do business; (x) the termination as of the closing date of all
shareholder, voting or other agreements with respect to CNET Common Stock or any
capital stock of CNET Sub; (xi) the agreement to pay off all loans or advances
by CNET or CNET Sub to any of the shareholders, directors, officers or employees
of CNET (other than routine travel advances); (xii) the receipt of copies by
Glenayre of all resolutions adopted by CNET's Board of Directors and the CNET
shareholders in connection with the approval of the Agreement and the
transactions contemplated thereby, original minute book and stock records of
CNET and the equivalent for CNET Sub; (xiii) the receipt by Glenayre of a
schedule from CNET of all travel advances to employees of CNET or CNET Sub as of
the closing date; and (xiv) the receipt by Glenayre of an aged receivables
report from CNET.
The obligation of CNET to consummate the Merger is further conditioned
upon, unless waived by CNET, (i) the accuracy of Glenayre's representations and
warranties in all material respects contained in the Agreement and the
performance by Glenayre of all of its covenants and agreements contained in the
Agreement; (ii) the absence of any change in the financial condition, business
or operations of Glenayre that would be reasonably likely to have a material
adverse effect on Glenayre and its subsidiaries, taken as a whole, other than
such change that affects CNET, CNET Sub and Glenayre in a substantially similar
manner; (iii) the receipt by CNET of an opinion of counsel with respect to
certain legal matters, including the organization and good standing of Glenayre
and Glenayre Sub, the due authorization of the Agreement by Glenayre and
Glenayre Sub and the valid issuance of the shares of Glenayre Common Stock being
issued to the CNET Shareholders; (iv) the receipt by CNET of a good standing
certificate for Glenayre from the Secretary of State of Delaware and for
Glenayre Sub from the Secretary of State of Texas; (v) the receipt of copies by
CNET of all resolutions adopted by Glenayre's and Glenayre Sub's Board of
Directors in connection with the approval of the Agreement and the transactions
contemplated thereby and (vi) the qualification of the Merger as a
"reorganization" within the meaning of Section 368(a)(2)(E) of the Code and
receipt of an opinion of counsel to such effect.
INDEMNIFICATION
The Agreement provides that the Indemnifying Shareholders will indemnify
Glenayre with respect to any liability, damage or loss, excluding certain
consequential damages, (a "Loss"), which in the aggregate exceeds $150,000
incurred by Glenayre or CNET, or by any officer, director, employee, agent or
affiliate of either Glenayre or CNET, as a result of the incorrectness or breach
of any representation, warranty or covenant made by CNET, any Indemnifying
Shareholder or CNET Option Holder in the Agreement, the Transmittal Letters, the
Acknowledgments or any other document or certificate entered into or furnished
by any Indemnifying Shareholder, any CNET Option Holder, CNET or CNET Sub
pursuant to the Agreement, the Transmittal Letters or the Acknowledgments. In
accordance with the terms of the Agreement, Glenayre and not the Shareholders'
Representative nor any Indemnifying Shareholder will control the defense of any
third-party litigation that may result in indemnification obligations of the
Indemnifying Shareholders. Although Glenayre is obligated under the Agreement to
conduct any such defense as would a reasonable and prudent person to whom no
indemnity is available, through its control of such litigation and any
settlement thereof, Glenayre will have significant influence and control over
the application of the Escrowed Shares.
A portion of the shares of Glenayre Common Stock issued in connection
with the Merger will be placed in escrow pursuant to the terms of the Escrow
Agreement. The number of Escrowed Shares will be 40,000 multiplied by the ratio
of the number of shares of CNET Common Stock outstanding immediately before the
Effective Time to the sum of the number of shares of CNET Common Stock
outstanding immediately before the Effective Time and the number of shares of
CNET Common Stock which are subject to CNET Stock Options at the same time. A
proportionate percentage of the
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Escrowed Shares will be held in the name of the Shareholders' Representative for
the account of each Indemnifying Shareholder. The Escrow will be subject to
satisfaction of the indemnification obligations of the Indemnifying Shareholders
under the Agreement. The indemnification obligations of the Indemnifying
Shareholders expire on the Release Date except for any indemnity claims made by
Glenayre prior to that date. The application of any of the Escrow to satisfy
such indemnification obligations is subject to the terms and conditions set
forth in the Agreement and the Escrow Agreement among Glenayre, the Escrow Agent
and the Shareholders' Representative attached as Exhibit C to the Agreement.
Glenayre is obligated to pay a portion of the expenses of the Shareholders'
Representative as a participant in the defense of any claims which may give rise
to a Loss.
All Escrowed Shares will be issued and outstanding shares of Glenayre
Common Stock registered in the name of the Shareholders' Representative and the
Indemnifying Shareholders will be entitled to direct the voting and sale of, and
to receive cash dividends, if any, on the Escrowed Shares, provided that any
proceeds related to the Escrowed Shares (other than cash dividends, if any) will
be placed in escrow and held until the Release Date, subject to indemnity claims
made by Glenayre prior to that date.
The value of any Indemnifying Shareholder's Escrowed Shares applied to
the payment of any Loss is based on the closing price of Glenayre Common Stock
on the date of the Agreement (the "Reference Price"). Glenayre, upon at least 15
business days' prior written notice to the Shareholders' Representative, the
Principal Shareholders and the Escrow Agent, may apply all or any part of the
Escrow to the payment, settlement or discharge of any Loss, any such payment,
settlement, or discharge being based on the Glenayre Common Stock having a value
equal to the Reference Price. If the Escrow Agent and Glenayre receive notice
from the Shareholders' Representative that he protests such application of the
Escrow, Glenayre and the Shareholders' Representative will attempt in good faith
to resolve the dispute and in the absence of such resolution, such dispute will
be settled by binding arbitration. Each of Glenayre and the Indemnifying
Shareholders will bear its or their own attorneys' fees, fees for expert
witnesses and all other costs incurred by it or them in connection with such
arbitration and shall share equally any such costs or fees incurred by the
Escrow Agent or fees charged by the arbitrators in connection with such
arbitration. In the event of a dispute regarding the application of the Escrow
by Glenayre or if, on or before the Release Date, Glenayre has given notice to
the Escrow Agent and the Shareholders' Representative of the existence of an
indemnity claim for the discharge or settlement of a Loss which has not been
liquidated, the Escrow Agent will retain the appropriate portion of the Escrow
pending final determination of such claims.
Each Indemnifying Shareholder's liability with respect to a Loss will be
determined based on his proportionate contribution to the Escrow. The beneficial
owner of any Escrowed Shares will be entitled to direct the voting of his
proportionate percentage of the Escrowed Shares. Dividends or distributions on
the Escrowed Shares, except for cash dividends, will be held as part of the
Escrow.
The indemnification obligations of the CNET Shareholders will expire on
the Release Date, except as to any indemnity claim made by Glenayre prior to
such date.
The officers and directors of CNET have certain rights to
indemnification from CNET under the TBCA and the Articles of Incorporation and
Bylaws of CNET for actions and failures to act on behalf of CNET. Pursuant to
the Agreement, CNET Shareholders have agreed and acknowledged that such rights
to indemnification under the TBCA and the Articles of Incorporation and Bylaws
of CNET will not apply in any manner to the indemnification obligations with
respect to the Escrow.
REPRESENTATIONS AND WARRANTIES
Pursuant to the Agreement, CNET, the Principal Shareholders and the
other CNET Shareholders make certain representations and warranties to Glenayre
with respect to the properties and other assets and the conduct of the
businesses of CNET and CNET Sub. The representations and warranties survive the
Effective Time and terminate on the Release Date, except as to any indemnity
claim made by Glenayre prior to such date. Each Shareholder should read
carefully the representations, warranties and covenants contained in the
Agreement. Any representation or warranty made "to the knowledge" of CNET or
that a particular fact or circumstance is "known" to CNET or that CNET "knows" a
particular fact or circumstance means the actual knowledge of certain
shareholders, officers and key employees of CNET and their
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constructive knowledge based solely upon their review of the pertinent business
records of CNET and CNET Sub in their files and their inquiry of each CNET or
CNET Sub employee, and each attorney, accountant and advisor retained by CNET or
CNET Sub, who is reasonably believed to have relevant information about such
fact or circumstance (the scope of such review and inquiry being that of a
reasonable person under the circumstances). The representations, warranties and
covenants include the following matters:
(i) Except as disclosed in the Agreement, CNET is a corporation duly
organized, validly existing and in good standing under the laws of Texas and
CNET Sub is a Gesellshaft mit beschrankter Haftung duly organized and validly
existing under the laws of Germany but CNET Sub does not conduct any business.
Except as disclosed in the Agreement, each is duly qualified or licensed as
foreign corporations to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
them or the nature of their business makes such qualification or licensing
necessary under applicable laws, except where such failure to be so qualified or
licensed and in good standing would not have a material adverse effect on the
business, results of operations or financial condition of CNET and CNET Sub,
taken as a whole.
(ii) The Articles of Incorporation and Bylaws of CNET and the Satzung
(Articles) of CNET Sub provided to Glenayre are complete and correct and are in
full force and effect. Except as disclosed in the Agreement, CNET is not in
violation of any provision of such Articles of Incorporation or Bylaws and CNET
Sub is not in violation of its Satzung (Articles). The minute books of CNET
contain all records of meetings, or written consents in lieu of meetings, of the
directors and shareholders of CNET. A true and correct current extract from the
Commercial Register for CNET Sub has been furnished to Glenayre. Neither the
directors nor shareholders of CNET or CNET Sub have taken any material corporate
action which is not reflected in the minute books of CNET or the current extract
of the Commercial Register for CNET Sub, respectively.
(iii) The authorized capital stock of CNET consists of 150,000,000 shares
of CNET Common Stock, of which 7,856,912 shares were issued and outstanding as
of October 16, 1996. In addition, as of October 16, 1996, 1,368,853 shares of
CNET Common Stock were reserved for future issuance pursuant to CNET Stock
Options. No such shares or options have been issued in violation of any
preemptive rights. In addition, the information provided to Glenayre with
respect to the names, addresses and social security numbers of record owners of
all shares of CNET Common Stock and the certificate numbers for such shares is
accurate and complete. Except as disclosed to Glenayre in the Agreement, each
share of CNET Common Stock will be owned by the record owner free and clear of
any encumbrances at the Effective Time. The authorized capital stock or share
capital of CNET Sub consists of DM 50,000, all of which DM 50,000 are held by
CNET free and clear of any encumbrances, except as disclosed in the Agreement,
and were validly issued and were not issued in violation any preemptive rights.
Except as disclosed in the Agreement, there are no options, warrants or other
rights or agreements relating to the capital stock or share capital of CNET or
CNET Sub to issue or sell any capital stock or share capital or other equity
interests in CNET or CNET Sub or any other agreements to repurchase, redeem or
otherwise acquire any shares of the CNET Common Stock or any capital stock or
share capital of CNET Sub. All shares of CNET Common Stock subject to issuance
pursuant to CNET Stock Options, upon issuance on the terms and conditions
pursuant to which they are issuable, will be duly authorized, validly issued,
fully paid and nonassessable. All offers and sales of CNET Common Stock and the
capital stock or share capital of CNET Sub were at all relevant times duly
registered under or exempt from the registration requirements of the Securities
Act, the applicable securities laws of any state and the equivalent applicable
securities laws of any foreign jurisdiction.
(iv) CNET has all necessary corporate power and authority to execute and
deliver the Agreement and to perform its obligations thereunder and to
consummate the transactions contemplated thereby. Except as disclosed to
Glenayre in the Agreement, each of the Principal Shareholders has all the
necessary power and authority to execute and deliver the Agreement and to
perform his obligations under such Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of the Agreement by CNET and
the consummation of the transactions contemplated thereby have been duly and
validly authorized by CNET. The Agreement has been duly and validly executed and
delivered by CNET and the Principal Shareholders and constitutes a legal, valid,
binding and enforceable obligation of each of CNET and the Principal
Shareholders. In addition, except as disclosed to Glenayre in the Agreement,
each CNET Shareholder and CNET Option Holder has all necessary power and
authority to execute and deliver his, her or its Transmittal Letter or
Acknowledgment at the Effective Time and to perform his, her or its obligations
thereunder and under the Agreement. At the Effective Time, such execution and
delivery will have been duly and validly authorized by
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all necessary action on the part of the CNET Shareholders and CNET Option
Holders and each such Transmittal Letter or Acknowledgment will constitute a
legal, valid and binding obligation of such CNET Shareholder or CNET Option
Holder.
(v) Except as disclosed in the Agreement, the execution and delivery of
the Agreement by CNET and the performance of the transactions contemplated
thereby will not (a) violate the Articles of Incorporation or Bylaws (or
comparable organizational documents) of CNET or CNET Sub, (b) except for any
such violations which, individually or in the aggregate, would have only an
immaterial effect on the business, results of operations or financial condition
of CNET and CNET Sub, taken as a whole, violate any law, rule, regulation,
order, judgment or decree applicable to CNET or CNET Sub or by which any of
their property or assets is bound or affected or (c) result in any breach of or
constitute a default under or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or other encumbrance (other than a permitted encumbrance) on any property or
asset of CNET or CNET Sub pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or any other instrument
or obligation to which CNET or CNET Sub is a party or by which it or any of its
property or assets is bound or affected, except for breaches or defaults which,
individually or in the aggregate, would have only an immaterial effect on the
business, results of operations or financial condition of CNET and CNET Sub,
taken as a whole.
In addition, the execution and delivery of the Agreement by CNET and the
Principal Shareholders do not, and the execution and delivery of the Transmittal
Letters by the CNET Shareholders and Acknowledgments by the CNET Option Holders
will not, and the performance of the transactions contemplated by the Agreement
by CNET and the CNET Shareholders will not, require any consent, approval or
authorization of, or filing with or notification to, any governmental or
regulatory authority other than that required by the Securities Act, state
securities or "blue sky" laws and the filing or recordation of appropriate
merger documents as required by the TBCA.
(vi) Other than the ownership interest in CNET Sub by CNET, neither CNET
nor CNET Sub owns directly or indirectly any interest or investment in any
corporation, partnership, joint venture, business, trust or other entity.
(vii) Each of the balance sheets included in the audited consolidated
financial statements of CNET for the years ended January 31, 1993, January 31,
1994, January 31, 1995 and January 31, 1996 and the unaudited interim financial
statements for each month subsequent to January 31, 1996 through July 31, 1996
fairly presents the consolidated financial position of CNET and CNET Sub as of
its date, and each of the statements of income, retained earnings and cash flows
fairly presents the consolidated results of operations, retained earnings and
cash flows of CNET and CNET Sub for the periods set forth therein, in each case
in accordance with generally accepted accounting principles with certain
exceptions. Such financial statements have been prepared from the books and
records of CNET and CNET Sub which accurately and fairly reflect in all material
respects the transactions and dispositions of the assets of CNET and CNET Sub.
Except as disclosed in the Agreement, as of July 31, 1996, neither CNET nor CNET
Sub had any material liabilities, contingent or otherwise, whether due or to
become due, known or unknown as of July 31, 1996 other than as indicated on the
July 31, 1996 balance sheet or in the notes thereto. CNET has adequately accrued
employee benefit costs in accordance with generally accepted accounting
principles on the July 31, 1996 balance sheet, and the funding of such employee
benefit costs has been provided for in the ordinary course of business
consistent with past practices.
(viii) Since January 31, 1996, except as disclosed to Glenayre in the
Agreement or as otherwise contemplated by the Agreement, there has not been (a)
any change or effect that is or would be materially adverse to the business,
results of operations or financial condition of CNET and CNET Sub, taken as a
whole; (b) any disposition or issuance by CNET or CNET Sub of any of its capital
stock or any option or right or privilege to acquire any of its capital stock,
any acquisition or retirement of any of its capital stock or any dividend or
other distribution on or with respect to its capital stock, except for the
issuance of CNET Common Stock upon the exercise of a CNET Stock Option; (c) any
sale, mortgage, pledge, grant, dividend or other disposition, transfer or
encumbrance, other than a permitted encumbrance, of any material asset or
material interest owned or possessed by CNET or CNET Sub, other than in the
ordinary course of business consistent with past practices and prior periods;
(d) any expenditure or commitment by CNET or CNET Sub for the acquisition of
assets of any kind other than in the ordinary course of business consistent with
past practices and prior periods and immaterial expenditures or commitments; (e)
any damage, destruction or loss (whether or not insured against) of such
character as to have any change or effect that is or would be materially adverse
to the business, results of operations or financial condition of CNET and CNET
Sub, taken as a whole; (f) except for the general increase in
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compensation to employees effective in February 1996, any increase or any
agreement for the increase of any compensation payable or to become payable by
CNET or CNET Sub to any officer, shareholder or employee of CNET or CNET Sub;
(g) any change made or authorized to be made to the Articles of Incorporation or
Bylaws (or comparable organizational documents) of CNET or CNET Sub; (h) any
loans or advances by or to CNET or CNET Sub other than renewals or extensions of
existing indebtedness and uses of lines of credit and routine travel advances to
employees, in each case in the ordinary course of business; (i) any cancellation
without payment or satisfaction in full, or any waiver or extension of the time
for performance of, any notes, loans or other obligations inuring to the benefit
of CNET or CNET Sub unless such cancellation or termination occurs in the
ordinary course of business of CNET or CNET Sub consistent with past practices
or unless such cancellation or termination, individually or in the aggregate,
would have only an immaterial effect on the business, results of operations or
financial condition of CNET and CNET Sub, taken as a whole; (j) any failure by
CNET or CNET Sub to operate its business other than in the ordinary course of
business, or any change from past practices in the manner of incurring or
collecting receivables or incurring or paying trade payables or accrued
liabilities, in each case except where such failures or changes which,
individually or in the aggregate, would have only an immaterial effect on the
business, results of operations or financial condition of CNET and CNET Sub,
taken as a whole; (k) any failure to maintain the books and records of CNET or
CNET Sub consistent with past practices or any write-down of assets shown on the
books of CNET or CNET Sub, or the establishment of, or failure to establish, any
reserves or accruals in an amount or nature that is not consistent with past
practices or prior periods, in each case except where any such failures,
write-downs or establishment which, individually or in the aggregate, would have
only an immaterial effect on the business, results of operations or financial
condition of CNET and CNET Sub, taken as a whole; (l) any change in accounting
practices; or (m) any agreement or commitment by or on behalf of CNET or CNET
Sub to do or take any of the actions referred to in clauses (a) through (l).
(ix) Except as disclosed in the Agreement, CNET and CNET Sub have timely
filed all required tax returns and reports, which were true and complete, and
have duly paid all taxes due or claimed to be due from them or an adequate
reserve has been established for such taxes. CNET and CNET Sub have provided to
Glenayre true and correct copies of certain tax returns beginning with the 1991
tax year. The reserves for taxes contained in the July 31, 1996 balance sheet
and carried on the books of CNET or CNET Sub have been determined in accordance
with generally accepted accounting principles. Except as disclosed in the
Agreement, no extension of time to file any tax return by CNET or CNET Sub is
currently in effect. Since January 31, 1996, neither CNET nor CNET Sub has
incurred any material tax liabilities other than in the ordinary course of
business. There are no tax liens upon any properties or assets of CNET or CNET
Sub (other than liens for current taxes not yet due and payable or which are
being contested in good faith and by appropriate proceedings with adequate
reserves with respect thereto being maintained on CNET's or CNET Sub's books in
accordance with generally accepted accounting principles) and, except as
disclosed in the Agreement and as shown in the financial statements, there are
no pending or, to the knowledge of CNET, threatened examinations relating to, or
claims asserted for, taxes or assessments against CNET or CNET Sub. Neither CNET
nor CNET Sub has granted or been requested to grant any extension of the
limitation period applicable to any claim for taxes or assessments with respect
to taxes. Except as disclosed in the Agreement, neither CNET nor CNET Sub is a
party to any tax allocation or sharing agreement. CNET and CNET Sub have duly
withheld and paid all required withholding taxes except for any failure to pay
or withhold which is immaterial to the business, results of operation or
financial condition of CNET and CNET Sub, taken as a whole.
(x) Representations and warranties regarding employment, bonus,
commission, deferred compensation, pension, stock option, stock appreciation
right, employee stock ownership, profit-sharing, retirement, medical, vacation,
retiree medical, severance pay and other agreements or fringe benefit plans,
arrangements or practices of CNET and CNET Sub, including descriptions of such
plans, arrangements or practices and representations that CNET and CNET Sub have
complied in all material respects with all applicable federal, state and local
laws with respect to such plans, arrangements or practices.
(xi) Neither CNET nor CNET Sub owns any real property, and CNET Sub does
not lease any real property. With respect to all real property leased by CNET,
representations and warranties (limited in certain circumstances to the
knowledge of CNET) regarding CNET's leasehold interest in, rights to and the
condition and use of all such property (including compliance with applicable
statutes, ordinances, orders, requirements, laws, rules or regulations,
including environmental laws, rules and regulations) and, except as disclosed in
the Agreement, that there does not exist any event which would constitute a
default by CNET or, to the knowledge of CNET, the landlord under any such lease.
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Representations and warranties that CNET and CNET Sub have good and indefeasible
title to all of their equipment, free and clear of all encumbrances other than
those disclosed in, or otherwise permitted by, the Agreement; that CNET's and
CNET Sub's equipment is in good condition and repair ordinary wear and tear
excepted, and is adequate for its current use in the conduct of CNET's or CNET
Sub's business, except for any such condition and repair or adequacy which is
immaterial to the business, results of operations or financial condition of CNET
and CNET Sub, taken as a whole; that all accounts receivable of CNET and CNET
Sub reflected on the July 31, 1996 balance sheet (adjusted for additions and
collections) constitute valid and enforceable (in accordance with the terms of
the instruments or documents creating them) claims of CNET or CNET Sub, are free
of all encumbrances except permitted encumbrances and, subject to the expiration
of contractual acceptance periods for certain receivables, are collectible in
the ordinary course of business at the aggregate recorded amounts, net of the
allowance for doubtful accounts; in addition, representations with respect to
the patents, trademark and service mark registrations, corporate name
registrations, trade name registrations, copyright registrations, industrial
design registrations, mask work registrations and all applications for any of
the foregoing, owned by or developed for or used by CNET and CNET Sub, in
connection with the business of CNET and CNET Sub, including representations and
warranties with respect to the absence of any infringement of such intellectual
property by CNET and CNET Sub against other persons or against CNET or CNET Sub
by any other person, with certain materiality exceptions, and that such
intellectual property is free and clear of all encumbrances other than as
permitted by the Agreement. Also representations and warranties that CNET has
disclosed to Glenayre in the Agreement all material contracts, agreements and
commitments it is a party to, that the rights of CNET or CNET Sub under such
contracts are valid and enforceable by CNET or CNET Sub, that neither CNET nor
CNET Sub is in default in any material respect with respect to such contracts,
that, to CNET's knowledge, there is no threatened cancellation of such contracts
and that, to CNET's knowledge, there is no material outstanding dispute under
such contracts.
(xii) The fixtures and leasehold improvements located on the property
leased by CNET are in good condition, ordinary wear and tear excepted, and all
electrical, gas, water and sewer utilities serving such property are adequate
for the current use of the leased property; to CNET's knowledge, the properties
CNET leases and formerly leased, except as disclosed in the Agreement, are or
were at all times during the tenancy of CNET with respect to such property used
in compliance with all environmental laws, rules and regulations and hazardous
materials have not been illegally generated, used, treated, stored or disposed
of on, or transported (illegally or not) from, such property; there are no
claims against CNET or CNET Sub with respect to such matters.
(xiii) All leases of property or equipment by CNET or CNET Sub to or from
any other party have been fully disclosed in the Agreement.
(xiv) Except as disclosed in the Agreement, since January 31, 1994, all
material transactions with third persons involving CNET or CNET Sub have been
conducted on an arm's length basis. Except as disclosed in the Agreement, (a) to
CNET's knowledge, none of the CNET Shareholders, officers or directors of CNET,
CNET Sub or their respective affiliates or relatives has any direct or indirect
interest, profit participation or ownership (other than through non-controlling
investments in securities of publicly-held corporations) in businesses which are
competitors of CNET or CNET Sub; (b) except for routine travel advances made to
employees of CNET in the ordinary course of business, neither CNET or CNET Sub
has any outstanding loans or other advances to any shareholder, officer,
director or employee of CNET or CNET Sub or their respective affiliates or
relatives; and (c) to CNET's knowledge, none of the shareholders, officers or
directors of CNET or CNET Sub or their respective affiliates or relatives is an
affiliate of any person that has a material business relationship with CNET or
CNET Sub.
(xv) Except as disclosed in the Agreement, CNET and CNET Sub are not in
conflict with, or in default or violation of, any law, rule, regulation, order,
judgment or decree applicable to CNET or CNET Sub or by which any property or
asset of CNET or CNET Sub is bound or affected, or the provisions of any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which CNET or CNET Sub or any of
their property or assets is a party or is bound or affected, except for any such
violations or defaults which, individually or in the aggregate, would have only
an immaterial effect on the business, results of operations or financial
condition of CNET and CNET Sub, taken as a whole, and which would not prevent or
delay consummation of the Merger or otherwise prevent CNET, any Indemnifying
Shareholder or CNET Option Holder from performing its, his or her obligations
under the Agreement, the Transmittal Letters or the Acknowledgments. Except as
disclosed in the Agreement, CNET and CNET Sub are lawfully conducting their
business and their property has been and will be used and operated
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in compliance with all laws, rules and regulations and other restrictions. CNET
or CNET Sub hold all licenses, permits and other governmental franchises
required for the conduct of their respective businesses as now conducted except
for absences which, individually or in the aggregate, would only have an
immaterial effect on the business, results of operations or financial condition
of CNET and CNET Sub, taken as a whole.
(xvi) All pending and, if known by CNET, threatened lawsuits or
administrative proceedings or investigations against CNET or CNET Sub have been
disclosed in the Agreement, and neither CNET nor CNET Sub is subject to any
currently existing order, writ, injunction or decree relating to its operations.
All material "loss contingencies," as defined by Financial Accounting Standards
No. 5, have been fully disclosed in the Agreement.
(xvii) Since January 31, 1991, neither CNET nor CNET Sub has been a party to
any collective bargaining agreement and neither has been the subject of any
union activity, organized labor dispute or strike, and CNET and CNET Sub have
not violated any applicable federal or state law or regulation relating to labor
or labor practices and do not have any liability to any of their employees,
agents or consultants in connection with grievances of such employees, agents or
consultants, except where any such violation or liability, individually or in
the aggregate, would have only an immaterial effect on the business, results of
operations or financial condition of CNET and CNET Sub, taken as a whole.
(xviii) Neither CNET nor CNET Sub has entered into any brokerage contract or
similar arrangement in connection with the negotiations leading to the Agreement
or consummation of the transactions contemplated thereby which may result in the
obligation of CNET to pay any commission or similar fees in connection with the
Merger.
(xix) Neither CNET nor CNET Sub owns any shares of Glenayre Common Stock or
other securities convertible into Glenayre Common Stock.
(xx) All bank accounts, vaults and safe deposit boxes at any financial
institution used by or in the name of CNET or CNET Sub have been disclosed in
the Agreement.
(xxi) The Agreement fully discloses all insurance policies in effect
covering the assets, properties and business of CNET and CNET Sub. The Agreement
discloses all claims made by CNET or CNET Sub since January 31, 1992 under any
policies of insurance covering the assets, properties or business of CNET or
CNET Sub. Since January 31, 1992, neither CNET nor CNET Sub has done anything by
way of action or inaction that invalidates any such policies in whole or in
part. Since January 31, 1992, no insurance policy of CNET or CNET Sub has been
cancelled by the insurer and no application by CNET or CNET Sub for insurance
has been rejected by any insurer.
(xxii) Except as disclosed in the Agreement, the products and services of
CNET and CNET Sub comply with all express and implied warranties and the
requirements and standards of all federal and state laws and regulations
governing the sale or provision of such products, except for any such
noncompliance as would, individually or in the aggregate, have only an
immaterial effect on the business, results of operations or financial condition
of CNET and CNET Sub, taken as a whole. Except as disclosed in the Agreement, no
product or service warranty or liability claims are pending or, to the knowledge
of CNET, threatened against CNET or CNET Sub or in respect of products or
services sold or provided by it.
(xxiii) CNET has fully described in the Agreement (A) all material warranty
obligations of CNET and CNET Sub and all material warranty contracts,
agreements, understandings or arrangements to which CNET or CNET Sub is a party
or by which any of its property or assets is bound, including express
warranties, implied warranties and warranties established by a course of dealing
and (B) all material service and repurchase contracts, agreements,
understandings or arrangements to which CNET or CNET Sub is a party or by which
any of their property is bound. Complete copies of such agreements have been
delivered to Glenayre.
(xxiv) CNET has disclosed in the Agreement the 30 largest customers (based
on dollar volume) of CNET and CNET Sub during the period from February 1, 1993
to January 31, 1996 and the 40 largest suppliers (based on dollar volume) of
CNET and CNET Sub during the period from February 1, 1995 to June 30, 1996.
Except as disclosed in the Agreement, since January 31, 1996, no material
adverse change has occurred to CNET's knowledge in the business relationship of
CNET or CNET Sub with its customers and suppliers, and CNET has no knowledge
that any such
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customers or suppliers intend to cease or substantially reduce purchasing or
supplying goods or services from or to CNET, or are currently involved in any
bankruptcy or similar proceeding or has any right to assert any claim against
CNET or CNET Sub.
(xxv) Neither CNET nor CNET Sub is a guarantor or otherwise liable for any
liability or obligation of any other individual, corporation, partnership,
limited liability company, trust, association or other entity.
(xxvi) Except as disclosed in the Agreement, CNET knows of no impending
changes in CNET's or CNET Sub's business, assets, liabilities, relations with
employees, competitive situations or relations with suppliers or customers, or
in any governmental actions or regulations affecting CNET's or CNET Sub's
business which, if they occur, would reasonably be expected to have a change or
effect that is or would be materially adverse to the business, results of
operations or financial condition of CNET and CNET Sub, taken as a whole, except
for (i) general economic conditions, (ii) matters having a similar effect on
Glenayre and CNET, (iii) matters of general knowledge in CNET's industry of
which Glenayre reasonably should be aware due to the nature of its own business
or (iv) pending or adopted federal statutes, laws and regulations.
(xxvii) All of the representations of CNET, CNET Sub, each CNET Shareholder
and each CNET Option Holder to Glenayre in the Agreement and in the
certificates, schedules and exhibits thereto or in the Transmittal Letters or
Acknowledgments are true, correct and complete in all material respects and no
such representation, warranty or statement contains any untrue statement of a
material fact or omits or will omit to state any material fact necessary to make
such representation, warranty or statement, in light of the circumstances under
which it was made, not misleading to Glenayre.
Pursuant to the Agreement, Glenayre has also made certain
representations and warranties, including representations and warranties (i) as
to the organization, capitalization and qualification of Glenayre and Glenayre
Sub; (ii) as to the authority of Glenayre and Glenayre Sub to enter into the
Agreement and to consummate the transactions thereunder; (iii) as to the
enforceability of the Agreement against Glenayre and Glenayre Sub; (iv) except
as disclosed in the Agreement, that the execution of the Agreement and the
performance of the transactions contemplated thereby do not violate the
organizational documents of Glenayre or Glenayre Sub or any law, judgment or the
equivalent (subject to materiality limitations) or constitute a breach or event
of default under any instrument or obligation of Glenayre or Glenayre Sub
(subject to materiality limitations), and do not require the approval of any
governmental authority except for that required, if any, (A) by the Exchange
Act, the Securities Act, the Nasdaq Stock Market, state securities or blue sky
laws and the TBCA or (B) where failure to obtain such consent or approval or to
make such filings would not prevent or delay consummation of the Merger in any
material respect, or otherwise prevent Glenayre or Glenayre Sub from performing
its obligations under the Agreement in any material respect, and would not,
individually or in the aggregate, have a change or effect that is or would be
materially adverse to the business, results of operations or financial condition
of Glenayre and its subsidiaries, taken as a whole; (v) that Glenayre has filed
all required documents with the Commission since January 1, 1996, that each of
such documents was prepared in accordance with the material requirements of the
Exchange Act and at the time they were filed did not contain an untrue statement
of material fact or omit to state a material fact required to be stated therein;
(vi) that Glenayre has not entered into any brokerage or finder's fee
arrangement in connection with the negotiations of the Agreement or the
consummation of the Merger; and (vii) in connection with the federal income tax
consequences of the Merger, including that (a) prior to the Merger, Glenayre
will "control" Glenayre Sub; (b) Glenayre has no present plan or intention to
cause CNET to issue additional shares of its stock that would result in Glenayre
losing "control" of CNET; (c) Glenayre has no present plan or intention to
reacquire any of the Glenayre Common Stock issued in the Merger, except for any
Escrowed Shares as provided for in the Agreement; (d) Glenayre has no present
plan or intention to liquidate, merge or otherwise dispose of CNET or its assets
except in the ordinary course of business or transfers of assets to a
corporation controlled by Glenayre; (e) following the Merger, Glenayre's present
intention is that CNET will continue the historic business of CNET or use a
significant portion of the historic assets of CNET in a business; (f) Glenayre
does not own and has not for the past five years owned any shares of stock of
CNET; (g) both Glenayre and Glenayre Sub are undertaking the Merger for a bona
fide business purpose and not merely for the avoidance of federal income tax;
(h) Glenayre Sub will have no liabilities assumed by CNET and will not transfer
to CNET any assets subject to liabilities in the Merger; (i) neither Glenayre
nor Glenayre Sub is an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code; (j) the payment of cash in lieu of the
issuance fractional shares of Glenayre Common Stock in connection with the
Merger is solely for the purpose of avoiding the expense or inconvenience to
Glenayre of issuing fractional shares and does not represent separately
bargained-for
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consideration; (k) as of the Effective Time, the fair market value of the assets
of Glenayre Sub will exceed the sum of Glenayre Sub's liabilities plus the
amount of other liabilities, if any, to which Glenayre Sub's assets are subject;
and (l) Glenayre has no present plans or intentions to settle at a discount any
intercorporate indebtedness existing between CNET and Glenayre or between
Glenayre Sub and CNET.
TRANSACTION COSTS
CNET will bear all of the expenses of any employees of CNET or CNET Sub
and of any counsel, accountants or other consultants or advisers engaged by CNET
or CNET Sub in connection with the Merger and the transactions contemplated by
the Agreement in the event the Merger is not consummated. In the event the
Merger is consummated, CNET has agreed to pay the first $300,000 of "CNET
Transaction Expenses" (defined below) incurred by CNET in connection with the
Merger and the transactions contemplated by the Agreement and 50% of any CNET
Transaction Expenses in excess of $300,000, with the Indemnifying Shareholders
collectively paying the remaining 50% of any CNET Transaction Expenses in excess
of $300,000. "CNET Transaction Expenses" include fees and expenses of the
attorneys, accountants, consultants or other advisors of CNET or CNET Sub,
incurred directly in connection with negotiating, drafting and preparing the
Agreement and any other agreements, or documents contemplated thereby and the
expenses of due diligence conducted by CNET.
AMENDMENT AND WAIVER
The Agreement may be amended by mutual agreement of Glenayre, Glenayre
Sub, CNET and the Principal Shareholders at any time before or after approval of
the Merger by the CNET Shareholders; provided, that after any such approval, no
amendment will be made which by law, or equivalent, requires further approval by
the CNET Shareholders without obtaining such further approval. Any such
amendment must be in writing and signed on behalf of each of Glenayre, Glenayre
Sub, CNET and the Principal Shareholders and, in the case of a modification to
the escrow provisions of the Agreement, the Escrow Agent. At any time prior to
the Effective Time, Glenayre or CNET may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations or other acts of
the other parties to the Agreement, (ii) waive any inaccuracies in the
representations and warranties made by the other parties contained in the
Agreement or in any document delivered pursuant thereto or (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained in the Agreement.
TERMINATION
The Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, before or after the approval of the Merger by the
CNET Shareholders, upon the mutual consent of Glenayre and CNET. The Agreement
may be terminated and the Merger may be abandoned by the Board of Directors of
either CNET or Glenayre if (i) the Merger has not been consummated by February
28, 1997; (ii) approval of the Merger by the CNET Shareholders is not obtained;
or (iii) a federal or state court or governmental or administrative agency or
commission has taken action prohibiting the transactions contemplated by the
Agreement and such order or action has become final and nonappealable. The
Agreement may be terminated and the Merger may be abandoned at any time prior to
the Effective Time by either Glenayre or CNET in the event of a material breach
by the other party of any representation or warranty which would have a material
adverse effect on such breaching party or in the event of a material breach by
the other parties of any covenant or agreement contained in the Agreement which
cannot be or has not been cured within thirty days after the giving of written
notice to the breaching party of such breach.
FAIRNESS OPINION
The CNET Board did not engage a financial advisor in connection with its
decision to proceed with the Merger. CNET's decision not to utilize a financial
adviser was based on the CNET Board of Directors' view that it had developed
adequate information and general familiarity regarding appropriate valuation
ranges for CNET as a result of extensive efforts over the last two years to
address CNET's capital needs. See "The Merger--Background and Reasons for the
Merger." Additionally, the three Principal Shareholders are on the CNET Board of
Directors. Because the Principal Shareholders own in excess of 79% of the
outstanding shares of CNET, the CNET Board of Directors (including the Directors
who are not Principal Shareholders) believed that the retention of a financial
adviser was not necessary or useful.
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CNET, INC.
GENERAL
CNET provides operational support, network management and network
planning software products, services and equipment to the worldwide wireless
communications industry, primarily to large corporate customers. CNET licenses
its products to cellular, paging and personal communications services ("PCS")
operators and wireless equipment manufacturers worldwide. CNET's products
include software applications which enable wireless communications system
operators to plan, manage and expand their physical networks. These products
provide system operators the ability to bring information about the status and
activity of the network equipment to a central location and to make this
information available to the operators, engineers and operations management.
CNET's integration of strategic operational support systems ("OSS"), network
management applications and radio frequency ("RF") planning software provides a
single, unified advanced information tool to wireless system operators. Wireless
equipment manufacturers utilize CNET's software to help them differentiate their
wireless switching products and related RF site equipment. CNET also provides a
variety of professional services for its customers including system analysis and
design, software installation and software maintenance and support.
Approximately 57% of CNET's revenues for its fiscal year ended January 31, 1996
was derived from network products, including revenues from the licensing of
CNET's Basic Operations System ("BOS(TM)"). Approximately 36% of CNET's revenues
for its fiscal year ended January 31, 1996 was from professional services.
Certain of the information disclosed in this Proxy Statement/Prospectus
with respect to CNET has been provided by CNET. Glenayre has not independently
verified the accuracy of such information.
INDUSTRY BACKGROUND
The wireless communications industry has experienced significant growth
and rapid product evolution over the last several years. The industry includes
cellular radiotelephone systems, paging networks (local, nationwide and
specialized applications such as stock quotes), PCS and two-way radio
communications (including air-to-ground, dispatch, fleet management and tracking
and vehicle location and navigation). The recent growth in the industry has
created a strong demand for technologies that can assist wireless communications
providers with planning new wireless communications networks and expanding the
capacity of existing networks. The industry is also subject to ongoing
technological change and increasing competition. These factors have created a
strong demand for technologies that help wireless communications providers
optimize network operations and maintenance and facilitate the implementation of
new technologies and services.
A basic wireless communications system transmits and receives data or
voice information via RF signals and usually includes a switching interface
connecting the RF network to the wired telephone, data or other wireless
network. The base station site consists of several components at a fixed
location that serve as the access terminal for users of the wireless
communications system. System users have radio receivers, such as a one-way
paging device, or transmitters/receivers, such as a cellular telephone, which
communicate via the base station. Complex wireless communications networks, such
as cellular and PCS systems, extend the basic concept but have multiple
transmission and receiving locations and computer routing of information. The
design of a complex wireless communications network requires detailed analysis
of the required areas of geographic coverage and anticipated patterns of usage
of the network in order to optimize placement of facilities and
interconnections. Expansion of existing networks requires similar analysis along
with analysis of changing demographic patterns and radio spectrum congestion.
CNET provides software to assist in the analysis required to design new wireless
communications networks and expand existing networks.
Once a wireless network has been implemented, the system operator needs
an OSS. The OSS constantly monitors the network to assure proper operation and
provides centralized tools for its ongoing adjustment, optimization and
reconfiguration. CNET provides OSS software to monitor existing networks and to
assist in the implementation of new technologies and services. These products
are integrated with CNET's network analysis and design software to facilitate
expansion of existing networks based on data obtained from the existing network.
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GENERAL DEVELOPMENT OF CNET
CNET was founded in 1986 to address the wireless industry's needs for
advanced operational support software and related expertise. With headquarters
in Plano, Texas, CNET is a closely-held Texas corporation with revenues that
have grown from approximately $81,000 in its fiscal year ended January 31, 1987
to approximately $6.5 million for its fiscal year ended January 31, 1996.
Currently, there is no trading market for CNET Common Stock. CNET has never paid
cash dividends.
CNET's current products include a group of UNIX-based software products
that improve the processes and time required to design, expand and manage the
wireless infrastructure. CNET's initial software product, "Solutions(TM),"
provided advanced propagation analysis tools to the early cellular system
operators. As CNET's products matured, CNET developed its strategy to deliver
integrated software solutions in an open architecture, platform independent
form. The 1992 introduction of WiNGS(TM), a UNIX-based system analysis and
decision support tool, marked the initial implementation of this strategy.
CNET's acquisition of BOS(TM), a network management platform developed by US
WEST/NewVector Group, in 1993 enabled CNET to leverage its market position to
deploy what it believes to be the wireless industry's first integrated network
management and engineering operations tools.
Existing and potential clients include the Regional Bell Operating
Companies, paging and PCS operators and license holders, equipment manufacturers
and a diverse list of communications system operators around the world.
Throughout its existence, CNET has been funded primarily by internally generated
cash flow and bank lines of credit.
CNET's strategy has been to focus on applications that will use specific
information captured by the network to re-engineer basic business processes,
facilitate customer acquisition and retention, improve network quality,
availability and growth, and provide the information and strategic support tools
necessary to fundamentally change the way businesses are run.
PRODUCTS AND SERVICES
CNET provides software tools for system analysis, planning, engineering
and network management by the wireless communications industry on a variety of
system platforms. CNET's principal products and services include the following:
BOS(TM). CNET's Basic Operations System, BOS, is a wireless network "mission
control" center. BOS is a modular collection of UNIX-based operational support
programs that provide network operators with the elements necessary to
integrate, monitor and manage complex communications and computing networks. BOS
was originally developed by US WEST/New Vector Group in 1988 and was acquired by
CNET in 1993. Since 1993, CNET has developed internally and released new
versions and revisions of BOS.
Licensed for use by customers in their network operations centers, BOS
provides the ability to control a vast array of remote equipment from a single,
standardized system. Through real-time system status monitoring and
comprehensive historical data, BOS provides information about individual system
components, subsystems and overall network operation.
Through its open systems architecture, BOS easily adapts to new
standards and emerging technologies and is scaleable for use with any size
network. BOS supports multiple users in many locations and with differing needs
for network information.
WINGS(TM). CNET's Wireless Network Graphics System software, WiNGS, is an
internally developed workstation package used by network and planning
engineering groups of CNET's customers to design, manage and expand complex
wireless communications systems. Introduced in 1992, WiNGS provides interactive
decision support to network engineers.
WiNGS is licensed to customers for use in their computer systems.
Capable of real-time analysis, this software features three-dimensional system
performance modeling, field measurement integration and advanced capabilities
for automated frequency planning and microcell analysis, for digital and analog
technologies.
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CNET also provides system analysis and design, software installation,
software maintenance and support, proposal support, system implementation and
system performance verification to the wireless telecommunications industry.
CUSTOMER SERVICE AND SUPPORT
CNET offers a range of customer support and services, including
requirements analysis, project management, system design, customization and
installation, training, ongoing consultation and upgrade management. Fees
charged for these services vary from a fixed fee basis to a "time and materials"
fee structure. Because CNET's service teams work closely with customers, CNET
believes that these teams are able to gain valuable industry expertise and
identify emerging industry applications and potential enhancements to CNET's
software products.
CUSTOMERS
CNET's target market has been the telecommunications industry with an
emphasis on wireless telecommunications (including cellular, paging and PCS).
CNET also provides its products and services to commercial enterprises and
government agencies. A significant portion of CNET's revenues has been derived
primarily from substantial orders placed by large organizations. As a result,
CNET's revenues often have been concentrated among a relatively small number of
customers. In fiscal years 1995, 1996 and the first six months of fiscal 1997,
revenues from software licenses and service agreements to CNET's five largest
customers represented approximately 59%, 62% and 81%, respectively, of CNET's
total revenues. Customary payment terms are "net 30 days." Historical collection
results generally range between 30 and 45 days for domestic sales and between 45
and 60 days for international sales.
MARKETING AND SALES
CNET has historically reached its customers primarily through direct
sales efforts of its sales staff, direct marketing (including trade shows,
publicity, collateral materials and direct mail), and distributors. CNET's
direct sales efforts are well suited to the large volume, concentrated client
environments which characterize the wireless telecommunications industry. Sales
cycles are dependent on the customer's immediate and future needs and current
contractual obligations and, therefore, vary significantly. CNET has a customer
service staff, a toll free "help" line, and product specialists available for
both telephone and on-site support.
RESEARCH AND DEVELOPMENT
CNET has primarily focused research and development ("R&D") efforts on
specific customer requirements pursuant to development contracts. CNET has
generally retained all intellectual property rights associated with such
contracts. Often, new products are concurrently cross-developed for multiple
clients. The subsequent release of later versions of the application often
represents the general "commercial" release of the software to CNET's entire
customer base. CNET has made significant investments in R&D, as the rapidly
changing needs of the wireless telecommunications industry and the industry's
utilization of numerous emerging technologies require state-of-the-art tools.
CNET primarily develops its products internally, but continually reviews
opportunities to license technologies or products from third parties when
appropriate, based on technical suitability for an intended purpose, market
windows of opportunity and cost considerations.
PROPRIETARY RIGHTS AND LICENSES
CNET relies on a combination of patent, trade secret, copyright and
trademark laws, licenses, nondisclosure and other contractual agreements and
technical measures to protect its proprietary rights. CNET currently has one
pending patent application for a "System and Method of Integrated Planning and
Operations Information." CNET seeks to protect its software, documentation and
other written materials under trade secret and copyright laws. As part of its
confidentiality procedures, CNET generally enters into invention assignment and
proprietary information agreements with its employees and consultants and
nondisclosure agreements with its customers, system integrators and
distributors. CNET also limits access to and distribution of its software,
documentation and other proprietary information.
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CNET relies on certain standard software that it licenses from third
parties, including software that is integrated with internally developed
software and used in CNET's products to perform key functions. CNET has licensed
standard database and graphics programs from third parties. CNET relies on such
third parties' abilities to enhance their current products and develop new
products on a timely and cost-effective basis in order to meet changing customer
needs and respond to emerging industry standards and other technological
changes.
BACKLOG
CNET's backlog, defined as future revenues to be recognized under
existing contracts, as of July 31, 1996 was $1,300,000.
COMPETITION
Historically, CNET's software and services have been substantially
differentiated from those of its competitors. As the wireless industry continues
to develop, competing products that perform similar functions can be
differentiated to a lesser degree. Each supplier's range of products is becoming
the more important measure of differentiation.
CNET's three major competitors provide overlapping products and services
that are substantially the same as those of CNET -- LCC, Mobile Systems
International ("MSI") and Objective Systems Integrators ("OSI"). In addition,
Comsearch and TEC Cellular provide limited competition, as do a number of
smaller companies that provide specialized engineering consulting services and
PC-based engineering tools. Large equipment manufacturers such as AT&T,
Ericsson, Motorola and Nortel also offer products and services that compete with
those of CNET. However, the competing products and services of each of these
manufacturers tend to only be compatible with such manufacturer's hardware. CNET
believes it was the first company to offer an integrated set of operational
support system applications and wireless system management tools that are
multivendor compatible and that operate on a common platform.
REGULATION
The wireless communications industry is subject to extensive regulation
in the United States and other countries. CNET's business is dependent upon the
continued growth of the wireless communications industry in the United States
and internationally. The enactment by federal, state or international
governments of new laws or regulations or change in the interpretation of
existing regulations could adversely affect CNET's customers, and thereby
adversely affect CNET's business, operating results, and financial condition.
FACILITIES
CNET's principal offices are located in approximately 12,000 square feet
of leased office space in Plano, Texas. The lease for this space expires in
October 2000. CNET believes that its existing facilities are adequate to meet
its current needs and that suitable additional or alternative space will be
available in the future on commercially reasonable terms as needed.
EMPLOYEES
At November 15, 1996, CNET had 40 full time and temporary employees.
None of its employees are currently represented by a collective bargaining
agreement. CNET has not experienced any strikes nor work stoppages in its
history and believes its employee relations to be good. CNET believes that its
continuing success will depend, in part, on its ability to hire and retain
qualified personnel in an increasingly competitive market.
LITIGATION
CNET is subject to litigation from time to time in the ordinary course
of its business. No litigation is pending against CNET at this time.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
OF CNET COMMON STOCK
As of November 15, 1996, CNET Common Stock was held of record by 28 holders. The
following table sets forth certain information concerning the beneficial
ownership of CNET Common Stock as of November 15, 1996, by (i) each person who
is known to CNET to own beneficially more than 5% of the outstanding shares of
CNET Common Stock, (ii) each of CNET's directors and executive officers and
(iii) all of CNET's directors and executive directors and executive directors,
as a group.
<TABLE>
<CAPTION>
Approximate Number of
Shares of CNET Shares of Glenayre
Common Stock Percentage of CNET Common Stock to be
Name of Beneficial Owner Beneficially Owned(1) Common Stock received in the Merger(2)
- ------------------------ --------------------- ------------ -------------------------
<S> <C> <C> <C>
Michael Bernique* 91,096(3) 1.2% 3,611
Scott R. Greenwell*(4) 2,777,940 35.4% 109,679
Anthony J. LeVecchio* 110,783(5) 1.4% 4,389
Gordon Matthews* 91,096(6) 1.2% 3,792
Gregory S. Oslan*(7) 513,000(7) 6.1% 22,176
W. Lance Shipp 282,000(8) 3.5% 12,158
Charles D. Staggs*(9) 1,125,000(9) 14.3% 44,416
Michelle Staggs(10) 562,500(10) 7.2% 22,208
David M. Zumwalt*(11) 2,867,940 36.5% 113,232
Directors and Officers as a
Group (8 persons) 7,858,855(12) 90.5% 313,453
</TABLE>
- ---------------------
* Director of CNET.
(1) Unless otherwise indicated, the persons named in the table have sole
voting and sole investment power with respect to all shares beneficially
owned, subject to applicable community property laws.
(2) No beneficial owner will own more than 1% of the issued and outstanding
Glenayre Common Stock following the Merger. Includes shares subject to
CNET Stock Options that are presently exercisable or exercisable within
60 days or that become exercisable upon the effectiveness of the Merger
and Escrowed Shares held in the name of the Shareholders' Representative
for the account of each Indemnifying Shareholder.
(3) Includes 4,000 shares subject to options that are presently exercisable
or exercisable within 60 days.
(4) Mr. Greenwell's address is 6806 Winterberry Drive, Austin, Texas 78750.
(5) Includes 4,000 shares subject to options that are presently exercisable
or exercisable within 60 days.
(6) Includes 51,328 shares subject to options that are presently exercisable
or exercisable within 60 days.
(7) Mr. Oslan's address is 17503 Muirfield Road, Dallas, Texas 75287.
Includes 503,000 shares subject to options that are presently
exercisable, including options that will become exercisable upon the
effectiveness of the Merger.
(8) Includes 268,100 shares subject to options that are presently
exercisable or exercisable within 60 days, including options that will
become exercisable upon the effectiveness of the Merger.
(9) Mr. Staggs' address is 1900 Preston Road #267-229, Plano, Texas 75093.
Includes 562,500 shares of CNET Common Stock for which Mr. Staggs has
shared voting power.
(10) Ms. Staggs' address is 10743 Haskins Court, Lenexa, Kansas 66210. She
has shared voting power with respect to 562,500 shares.
(11) Mr. Zumwalt's address is 6823 Prestonshire Lane, Dallas, Texas 75225.
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(12) Includes 830,428 shares subject to options that are presently
exercisable or exercisable within 60 days, including options which will
become exercisable upon the effectiveness of the Merger, and 562,500
shares for which Mr. Staggs has shared voting power.
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CNET, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
CNET's revenues have been derived principally from the sale of software
licenses and additionally from professional services comprised of radio
frequency ("RF") engineering consulting services and geographical information
services ("GIS"). Software license fees typically range from $100,000 to
$1,000,000, leading to significant fluctuations in period over period revenues
depending on the timing of orders and specific contract terms. In addition,
utilization rates for employees engaged in RF engineering consulting and GIS
services tend to vary depending upon the timing, duration and nature of services
contracts in any given period.
CNET has relied extensively on its assessment of industry trends and
ongoing customer relationships in the specification, implementation and
extension of product functionality and professional services. Wherever possible,
CNET has leveraged and continues to seek proven commercial applications and
technologies in the development and delivery of its products and services.
Historically, CNET has offered GIS services (the development of digital map
databases useful in radio system planning and management) because other
commercial sources for GIS data were generally not available. As more commercial
and price sensitive sources for this data have become available, CNET has scaled
back its involvement in GIS services.
CNET has developed all of its products internally, with the exception of
BOS, which was acquired in fiscal 1994 from US West/NewVector Group in exchange
for a royalty fee and a cross license of its WiNGS product limited to internal
use. Since acquiring BOS, CNET has continued development of the product,
initially through the opening of an office in Bellevue, Washington in December
1993, which housed a part of CNET's BOS development staff and provided
transitional support to local customers.
CNET restructured its operations in fiscal 1996 incurring $73,000 in
costs for restructuring for the six months ended July 31, 1995 and $163,000 in
costs for restructuring for the year ended January 31, 1996. In this
restructuring, CNET put in place a new operational management team, reduced
certain costs and instituted a stock option plan in order to continue to attract
high-quality, experienced personnel and reward and motivate employees. Also,
CNET escalated its search for a strategic capital partner, which eventually led
to the agreement to merge with Glenayre. The first integrated operational
support product, "Traffic Trending Tool," was introduced by CNET in March 1996,
which geographically references wireless system traffic patterns.
SIX MONTHS ENDED JULY 31, 1996 (1997 SIX-MONTH PERIOD) COMPARED WITH THE SIX
MONTHS ENDED JULY 31, 1995 (1996 SIX-MONTH PERIOD)
REVENUES
Revenues decreased to $2,580,000 in the 1997 six-month period from
$2,851,000 in the 1996 six-month period, a decrease of $271,000 or 10%. This
decrease was primarily due to the decrease in professional services revenues,
which decreased to $647,000 in the 1997 six-month period from $1,162,000 in the
1996 six-month period, a decrease of $515,000 or 44%. This decrease was offset
somewhat by network product revenues which increased to $1,866,000 in the 1997
six-month period from $1,501,000, an increase of $365,000 or 24%. A one time
cross license payment of $580,000 from a foreign customer under contract was
included in revenues for the 1997 six-month period. Equipment sales and other
revenues, which included GIS services, decreased to $66,000 in the 1997
six-month period from $189,000 in the 1996 six-month period, a decrease of
$123,000 or 65%, resulting primarily from the scale back of CNET's GIS services
in fiscal 1996.
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GROSS MARGIN
Gross margin increased slightly to $1,247,000 in the 1997 six-month
period (48% of revenues) from $1,230,000 in the 1996 six-month period (43% of
revenues). This increase primarily resulted from higher margins on network
products, including $580,000 for a one time cross license payment, offset by
lower margins on professional services and equipment sales. Network products
were 72% of revenues in the 1997 six-month period compared to 53% in the 1996
six-month period. Cost of sales for network products decreased to $711,000 in
the 1997 six-month period (38% of related revenues) from $732,000 in the 1996
six-month period (49% of related revenues), a decrease of 3%. This increase in
margin was due to the efficiencies gained and the cost savings associated with
closing of CNET's Bellevue office in the 1996 six-month period and the
consolidation of its operations into CNET's principal office in Plano. Cost of
sales for professional services decreased to $543,000 in the 1997 six-month
period (84% of related revenues) from $747,000 in the 1996 six-month period (64%
of related revenues), a decrease of $204,000 or 27%. This decrease in margin was
primarily due to lower personnel utilization rates due to the completion of
certain service contracts. Cost of sales for equipment sales and other decreased
to $78,000 in the 1997 six-month period from $142,000 in the 1996 six-month
period, a decrease of 45%. This decrease resulted primarily from the scale back
of GIS services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Sales and marketing expenses increased to $1,064,000 in the 1997
six-month period (41% of revenues) compared to $454,000 in the 1996 six-month
period (16% of revenues), an increase of $610,000 or 134%. CNET has doubled its
sales force since the 1996 six-month period and CNET has increased its marketing
activities with the introduction of new sales collateral and new advertising.
General and administrative expenses increased to $977,000 in the 1997 six-month
period (38% of revenues) compared to $602,000 in the 1996 six-month period (21%
of revenues), an increase of $375,000 or 62%. This increase was due to increased
salaries for additional personnel, increased temporary services, and increased
travel and legal and accounting costs related to CNET's financing and
recapitalization activities.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense (which excludes ordinary, ongoing
development expenses for existing products) decreased to $143,000 in the 1997
six-month period (6% of revenues) from $232,000 in the 1996 six-month period (8%
of revenues), a decrease of $89,000 or 38%. This reduction came as a result of
the restructuring in the prior year and reflects the changes that were
instituted in June 1995 in an effort to redirect resources to the integration of
existing products. Resources from the R&D group were deployed into other
departments of CNET to facilitate faster development.
DEPRECIATION EXPENSE
Depreciation expense decreased to $111,000 in fiscal 1997 (4% of
revenues) from $143,000 in fiscal 1996 (5% of revenues), a decrease of $32,000
or 22%. This decrease occurred as a result of the full depreciation of certain
assets carried on CNET's books with few property additions during the prior
year. CNET expects depreciation expense to rise in the future as a result of
increased additions to property and equipment.
INTEREST EXPENSE
Interest expense decreased to $72,000 during the 1997 six-month period
(3% of revenues) from $84,000 during the 1996 six-month period (3% of revenues),
a decrease of $12,000 or 14%.
INCOME TAXES
For the 1996 six-month period, CNET recorded an income tax benefit of
$131,000 based on its estimated effective federal income tax rate at the time.
For the 1997 six-month period, no federal income tax benefit was recorded as a
result of CNET's loss because the loss was not expected to be utilized against
future taxable income.
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YEAR ENDED JANUARY 31, 1996 COMPARED WITH YEAR ENDED JANUARY 31, 1995
REVENUES
Revenues in fiscal 1996 increased to $6,516,000 from fiscal 1995
revenues of $6,082,000, an increase of $434,000 or 7%. This increase was
primarily due to an increase in long term professional service contracts, offset
by lower network product revenues. Network product revenues decreased to
$3,735,000 in fiscal 1996 from $4,205,000 in fiscal 1995, a decrease of $470,000
or 11%. This decrease was primarily due to the reduced demand for CNET's dial up
services and increased pricing pressure in the RF planning tools market.
Revenues generated from CNET's BOS product line, however, accounted for 57% of
network product revenues in fiscal 1996 compared to 46% in fiscal 1995. This
trend is expected to continue as CNET's new products are designed to target the
larger and faster growing operations support services market. Professional
service revenues increased to $2,364,000 in fiscal 1996 from $1,284,000 in 1995,
an increase of $1,080,000 or 84%. This increase was due primarily to two long
term contracts with existing customers, which will be completed in fiscal 1997.
Equipment sales and other revenues, which included GIS services, decreased to
$417,000 in fiscal 1996 from $593,000, a decrease of $176,000 or 30%. CNET
scaled down its GIS group in fiscal 1996.
GROSS MARGIN
Gross margin increased to $3,472,000 (53% of revenues) in fiscal 1996
from $2,615,000 (43% of revenues) in fiscal 1995, an increase of $857,000 or
33%. This increase resulted from increased utilization rates (man hours billed
vs. worked) obtained under long term professional service contracts. Cost of
sales for network product revenue decreased to $1,528,000 (41% of related
revenues) in fiscal 1996 from $1,692,000 (40% of related revenues) in fiscal
1995, a decrease of $164,000 or 10%. Professional service cost of sales
decreased to $1,235,000 (52% of related revenues) in fiscal 1996 from $1,392,000
(108% of related revenues) in fiscal 1995, a decrease of $157,000 or 11%. The
professional services group was enlarged in fiscal 1995 through the addition of
RF engineering personnel in anticipation of additional work resulting from the
auction by the Federal Communications Commission ("FCC") of new PCS spectrum and
the associated build out of new systems. However, the FCC auctions were delayed
resulting in higher unbillable time. In fiscal 1996, CNET scaled back its
personnel and signed two long term contracts that resulted in higher utilization
rates. Cost of sales for equipment and other revenue decreased to $281,000 (67%
of related revenues) in fiscal 1996 from $383,000 (65% of related revenues) in
fiscal 1995, a decrease of $102,000 or 27%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Sales and marketing expense increased to $939,000 (14% of revenues) in
fiscal 1996 compared to $834,000 (14% of revenues) in fiscal 1995, an increase
of $105,000 or 13%. This increase is attributable to the engagement of a public
relations firm in fiscal 1996. General and administrative costs increased to
$1,615,000 (25% of revenues) in fiscal 1996 from $1,522,000 (25% of revenues) in
fiscal 1995, an increase of $93,000 or 6%. This increase was due to additional
relocation costs and compensation for personnel, increased travel, and increased
professional fees. In addition, restructuring costs of $163,000 were incurred in
fiscal 1996 in connection with the closing of the Bellevue office and the
cancellation and refinancing of certain lease obligations.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense (which excludes ordinary, ongoing
development expenses for existing products) decreased to $334,000 (5% of
revenues) in fiscal 1996 from $688,000 (or 11% of revenues) in fiscal 1995, a
decrease of $354,000 or 52%. The decline in R&D costs was planned as part of the
restructuring during fiscal 1996. Office space was consolidated in fiscal 1996
and certain R&D personnel were moved to other areas of CNET.
DEPRECIATION EXPENSE
Depreciation expense decreased to $292,000 (4% of revenues) in fiscal
1996 from $405,000 (7% of revenues) in fiscal 1995, a decrease of $113,000 or
28%. This decrease occurred as a result of the full depreciation of certain
assets carried on CNET's books with relatively few property additions during the
year.
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INTEREST EXPENSE
CNET's interest expense increased to $145,000 (2% of revenues) in fiscal
1996 compared to $137,000 (2% of revenues) in fiscal 1995, an increase of $8,000
or 6%. During fiscal 1996, CNET used accounts receivable financing to meet its
short-term capital needs.
INCOME TAXES
CNET recorded income tax benefits of $35,000 and $137,000 in fiscal 1996
and fiscal 1995, respectively. The income tax benefit recorded during fiscal
1995 was the result of the carryback of the 1995 net operating loss to recover
taxes paid in prior years. Additional income tax benefit was recorded during
fiscal 1996 due to additional refunds received from the carryback of the fiscal
1995 tax loss. In fiscal 1995 and fiscal 1996, the additional benefit from
future tax deductions was limited because only a portion of the amounts were
expected to be utilized against future taxable income or tax paid during the
year.
YEAR ENDED JANUARY 31, 1995 COMPARED WITH YEAR ENDED JANUARY 31, 1994
REVENUES
Revenues in fiscal 1995 decreased to $6,082,000 from $6,494,000 in
fiscal 1994, a decrease of $412,000 or 6%. The decrease in total revenues
resulted from a decrease in network product revenue to $4,205,000 in fiscal 1995
from $4,984,000 in fiscal 1994, a decrease of $779,000 or 16%. This decrease
primarily resulted from reduced network planning license fees which fell to
$2,258,000 in fiscal 1995 from $3,745,000 in fiscal 1994, a decrease of
$1,487,000 or 40% as CNET transitioned its customer base from VAX based
(Solutions) to UNIX based (WiNGS) technology. This was somewhat offset (a) as
network management or OSS license fees (BOS and related products) increased to
$1,947,000 in fiscal 1995 from $1,239,000 in fiscal 1994, an increase of
$708,000 or 57% which came after CNET's first full year of selling BOS and (b)
by increased revenue from professional services and equipment sales.
Professional services revenue increased to $1,284,000 in fiscal 1995 from
$948,000 in fiscal 1994, an increase of $336,000 or 35% due to two large
international projects conducted during fiscal 1995. Equipment sales and other
revenue increased to $593,000 in fiscal 1995 from $562,000 in fiscal 1994, an
increase of $31,000 or 6%.
GROSS MARGIN
Gross margin decreased to $2,615,000 (43% of revenues) in fiscal 1995
from $3,458,000 (53% of revenues) in fiscal 1994, a decrease of $843,000 or 24%.
Margins associated with the network products group decreased due to a full year
of amortization costs associated with the acquisition of the BOS product (there
was no associated amortization cost in 1994 since it was not determined until
year end). In addition, network products, which have historically produced the
highest margins, accounted for 77% of revenues in fiscal 1994, compared to 69%
in fiscal 1995. There were also increased labor costs associated with opening
the Bellevue office. Gross margins also decreased in the professional services
group due to the high cost of support for international projects and lower than
anticipated utilization rates for the professional service staff. Margins
increased for equipment sales and other revenues as CNET scaled back its GIS and
equipment sales (comparatively low margin) activities resulting in better use of
resources and higher relative margins when these low margin activities were
performed.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Sales and marketing expenses decreased to $834,000 (14% of revenues) in
fiscal 1995 from $1,026,000 (16% of revenues) in fiscal 1994, a decrease of
$192,000 or 19%. This decrease occurred as CNET produced new sales collateral
materials in fiscal 1994, costs which were not duplicated in fiscal 1995. In
addition, CNET attended one less trade show in fiscal 1995. General and
administrative costs increased to $1,522,000 (25% of revenues) in fiscal 1995
from $1,260,000 (19% of revenues) in fiscal 1994, an increase of $262,000 or
21%. The increase in fiscal 1995 resulted from a bad debt expense write off of
$220,000 associated with a new contract with a Mexican customer and the Mexican
liquidity crisis caused by the peso devaluation in December 1994.
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RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense (which excludes ordinary, ongoing
development expenses for existing products) increased to $688,000 (11% of
revenues) in fiscal 1995 from $684,000 (11% of revenues) in fiscal 1994, an
increase of $4,000 or 1%. Historically, CNET has spent approximately 11% of
revenues on R&D activities.
DEPRECIATION EXPENSE
Depreciation expense increased to $405,000 (7% of revenues) in fiscal
1995 from $367,000 (6% of revenues) in fiscal 1994, an increase of $38,000 or
10%. This increase resulted from $223,000 in additions to property and equipment
in fiscal 1994 and the additional $98,000 in additions in fiscal 1995.
INTEREST EXPENSE
CNET's interest expense increased to $137,000 (2% of revenues) in fiscal
1995 from $41,000 (1% of revenues) in fiscal 1994, an increase of $96,000. This
increase was due to the increase in current liabilities and debt incurred by
CNET to fund its working capital needs.
INCOME TAXES
During fiscal 1994, CNET recognized income tax expense of $42,000. The
income tax benefit recorded during fiscal 1995 was the result of the carryback
of the 1995 net operating loss to recover taxes paid in prior years. In 1995,
the additional benefit from future tax deductions was limited because only a
portion of the amounts were expected to be utilized against future taxable
income.
FINANCIAL CONDITION AND LIQUIDITY
Working capital decreased to a deficit of $428,000 at July 31, 1996 from
$368,000 at January 31, 1996, a decrease of $796,000. This decrease was
primarily due to reduced accounts receivable at July 31, 1996 resulting from the
timing of certain significant orders, normal fluctuations in the sales cycle and
anticipated business slipping into future periods. A significant portion of
CNET's revenues in a given fiscal period are from substantial orders placed by
large organizations. As a result, quarterly results have fluctuated depending on
the timing of those orders. The timing of the billing and collection of these
large contracts can create large fluctuations in the accounts receivable
balance. Typically, the largest outstanding accounts at the end of each quarter
are from different customers. CNET expects that it will continue to experience
these fluctuations and be dependent upon a limited number of customers for a
significant portion of its revenues in future periods.
Net cash used in operations was $83,000 for the six months ended July
31, 1996. This use of cash resulted primarily from a $1,100,000 loss for the
period offset by collections of receivables. Accounts receivable decreased to
$666,000 at July 31, 1996 from $1,721,000 at January 31, 1996, a decrease of
$1,055,000. Four customers accounted for 70% of accounts receivable at July 31,
1996. CNET's license contracts typically range from $100,000 to over $1,000,000.
Timing differences in amounts invoiced per contract terms and amounts recorded
as revenue are reflected in accrued contracts receivable and deferred revenue.
Accrued contract receivables (amounts recognized as revenues but not billed in
accordance with contract terms) increased to $483,000 at July 31, 1996 from
$471,000 at January 31, 1996, an increase of 3%. Deferred contract revenues
representing signed contracts which have been billed but due to contract terms
cannot yet be recognized as revenue decreased to $597,000 at July 31, 1996 from
$827,000 at January 31, 1996, a decrease of $230,000 or 28%. Income tax
receivable decreased from $53,000 during the period upon collection of a refund.
Accounts payable decreased to $334,000 at July 31, 1996 from $390,000 at January
31, 1996, a decrease of $56,000 or 14%, while accrued expenses decreased to
$230,000 at July 31, 1996 from $329,000 at January 31, 1996, a decrease of
$99,000 or 30%.
During fiscal year 1997, capital lease financing of $150,000 was
utilized to purchase equipment. Further, net cash purchases of property and
equipment totaled $161,000. Net cash purchases of property and equipment in the
1997 six-month period were $161,000. In addition, CNET obtained a $500,000 Small
Business Administration (the "SBA") loan
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in February 1996 which is collateralized by CNET's accounts receivable and
certain guarantees. CNET may not sell its accounts receivable, incur certain
obligations or pay dividends without prior approval from the SBA. The loan
amortizes over seven years. CNET also finalized restructuring agreements with
one of its leasing vendors by issuing its promissory note in the amount of
$182,000.
On October 17, 1996, CNET obtained a $1,000,000 line of credit (the
"Line of Credit") from Glenayre and as of November [4], 1996 had borrowed
$[493,000] thereunder. Amounts borrowed under the Line of Credit accrue interest
at prime plus 2% ([10.25]% as of November 15, 1996), which rate is fixed as of
the date of each loan. Accrued interest on amounts borrowed under the Line of
Credit is payable quarterly. The principal amount of, and accrued but unpaid
interest on, loans under the Line of Credit are due and payable 12 months from
the date of each loan. Glenayre is not obligated to make any loan under the Line
of Credit unless it has approved the specific purposes for which CNET is
obtaining such loan. CNET's obligations under the Line of Credit is secured by a
second lien on the collateral securing CNET's SBA loan.
In the event the Merger is not consummated, there can be no assurance
that the Lender would approve any purposes specified by CNET for loans under the
Line of Credit. In addition, an event of default would occur if Glenayre in good
faith determines itself or the amounts outstanding under the Line of Credit
unsafe or insecure. Notwithstanding this standard, if the Merger is not
consummated, there can be no assurance an event of default would not be
determined to occur under the provisions described in the preceding sentence.
If the Merger is not consummated, CNET believes that funds generated
from continuing operations, together with additional borrowings, would be
sufficient to support CNET's ongoing needs. There can be no assurances that CNET
would be able to secure additional borrowings or that the terms thereof would be
comparable to those of its past borrowings.
INFLATION
CNET does not believe inflation has had a material effect on its results
of operations.
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COMPARATIVE RIGHTS OF CNET SHAREHOLDERS
At the Effective Time of the Merger, CNET Shareholders (except any
dissenting CNET Shareholder properly exercising dissenters' rights)
automatically will become shareholders of Glenayre, and the rights of such
former CNET shareholders will be determined by Glenayre's Restated Certificate
of Incorporation, Bylaws and the DGCL. The following is a summary of certain
material differences in the rights of CNET Shareholders and holders of Glenayre
Common Stock.
Authorized Capital. The authorized capital stock of Glenayre consists of
200,000,000 shares of Glenayre Common Stock, par value $.02 per share, and
5,000,000 shares of Glenayre Preferred Stock, par value $.01 per share. As of
November 15, 1996, [59,862,834] shares of Glenayre Common Stock were issued and
outstanding. In addition, as of the same date, [6,599,557] shares of Glenayre
Common Stock were reserved for issuance pursuant to Glenayre's stock plans.
The Glenayre Preferred Stock may be issued in one or more series with
such terms, limitations and preferences as may be established by the Glenayre
Board of Directors without further shareholder action. No shares of Glenayre
Preferred Stock are currently issued or outstanding. In the event of an
unsolicited attempt to takeover Glenayre, it might be possible for the Glenayre
Board of Directors to issue Glenayre Preferred Stock with rights which could
impede the completion of such a takeover. The ability of the Glenayre Board of
Directors to issue Glenayre Preferred Stock may make Glenayre a less attractive
takeover candidate.
The authorized capital of CNET consists of 150,000,000 shares of CNET
Common Stock. As of November 15, 1996, 7,856,912 shares of CNET Common Stock
were issued and outstanding. In addition, as of the same date, 1,380,853 shares
of CNET Common Stock were reserved for issuance pursuant to CNET's stock option
plans.
Board of Directors. Unlike the CNET Board of Directors which is not
classified, Glenayre's Certificate of Incorporation and Bylaws divide its Board
of Directors into three classes, each class to consist of as nearly equal a
number of directors as possible serving for three-year terms. The Glenayre Board
of Directors currently has nine members. Glenayre's Certificate of Incorporation
authorizes the Board of Directors to set the number of directors at a number not
less than three. Pursuant to the DGCL, if the number of directors and the manner
of setting such number is set forth in the Certificate of Incorporation, they
may be changed only by amending the Certificate of Incorporation. Glenayre's
Certificate of Incorporation and Bylaws provide that a director may be removed
from office only for cause and by an affirmative vote of the shareholders
holding at least a majority of the outstanding shares then entitled to vote for
the election of directors. The DGCL also provides that if the board of directors
of a corporation is divided into classes, directors may only be removed for
cause. These provisions of Glenayre's Certificate of Incorporation and Bylaws
may make Glenayre a less attractive candidate for an unsolicited takeover.
Glenayre's directors are elected by the vote of the holders of a
majority of the Glenayre Common Stock present in person or represented by proxy
and entitled to vote in the election of directors. Holders of Glenayre Common
Stock do not have cumulative voting rights in the election of directors.
Vacancies on the Board of Directors of Glenayre created by increasing
the number of directors may be filled upon the approval of a majority of the
directors then in office, provided a quorum is present. Any other vacancy
occurring on the Board may be filled by a majority of the directors then in
office, even if less than a quorum.
CNET's Bylaws permit CNET's Board of Directors to fix the number of
Directors from time to time by resolution. The Board of Directors has fixed the
number of Directors at seven. Each Director holds office until the annual
meeting of shareholders following his election or until a successor is elected
and qualified.
Cumulative voting in the election of directors is prohibited by CNET's
Articles of Incorporation.
CNET's Bylaws provide that a director of CNET may be removed without
cause by a vote of shareholders holding at least a majority of the shares
entitled to vote in an election of directors.
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CNET's Bylaws authorize the Board of Directors to fill vacancies on the
Board by approval of a majority of the remaining directors even though the
remaining directors constitute less than a quorum, or by the CNET Shareholders
upon the consent of the holders of a majority of the outstanding shares entitled
to vote thereon in the event the vacancy has not been filled by the Board of
Directors. However, the Bylaws provide that a vacancy created by the removal of
a director may only be filled by an affirmative vote of a majority of the shares
represented at a meeting at which a quorum is present.
Meetings of Shareholders. Glenayre's Certificate of Incorporation
authorizes the Board of Directors, the Chairman of the Board or the President to
call a special meeting of Glenayre's shareholders. The Certificate of
Incorporation requires any action taken by the shareholders to be effected at a
duly called annual or special meeting of such shareholders; such actions may not
be effected by written consent in lieu of a meeting.
Glenayre's Certificate of Incorporation and the DGCL authorize a
Delaware Court to order a meeting between the corporation and its creditors or
shareholders to address a proposed compromise between Glenayre and its creditors
or shareholders. A majority, representing at least 75% of the value of the
creditors or shareholders, or any class of either as the case may be, can bind
all such parties to the agreement if sanctioned by the Court. In addition, the
shareholders of Glenayre may apply to a court to appoint a custodian or a
receiver in certain circumstances.
Glenayre's Bylaws provide that a quorum is one-third of the issued and
outstanding shares entitled to vote. Shareholder action requires the approval by
the holders of a majority of the shares present unless a greater number is
required by an express provision of the DGCL, the Certificate of Incorporation
or the Bylaws. Glenayre's Bylaws require that proposals submitted requesting
certain action by the Board of Directors be approved by a majority of the
outstanding shares.
The CNET Bylaws and the TBCA authorize the Board of Directors, the Chief
Executive Officer or one or more CNET Shareholder who holds not less than 10% of
the voting power represented by all the shares issued or outstanding and
entitled to be voted at such a meeting to call a special meeting of the CNET
Shareholders at any time.
The CNET Bylaws provide that a quorum is a majority of the issued and
outstanding shares entitled to vote. The CNET Bylaws provide that an act of the
CNET Shareholders requires the affirmative vote of a majority of shares
represented and voting (unless a greater number is otherwise required).
The CNET Bylaws authorize the CNET Shareholders to take action in lieu
of a meeting by written consent of all of the CNET Shareholders entitled to vote
with respect to the action that is the subject of the consent. In addition, any
action required or permitted to be taken at a meeting of the CNET Shareholders
may be taken without a meeting if a written consent or consents shall be signed
by the holders of a minimum number of shares necessary to authorize action at a
meeting at which all shares entitled to vote on that action were present and
voted. Action taken without unanimous consent must be followed by prompt notice
to those shareholders who did not consent.
Inspection Rights. The DGCL allows any shareholder for any purpose
reasonably related to such person's interest as a shareholder to inspect, copy
and make extracts of the corporation's stock ledger, list of shareholders, and
its other books and records upon written demand.
The TBCA entitles one or more CNET Shareholders holding at least 5% in
the aggregate of the outstanding voting shares of CNET or who has been a CNET
Shareholder for six months immediately preceding his demand, upon written demand
stating the purpose thereof, to examine at any reasonable time or times, for any
purpose, CNET's books and records of account, minutes and transfer records, and
to make extracts therefrom.
Amendment of Charter Documents. Glenayre's Certificate of Incorporation
requires that any amendment to the Certificate be approved as a resolution by
the Board of Directors. Glenayre's Certificate of Incorporation, requires
approval by at least 80% of the shares which are entitled to vote, voting as a
single class, to amend, repeal or adopt any provision inconsistent with the
following provisions of the Certificate of Incorporation: (i) the terms and
conditions of the Board of Directors, including but not limited to, the manner
for setting the number of directors, the division of Glenayre's directors into
three classes serving staggered three-year terms, the standards for removal of
directors and the method for
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filling vacancies on the Board; (ii) the prohibition on shareholders acting by
written consent in lieu of a meeting; (iii) that special shareholder meetings
may only be called by the Board of Directors, the Chairman of the Board or the
President and limitations on such meetings to only those matters set forth in
the meeting notice; and (iv) the manner for approval of any amendment to the
Certificate of Incorporation, including the 80% supermajority provision. Any
other amendment must be approved by a majority of the outstanding shares
entitled to vote.
The TBCA requires that any amendment to CNET's Articles of Incorporation
be approved by a majority of the Board of Directors and the affirmative vote of
the holders of two-thirds of the outstanding shares.
Amendment to Bylaws. Glenayre's Certificate of Incorporation and Bylaws
provide that the Bylaws may be amended, altered or repealed by action of the
Board of Directors or a majority of the shares entitled to vote. However,
certain Bylaws which are also set forth in the Certificate of Incorporation may
not be amended without approval by the holders of 80% of the shares entitled to
vote.
The TBCA and CNET's Bylaws provide that CNET's Bylaws may be amended or
repealed by approval of a majority of the outstanding shares or by the approval
of the Board of Directors.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion of certain federal income tax consequences of
the Merger is based on the current provisions of the Code, applicable Treasury
Regulations, judicial authority and administrative rulings and practice. This
discussion, however, does not address all aspects of federal income taxation
that may be relevant to a particular CNET Shareholder in light of his personal
investment circumstances and to certain types of shareholders subject to special
treatment under the federal income tax laws (for example, insurance companies,
tax exempt organizations, financial institutions or broker-dealers or persons
who are not citizens or residents of the United States or who are foreign
corporations, foreign partnerships or foreign estates or trusts) and does not
discuss any aspects of state, local or foreign taxation. Further, this
discussion assumes that all CNET Shareholders have held their shares of CNET
Common Stock as capital assets.
There can be no assurance that the Internal Revenue Service (the "IRS")
will not take a contrary view to those expressed herein. No ruling from the IRS
has been or will be sought with respect to any aspect of the Merger. Moreover,
legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to CNET Shareholders.
Consummation of the Merger is conditioned upon, among other things, the
receipt by CNET of the Tax Opinion, substantially to the effect that the Merger
will constitute a reorganization in accordance with Section 368(a) of the Code.
In connection with the Tax Opinion, Gardere & Wynne, L.L.P. will rely on such
factual assumptions as are customary in similar tax opinions and certain
representations made by CNET and Glenayre in the Agreement, and by CNET and
certain CNET Shareholders to Gardere & Wynne, L.L.P., in connection with the
Merger. The Tax Opinion will be delivered to CNET at the Effective Time and may
be relied upon only by CNET and the CNET Shareholders and only if the factual
assumptions and representations upon which the Tax Opinion will be conditioned
are accurate. No ruling from the Internal Revenue Service concerning the tax
consequences of the Merger has been (or will be) requested by CNET, and the Tax
Opinion will not be binding upon the Internal Revenue Service or the courts.
In connection with the filing of the Registration Statement, Kennedy
Covington Lobdell & Hickman, L.L.P. delivered a tax opinion to Glenayre. The
following discussion summarizes the conclusions set forth in such opinion and
the assumptions upon which they were based, and is qualified in its entirety by
reference to such opinion which is an exhibit to the Registration Statement.
EACH CNET SHAREHOLDER AND CNET OPTION HOLDER IS URGED TO CONSULT HIS OWN
TAX ADVISER AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OF THE MERGER,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL AND FOREIGN
TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
59
<PAGE>
QUALIFICATION OF THE MERGER AS A TAX-FREE REORGANIZATION
Although the matter is not free from doubt and is subject to the
assumptions set forth in the following paragraph, the Merger should be a
tax-free reorganization within the meaning of Section 368(a)(1) of the Code by
reason of the application of Section 368(a)(2)(E) of the Code with respect to,
and to the extent of, the exchange of CNET Common Stock for shares of Glenayre
Common Stock. See "Federal Income Tax Consequences to CNET Shareholders and CNET
Option Holders" below.
The conclusion of the previous paragraph is based on certain
assumptions, including the following: (i) the Merger will be consummated in
accordance with the Acquisition Agreement and Plan of Merger; (ii) the
representations made by Glenayre, Glenayre Sub and CNET in the Agreement are
accurate; (iii) Glenayre has no present plan or intention to liquidate CNET, to
merge CNET with or into another unaffiliated corporation, to sell or otherwise
dispose of the capital stock of CNET, to cause CNET to issue additional shares
of its stock that would result in Glenayre's loss of "control" of CNET within
the meaning of Section 368(c) of the Code or to cause CNET to sell or dispose of
any of its assets except for dispositions made in the ordinary course of
business or which would not cause the Merger to fail to satisfy the "continuity
of the business enterprise" requirements for the Merger to qualify as a
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code; (iv)
CNET has no declared but unpaid dividends; (v) the total cash consideration that
will be paid in the Merger to CNET Shareholders in lieu of fractional shares of
Glenayre Common Stock will not exceed 1% of the total consideration that will be
given in the transaction to the CNET Shareholders in exchange for their CNET
Common Stock, and the fractional share interests of each CNET Shareholder will
be aggregated, and no CNET Shareholder will receive cash or other property in
exchange therefor in an amount equal to or greater than the value of one full
share of Glenayre Common Stock; (vi) at the Effective Time, the fair market
value of CNET's assets will exceed the sum of its liabilities, plus the amount
of liabilities, if any, to which the assets are subject; (vii) each of Glenayre,
Glenayre Sub and CNET will comply with all reporting and record-keeping
obligations with respect to the Merger required under the Code and the Treasury
Regulations thereunder; (viii) following the Effective Time, CNET will continue
to hold substantially all of the properties it owned immediately prior to the
Merger; (ix) following the Effective Time, the CNET Shareholders will retain the
Glenayre Common Stock received in the Merger in amounts and for such periods of
time as shall be necessary to satisfy the "continuity of interest" requirements
of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code; (x) none of the Glenayre
Common Stock received by any CNET Shareholder who is a CNET employee pursuant to
the Merger is or will be a separate consideration for, or allocable to, any
employment, agency, consulting or similar arrangement, and the compensation that
is, or has been paid, to any CNET Shareholder who is a CNET employee is, has
been or will be, for services actually rendered and commensurate with amounts
paid to third parties bargaining at arm's length for similar services; and (xi)
following the Effective Time, Glenayre will not take any actions that would
cause the Merger to fail to qualify as a reorganization within the meaning of
Sections 368(a)(1) and 368(a)(2)(E) of the Code. The conclusion of the previous
paragraph also is based on the assumption that pursuant to the Merger, shares of
Glenayre Common Stock, other than the Escrowed Shares, will be exchanged for 80%
or more of the shares of CNET Common Stock outstanding immediately prior to the
Effective Time. For purposes of this assumption, any shares of CNET Common Stock
acquired by CNET or Glenayre at any time within one year of the Effective Time
including from dissenters pursuant to the Agreement or with respect to
fractional shares pursuant to the Agreement will be deemed to be outstanding
immediately prior to the Effective Time.
FEDERAL INCOME TAX CONSEQUENCES TO CNET SHAREHOLDERS AND CNET OPTION HOLDERS
Assuming that the Merger constitutes a tax-free reorganization under
Sections 368(a)(l) and 368(a)(2)(E) of the Code, CNET Shareholders will not
recognize gain or loss upon the receipt of Glenayre Common Stock in exchange for
their shares of CNET Common Stock, but each CNET Shareholder will be required to
recognize a taxable gain (but not a taxable loss) for Federal income tax
purposes with respect to such a reorganization in an amount equal to the lesser
of (i) the amount of the excess, if any, of the fair market value of such CNET
Shareholder's shares of CNET Common Stock over the adjusted tax basis of those
shares or (ii) the amount of cash and the fair market value of any property
other than Glenayre Common Stock received by such CNET Shareholder in connection
with the Merger, excluding from this computation any shares of CNET Common Stock
(and the consideration deemed received therefor) treated as sold to Glenayre in
lieu of receiving a fractional share of Glenayre Common Stock (which transaction
will be taxed in the manner described in clause (i) of the following paragraph).
Such gain will be taxed as a capital gain unless the money (and other property,
if any) received is deemed to have the effect of a dividend, in which case it
will be taxed as a dividend to the
60
<PAGE>
extent of such CNET Shareholder's ratable share of the corporation's
undistributed earnings and profits. Whether the money received is taxed as a
dividend will depend on each CNET Shareholder's particular facts and
circumstances and will be determined under the principles of the United States
Supreme Court's decision of Commissioner v. Clark, 489 U.S. 726 (1989) and
Section 302 of the Code, by assuming that such CNET Shareholder receives only
shares of Glenayre Common Stock in exchange for such shareholder's shares of
CNET Common Stock and immediately thereafter exchanged a portion of the Glenayre
Common Stock having a fair market value equal to the amount of money received in
redemption of such shares.
The reorganization also will have the following additional tax
consequences: (i) any CNET Shareholder who receives cash in the Merger in lieu
of a fractional share of Glenayre Common Stock will be treated as if the
fractional share were distributed in the Merger and then as having received a
cash distribution in redemption of such fractional share, resulting in income,
gain or loss upon receipt of such cash being taxed as provided in Section 302 of
the Code; (ii) each Shareholder's tax basis in, and holding period for, his
shares of CNET Common Stock will carry over to the Glenayre Common Stock
received in exchange therefor (including any fractional share of Glenayre Common
Stock deemed received and then redeemed as described in clause (i) above); (iii)
no material gain or loss for Federal income tax purposes will be recognized by
Glenayre, Glenayre Sub or CNET in the transactions constituting the Merger; and
(iv), assuming the CNET Stock Options are "incentive stock options" within the
meaning of Section 422(b) of the Code, CNET Option Holders will not recognize
gain or loss as a result of Glenayre's assumption of the CNET Stock Options, and
the tax attributes of the CNET Stock Options will not be changed by the Merger.
A CNET Shareholder who exercises the right to dissent in connection with
the Merger and receives only cash in exchange for such Shareholder's CNET Common
Stock will be treated as having received such cash as a distribution in
redemption of such CNET Shareholder's CNET Common Stock and will recognize gain
or loss equal to the difference between the amount of cash received and the
adjusted basis of such CNET Shareholder's shares of CNET Common Stock, unless
such payment, under each such CNET Shareholder's particular facts and
circumstances, is deemed to have the effect of a dividend distribution and not a
redemption treated as an exchange under the principles of Section 302 of the
Code.
If the Merger were not to constitute a reorganization under Section
368(a)(l) of the Code, each CNET Shareholder would recognize a taxable gain or
loss equal to the difference between (i) the fair market value of the Glenayre
Common Stock, cash and other property received and (ii) the combined basis of
such CNET Shareholder's shares of CNET Common Stock.
Capital gains or capital losses, as the case may be, recognized by a
CNET Shareholder in connection with the sale or exchange of CNET Common Stock in
connection with the Merger will be long-term capital gains or losses if the CNET
Shareholder has held for more than one year the CNET Common Stock deemed sold or
exchanged, in whole or in part, in connection with the Merger.
RIGHTS OF CNET SHAREHOLDERS ELECTING TO EXERCISE THEIR RIGHTS TO DISSENT
Under the TBCA, each CNET Shareholder as of the Record Date is entitled
to demand and receive payment of the fair value of such holder's shares of CNET
Common Stock pursuant to Articles 5.11 et seq. of the TBCA owned by such holder
if the Merger is consummated. The fair value of such shares is determined as of
the day immediately preceding the meeting where the Merger was approved. Any
CNET Shareholder who elects to perfect such holder's dissenter's rights and
demands payment of the fair value of such holder's shares of CNET Common Stock
(a "Dissenting CNET Shareholder") must strictly comply with Articles 5.11 et
seq. of the TBCA. THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ARTICLES 5.11 THROUGH 5.13 OF THE
TBCA, THE TEXT OF WHICH IS ATTACHED AS ANNEX B TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. ANY CNET
SHAREHOLDER CONSIDERING DEMANDING DISSENTERS' RIGHTS IS ADVISED TO CONSULT LEGAL
COUNSEL. DISSENTING RIGHTS WILL NOT BE AVAILABLE UNLESS THE MERGER (OR A SIMILAR
BUSINESS COMBINATION) IS CONSUMMATED.
To perfect the right to dissent and receive the fair value of such
holder's shares, a CNET Shareholder must (1) file with CNET, prior to the
meeting, a written objection to the action setting out that the holder's right
to dissent will be exercised if the action is effective and giving the CNET
Shareholder's address to which notice of the effectiveness of
61
<PAGE>
such action shall be delivered or mailed and (2) not vote in favor of the
action. Within 10 days after the Special Meeting, CNET will mail to each CNET
Shareholder who filed a written objection and did not vote for the Merger notice
(the "Notice") of the approval of the Merger by the CNET Shareholders.
A Dissenting CNET Shareholder must make written demand upon CNET 10 days
from the delivery or mailing of the Notice for payment of the fair value of the
Dissenting CNET Shareholder's shares. The demand must state the number and class
of shares owned by such Dissenting CNET Shareholder and the fair value of such
shares as estimated by the Dissenting CNET Shareholder. Any CNET Shareholder
failing to make demand within 10 days shall be bound by the action.
Within 20 days of receiving a proper demand for payment made by a
Dissenting CNET Shareholder, CNET shall either (i) deliver notice that it
accepts the amount claimed in the demand and agrees to pay that amount within 90
days after the Merger was effected and upon the surrender of the certificates
evidencing the shares of CNET Common Stock held by such Dissenting CNET
Shareholder, or (ii) deliver notice containing an estimate by CNET of the fair
value of the shares, together with an offer to pay that amount within 90 days
after the date on which the Merger was effected, provided that it receives
notice within 60 days after the effective date of the Merger from the Dissenting
CNET Shareholder that the Dissenting CNET Shareholder agrees to accept that
amount and upon surrender of certificates evidencing the shares of CNET Common
Stock held by such Dissenting CNET Shareholder.
If within 60 days of the date on which the Merger was effected, CNET and
the Dissenting CNET Shareholder cannot agree as to the fair value of the shares,
the Dissenting CNET Shareholder may file within 60 days after the end of the
first 60 day period a petition demanding judicial determination of such matters.
CNET will then be required to make any payments in accordance with such judicial
determination. If the petition is not filed within 60 days after the end of the
first 60 day period, the Dissenting CNET Shareholder's rights as a dissenter are
lost.
CNET Shareholders lose their rights of dissent if (i) within 20 days of
demanding payment the Dissenting CNET Shareholder fails to submit the
certificate representing the shares to CNET for notation of demand thereon; (ii)
the Dissenting CNET Shareholder and CNET do not agree as to the fair value of
such shares and a petition is not filed within the appropriate time period; or
(iii) the Dissenting CNET Shareholder withdraws such demand before payment for
the shares or before petition is filed.
Any Dissenting CNET Shareholder who has demanded payment for his shares
of CNET Common Stock in accordance with the dissenter's rights provisions of the
TBCA shall not thereafter be entitled to vote or exercise any other rights of a
shareholder except the right to receive payment for his shares pursuant to the
dissenter's rights provisions of the TBCA and the right to maintain an
appropriate action to obtain relief on the ground that the corporate action was
fraudulent, and the shares of CNET Common Stock for which payment has been
demanded shall not thereafter be considered outstanding for the purposes of any
subsequent vote of shareholders of CNET. However, if a CNET Shareholder fails to
perfect or withdraws or loses his rights as a dissenter with respect to his
shares of CNET Common Stock, such CNET Shareholder's shares of CNET Common Stock
will be exchanged for Glenayre Common Stock as provided in the Agreement and
such holder of CNET Common Stock shall be restored without prejudice to any
corporate proceeding, including receipt of dividends or other distributions
occurring in the interim.
Under Delaware law, shareholders of Glenayre are not entitled to
dissenters' rights in connection with the issuance of Glenayre Common Stock in
the Merger.
LEGAL MATTERS
The validity and legality of the Glenayre Common Stock offered hereby
and certain other legal matters will be passed upon for Glenayre by Kennedy
Covington Lobdell & Hickman, L.L.P., NationsBank Corporate Center, Suite 4200,
100 North Tryon Street, Charlotte, North Carolina 28202. As of November 15,
1996, partners and associates of Kennedy Covington Lobdell & Hickman, L.L.P. and
their spouses and minor children owned beneficially an aggregate of [6,215]
shares of the Common Stock of Glenayre.
62
<PAGE>
Certain legal matters will be passed upon for CNET and the CNET
Shareholders by Gardere & Wynne, L.L.P., 3000 Thanksgiving Tower, Dallas, Texas
75201-4761.
EXPERTS
The consolidated financial statements and supplemental schedule of
Glenayre at December 31, 1995 and for the year then ended appearing in
Glenayre's Annual Report (Form 10-K) for the year ended December 31, 1995, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements and supplemental schedule of
Glenayre at December 31, 1994 and for each of the two years in the period ended
December 31, 1994, appearing in Glenayre's Annual Report (Form 10-K) for the
year ended December 31, 1995, have been audited by Deloitte & Touche LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information of Glenayre for the nine-month periods ended September 30, 1995 and
1996, incorporated by reference in this Proxy Statement/Prospectus, Ernst &
Young LLP have reported that they have applied limited procedures in accordance
with professional standards for a review of such information. However, their
separate report, included in Glenayre's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996, and incorporated herein by reference, states
that they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their report on
such information should be restricted considering the limited nature of the
review procedures applied. The independent auditors are not subject to the
liability provisions of Section 11 of the Securities Act of 1933 (the "Act") for
their report on the unaudited interim financial information because that report
is not a "report" or a "part" of the Registration Statement prepared or
certified by the auditors within the meaning of Sections 7 and 11 of the Act.
The consolidated financial statements of CNET, Inc. and subsidiary at
January 31, 1995 and 1996, and for each of the two years in the period ended
January 31, 1996, included in this Proxy Statement/Prospectus have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of CNET, Inc. and subsidiary for
the year ended January 31, 1994 included in this Proxy Statement/Prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
63
<PAGE>
CNET, Inc. and Subsidiary
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Reports of Independent Auditors.................................................................................F-2
Consolidated Balance Sheets at January 31, 1995 and 1996 and
July 31, 1996 (Unaudited)..................................................................................F-4
Consolidated Statements of Operations for the years ended January 31, 1994, 1995
and 1996, and the six months ended
July 31, 1995 and 1996 (Unaudited).........................................................................F-5
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended
January 31, 1994, 1995 and 1996 and the six months
ended July 31, 1996 (Unaudited).............................................................................F-6
Consolidated Statements of Cash Flows for the years ended January 31, 1994, 1995
and 1996, and the six months ended
July 31, 1995 and 1996 (Unaudited)..........................................................................F-7
Notes to Consolidated Financial Statements......................................................................F-8
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and
Shareholders of CNET, Inc.
We have audited the accompanying consolidated balance sheets of CNET, Inc. (the
Company), and subsidiary as of January 31, 1995 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CNET,
Inc. and subsidiary at January 31, 1995 and 1996, and the consolidated results
of their operations and cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
June 6, 1996
F-2
<PAGE>
Report of Independent Auditors
To the Board of Directors and
Shareholders of CNET, Inc.:
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of CNET, Inc. and subsidiary for the year
ended January 31, 1994. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of CNET, Inc. and subsidiary for the year ended January 31, 1994, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Dallas, Texas
June 28, 1994
F-3
<PAGE>
CNET, Inc. and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
January 31, July 31,
1995 1996 1996
----------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 11)
Current assets:
Cash $ 15,006 $ 48,551 $ 181,119
Billed accounts receivable - less allowance for doubtful accounts of
$24,967 in 1995, $42,900 in 1996 and $10,208 at July 31, 1996 1,840,869 1,720,715 666,221
(unaudited) (Note 2)
Accrued contract receivables 304,768 265,929 317,083
Income tax refund receivable 133,210 52,564 -
Deferred income taxes (Note 8) - 37,189 37,189
Prepaid expenses and other 88,212 89,899 78,628
----------------------------------------------------------
Total current assets 2,382,065 2,214,847 1,280,240
Software acquired, net (Note 3) 533,333 266,672 133,340
Property and equipment, net (Notes 4 and 6) 513,667 281,335 478,505
Accrued contract receivables - long-term, less unamortized discount
of $20,134 in 1995, $13,423 in 1996 and $6,712 at July 31, 1996 437,152 204,638 165,783
(unaudited)
Deferred income taxes (Note 8) - 93,977 148,015
----------------------------------------------------------
Total assets $3,866,217 $3,061,469 $2,205,883
==========================================================
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Notes payable to shareholders (Note 5) $ 72,000 $ 19,118 $ 14,831
Payable to officer (Note 5) - 148,000 148,000
Long-term debt, current (Note 6) - 114,021 152,021
Capital lease obligations, current (Note 6) 154,627 69,590 117,743
Accounts payable 937,069 390,153 333,519
Income taxes payable - - 181,229
Accrued royalties (Note 6) 490,308 84,480 -
Accrued expenses 498,482 329,190 229,894
Deferred contract revenues 854,486 692,477 531,298
----------------------------------------------------------
Total current liabilities 3,006,972 1,847,029 1,708,535
Long-term debt (Note 6) - 425,213 803,507
Capital lease obligations, long-term (Note 6) 87,594 60,698 116,728
Deferred contract revenues, long-term 270,000 135,000 65,250
Other noncurrent liabilities 4,703 - -
Commitments (Note 6)
Shareholders' equity (Note 7): Common stock, $0.01 par value:
Authorized shares: 150,000,000
Issued and outstanding shares: 1995 - 256,281;
1996 - 7,766,695; July 31, 1996 - 7,802,599 (unaudited) 51,256 77,667 78,026
Additional paid-in capital 180,154 231,415 269,875
Retained earnings (deficit) 265,538 284,447 (836,038)
----------------------------------------------------------
Total shareholders' equity (deficit) 496,948 593,529 (488,137)
----------------------------------------------------------
Total liabilities and shareholders' equity (deficit) $3,866,217 $3,061,469 $2,205,883
==========================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
CNET, Inc. and Subsidiary
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the six months
YEAR ENDED JANUARY 31, ended July 31,
1994 1995 1996 1995 1996
----------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Network products $4,983,854 $4,204,800 $3,735,257 $1,500,522 $ 1,866,421
Professional services 947,782 1,283,886 2,363,532 1,161,692 647,044
Equipment sales and other 562,282 592,850 417,378 189,216 66,166
----------------------------------------------------------------------------------
6,493,918 6,081,536 6,516,167 2,851,430 2,579,631
Cost of sales:
Network products 1,485,461 1,691,753 1,527,929 732,014 711,314
Professional services 971,560 1,392,394 1,235,208 747,328 543,067
Equipment sales and other 578,643 382,596 280,948 142,481 77,804
----------------------------------------------------------------------------------
3,035,664 3,466,743 3,044,085 1,621,823 1,332,185
Gross margin 3,458,254 2,614,793 3,472,082 1,229,607 1,247,446
Operating expenses:
Research and development 683,648 687,774 333,553 231,753 143,294
Sales and marketing 1,025,835 833,667 939,258 453,688 1,064,020
General and administrative 1,259,645 1,521,798 1,614,763 601,605 976,877
Restructuring costs - - 163,387 72,584 -
Depreciation 367,175 404,824 292,182 142,615 111,320
----------------------------------------------------------------------------------
3,336,303 3,448,063 3,343,143 1,502,245 2,295,511
----------------------------------------------------------------------------------
Operating income (loss) 121,951 (833,270) 128,939 (272,638) (1,048,065)
Interest expense, net 41,407 136,967 144,738 83,889 72,420
-------------------------------------------------
---------------------------------
Income (loss) before income tax 80,544 (970,237) (15,799) (356,527) (1,120,485)
expense
Income tax expense (benefit) 42,190 (137,350) (34,708) (131,808) -
----------------------------------------------------------------------------------
Net income (loss) $ 38,354 $ (832,887) $ 18,909 $ (224,719) $(1,120,485)
==================================================================================
Net income/(loss) per share $ 0.01 $ (0.11) $ 0.00 $ (0.03) $ (0.14)
==================================================================================
Weighted average number of common
shares outstanding 7,422,000 7,518,760 7,687,531 7,688,427 7,779,256
==================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
CNET, Inc. and Subsidiary
Consolidated Statements of Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
Common Additional Total
Shares Common Paid-In Retained Treasury Shareholders'
Issued Stock Capital Earnings Stock Equity (Deficit)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1993 250,000 $50,000 $ 17,000 $1,060,071 $(52,000) $1,075,071
Net income - - - 38,354 - 38,354
---------------------------------------------------------------------------------------------------
Balance at January 31, 1994 250,000 50,000 17,000 1,098,425 (52,000) 1,113,425
Net loss - - - (832,887) - (832,887)
Issuance of common stock 6,281 1,256 163,154 - 52,000 216,410
---------------------------------------------------------------------------------------------------
Balance at January 31, 1995 256,281 51,256 180,154 265,538 - 496,948
Net income - - - 18,909 - 18,909
Common stock split 7,432,149 25,628 (25,628) - - -
Purchase of treasury stock - - - - (7,500) (7,500)
Issuance of common stock 78,265 783 76,889 - 7,500 85,172
---------------------------------------------------------------------------------------------------
Balance at January 31, 1996 7,766,695 77,667 231,415 284,447 _ 593,529
Net loss (unaudited) - - - (1,120,485) - (1,120,485)
Issuance of common stock
(unaudited) 35,904 359 38,460 - - 38,819
---------------------------------------------------------------------------------------------------
Balance at July 31, 1996
(unaudited) 7,802,599 $78,026 $269,875 $ (836,038) $ - $ (488,137)
===================================================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
CNET, Inc. and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended For the six months
January 31, ended July 31,
1994 1995 1996 1995 1996
--------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income (loss) $ 38,354 $ (832,887) $ 18,909 $ (224,719) $ (1,120,485)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 367,175 671,491 558,843 275,944 244,652
Loss on sale of equipment - - (21,676) - -
Deferred income taxes (1,553) (4,140) (131,166) (148,859) (54,038)
Compensation expense (issued common stock) - 105,530 72,835 - 31,274
Changes in operating assets and liabilities:
Billed and accrued receivables, current and
long-term (1,865,931) 399,873 391,507 1,436,967 1,042,195
Prepaid expenses and other (1,957) (32,947) (2,280) 5,432 11,271
Payable to officer - - 63,000 - -
Accounts payable 656,363 191,367 8,790 42,360 (56,634)
Accrued expenses 386,645 (361,619) (494,823) (803,052) (183,776)
Income tax payable/refund receivable, net 68,018 (158,386) 80,646 17,051 233,793
Deferred contract revenues 1,006,830 77,523 (297,009) (345,848) (230,929)
--------------------------------------------------------------------------
Net cash provided by (used in) operating activities 653,944 55,805 247,576 255,276 (82,677)
INVESTING ACTIVITIES
Additions to property and equipment (223,311) (97,525) (17,267) (14,237) (160,944)
Property disposals - - 21,786 21,786 -
--------------------------------------------------------------------------
Net cash (used in) provided by investing activities (223,311) (97,525) 4,519 7,549 (160,944)
FINANCING ACTIVITIES
Issuance of notes payable 220,000 107,880 - - 500,000
Reductions of notes payable and capital lease
obligations (642,541) (192,994) (223,980) (53,907) (131,356)
Purchase of treasury stock - - (7,500) (7,500) -
Proceeds from sale of treasury stock - 52,000 7,500 - -
Proceeds from issuance of common stock - 23,000 5,430 - 7,545
--------------------------------------------------------------------------
Net cash (used in) provided by financing activities (422,541) (10,114) (218,550) (61,407) 376,189
--------------------------------------------------------------------------
Increase (decrease) in cash 8,092 (51,834) 33,545 201,418 132,568
Cash at beginning of period 58,748 66,840 15,006 15,006 48,551
--------------------------------------------------------------------------
Cash at end of period $ 66,840 $ 15,006 $ 48,551 $ 216,424 $ 181,119
==========================================================================
</TABLE>
Supplemental Disclosure of Cash Flow Information (Note 10)
See accompanying notes.
F-7
<PAGE>
CNET, Inc. and Subsidiary
Notes to Consolidated Financial Statements
January 31, 1996
(INTERIM FINANCIAL INFORMATION IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
CNET, Inc. (the Company), was incorporated in Texas in January 1986. The Company
provides operational support, network management and network planning software
products, services and equipment to the worldwide wireless communications
industry, primarily through large corporate customers.
FISCAL YEAR
The Company utilizes a fiscal year ending on January 31. References to 1994,
1995 and 1996 are for the fiscal years ended January 31, 1994, 1995 and 1996,
respectively.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated financial statements include the accounts of CNET, Inc. and its
wholly owned subsidiary, CNET GmbH, a German corporation established in 1990.
Significant intercompany balances and transactions are eliminated in
consolidation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates from which actual results
may vary.
REVENUES
Network products revenues include the Company's licensing fees from network
management and planning software products. Revenue from software license
agreements is recognized upon execution of a contract and shipment of the
software, provided that no significant vendor obligations remain outstanding,
amounts are due within one year and collection is considered probable by
management. Maintenance revenues are included in network products revenue and
are recognized ratably over the term of the maintenance period. Professional
service revenues are derived from fees for consulting, training and development
services and are recognized as the services are performed. Equipment sales are
recognized when the equipment is shipped to customers.
License fees recognized upon software delivery for fixed fee arrangements where
billings are scheduled later are reported as accrued contract receivables. Those
receivables which are payable over periods through 1999 are reported at their
discounted amounts based on an imputed interest rate of 7% in 1996 and 1995.
License fees and professional services paid for or billed in advance of
performance are reported as deferred contract revenues.
During 1994, sales to four customers accounted for approximately 22%, 13%, 12%
and 11% of total revenues. During 1995, sales to two customers accounted for
approximately 15% and 13% of total revenues, and during 1996, sales to two
customers accounted for approximately 23% and 15% of total revenues.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets of three to five years. Assets acquired under capital
leases are depreciated over the lesser of the assets' estimated useful lives or
the lease terms.
F-8
<PAGE>
CNET, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
Software development costs are expensed as incurred until technological
feasibility has been established, at which time such costs are capitalized until
the product is available for general release to customers. To date, the
establishment of technological feasibility of the Company's products and general
release of such software have substantially coincided. As a result, software
development costs qualifying for capitalization have been insignificant and
therefore, the Company has not capitalized any software development costs.
DEFERRED INCOME TAXES
Deferred income taxes are provided under the liability method for temporary
differences in the recognition of income and expense for tax and financial
reporting purposes.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed based on the weighted average number of
common shares outstanding. The effect of common stock equivalents from the
exercise of stock options using the treasury stock method is not significant.
Share amounts have been adjusted to reflect the stock split discussed at Note 7.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current year
presentations.
INTERIM FINANCIAL INFORMATION
The consolidated financial statements as of July 31 ,1996 and for the six months
ended July 31, 1995 and 1996 are unaudited; however, in the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six month period ended July 31, 1996 are not necessarily indicative of the
results that may be expected for the year ended January 31, 1997.
Included in network products revenue for the six months ended July 31, 1996 is
$580,000 for a one-time sale to recognize the payoff of a cross-license.
F-9
<PAGE>
CNET, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTS RECEIVABLE
At January 31, 1995, three customers accounted for approximately 31%, 19% and
13% of total accounts receivable, and at January 31, 1996, three customers
accounted for approximately 39%, 24% and 22% of total accounts receivable.
In May 1995, the Company entered into an agreement to sell trade receivables
with full recourse on an ongoing basis. During 1996, the Company sold
receivables for net proceeds of approximately $1,826,000, and at January 31,
1996, $275,000 of receivables sold during 1996 were outstanding and subject to
recourse provisions. A cost of $90,172, which is included in interest expense,
was incurred in 1996 on the sale of receivables.
Concentrations of credit risk at the Company primarily consist of accounts
receivable. Credit is extended to customers, which are dispersed worldwide,
based upon evaluation of the customer's financial condition and, generally,
collateral is not required. Credit losses have been within management's
expectations.
3. SOFTWARE ACQUIRED
Software acquired in fiscal 1994 (paid during fiscal years 1994 through fiscal
1996) is stated at cost less accumulated amortization of $266,667 in 1995 and
$533,328 in 1996. The cost of the software is being amortized on a straight line
basis over three years and the amortization is included in cost of sales.
4. PROPERTY AND EQUIPMENT
Property and equipment at January 31 consist of the following:
<TABLE>
<CAPTION>
1995 1996
---------------------------------------
<S> <C> <C>
Assets under capital lease - computer equipment and software $ 657,122 $ 694,053
Computer equipment purchased 857,858 864,082
Software purchased - for internal use 105,251 117,231
Furniture and fixtures 186,230 166,858
Office equipment 70,589 41,496
Leasehold improvements 25,118 25,118
---------------------------------------
Total 1,902,168 1,908,838
Less accumulated depreciation 1,388,501 1,627,503
---------------------------------------
Property and equipment, net $ 513,667 $ 281,335
=======================================
</TABLE>
5. NOTES PAYABLE TO SHAREHOLDERS
Notes payable to shareholders are unsecured and bear interest at market rates.
F-10
<PAGE>
CNET, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
6. COMMITMENTS
LONG-TERM DEBT
In 1996, the Company amended and restated two of its equipment and office lease
agreements to convert accounts payable into long-term notes payable bearing
interest at 10%, payable in monthly installments. The equipment lease note, due
March 1, 2000, is collateralized by certain property and equipment held by the
Company. The carrying amounts of both notes approximate their fair values.
Long-term debt related to these agreements consisted of the following at January
31, 1996:
10% notes payable due October 31, 2000 $332,866
10% notes payable due March 1, 2000 206,368
------------------
539,234
Current portion 114,021
------------------
$425,213
==================
Future maturities of long-term debt are approximately $114,000 in fiscal year
1997, $107,000 in fiscal year 1998, $118,000 in fiscal year 1999, $130,000 in
fiscal year 2000, and $70,000 in fiscal year 2001.
LEASES
The Company leases equipment and office facilities under capital and
noncancelable operating leases. Equipment and facility rent expense under
operating leases for the years ended January 31, 1994, 1995, and 1996 was
$543,720, $685,061, and $560,760, respectively. The minimum future rental
payments for leases with terms in excess of one year are as follows at January
31, 1996:
<TABLE>
<CAPTION>
CAPITAL Operating
---------------------------------------
<S> <C> <C>
Year ending January 31:
1997 $ 81,658 $ 239,644
1998 42,415 256,782
1999 24,728 266,851
2000 - 262,485
2001 - 196,209
---------------------------------------
Total 148,801 $1,221,971
====================
Less amounts representing interest 18,513
--------------------
Present value of capital lease obligations 130,288
Less current portion 69,590
--------------------
Capital lease obligations - long-term $ 60,698
====================
</TABLE>
F-11
<PAGE>
CNET, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
6. COMMITMENTS (CONTINUED)
ROYALTIES
In connection with certain software license agreements (see Note 3), the Company
will pay royalties of 10% of certain license fee revenues through the year 2000.
Royalty expense for the years ended January 31, 1994, 1995 and 1996, was
$39,239, $130,270 and $145,305, respectively.
7. SHAREHOLDERS' EQUITY
Effective July 10, 1995, the Company amended its articles of incorporation in
order to effect a stock split. Each issued and outstanding share of common stock
at the effective date was converted into thirty new shares. The par value of its
stock was decreased from $0.20 to $0.01 and the aggregate number of authorized
shares was increased from 5,000,000 to 150,000,000. Common share and option
price amounts below have been retroactively adjusted for the stock split.
In connection with the amendment to its articles of incorporation, the Company
implemented an Employee Incentive Stock Option (EISO) Plan, which is available
to both employees and directors. Subsequent to the stock split on July 10, 1995,
the Company set aside 1,320,000 shares, of which options for 1,193,000 shares
have been granted with an exercise price of $1, which approximates fair market
value as determined by management and approved by the Company's shareholders.
The Company also awards options to employees and directors under an informal
option plan. Generally, options under both plans have terms of five years and
are exercisable when granted or in vesting increments over four years, as
determined by employee level of service.
During 1996, certain directors and employees exercised options for a total of
12,930 common shares at an exercise price of $1. Of these shares, 7,500 shares
were reissued from treasury at cost. In addition, 900 shares of common stock
were distributed as incentive compensation. In lieu of receiving cash, certain
directors elected to receive a total of 71,935 shares of common stock as payment
for compensation by exercising an equivalent number of options at an exercise
price of $1. Of this amount, $19,600 represents consulting fees paid to a
director, who earned a total of $49,000 during 1996 for such fees.
During 1995, two directors exercised options for a total of 112,500 common
shares, of which 34,500 shares were issued by the Company for $23,000 and 78,000
shares were reissued from treasury at cost for $52,000. In addition, 18,000
shares of common stock valued at $18,000 were distributed as incentive
compensation. In lieu of receiving cash, certain directors and employees elected
to receive a total of 135,930 shares of common stock amounting to $123,410 as
payment for compensation or repayment of loans.
The following table presents the status of options awarded under both the EISO
and the informal option plans.
<TABLE>
<CAPTION>
Option Price
SHARES Per Share
------------------------------------------
<S> <C> <C>
Options outstanding at January 31, 1994 255,000 $0.67 - 1
Add: Options granted 209,850 $1
Less: Options exercised (248,430) $0.67 - 1
Options expired (40,440) $1
------------------------------------------
Options outstanding at January 31, 1995 175,980 $1
Add: Options granted 1,375,668 $1
Less: Options exercised (84,865) $1
Options expired (14,000) $1
------------------------------------------
Options outstanding at January 31, 1996 1,452,783 $1
</TABLE>
F-12
<PAGE>
CNET, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
7. SHAREHOLDERS' EQUITY (CONTINUED)
Of the options outstanding at January 31, 1996, a total of 818,748 were
exercisable. The FASB has recently issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," which provides in
the future for either recognition or disclosure of a charge for the hypothetical
value of stock options granted. The Company does not intend to record this
charge, but will instead provide the disclosure.
8. INCOME TAXES
Reconciliations of income tax benefit and the expected tax computed by applying
the U.S. federal income tax rate of 34% to pretax accounting income follow:
<TABLE>
<CAPTION>
Six months ended July 31,
1994 1995 1996 1995 1996
--------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Computed normal tax expense (benefit) $27,385 $(329,881) $ (5,372) $ (121,219) $ (380,965)
Change in valuation allowance - 131,134 (27,730) - 378,171
Income-based state taxes, net of federal
income tax benefit 8,482 (26,291) 1,402 (10,589) (33,278)
Non-deductible items - 25,106 12,508 - 36,072
Effect of graduated rates - 72,545 (5,427) - -
Other 6,323 (9,963) (10,089) - -
--------------------------------------------------------------------------------------
Federal income tax expense (benefit) $42,190 $(137,350) $ (34,708) $ (131,808) $ -
======================================================================================
The components of income tax expense (benefit) are as follows:
Six months ended July 31,
1994 1995 1996 1995 1996
---------------------------------------------------------------------------------------
(Unaudited )
Current $43,743 $(133,210) $ 96,458 $ 17,051 $ 54,038
Deferred - temporary differences (1,553) (4,140) (131,166) (148,859) (54,038)
---------------------------------------------------------------------------------------
Income tax expense (benefit) $42,190 $(137,350) $ (34,708) $(131,808) $ -
=======================================================================================
</TABLE>
The components of the net deferred tax assets are as follows:
<TABLE>
<CAPTION>
JANUARY 31, July 31,
1995 1996 1996
-----------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets $225,493 $328,606 $760,815
Less: Valuation allowance (131,134) (103,404) (481,575)
-----------------------------------------------------------
94,359 225,202 279,240
Deferred tax liabilities (94,359) (94,036) (94,036)
-----------------------------------------------------------
Net deferred tax asset $ - $131,166 $185,204
===========================================================
</TABLE>
F-13
<PAGE>
CNET, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
The net deferred tax asset is comprised primarily of differences in fixed
assets, capitalized software, capitalized leases and accrued expenses. The
balance at January 31, 1996 is considered realizable based on carryback and
recovery of taxes previously paid.
9. RETIREMENT SAVINGS PLAN
The Company's profit sharing plan covers substantially all employees and
provides for Company matching of employee contributions and additional Company
contributions, both of which are determined at the discretion of the Board of
Directors. Company matching contributions for the year ended January 31, 1994,
1995 and 1996 were $6,347, $13,022 and $9,799, respectively.
10. SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows:
<TABLE>
<CAPTION>
1994 1995 1996
----------------------------------------------
<S> <C> <C> <C>
Cash paid (refunded) for:
Interest $ 49,662 $72,231 $217,000
==============================================
Income taxes $(35,422) $10,980 $ -
==============================================
Noncash operating investing and financing activities:
Issuance of capital lease obligations for equipment $151,875 $69,114 $ 42,693
==============================================
Issuance of common stock as repayment for loans payable
to directors - $35,880 $ -
==============================================
Issuance of notes payable in connection with lease amendments $ - $ - $556,000
==============================================
</TABLE>
11. SBA LOAN
In February 1996, the Company executed a $500,000 U.S. Small Business
Administration (SBA) bank loan collateralized with a security interest in the
Company's assets, including accounts receivables. The loan, which is payable in
monthly principal and interest installments of $8,365, bears interest at prime
plus 2% and matures on March 1, 2003. Proceeds from the loan were used to pay
off amounts under the receivable financing arrangement and to fund working
capital. Under the agreement, the Company may no longer sell its accounts
receivable, incur certain obligations or pay dividends without prior
authorization from the SBA.
12. MERGER AND LOAN AGREEMENT WITH GLENAYRE TECHNOLOGIES, INC. (UNAUDITED)
On August 14, 1996, the Company announced that it and Glenayre Technologies,
Inc. ("Glenayre") had executed an agreement pursuant to which a subsidiary of
Glenayre would be merged with and into the Company. This merger agreement was
terminated on October 11, 1996 and replaced with a new agreement dated October
16, 1996. Upon effectiveness of the merger, Glenayre will issue 370,000 shares
(less certain shares which will be reserved for issuance upon exercise of
outstanding options to purchase the Company's common stock as such options are
to be converted, at the defined exchange ratio, into options to purchase
Glenayre common stock) of its common stock and $1,000,000 in cash in exchange
for all outstanding shares of the Company's common stock. The merger is subject
to the approval of the Company's shareholders.
F-14
<PAGE>
CNET, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
On October 17, 1996, the Company and a subsidiary of Glenayre executed a loan
agreement for the subsidiary to provide the Company a $1,000,000 revolving line
of credit. As of November [4], 1996, the Company had borrowed $[493,000] under
the loan agreement. Amounts borrowed under the line of credit bear interest at
prime plus 2%, which rate is fixed as of the date of each loan. Interest is
payable quarterly, while principal and unpaid interest are due and payable one
year from the date of each loan. Borrowings under the line of credit are secured
by a second lien on the collateral securing the SBA loan.
F-15
<PAGE>
ANNEX A
Acquisition Agreement and Plan of Merger dated October 16, 1996 and all exhibits
(but without schedules) thereto.
ACQUISITION AGREEMENT AND PLAN OF MERGER
AMONG
GLENAYRE TECHNOLOGIES, INC.,
CNET ACQUISITION CORP.,
CNET, INC.
AND
THE PRINCIPAL SHAREHOLDERS OF
CNET, INC.
DATED AS OF OCTOBER 16, 1996
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1
DEFINITIONS AND CERTAIN RULES OF CONSTRUCTION................................A-8
1.1 Definitions..........................................................................A-8
1.2 Certain Rules of Construction.......................................................A-12
ARTICLE 2
THE MERGER.................................................A-12
2.1 The Merger..........................................................................A-12
2.2 The Closing.........................................................................A-12
2.3 Effective Time......................................................................A-12
ARTICLE 3
ARTICLES OF INCORPORATION AND BYLAWS
AND OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION..........................A-13
3.1 Articles of Incorporation...........................................................A-13
3.2 Bylaws..............................................................................A-13
3.3 Directors...........................................................................A-13
3.4 Officers............................................................................A-13
ARTICLE 4
CONVERSION OF CNET COMMON STOCK; EXCHANGE OF CERTIFICATES;
OTHER MATTERS...............................................A-13
4.1 Conversion of CNET Common Stock.....................................................A-13
4.2 Fractional Shares...................................................................A-14
4.3 Payment of Merger Consideration.....................................................A-14
4.4 Distributions with Respect to Unexchanged Shares of CNET Common Stock...............A-15
4.5 CNET Stock Options..................................................................A-15
4.6 Withholding Rights..................................................................A-15
4.7 Dissenting Shares...................................................................A-16
4.8 Transaction Expenses................................................................A-16
4.9 Escrow..............................................................................A-16
(a) Term of Escrow.............................................................A-17
(b) Formula for Number of Escrowed Shares to be Returned to Glenayre...........A-17
(c) Investment of Escrowed Funds...............................................A-17
(d) Distribution of the Escrow.................................................A-17
4.10 Application of Escrow to a Loss.....................................................A-18
ARTICLE 4A
SHAREHOLDERS' REPRESENTATIVE........................................A-19
4A.1 Appointment of Shareholders' Representative.........................................A-19
4A.2 Liability and Authority of Shareholders' Representative; Successors and Assigns.....A-19
4A.3 Shareholders' Representative Expenses...............................................A-20
A-2
<PAGE>
4A.4 Right of Interpleader...............................................................A-20
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CNET
AND THE SHAREHOLDERS............................................A-20
5.1 Organization and Qualification......................................................A-21
5.2 Articles of Incorporation; Bylaws; Minute Books.....................................A-21
5.3 Capitalization......................................................................A-21
5.4 Authority Relative to this Agreement................................................A-22
5.5 No Conflict; Required Filings and Consents..........................................A-22
5.6 Other Interests.....................................................................A-23
5.7 Financial Statements................................................................A-23
5.8 Subsequent Events...................................................................A-23
5.9 Tax Matters.........................................................................A-24
5.10 Employees and Fringe Benefit Plans..................................................A-25
5.11 Title to Assets.....................................................................A-26
(a) Real Property and Leasehold Interests......................................A-26
(b) Equipment..................................................................A-28
(c) Receivables................................................................A-28
(d) Intellectual Property......................................................A-28
(e) Contract Rights............................................................A-29
5.12 Condition of Tangible Assets........................................................A-29
(a) Fixtures...................................................................A-29
(b) Hazardous Substances.......................................................A-29
(c) Equipment..................................................................A-31
5.13 Leases..............................................................................A-31
5.14 Arms-Length Transactions............................................................A-31
5.15 Lawfully Operating..................................................................A-32
5.16 No Litigation.......................................................................A-32
5.17 Labor Matters.......................................................................A-32
5.18 [INTENTIONALLY OMITTED].............................................................A-32
5.19 Brokers.............................................................................A-32
5.20 Glenayre Common Stock Ownership.....................................................A-33
5.21 Accounts at Financial Institutions..................................................A-33
5.22 Insurance...........................................................................A-33
5.23 Warranty and Product Liability Matters..............................................A-33
5.24 Warranty, Repurchase and Other Service Obligations..................................A-33
5.25 Customers and Suppliers.............................................................A-33
5.26 Guarantees..........................................................................A-33
5.27 Prospective Changes.................................................................A-34
5.28 Full Disclosure.....................................................................A-34
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF
GLENAYRE AND MERGER SUB..........................................A-34
6.1 Organization and Qualification......................................................A-34
6.2 Certificate of Incorporation and Bylaws.............................................A-34
6.3 Capitalization......................................................................A-34
6.4 Authority Relative to this Agreement................................................A-35
A-3
<PAGE>
6.5 No Conflict; Required Filings and Consents..........................................A-35
6.6 SEC Reports.........................................................................A-35
6.7 Brokers.............................................................................A-36
6.8 Federal Income Tax Representations..................................................A-36
ARTICLE 7
COVENANTS.................................................A-37
7.1 Covenants of Glenayre and CNET......................................................A-37
7.2 Covenants of CNET and the Principal Shareholders....................................A-38
7.3 Covenants of Glenayre...............................................................A-40
7.4 Additional Covenant of Glenayre.....................................................A-41
ARTICLE 8
CONDITIONS.................................................A-41
8.1 Conditions to Each Party's Obligation to Effect the Merger..........................A-41
8.2 Conditions to Obligation of CNET to Effect the Merger...............................A-42
8.3 Conditions to Obligation of Glenayre and Merger Sub to Effect the Merger............A-42
ARTICLE 9
INDEMNIFICATION..............................................A-44
9.1 Indemnification.....................................................................A-44
9.2 Notice; Defense of Third Party Claims...............................................A-44
9.3 Definition of Loss or Losses........................................................A-44
9.4 Limitation of Shareholders' Liability...............................................A-44
(a) Deductible Losses..........................................................A-45
(b) Maximum Loss...............................................................A-45
(c) Time Limit for Claims......................................................A-45
(d) Restriction................................................................A-45
9.5 Indemnification Rights under Texas Business Corporation Act, Etc. ..................A-45
ARTICLE 10
TERMINATION................................................A-45
10.1 Termination by Mutual Consent.......................................................A-45
10.2 Termination by Either Glenayre or CNET..............................................A-45
10.3 Termination by CNET.................................................................A-46
10.4 Termination by Glenayre.............................................................A-46
10.5 Effect of Termination and Abandonment...............................................A-46
10.6 Extension; Waiver...................................................................A-46
ARTICLE 11
GENERAL PROVISIONS.............................................A-46
11.1 Effectiveness of Representations and Warranties.....................................A-46
11.2 Notices.............................................................................A-47
11.3 Assignment; Binding Effect; Benefit.................................................A-48
11.4 Entire Agreement....................................................................A-48
11.5 Amendment...........................................................................A-48
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11.6 Governing Law.......................................................................A-48
11.7 Counterparts........................................................................A-48
11.8 Waivers.............................................................................A-48
11.9 Severability........................................................................A-49
11.10 Enforcement of Agreement............................................................A-49
11.11 Updating of Schedules and Certificates..............................................A-49
</TABLE>
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EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A-1 Transmittal Letter (Shareholders)
Exhibit A-2 Acknowledgment (Option Holders)
Exhibit B Affiliate Letter
Exhibit C Escrow Agreement
Exhibit D-1 Form of Noncompetition Agreement (David M. Zumwalt)
Exhibit D-2 Form of Noncompetition Agreement (Scott R. Greenwell)
Exhibit E Opinion of Kennedy Covington Lobdell & Hickman, L.L.P.
Exhibit F-1 Opinion of Gardere & Wynne, L.L.P.
Exhibit F-2 Opinion of Womble Carlyle Sandridge & Rice, P.L.L.C.
Exhibit G Tax Opinion of Gardere & Wynne, L.L.P.
SCHEDULES
Schedule 4.5 CNET Stock Options
Schedule 4.10 Initial Proportionate Percentages of Shareholders
Schedule 5 Knowledge of Certain Persons
Schedule 5.1 Organization and Qualification
Schedule 5.2 Articles of Incorporation; Bylaws; Minute Books
Schedule 5.3 Capitalization
Schedule 5.5 CNET's Consents, etc.
Schedule 5.7 Material Year-End Adjustments to Interim Financial Statements; Certain
Liabilities
Schedule 5.8 Subsequent Events
Schedule 5.9 Tax Matters
Schedule 5.10(b) Benefit Plans
Schedule 5.10(d) Funding Policies
Schedule 5.10(e) Plan Claims and Litigation
Schedule 5.10(g) Benefit Plans - Effect of Merger
Schedule 5.11(a) Leasehold Interests and Exceptions
Schedule 5.11(b) Equipment Encumbrances
Schedule 5.11(c) Receivables
Schedule 5.11(d) Intellectual Property
Schedule 5.11(e) Material Contracts
Schedule 5.12 Environmental Matters
Schedule 5.13 Leases
Schedule 5.14 Certain Transactions
Schedule 5.15 Compliance Exceptions
Schedule 5.16 Litigation
Schedule 5.21 Accounts, Vaults and Safe Deposit Boxes
Schedule 5.22 Insurance
Schedule 5.23 Warranty and Product Liability Matters
Schedule 5.24 Warranty, Repurchase and Other Service Obligations
Schedule 5.25(A) Customers
Schedule 5.25(B) Suppliers
Schedule 5.27 Prospective Changes
Schedule 6.5 Glenayre's Consents
Schedule 7.2(c)(4) Capital Expenditures
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Schedule 7.2(c)(5) Bonuses
Schedule 8.3(j) Individuals to Enter into Noncompetition Agreements
Schedule 8.3(n) Payoff of Certain Loans and Advances
</TABLE>
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ACQUISITION AGREEMENT AND PLAN OF MERGER
THIS ACQUISITION AGREEMENT AND PLAN OF MERGER (this "Agreement") is
executed as of the 16th day of October, 1996, by and among GLENAYRE
TECHNOLOGIES, INC., a Delaware corporation ("Glenayre"); CNET ACQUISITION CORP.,
a newly formed Texas corporation and wholly-owned subsidiary of Glenayre
("Merger Sub"); CNET, INC., a Texas corporation ("CNET"); and DAVID M. ZUMWALT,
SCOTT R. GREENWELL and CHARLES D. STAGGS (collectively, the "Principal
Shareholders").
STATEMENT OF PURPOSE
The Boards of Directors of Glenayre, Merger Sub and CNET each have
determined that a business combination pursuant to which Merger Sub will merge
with and into CNET and CNET will become a wholly-owned subsidiary of Glenayre is
in the best interests of the respective corporations and their shareholders, and
accordingly have approved this merger upon the terms and conditions set forth
herein. For federal income tax purposes, it is intended that this merger qualify
as a reorganization within the meaning of Section 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended. This Agreement supersedes in its entirety the
Acquisition Agreement and Plan of Merger dated as of August 14, 1996 among
Glenayre, Merger Sub, CNET and the Principal Shareholders.
NOW, THEREFORE, in consideration of the foregoing Statement of Purpose
and of the representations, warranties, covenants and agreements contained
herein, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS AND CERTAIN RULES OF CONSTRUCTION
1.1 Definitions. In addition to any other terms defined elsewhere in
this Agreement, including any Exhibit or Schedule hereto (unless such Exhibit or
Schedule provides for a different definition), as used herein, the following
terms shall have the following meanings:
"Acknowledgment (Option Holders)" means the Acknowledgment (Option
Holders) substantially in the form of Exhibit A-2 hereto to be executed by each
of the Option Holders.
"Acknowledgments/Transmittal Letters" means, collectively, the
Transmittal Letters (Shareholders) and the Acknowledgments (Option Holders).
"Affiliate" means any Person which (1) directly or indirectly controls,
is controlled by or is under common control with a specified Person, (2) owns or
controls 5% or more of the outstanding equity interests of a specified Person or
(3) is an officer, director, general partner or trustee of a specified Person.
For this purpose, the term "control" means possession, directly or indirectly
(through one or more intermediaries), of the power to direct or cause the
direction of management and policies of a Person through an ownership of voting
securities or other ownership interests, contract, voting trust or otherwise.
"Affiliate Letter" means the Affiliate Letter substantially in the form
of Exhibit B hereto.
"Articles of Merger" is defined in Section 2.3.
"Blue Sky Laws" means state securities Laws or "blue sky" Laws.
"Business Day" means any day other than a Saturday, Sunday or legal
holiday in the State of North Carolina.
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"Closing" means the consummation of the Merger.
"Closing Date" means the date on which the Closing occurs.
"Closing Price" means the price at which the last sale of Glenayre
Common Stock is made on the NASDAQ Stock Market, as reported for each Trading
Day in the NASDAQ National Market issues section of the WALL STREET JOURNAL.
"CNET Common Stock" means the $.01 par value Common Stock of CNET.
"CNET Material Adverse Effect" means any change or effect that is or
would be materially adverse to the business, results of operations or financial
condition of CNET and CNET Sub, taken as a whole.
"CNET Stock Option Plan" means CNET's 1995 Stock Option Plan.
"CNET Stock Option" means (1) any option to purchase CNET Common Stock
granted by CNET pursuant to the CNET Stock Option Plan or (2) any option to
purchase CNET Common Stock granted by CNET but not pursuant to the CNET Stock
Option Plan.
"CNET Sub" means CNET GmbH, a wholly owned subsidiary of CNET.
"Code" means the Internal Revenue Code of 1986, as amended.
"Dissenter Payment" is defined in Section 4.7(a).
"Dissenting Shares" is defined in Section 4.7(a).
"Effective Time" is defined in Section 2.3
"Encumbrances" means all liens, encumbrances, mortgages, pledges,
security interests, conditional sales agreements, charges, options, rights of
first refusal, reservations, restrictions or other encumbrances or defects in
title.
"Equipment" is defined in Section 5.11(b).
"Equity Holders" means, collectively, the Shareholders and the Option
Holders.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow" is defined in Section 4.9.
"Escrow Agent" means First Union National Bank of North Carolina, a
national banking association organized and existing under the laws of the United
States of America, or its successor.
"Escrow Agreement" means the Escrow Agreement substantially in the form
of Exhibit C hereto.
"Escrowed Funds" is defined in Section 4.9.
"Escrowed Shares" is defined in Section 4.9.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Exchange Agent" means American Stock Transfer & Trust, as exchange
agent for Glenayre.
"Exchange Ratio" means a decimal numeral determined by dividing (i) the
excess of 370,000 over the Glenayre Option Shares by (ii) the total number of
outstanding shares of CNET Common Stock immediately before the Effective Time.
"Expiration Date" means that date which is one year after the Effective
Time.
"Form S-4" is defined in Section 7.1(b).
"GAAP" means generally accepted accounting principles in the United
States of America as set forth in pronouncements of the Financial Accounting
Standards Board and the American Institute of Certified Public Accountants, as
such principles are from time to time supplemented and amended.
"Glenayre Common Stock" means the $.02 par value Common Stock of
Glenayre.
"Glenayre Material Adverse Effect" means any change or effect that is
or would be materially adverse to the business, results of operations or
financial condition of Glenayre and its subsidiaries, taken as a whole.
"Glenayre Option Shares" means the number of shares of Glenayre Common
Stock determined by multiplying (i) the total number of shares of CNET Common
Stock that are subject to CNET Stock Options immediately before the Effective
Time by (ii) the Option Exchange Ratio.
"Governmental Authority" means any foreign, federal, state or local
government, political subdivision or governmental or regulatory authority,
agency, board, bureau, commission, instrumentality or court or
quasi-governmental authority.
"Indemnity Claim" is defined in Section 9.2.
"Intellectual Property" is defined in Section 5.11(d).
"July 31, 1996 Balance Sheet" means the consolidated balance sheet for
CNET and CNET Sub as of July 31, 1996.
"Law" or "Laws" means any and all statutes, laws, ordinances,
proclamations, regulations, published requirements, orders, decrees and rules of
any Governmental Authority, including those covering environmental, tax, energy,
safety, health, transportation, bribery, recordkeeping, zoning, discrimination,
antitrust and wage and hour matters, in each case as amended and in effect from
time to time.
"Leased Property" is defined in Section 5.11(a).
"Leases" is defined in Section 5.11(a).
"Loss" or "Losses" is defined in Section 9.3.
"Material Contracts" is defined in Section 5.11(e).
"Merger" means the merger of Merger Sub with and into CNET.
"Merger Consideration" means, with respect to any Shareholder, (1)
certificates evidencing the number of whole shares of Glenayre Common Stock that
such Shareholder has the right to receive pursuant to Section
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4.1(a), (2) the cash that such Shareholder has a right to receive pursuant to
Section 4.1(a), and (3) any cash in lieu of fractional shares of the Glenayre
Common Stock to which such Shareholder is entitled pursuant to Section 4.2.
"NASDAQ Stock Market" means the electronic securities market operated
by The NASDAQ Stock Market, Inc., a wholly owned subsidiary of the National
Association of Securities Dealers, Inc.
"Noncompetition Agreements" means Noncompetition Agreements
substantially in the form of Exhibit D-1 (David M. Zumwalt) and Exhibit D-2
(Scott R. Greenwell) hereto to be executed by David M. Zumwalt and Scott R.
Greenwell.
"Notice of Claim" is defined in Section 9.2.
"Option Exchange Ratio" means a decimal numeral determined by dividing
400,000 by the sum of (i) the total number of outstanding shares of CNET Common
Stock immediately before the Effective Time and (ii) the total number of shares
of CNET Common Stock that are subject to CNET Stock Options immediately before
the Effective Time.
"Option Holders" means, collectively, the holders of all CNET Stock
Options which will be converted into options for Glenayre Common Stock pursuant
to Section 4.5.
"Permitted Encumbrance" means (i) any Encumbrance reserved against in
the July 31, 1996 Balance Sheet, (ii) Encumbrances for Taxes not yet due and
payable or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on CNET's
books in accordance with GAAP, (iii) Encumbrances that, individually or in the
aggregate, would have only an immaterial effect on the value of any of the
assets of CNET or the use thereof as currently used, and (iv) obligations under
operating and capital leases.
"Person" means an individual, corporation, partnership, limited
liability company, trust, association or other entity, including any
Governmental Authority.
"Proportionate Percentage", with respect to each Shareholder, means a
fraction (expressed as a percentage) the numerator of which is the number of
shares of CNET Common Stock which such Shareholder owned immediately prior to
the Effective Time and the denominator of which is the total number of shares of
CNET Common Stock owned by all Shareholders immediately prior to the Effective
Time. The "Proportionate Percentage" of each Shareholder as of the date of this
Agreement is shown on Schedule 4.10.
"Receivables" is defined in Section 5.11(c).
"Reference Price" means the Closing Price per share of the Glenayre
Common Stock on the NASDAQ Stock Market on the date this Agreement is executed
(subject to appropriate adjustment in the event of a stock dividend on, or
split-up or other recapitalization of, the Glenayre Common Stock).
"Relative" is defined in Section 5.14.
"Rule 145" means Rule 145 of the rules and regulations promulgated
under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholders" means the Principal Shareholders and all the other
shareholders of CNET who receive Glenayre Common Stock under this Agreement.
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"Shareholders' Representative" is defined in Section 4A.1.
"Surviving Corporation" is defined in Section 2.1.
"TBCA" means the Texas Business Corporation Act, as amended.
"Tax" or "Taxes" means any foreign, federal, state or local income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 59A of the Code), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated or other tax of any kind whatsoever,
including any interest, penalty or addition thereto, whether disputed or not.
"Trading Day" means any day on which the Glenayre Common Stock is
traded on the NASDAQ Stock Market.
"Transactions" means the transactions contemplated by this Agreement.
"Transmittal Letter (Shareholders)" means the Transmittal Letter
(Shareholders) substantially in the form of Exhibit A-1 hereto to be executed by
each of the Shareholders who receive Glenayre Common Stock under this Agreement.
1.2 Certain Rules of Construction. The captions in this Agreement are
for convenience of reference only and in no way define, limit or describe the
scope or intent of any provisions or sections of this Agreement. All references
in this Agreement to Articles or Sections are references to the Articles or
Sections in this Agreement, unless some other reference is clearly indicated.
All accounting terms not specifically defined in this Agreement shall be
construed in accordance with GAAP as in effect on the date hereof. In this
Agreement, unless the context otherwise requires, (1) words describing the
singular number shall include the plural and vice versa, (2) words denoting any
gender shall include all genders and (3) references to "including" shall mean
"including without limitation."
ARTICLE 2
THE MERGER
2.1 The Merger. Subject to the terms and conditions set forth in this
Agreement, and in accordance with the TBCA, at the Effective Time, Merger Sub
shall be merged with and into CNET and the separate corporate existence of
Merger Sub shall thereupon cease. CNET shall be the surviving corporation in the
Merger (sometimes referred to herein as the "Surviving Corporation") and shall
be a wholly-owned subsidiary of Glenayre.
2.2 The Closing. Subject to the terms and conditions of this Agreement,
the Closing shall be held (1) at the offices of Gardere & Wynne, L.L.P., 3000
Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201, at 9:00 a.m., local
time, as promptly as practicable (and in any event within two Business Days)
following the day on which all of the conditions set forth in Article 8 shall be
fulfilled or waived in accordance herewith or (2) at such other time, date or
place as Glenayre and CNET may agree. The Closing Date shall be the same as the
date of the Effective Time.
2.3 Effective Time. If all of the conditions to the Merger set forth in
Article 8 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 10, the parties
hereto shall cause Articles of Merger incorporating this Agreement (and setting
forth such other
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information as is required by the TBCA)(the "Articles of Merger") to be properly
executed and filed, together with appropriate officers' certificates, in
accordance with Section 5.04 of the TBCA on the Closing Date. The Merger shall
become effective at the time the Articles of Merger are filed with the Secretary
of State of Texas or at such later time as CNET and Glenayre shall have agreed
upon and designated in such filing as the effective time of the Merger (the
"Effective Time").
ARTICLE 3
ARTICLES OF INCORPORATION AND BYLAWS
AND OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
3.1 Articles of Incorporation. The Articles of Incorporation of CNET in
effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation, until duly amended in accordance
with applicable Law.
3.2 Bylaws. The Bylaws of CNET in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with applicable Law.
3.3 Directors. The directors of the Surviving Corporation immediately
after the Effective Time shall be the following Persons:
Ramon D. Ardizzone (Chairman)
Gary B. Smith
Kenneth C. Thompson
Gregory Oslan
3.4 Officers. The officers of the Surviving Corporation immediately
after the Effective Time shall be the following Persons:
Chairman of the Board Ramon D. Ardizzone
President and Chief Executive Officer Kenneth C. Thompson
Vice President and General Manager Gregory Oslan
Secretary Stan Ciepcielinski
Treasurer Stan Ciepcielinski
Controller and Assistant Secretary Lance Shipp
Assistant Secretary Billy Layton
ARTICLE 4
CONVERSION OF CNET COMMON STOCK; EXCHANGE OF CERTIFICATES;
OTHER MATTERS
4.1 Conversion of CNET Common Stock.
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of Glenayre, Merger Sub, CNET or the holders of any of their
respective securities, each share of CNET Common Stock issued and outstanding
immediately prior to the Effective Time (other than any Dissenting Shares, if
applicable) shall be converted, subject to Section 4.2, into the right to
receive (1) a fraction of one share of Glenayre Common Stock equal to the
Exchange Ratio and (2) an amount in cash equal to $1,000,000 divided by the
number of shares of CNET Common Stock issued and outstanding immediately prior
to the Effective Time. The shares of Glenayre
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Common Stock issued pursuant to this Section 4.1, and the shares of Glenayre
Common Stock reserved for issuance pursuant to Section 4.5, shall in the
aggregate be no more than 370,000 shares less (1) the number of Dissenting
Shares multiplied by the Exchange Ratio and (2) the sum of all fractional shares
of Glenayre Common Stock for which cash is to be paid pursuant to Section 4.2;
provided, however, that, in any event, if between the date of this Agreement and
the Effective Time the outstanding shares of Glenayre Common Stock or CNET
Common Stock shall have been changed into a different number of shares or a
different class, by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the Exchange Ratio
shall be correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares. At
the Effective Time, all shares of CNET Common Stock outstanding immediately
prior to the Effective Time shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
certificate previously evidencing any such shares shall thereafter represent the
right to receive, upon the surrender of such certificate in accordance with
Section 4.3 (or in case of a lost, stolen or destroyed CNET stock certificate,
compliance with the provisions of Section 4.3(b)), certificates evidencing such
number of whole shares of Glenayre Common Stock into which such CNET Common
Stock was converted in accordance with the Exchange Ratio. The holders of such
certificates evidencing such shares of CNET Common Stock outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
shares except as otherwise provided herein or by Law. No fractional share of
Glenayre Common Stock shall be issued, and, in lieu thereof, a cash payment
shall be made pursuant to Section 4.2.
(b) At the Effective Time, by virtue of the Merger and without any
action on the part of Glenayre, Merger Sub, CNET or the holders of their
respective securities, each share of capital stock of Merger Sub issued and
outstanding prior to the Effective Time shall be converted into the right to
receive one share of Common Stock of CNET as the Surviving Corporation. From and
after the Effective Time, Glenayre, as holder of all of the outstanding shares
of capital stock of Merger Sub, shall (1) have the right to receive Common Stock
of CNET as provided in this Section 4.1(b) upon its surrender of the certificate
or certificates representing all shares of the capital stock of Merger Sub and
(2) thereupon cease to have any rights with respect to such shares of the
capital stock of Merger Sub and its rights shall be solely in respect of the
Common Stock of CNET into which such shares of capital stock of Merger Sub have
been so converted. Until surrender, each outstanding certificate which prior to
the Effective Time represented capital stock of Merger Sub shall be deemed for
all corporate purposes to evidence ownership of the number of whole shares of
Common Stock of CNET into which the shares of capital stock of Merger Sub have
been so converted.
4.2 Fractional Shares. No fraction of a share of Glenayre Common Stock
shall be issued in the Merger. In lieu of any such fractional shares, Glenayre
shall pay each Share- holder, upon surrender of a certificate for exchange
pursuant to Section 4.3, an amount in cash (without interest), rounded to the
nearest cent, determined by multiplying the fractional interest to which such
holder would otherwise be entitled (after taking into account all shares of CNET
Common Stock then held of record by such holder) by the Closing Price of the
Glenayre Common Stock on the NASDAQ Stock Market on the Trading Day immediately
before the Effective Time.
4.3 Payment of Merger Consideration.
(a) Promptly after the Effective Time (and, in any event, within five
Business Days after delivery of such Shareholder's CNET stock certificates and
executed Transmittal Letter (Shareholders) to Glenayre), Glenayre shall mail by
first class mail, postage prepaid, or otherwise deliver to each Shareholder,
against receipt by Glenayre of certificates for all of such Shareholder's shares
of CNET Common Stock and an executed Transmittal Letter (Shareholders), the
Merger Consideration (less the Escrowed Shares as provided in Section 4.9) that
such Shareholder has a right to receive pursuant to Section 4.1(a). After the
Effective Time, except for a Shareholder receiving payment of the Merger
Consideration pursuant to the preceding sentence, each holder of record of any
certificate which immediately prior to the Effective Time evidenced outstanding
shares of CNET Common Stock (other than Dissenting Shares, if applicable), upon
surrender thereof (or compliance with Section 4.3(b), if applicable) and upon
presentation of a Transmittal Letter (Shareholders) executed by such Shareholder
to Glenayre, shall be entitled to receive in exchange therefor (1) the Merger
Consideration that such holder has the right to
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receive pursuant to Section 4.1(a) and (2) any dividends or other distributions
to which such holder is entitled pursuant to Section 4.4, and the CNET Common
Stock certificate so surrendered shall immediately be canceled. In the event of
a transfer of ownership of shares of CNET Common Stock that is not registered in
the transfer records of CNET, the Merger Consideration, and any dividends or
other distributions to which such holder is entitled pursuant to Section 4.4,
may be issued and paid in accordance with this Article 4 to a transferee if the
certificate evidencing such shares of CNET Common Stock (or compliance with
Section 4.3(b), if applicable) and a Transmittal Letter (Shareholders) executed
by such transferee, are presented to Glenayre, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 4.3(a) (or compliance with Section 4.3(b), if
applicable), each certificate representing shares of CNET Common Stock shall be
deemed at any time after the Effective Time to evidence only the right to
receive, upon such surrender (or compliance with Section 4.3(b), if applicable)
and upon presentation of a Transmittal Letter (Shareholders) executed by such
holder, the Merger Consideration and any dividends or other distributions to
which such holder is entitled pursuant to Section 4.4.
(b) In the event that a stock certificate representing shares of CNET
Common Stock is alleged by the holder thereof to have been lost, stolen or
destroyed, Glenayre shall nevertheless deliver to such holder the Merger
Consideration, and any dividends or other distributions to which such holder is
entitled pursuant to Section 4.4, provided that Glenayre may require such holder
to give Glenayre a bond (or other adequate security) sufficient to indemnify it
and CNET against any claim that may be made against it or CNET (including any
expense or liability) on account of the alleged loss, theft or destruction of
the CNET stock certificate or the issuance of the Glenayre stock certificate in
exchange therefor.
4.4 Distributions with Respect to Unexchanged Shares of CNET Common
Stock. No dividends or other distributions declared or made after the Effective
Time with respect to Glenayre Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered certificate
representing shares of CNET Common Stock until the holder of such unsurrendered
certificate shall surrender the certificate (or comply with Section 4.3(b), if
applicable) and until presentation of a Transmittal Letter (Shareholders)
executed by such holder.
4.5 CNET Stock Options.
(a) At the Effective Time, CNET's obligations with respect to each then
outstanding CNET Stock Option, as amended in the manner described in this
Section 4.5, shall be assumed by Glenayre. The CNET Stock Options so assumed by
Glenayre shall not expire and shall continue to have, and be subject to, the
same terms and conditions as set forth in the CNET Stock Option Plan and/or any
agreements pursuant to which such CNET Stock Options were granted as in effect
immediately prior to the Effective Time, except that (1) each CNET Stock Option
shall be exercisable for that number of whole shares of Glenayre Common Stock
equal to the number of shares of CNET Common Stock covered by such CNET Stock
Option immediately prior to the Effective Time, multiplied by the Option
Exchange Ratio and rounded to the nearest whole number of shares of Glenayre
Common Stock, and (2) the price at which each such CNET Stock Option is
exercisable shall be divided by the Option Exchange Ratio (rounded up to the
nearest cent).
(b) Glenayre shall reserve for issuance the aggregate number of shares
of Glenayre Common Stock that will become issuable upon the exercise of all CNET
Stock Options outstanding at the Effective Time.
(c) For each outstanding CNET Stock Option, Schedule 4.5 sets forth (1)
the name and address of the Option Holder owning such CNET Stock Option and (2)
the number of shares of CNET Common Stock for which such option is exercisable
and the exercise price therefor.
4.6 Withholding Rights. Glenayre, CNET or the Exchange Agent shall be
entitled to deduct and withhold from the Merger Consideration otherwise payable
pursuant to this Agreement to any holder of CNET Common Stock or CNET Stock
Options such amounts as Glenayre, CNET or the Exchange Agent is required to
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deduct and withhold with respect to the making of such payment under the Code or
any provision of any other applicable Tax Law. Glenayre shall notify CNET at
least two Business Days prior to the Closing Date of any withholding Glenayre is
required to make, or to cause the Exchange Agent or CNET to make, in accordance
with this Section 4.6. To the extent that amounts are so withheld by Glenayre,
CNET or the Exchange Agent, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to such holder in respect of
which such deduction and withholding was made by Glenayre, CNET or the Exchange
Agent.
4.7 Dissenting Shares.
(a) If provided for under the TBCA, notwithstanding any other provision
of this Agreement to the contrary, shares of CNET Common Stock that are
outstanding immediately prior to the Effective Time and which are held by
Shareholders who shall not have voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing payment for
such shares in accordance with Sections 5.11 et seq. of the TBCA (a "Dissenter
Payment") and who shall not have withdrawn such demand or have been deemed or
otherwise have forfeited the right to payment under the TBCA (such shares of
CNET Common Stock being referred to as "Dissenting Shares") shall not be
converted into or represent the right to receive the Merger Consideration.
Instead, such Shareholders shall be entitled to receive their Dissenter Payments
in accordance with the provisions of the TBCA, except that all Dissenting Shares
held by Shareholders who shall have failed to perfect or who effectively shall
have withdrawn or lost their rights to payment for such shares of CNET Common
Stock under the TBCA shall thereupon be deemed to have been converted into, as
of the Effective Time, the right to receive, without any interest thereon, the
Merger Consideration, upon surrender in the manner provided in Section 4.3 of
the certificate or certificates that formerly evidenced such shares of CNET
Common Stock (or compliance with Section 4.3(b) if applicable) and the
presentation of an executed Transmittal Letter (Shareholders). All Dissenter
Payments shall be paid by CNET.
(b) CNET shall give Glenayre (1) prompt notice of any demands for
payment received by CNET pursuant to Sections 5.11 et seq. of the TBCA,
withdrawals of such demands, and any other instruments served pursuant to the
TBCA and received by CNET and (2) the opportunity to direct all negotiations and
proceedings with respect to demands for payment under the TBCA. CNET shall not,
except with the prior written consent of Glenayre, make any payment with respect
to any demands for payment of, or offer to settle, or settle, any such demands.
4.8 Transaction Expenses. Glenayre shall pay all expenses incurred by
Glenayre and Merger Sub (including all fees and expenses of their attorneys,
accountants, consultants and other advisers) in connection with the preparation,
negotiation and entering into of this Agreement and all other related
agreements, documents and certificates incident thereto and the consummation by
Glenayre and Merger Sub of the Transactions. CNET shall pay all expenses
incurred by CNET (including all fees and expenses of its attorneys, accountants,
consultants and other advisers) in connection with the preparation, negotiation
and entering into of this Agreement and all other related agreements, documents
and certificates incident thereto or otherwise incurred in connection with the
Transactions in the event the Merger is not consummated. In the event the Merger
is consummated, CNET shall pay the first $300,000 of CNET Transaction Expenses
and 50% of any CNET Transaction Expenses above $300,000, with the Shareholders
collectively to pay the remaining 50% of any CNET Transaction Expenses above
$300,000. As used herein, "CNET Transaction Expenses" means the total amount of
expenses incurred by CNET or CNET Sub in connection with the Merger and the
Transactions for the following: fees and expenses of the attorneys, accountants,
consultants or other advisers of CNET or CNET Sub incurred directly in
connection with (i) negotiating, drafting and preparing this Agreement and any
other agreements, documents or certificates contemplated hereby and (ii)
conducting due diligence hereunder. CNET shall cause its attorneys, accountants
and other service providers to provide periodic statements of CNET Transaction
Expenses (no less frequently than monthly and more frequently upon Glenayre's
request).
4.9 Escrow. On the Closing Date, Glenayre, the Shareholders'
Representative and the Escrow Agent shall enter into the Escrow Agreement, and,
promptly after the Effective Time, Glenayre shall deliver to the Escrow
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Agent (1) a certificate issued in the name of the Shareholders' Representative
as agent for the Shareholders, representing a number of shares of Glenayre
Common Stock equal to 40,000 multiplied by a fraction the numerator of which is
the total number of outstanding shares of CNET Common Stock immediately before
the Effective Time and the denominator of which is the sum of (i) the total
number of shares of CNET Common Stock immediately before the Effective Time and
(ii) the total number of shares of CNET Common Stock which are subject to CNET
Stock Options immediately before the Effective Time, such shares to be allocated
for the benefit of each Shareholder in accordance with such Shareholder's
Proportionate Percentage (such shares, together with all shares issued in
payment or distribution of any stock dividend on or split-up or other
recapitalization of, or in respect of, any such escrowed shares, and any
securities or other property issued or distributed with respect to such shares
in connection with any merger, consolidation or liquidation of Glenayre being
herein sometimes referred to as the "Escrowed Shares"). Each such certificate
shall be registered in the name of the Shareholder's Representative and shall be
accompanied by stock powers duly signed in blank by the Shareholders'
Representative. Each of the Shareholders shall be entitled to vote his, her or
its Proportionate Percentage of the Escrowed Shares and shall be entitled to
direct in writing that his, her or its Proportionate Percentage of the Escrowed
Shares be sold, provided that the net proceeds from any such sales shall be
delivered to the Escrow Agent and held as part of the Escrowed Funds. Any
dividends or other distributions on the Escrowed Shares in the form of capital
stock of Glenayre shall be delivered to the Escrow Agent and held as part of the
Escrowed Shares. Any dividends or other distributions on the Escrowed Shares in
the form of cash shall be paid directly to the Shareholders in accordance with
their respective Proportionate Percentages. "Escrowed Funds" means any cash or
property, other than capital stock of Glenayre, held in escrow by the Escrow
Agent under this Agreement and the Escrow Agreement. The Escrowed Shares and the
Escrowed Funds are collectively referred to herein as the "Escrow". The Escrow
shall be applied to indemnify, defend and hold harmless Glenayre against Losses
in accordance with the terms and conditions of this Agreement. The Escrow Agent
shall hold, invest and distribute the Escrow according to the provisions of this
Article 4 and the Escrow Agreement. In the event that there is any inconsistency
between the provisions of this Article 4 and the Escrow Agreement, the Escrow
Agreement shall control.
(a) Term of Escrow. Except as provided in Section 4.9(d), the Escrow
shall not be released by the Escrow Agent until the Expiration Date.
(b) Formula for Number of Escrowed Shares to be Returned to Glenayre.
To the extent that Escrowed Shares are applied to any portion of a Loss pursuant
to Section 4.10(e), the number of Escrowed Shares to be so applied shall be
computed by dividing the dollar amount of such portion of a Loss by the
Reference Price rounded up to the nearest whole share, subject to appropriate
adjustment in the event of a stock dividend on, or split-up or other
recapitalization of, or in respect of, the Escrowed Shares or in the event that
other securities or property have been deposited in escrow in connection with
any merger, consolidation or liquidation of Glenayre. Such Escrowed Shares to be
so returned to Glenayre shall be allocated among the Shareholders in accordance
with Section 4.10(e).
(c) Investment of Escrowed Funds. The Escrowed Funds shall, as nearly
as may be practicable, be continuously invested and reinvested by the Escrow
Agent as provided in the Escrow Agreement.
(d) Distribution of the Escrow.
(1) The Escrow Agent shall apply the Escrow to any Loss, and
distribute the Escrow to Glenayre, in accordance with Section 4.10 and
the Escrow Agreement.
(2) Not later than five Business Days after the Expiration
Date, the Escrow Agent shall deliver to the Shareholders'
Representative (for delivery to the Shareholders in accordance with
their then respective interests therein) the Escrow then held by the
Escrow Agent, less the Escrow for which a Notice of Claim was received
by the Escrow Agent prior to the Expiration Date; and such Escrow so
distributed to the Shareholders shall be allocated among the
Shareholders in accordance with their respective interests in the
Escrow. Any retained Escrow shall, upon final determination or
settlement of the claim that is the subject of the Notice of Claim, be
applied thereto in accordance with such final determination or
settlement
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and Section 4.10 and any balance delivered to the Shareholders'
Representative (for delivery to the Shareholders in accordance with
their then respective interests in the retained Escrow).
4.10 Application of Escrow to a Loss.
(a) At any time prior to the Expiration Date, if Glenayre intends to
make any Indemnity Claim, Glenayre shall give the Escrow Agent and each
Principal Shareholder a Notice of Claim pursuant to Section 9.2, together with
notice that Glenayre intends to apply all or a part of the Escrow (in the manner
provided in Section 4.10(e)) to the payment of the Loss specified in such Notice
of Claim. In the event that a Loss has not been liquidated or determined,
Glenayre may, at any time prior to the Expiration Date, give the Escrow Agent
and each Principal Shareholder a Notice of Claim in which Glenayre describes the
specific nature of the Indemnity Claim and makes a good faith estimate of the
Loss.
(b) If the Shareholders' Representative does not give written notice to
Glenayre and the Escrow Agent, within 15 Business Days after the giving of such
Notice of Claim, that he protests the proposed application of the Escrow to the
Loss as specified in such Notice of Claim, then the Escrow shall be applied to
such Loss as set forth in such Notice of Claim.
(c) If the Shareholders' Representative does give written notice to
Glenayre and the Escrow Agent, within 15 Business Days after the giving of such
Notice of Claim, that he protests the proposed application of the Escrow to the
Loss as specified in such Notice of Claim, then Glenayre and the Shareholders'
Representative shall attempt in good faith to resolve the disagreement with
respect to such proposed application. In the event that Glenayre and the
Shareholders' Representative cannot resolve such disagreement within 15 Business
Days after the Shareholders' Representative gives notice to Glenayre that he
protests such application, then the proposed application shall be referred by
Glenayre to, and settled by, binding arbitration in accordance with the then
current Rules of Commercial Arbitration of the American Arbitration Association.
The arbitration panel or arbitrator (as applicable) shall be selected as
provided in Section 4.10(d). The arbitration panel or arbitrator (as applicable)
shall determine the amount, if any, of such proposed Loss and the application of
the Escrow thereto. The venue of the arbitration proceedings shall be in
Mecklenburg County, North Carolina. In reaching a decision, the arbitration
panel or arbitrator (as applicable) shall apply the principles of law that a
North Carolina court, in applying North Carolina law, would use in the event of
litigation on the same issues. The decision rendered by the arbitration panel or
arbitrator (as applicable) shall be final and binding on Glenayre, the
Shareholders, the Shareholders' Representative and the Escrow Agent. Judgment on
the award rendered by the arbitration panel or arbitrator (as applicable) may be
entered in any court having jurisdiction thereof. Each of Glenayre and the
Shareholders shall bear its or their own attorneys' fees, fees for expert
witnesses and all other costs incurred by it or them in connection with the
Indemnity Claim which is the subject of the arbitration. Glenayre and the
Shareholders shall share equally any attorneys' fees, fees for expert witnesses
and all other costs incurred by the Escrow Agent in connection with the
arbitration of such Indemnity Claim and any fees charged by the arbitrators or
the American Arbitration Association.
(d) In the event that the Shareholders' Representative protests the
proposed application of the Escrow to a Loss as provided in Section 4.10(c) and
Glenayre and the Shareholders' Representative cannot resolve such disagreement
within the 15-Business Day period specified in Section 4.10(c), then promptly
thereafter Glenayre shall name a professionally qualified individual to serve as
an arbitrator on the arbitration panel to determine the application of the
Escrow to such Loss and shall give the Shareholders' Representative notice
thereof; within 15 Business Days after such notice, the Shareholders'
Representative shall name a second professionally qualified individual to serve
as an arbitrator on such arbitration panel; and the two individuals so named
shall agree upon and name a third individual to serve as an arbitrator on such
arbitration panel. In the event that the Shareholders' Representative does not
name a second individual to serve on the arbitration panel within 15 Business
Days after notice by Glenayre to the Shareholders' Representative of the name of
its arbitrator, then the arbitrator named by Glenayre shall serve as the sole
arbitrator. In the event that the two individuals named by Glenayre and the
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Shareholders' Representative, respectively, cannot agree on a third member
within 15 Business Days after such second arbitrator is named, then the
selection of a third individual to serve on the arbitration panel shall be made
by the American Arbitration Association or, if the American Arbitration
Association fails to choose an arbitrator within 15 Business Days after request
by any Glenayre or the Shareholders' Representative, by the Chief Resident
Superior Court Judge of Mecklenburg County, North Carolina.
(e) Subject to Section 9.4(d), each Shareholder shall be liable only
for his Proportionate Percentage of any Loss indemnifiable under Section 9.1.
The liability of each Shareholder as so determined may be satisfied, at the
written direction of the Shareholders' Representative to Glenayre and the Escrow
Agent within 15 Business Days after such Notice of Claim is given to the
Shareholders' Representative (or, if such Indemnity Claim is contested pursuant
to Section 4.10(c), within 15 Business Days after final resolution of such
Indemnity Claim as provided in Section 4.10(c)), by the Escrow Agent's payment
of Escrowed Funds to Glenayre, the Escrow Agent's delivery of the Escrowed
Shares to Glenayre, or any combination of the foregoing. In the absence of any
such direction by the Shareholders' Representative within the 15-Business Day
period described above, the Proportionate Percentage of a Loss by such
Shareholder shall, subject to the provisions of Section 4.10(b) and (c) with
respect to the application of the Escrow to the Loss, be satisfied in accordance
with the directions specified by Glenayre in the Notice of Claim with respect to
such Loss. For purposes of applying the Escrow to a Loss to satisfy the
indemnity obligations of the Shareholders, (1) the value of any Escrowed Funds
so applied shall be the dollar amount (or fair market value, as applicable) of
such Escrowed Funds as of the date of such application and (2) the value of any
Escrowed Shares so applied shall be the number of such Escrowed Shares,
multiplied by the Reference Price.
(f) The approval of this Agreement by the Shareholders as provided in
the TBCA shall constitute (1) the approval of this Agreement, including the
indemnification obligations of the Shareholders under Article 9, (2) the
approval of the Escrow Agreement and all of the arrangements relative thereto,
including the placement in escrow of the portion of the Merger Consideration
described in Section 4.9 and (3) the appointment by all Shareholders of the
Shareholders' Representative pursuant to the terms of Article 4A, and all
Shareholders shall thereby be bound by the terms of this Agreement and the
Escrow Agreement.
ARTICLE 4A
SHAREHOLDERS' REPRESENTATIVE
4A.1 Appointment of Shareholders' Representative. The approval of this
Agreement and the Plan of Merger by the Shareholders as provided in the TBCA
shall constitute (a) the approval and appointment of David M. Zumwalt (or his
successor) as agent for the Shareholders pursuant to the terms hereof (the
"Shareholders' Representative") and (b) the approval and authorization for all
of the arrangements relating thereto, including: (i) Glenayre's issuance of the
Escrowed Shares in the name of the Shareholders' Representative, as agent for
the Shareholders; (ii) the execution, delivery and performance of the Escrow
Agreement by the Shareholders' Representative; (iii) the Shareholders'
Representative's execution of blank stock powers with respect to the Escrowed
Shares in accordance with the terms of this Agreement or the Escrow Agreement;
(iv) the distribution of the Escrow to the Shareholders upon the Shareholders'
Representative's receipt of the Escrow from the Escrow Agent; (v) the
Shareholders' Representative's performance of his obligations under this
Agreement and the Escrow Agreement, or in connection therewith; and (vi) the
rights of the Shareholders' Representative set forth herein.
4A.2 Liability and Authority of Shareholders' Representative;
Successors and Assigns.
(a) The Shareholders' Representative shall not incur any liability with
respect to any action taken or suffered by him in reliance upon any note,
direction, instruction, consent, statement or other document believed by him to
be genuinely and duly authorized, nor for other action or inaction as the
Shareholders' Representative, excepting only his own willful misconduct or gross
negligence. The Shareholders' Representative may, in all
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questions arising hereunder or under the Escrow Agreement, rely on the advice of
counsel and for anything done, omitted or suffered in good faith by the
Shareholders' Representative based on such advice, the Shareholders'
Representative shall not be liable to anyone.
(b) In the event of the death or permanent disability of the
Shareholders' Representative, or his resignation as the Shareholders'
Representative, a successor Shareholders' Representative shall be elected by a
majority vote of the Shareholders, with each Shareholder (or his successor or
assign) to be given a vote equal to the number of votes represented by the
shares of CNET Common Stock held by such Shareholder immediately prior to the
Effective Time pursuant to a procedure to be mutually agreed upon among the
Shareholders. The Shareholders shall cause to be delivered to Glenayre prompt
written notice of such election of a successor Shareholders' Representative.
Pending the election of a successor Shareholders' Representative, the
Shareholder holding the largest number of shares of CNET Common Stock as of the
Effective Time (excluding the former Shareholders' Representative) shall act as
the interim Shareholders' Representative. Each interim and successor
Shareholders' Representative shall have all of the power, authority, rights and
privileges conferred by this Agreement upon the original Shareholders'
Representative, and the term "Shareholders' Representative" as used herein shall
be deemed to include any interim or successor Shareholders' Representative.
(c) The Shareholders' Representative shall have full power and
authority to represent the Shareholders, and their successors and assigns, with
respect to all matters arising under this Agreement and the Escrow Agreement,
and all action taken by the Shareholders' Representative hereunder shall be
binding upon the Shareholders, and their successors and assigns, as if expressly
confirmed and ratified in writing by each of them. The appointment of the
Shareholders' Representative under this Agreement shall survive the death,
incapacity or any assignment of rights or assets of any Shareholder. Without
limiting the generality of the foregoing, the Shareholders' Representative shall
have full power and authority on behalf of the Shareholders to: (i) interpret
all of the terms and provisions of this Agreement and the Escrow Agreement; (ii)
to the extent of the Escrow, compromise or settle any claims asserted under this
Agreement or in connection with the Transactions; (iii) authorize payments with
respect thereto from the Escrow, on behalf of the Shareholders; (iv) execute,
deliver and perform the Escrow Agreement; (v) execute blank stock powers with
respect to the Escrowed Shares in accordance with the terms of this Agreement
and the Escrow Agreement; (vi) distribute the Escrow to the Shareholders upon
the Shareholders' Representative's receipt thereof from the Escrow Agent.
4A.3 Shareholders' Representative Expenses. Each Shareholder shall be
liable for his, her or its Proportionate Percentage of any expenses (including
reasonable attorneys' fees) paid or incurred by the Shareholders' Representative
in connection with the performance of his obligations as Shareholders'
Representative. The Shareholders' Representative shall be entitled, but not
limited, to reimbursement of any such expenses from the Escrow prior to any
distribution thereof to the Shareholders.
4A.4 Right of Interpleader. Should the Shareholders' Representative be
in doubt as to what action to take under this Agreement or the Escrow Agreement,
the Shareholders' Representative shall have the right, but not the obligation,
either to (a) withhold any action, payment or distribution until his doubt is
resolved or (b) institute a petition for interpleader in any court of competent
jurisdiction to determine his rights and obligations.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CNET
AND THE SHAREHOLDERS
CNET and the Shareholders hereby jointly and severally make the
representations and warranties contained in this Article 5. As used herein,
where a statement is made "to the knowledge" of CNET or a statement is made that
CNET "knows" a particular fact or circumstance or a statement is made that a
particular fact or circumstance is "known" to CNET, such knowledge shall mean
the actual knowledge of each of the Persons listed on Schedule
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5 and such Person's constructive knowledge based solely upon (1) his review of
the pertinent business records of CNET and CNET Sub in the files of such Person
and (2) his inquiry of each employee of CNET or CNET Sub, and each attorney,
accountant or advisor retained by CNET or CNET Sub, who is reasonably believed
to have relevant information about the matter as to which such knowledge or lack
of knowledge is asserted (the scope of such review and inquiry being that of a
reasonable person under the circumstances).
5.1 Organization and Qualification. Except as set forth in Schedule
5.1. CNET is a corporation duly organized, validly existing and in good standing
under the laws of Texas and has the requisite corporate power and authority and
all necessary governmental approvals to own, lease and operate its properties
and to carry on its business as it is now being conducted. Except as set forth
in Schedule 5.1, CNET Sub is a Gesellschaft mit beschrankter Haftung duly
organized and validly existing under the laws of Germany but does not conduct
any business. Except as set forth in Schedule 5.1, CNET and CNET Sub are duly
qualified or licensed as foreign corporations to do business, and are in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by them or the nature of their business makes such
qualification or licensing necessary under applicable Laws, except for such
failures to be so qualified or licensed and in good standing that would not,
individually or in the aggregate, have a CNET Material Adverse Effect.
5.2 Articles of Incorporation; Bylaws; Minute Books. CNET has provided
to Glenayre a complete and correct copy of the Articles of Incorporation and the
Bylaws of CNET and the Satzung (Articles) of CNET Sub. Such Articles of
Incorporation and Bylaws of CNET and the Satzung (Articles) of CNET Sub are in
full force and effect. Except as set forth in Schedule 5.2, CNET is not in
violation of any provisions of its Articles of Incorporation or Bylaws and CNET
Sub is not in violation of its Satzung (Articles). The minute books of CNET (a
correct and complete copy of which has been furnished to Glenayre) contain all
records of meetings, or written consents in lieu of meetings, of CNET's
directors and shareholders. A true and correct current extract from the
Commercial Register for CNET Sub has been furnished to Glenayre. Neither the
directors nor the shareholders of CNET have taken any material corporate action
which is not reflected in the minute books of CNET. Neither the directors nor
the shareholders of CNET Sub have taken any material corporate action which is
not reflected in the current extract from the Commercial Register for CNET Sub.
5.3 Capitalization.
(a) The authorized capital stock of CNET consists of 150,000,000 shares
of CNET Common Stock. As of the date hereof, (1) 7,856,912 shares of CNET Common
Stock are issued and outstanding, all of which shares were validly issued, are
fully paid and nonassessable and were not issued in violation of any preemptive
rights, and (2) 1,368,853 shares of CNET Common Stock are reserved for future
issuance pursuant to outstanding CNET Stock Options (which options were not
granted in violation of any preemptive rights). CNET has provided to Glenayre a
certificate of the Chief Executive Officer of CNET which accurately and
completely shows, as of the date of this Agreement, the names and addresses and
Social Security or Federal I.D. numbers of all of the record owners of the
outstanding shares of CNET Common Stock and the certificate numbers for such
shares. At the Effective Time, each such share of CNET Common Stock will be
owned, legally and beneficially, by such record owner free and clear of all
Encumbrances whatsoever, except (1) as set forth on Schedule 5.3 or (2)
restrictions imposed by applicable securities Laws.
(b) The authorized capital stock or share capital of CNET Sub consists
of DM 50,000. As of the date hereof, capital stock or share capital of DM 50,000
is issued and outstanding, all of which are held by CNET and were validly
issued, are fully paid and nonassessable and were not issued in violation of any
preemptive rights. Except as reflected on Schedule 5.3, each such share owned by
CNET is free and clear of all Encumbrances whatsoever, except restrictions
imposed by applicable securities Laws.
(c) Except as set forth in Schedule 5.3 or except as set forth in this
Section 5.3(c), there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock or share capital of CNET or CNET Sub to issue or sell any shares
of capital stock or share
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capital of, or other equity interests in, CNET or CNET Sub. All shares of CNET
Common Stock subject to issuance under the CNET Stock Options, upon issuance on
the terms and conditions specified in the CNET Stock Option Plan and/or
agreements pursuant to which they are issuable, will be duly authorized, validly
issued, fully paid and nonassessable. Except as set forth in Schedule 5.3, there
are no outstanding contractual obligations of CNET or CNET Sub to repurchase,
redeem or otherwise acquire any shares of CNET Common Stock or any capital stock
of CNET Sub, or make any debt or equity investment (in the form of a loan,
capital contribution or otherwise) in, CNET Sub or any other Person. All offers
and sales of CNET Common Stock and the capital stock or share capital of CNET
Sub were at all relevant times duly registered under or exempt from the
registration requirements of the Securities Act, the applicable Blue Sky Laws
and equivalent applicable foreign securities Laws. Schedule 5.3 also describes
all issuances of the capital stock or share capital of CNET and CNET Sub, any
option or warrant to issue such stock or share capital and any repurchase of
such stock or share capital, in each case within the past two years.
5.4 Authority Relative to this Agreement.
(a) CNET has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Transactions. Except as disclosed in Schedule 5.3 or 5.5, each of the
Principal Shareholders has all the necessary power and authority to execute and
deliver this Agreement, to perform his obligations hereunder and to consummate
the Transactions. The execution and delivery of this Agreement by CNET and the
consummation by it of the Transactions have been duly and validly authorized by
all necessary corporate action and no other corporate proceedings on the part of
CNET are necessary to authorize this Agreement or to consummate the Transactions
(other than, with respect to the Merger, any approval and adoption of this
Agreement by the holders of CNET Common Stock and the filing and recordation of
appropriate merger documents as required by the TBCA). This Agreement has been
duly and validly executed and delivered by CNET and the Principal Shareholders
and, assuming the due authorization, execution and delivery by Glenayre and
Merger Sub, constitutes a legal, valid and binding obligation of each of CNET
and the Principal Shareholders enforceable against each of them in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency and other similar laws affecting creditors' rights
generally and by such principles of equity as may affect the availability of
equitable remedies.
(b) Except as disclosed in Schedule 5.3 or 5.5, each Equity Holder has
all necessary power and authority to execute and deliver his, her or its
Transmittal Letter (Shareholders) or Acknowledgment (Option Holders), as
applicable, at the Effective Time and to perform his, her or its obligations
thereunder and hereunder. The execution and delivery of such Transmittal Letters
(Shareholders) or Acknowledgments (Option Holders) at the Effective Time will
have been duly and validly authorized by all necessary action on the part of the
Equity Holders and no other proceedings on the part of any Equity Holder will
have been necessary to authorize such Transmittal Letters (Shareholders) or
Acknowledgments (Option Holders). At the Closing, the Transmittal Letter
(Shareholders) or Acknowledgment (Option Holders), as applicable, executed by
each Equity Holder will have been duly and validly executed and delivered by
him, her or it and, assuming the due authorization, execution and delivery by
Glenayre and Merger Sub, will constitute a legal, valid and binding obligation
of such Equity Holder enforceable against him, her or it in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors'
rights generally or by such principles of equity as may affect the availability
of equitable remedies.
5.5 No Conflict; Required Filings and Consents.
(a) Except as set forth in Schedule 5.5 or as set forth in the
exceptions in Section 5.5(b) below, the execution and delivery of this Agreement
by CNET do not, and the performance of the Transactions by CNET will not, (1)
violate the Articles of Incorporation or Bylaws (or comparable organizational
documents) of CNET or CNET Sub, (2) except for any violations of such Law which,
individually or in the aggregate, would have only an immaterial effect on the
business, results of operations or financial condition of CNET and CNET Sub,
taken as a whole, violate any Law applicable to CNET or CNET Sub or by which any
of their property or assets is bound
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or affected, or (3) result in any breach of or constitute a default (or any
event which with notice or lapse of time or both would become a default) under,
or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of an Encumbrance (other than a
Permitted Encumbrance) on any property or asset of CNET or CNET Sub pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation, to which CNET or CNET Sub
is a party or by which either of them or any of their property or assets is
bound or affected, except for breaches or defaults of contracts, agreements,
leases, licenses, permits, franchises and other instruments or obligations
(other than any note, bond, mortgage or indenture) which, individually or in the
aggregate, would have only an immaterial effect on the business, results of
operations or financial condition of CNET and CNET Sub, taken as a whole.
(b) The execution and delivery of this Agreement by CNET and the
Principal Shareholders do not, and the execution and delivery of the Transmittal
Letters (Shareholders) or Acknowledgments (Option Holders) (as applicable) by
each Equity Holder and the performance of the Transactions by CNET and the
Shareholders will not, require any consent or authorization of, or filing with
or notification to, any Governmental Authority except for (1) applicable
requirements, if any, of the Securities Act or Blue Sky Laws and (2) filing and
recordation of appropriate merger documents as required by the TBCA.
5.6 Other Interests. Other than the ownership interest in CNET Sub by
CNET, neither CNET nor CNET Sub owns directly or indirectly any interest
(whether absolute or contingent) or investment in any Person.
5.7 Financial Statements. CNET has delivered to Glenayre its audited
consolidated financial statements for the fiscal years ended January 31, 1993,
January 31, 1994, January 31, 1995 and January 31, 1996 and unaudited interim
consolidated financial statements for each month subsequent to January 31, 1996
through July 31, 1996 (collectively, the "Financial Statements"). Each of the
balance sheets provided to Glenayre (including the related notes and schedules)
fairly presents the consolidated financial position of CNET and CNET Sub as of
its date and each of the statements of income, retained earnings and cash flows
provided to Glenayre (including any related notes and schedules) fairly presents
the consolidated results of operations, retained earnings and cash flows,
respectively, of CNET and CNET Sub for the periods set forth therein (subject,
in the case of unaudited statements, to normal year-end audit adjustments which
will be consistent with prior years' adjustments and which would not be material
in amount or effect, and except as disclosed in Schedule 5.7) in each case in
accordance with GAAP consistently applied during the periods involved, except as
may be noted therein and except for the absence of notes, a consolidated
statement of cash flow and a consolidated statement of shareholders' equity in
interim statements. The Financial Statements have been prepared from the books
and records of CNET and CNET Sub which accurately and fairly reflect in all
material respects the transactions and dispositions of the assets of CNET and
CNET Sub. Except as set forth in Schedule 5.7, as of July 31, 1996, neither CNET
nor CNET Sub had any material liabilities, contingent or otherwise, whether due
or to become due, known or unknown, as of July 31, 1996 other than as indicated
on the July 31, 1996 Balance Sheet, or in the notes thereto. CNET and CNET Sub
have adequately accrued all employee benefit costs in accordance with GAAP on
the July 31, 1996 Balance Sheet. The funding of such employee benefit costs have
been provided for in the ordinary course of business consistent with past
practices.
5.8 Subsequent Events. Except as set forth in Schedule 5.8 or as
otherwise contemplated by this Agreement, since January 31, 1996, there has not
been:
(a) any CNET Material Adverse Effect;
(b) except for the issuance of shares of CNET Common Stock pursuant to
the exercise of a CNET Stock Option, any disposition or issuance by CNET or CNET
Sub of any of its capital stock or share capital, or of any option or right or
privilege to acquire any of its capital stock or share capital, or any
acquisition or retirement by CNET of any of its capital stock or share capital,
or any dividend or other distribution on or with respect to its capital stock;
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(c) any sale, mortgage, pledge, grant, dividend or other disposition,
transfer or Encumbrance, other than Permitted Encumbrances, of any material
asset or material interest owned or possessed by CNET or CNET Sub, other than
those occurring in the ordinary course of business consistent with past
practices and prior periods;
(d) any expenditure or commitment by CNET or CNET Sub for the
acquisition of assets of any kind, other than expenditures or commitments in the
ordinary course of business consistent with past practices and prior periods and
immaterial expenditures or commitments;
(e) any damage, destruction or loss of such character as to have a CNET
Material Adverse Effect (whether or not such damage, destruction or loss was
insured against);
(f) except for the general increases in compensation to employees of
CNET effective in February 1996, any increase in the compensation payable or to
become payable by CNET or CNET Sub to any officer, shareholder or employee of
CNET or CNET Sub, or any agreement therefor;
(g) any change made or authorized in the Articles of Incorporation or
Bylaws (or comparable organizational documents) of CNET or CNET Sub;
(h) any loans or advances by or to CNET or CNET Sub, other than
renewals or extensions of existing indebtedness and uses of lines of credit and
routine travel advances to employees, in each case in the ordinary course of
business;
(i) any cancellation without payment or satisfaction in full, or any
waiver or extension of the time for performance of, any notes, loans or other
obligations inuring to the benefit of CNET or CNET Sub unless such cancellation
or termination occurs in the ordinary course of business of CNET or CNET Sub
consistent with past practices or unless such cancellations or terminations,
individually or in the aggregate, would have only an immaterial effect on the
business, results of operations or financial condition of CNET and CNET Sub,
taken as a whole;
(j) any failure by CNET or CNET Sub to operate its business other than
in the ordinary course of business, any change from past practices in the manner
of incurring or collecting receivables or incurring or paying trade payables or
accrued liabilities, in each case except for any such failures or changes which,
individually or in the aggregate, would have only an immaterial effect on the
business, results of operations or financial condition of CNET and CNET Sub,
taken as a whole;
(k) any failure to maintain the books and records of CNET or CNET Sub
consistent with past practices, or any write-down of assets shown on the books
and records of CNET or CNET Sub, or the establishment of, or failure to
establish, any reserves or accruals in an amount or nature that is not
consistent with past practices or prior periods, in each case except for any
such failures, write-downs or establishment which, individually or in the
aggregate, would have only an immaterial effect on the business, results of
operations or financial condition of CNET and CNET Sub, taken as a whole;
(l) any change in accounting practices; or
(m) any agreement or commitment by or on behalf of CNET or CNET Sub to
do or to take any of the actions referred to in Section 5.8 (a) through (l).
5.9 Tax Matters. Except as disclosed in Schedule 5.9, CNET and CNET Sub
have (1) timely filed all Tax reports and returns required to be filed by them
and such reports and returns were true and complete, (2) duly paid all Taxes and
other charges (whether or not shown on any Tax return) due or claimed to be due
from them by federal, foreign, state or local taxing authorities or an adequate
reserve has been established therefor in the Financial Statements and (3)
delivered to Glenayre true and complete copies of all Tax reports and returns
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beginning with the 1991 tax year. The reserves for Taxes contained in the July
31, 1996 Balance Sheet and carried on the books of CNET or CNET Sub have been
determined in accordance with GAAP. Except as disclosed in Schedule 5.9, no
extension of time to file any Tax return by CNET or CNET Sub is currently in
effect. Since January 31, 1996, neither CNET nor CNET Sub has incurred any
material Tax liabilities other than in the ordinary course of business. There
are no Tax liens (other than liens for current Taxes not yet due and payable or
which are being contested in good faith and by appropriate proceedings with
adequate reserves with respect thereto are maintained on CNET's or CNET Sub's
books in accordance with GAAP) upon any properties or assets of CNET or CNET Sub
and, except as disclosed in Schedule 5.9 and as reflected in the Financial
Statements, there are no pending or, to the knowledge of CNET, threatened
examinations relating to, or claims asserted for, Taxes or assessments against
CNET or CNET Sub. Neither CNET nor CNET Sub has granted or been requested to
grant any extension of the limitation period applicable to any claim for Taxes
or assessments with respect to Taxes. Except as disclosed in Schedule 5.9,
neither CNET nor CNET Sub is a party to any Tax allocation or sharing agreement.
CNET and CNET Sub have duly withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other Person that required
withholding (and have otherwise complied with all applicable Laws relating to
the payment and withholding of Taxes), except for any such failure to pay or
withhold which is immaterial to the business, results of operations or financial
condition of CNET and CNET Sub, taken as a whole.
5.10 Employees and Fringe Benefit Plans.
(a) CNET has provided Glenayre a certificate of the Chief Executive
Officer of CNET which completely and accurately shows, as of the date of this
Agreement, the names and titles of all members of the Boards of Directors and
officers of CNET and CNET Sub and all employees of CNET and CNET Sub, and the
annual rate of compensation (and bonuses or commissions) being paid to each of
them.
(b) Schedule 5.10(b) lists each employment, bonus, commission, deferred
compensation, pension, stock option, stock appreciation right, employee stock
ownership, profit-sharing or retirement plan, arrangement or practice, each
medical, vacation, retiree medical, severance pay plan, and each other agreement
or fringe benefit plan, arrangement or practice, of CNET or CNET Sub, whether
legally binding or not and whether in the form of a written document or not,
which affects one or more of their respective employees, including all "employee
benefit plans" as defined by Section 3(3) of ERISA (collectively, the "Plans"),
as in effect at January 31, 1996 or currently in effect.
(c) For each Plan which is an "employee benefit plan" under Section
3(3) of ERISA, CNET has delivered to Glenayre correct and complete copies of the
plan documents and summary plan descriptions, the three most recent
determination letters received from the Internal Revenue Service, if any, the
three most recent Form 5500 Annual Reports, if any, the three most recent trust
statements, financial statements or other documents detailing the investments
and assets of such Plan, if any, and all related trust agreements, insurance
contracts and funding agreements that implement each such Plan.
(d) Neither CNET nor CNET Sub has any commitment, whether in writing or
not and whether legally binding or not, (1) to create any additional Plan; (2)
to modify or change any Plan in any material respect; or (3) to maintain for any
period of time any such Plan. Schedule 5.10(d) contains an accurate and complete
description of the funding policies (and commitments, if any) of CNET or CNET
Sub with respect to each such existing Plan. Neither CNET nor CNET Sub has any
Plan that is an "employee stock ownership plan" as defined by Section 4975(e)(7)
of the Code or Section 407(d)(6) of ERISA or that is invested in any securities
issued by CNET or any of its Affiliates.
(e) None of CNET or CNET Sub or any Plan or any trustee, administrator,
fiduciary or sponsor of any Plan has engaged in any prohibited transaction as
defined in Section 406 of ERISA or Section 4975 of the Code for which there is
no statutory exemption in Section 408 of ERISA or Section 4975 of the Code; all
filings, reports and descriptions as to the Plans (including Form 5500 Annual
Reports, summary plan descriptions, and summary
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annual reports) required to have been made or distributed to participants, the
Internal Revenue Service, the United States Department of Labor and other
Governmental Authorities have been made in a timely manner. There is no
litigation, disputed claim, governmental proceeding or investigation pending or,
to the knowledge of CNET, threatened with respect to any of the Plans, the
related trusts or other funding media, or any fiduciary, trustee, administrator
or sponsor of the Plans except (1) as described on Schedule 5.10(e) or (2) for
claims for health or medical benefits arising in the normal course of plan
administration that have not progressed beyond the Plan's internal claims
procedures and, if granted, will not differ in any material respect from the
plan benefits historically provided under the Plan. Except as described in
Schedule 5.10(e), such Plans have been established, maintained and administered
in all material respects in accordance with their governing documents and in
compliance with all applicable provisions of ERISA and the Code. Except as
described in Schedule 5.10(e), each Plan which is intended to be a qualified
plan under Section 401(a) of the Code has received, within the last three years,
a favorable determination letter from the Internal Revenue Service with respect
to its qualified plan status and, since the date of each most recent
determination letter, no event has occurred and no condition or circumstance has
existed that resulted or is likely to result in the revocation of any such
determination or that could adversely affect the qualified status of any such
Plan.
(f) CNET and CNET Sub have complied in all material respects with all
applicable Laws relating to employees' employment and/or employment
relationships, including employment termination Laws, employee leave Laws, wage
and hour related Laws, anti-discrimination Laws, employee safety and workers
compensation Laws and COBRA (defined herein to mean the requirements of Section
4980B of the Code, Proposed Treasury Regulation Section 1.162-26 and Part 6 of
Subtitle B of Title I of ERISA).
(g) Except as described in Schedule 5.10(g), the consummation of the
Transactions will not (1) result in the payment or series of payments by CNET or
CNET Sub to any employee or other Person of an "excess parachute payment" within
the meaning of Section 280G of the Code, (2) entitle any employee or former
employee of CNET or CNET Sub to severance pay, unemployment compensation or any
other payment, or (3) accelerate the time of payment or vesting of any stock
option, stock appreciation right, deferred compensation, unreceived
compensation, employee payable or other employee benefits under any Plan
(including vacation and sick pay).
(h) None of the Plans which are "welfare benefit plans," within the
meaning of Section 3(1) of ERISA, provide for continuing benefits or coverage
after termination or retirement from employment, except for COBRA rights under a
"group health plan" as defined in Section 4980B(g) of the Code and Section 607
of ERISA.
(i) Neither CNET nor any "affiliate" of CNET (defined herein to mean an
entity which is a member of a "controlled group of corporations," or under
"common control," with CNET as defined in Section 414(b) or (c) of the Code or
in the regulations promulgated thereunder) has ever participated in, contributed
to or withdrawn from a multiemployer plan as defined in Section 4001(a)(3) of
ERISA, and neither CNET nor CNET Sub has incurred, or owes, any liability as a
result of any partial or complete withdrawal by any employer from such a
multiemployer plan as described under Sections 4201, 4203 or 4205 of ERISA.
(j) None of CNET or CNET Sub or any "affiliate" of CNET (as defined in
Section 5.10(i)) has ever sponsored, maintained, participated in or contributed
to an employee benefit plan or arrangement that is or was subject to Title IV of
ERISA or any of the minimum funding standards or requirements of Section 412 of
the Code.
5.11 Title to Assets.
(a) Real Property and Leasehold Interests. Neither CNET nor CNET Sub
owns any real property. Schedule 5.11(a) describes all leases (including all
amendments thereto) of real property under which CNET or CNET Sub is a lessee or
sublessee (the "Leases"). CNET has delivered to Glenayre copies of all Leases
and all material notices from the landlords thereunder or its leasing agents
with respect thereto, all of which are specifically identified in Schedule
5.11(a). CNET or CNET Sub, as the case may be, has a valid and enforceable
leasehold interest under all of the Leases, subject only to the terms and
conditions set forth in the Leases and except as such
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enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally and
by such principles of equity as may affect the availability of equitable
remedies. Neither CNET nor CNET Sub is in default under any Lease, and there
does not exist any event which with notice or the lapse of time or both would
constitute a default by either CNET or CNET Sub thereunder. To the knowledge of
CNET, except as set forth in Schedule 5.11(a) the landlord under each Lease is
not in default thereunder and there does not exist any event which with notice
or the lapse of time or both would constitute a default by such landlord
thereunder. CNET Sub leases no real property. As to all such real property
leased by CNET (the "Leased Property") except as disclosed in Schedule 5.11(a):
(1) CNET has adequate rights of ingress and egress to all such
Leased Property, the absence of which, individually or in the
aggregate, would in any material respect affect the value of the Leased
Property or materially interfere with or materially impair the present
and continued use thereof in the usual and normal course of business of
CNET, consistent with past practices;
(2) to the knowledge of CNET, there is no interest of any
third party which impairs the current use of the Leased Property by
CNET which, individually or in the aggregate, would in any material
respect affect the value of the Leased Property or materially interfere
with or materially impair the present and continued use thereof in the
usual and normal course of business of CNET, consistent with past
practices;
(3) to the knowledge of CNET, the Leased Property, as
currently used by CNET, is not in violation of any applicable Laws
(including building or environmental Laws) affecting the Leased
Property which, individually or in the aggregate, would in any material
respect affect the value thereof or materially interfere with or
materially impair the present and continued use thereof in the usual
and normal conduct of the business of CNET, consistent with past
practices;
(4) no notice of violation of any applicable Law, or of any
covenant, condition, restriction or easement, affecting the Leased
Property or with respect to the use or occupancy of the Leased
Property, has been received by CNET (or, to the knowledge of CNET, any
of the landlords) from any Governmental Authority having jurisdiction
over the Leased Property or by any other Person entitled to enforce the
same, which, individually or in the aggregate, would in any material
respect affect the value of the Leased Property or materially interfere
with or materially impair the present and continued use thereof in the
usual and normal course of business of CNET, consistent with past
practices;
(5) to the knowledge of CNET, there is no (i) intended public
improvement which may involve any charge being levied or assessed or
which may result in the creation of any Encumbrance (other than a
Permitted Encumbrance) upon the Leased Property, (ii) intended or
proposed Law (including zoning changes) which may adversely affect the
current or proposed use of the Leased Property, or (iii) suit, action,
or legal, administrative, arbitration or other proceeding (including
any proceeding for condemnation) or governmental investigation pending,
threatened or contemplated against or affecting the Leased Property or
the use of any part thereof, in each case under clause (i), (ii) or
(iii) above which, individually or in the aggregate, would in any
material respect affect the value of the Leased Property or materially
interfere with or materially impair the present and continued use
thereof in the usual and normal course of business of CNET, consistent
with past practices;
(6) to the knowledge of CNET, there are no encroachments onto
or easements on the Leased Property or any improvements on any
adjoining property which, individually or in the aggregate, would in
any material respect affect the value thereof or materially interfere
with or materially impair the present and continued use thereof in the
usual and normal conduct of the business of CNET, consistent with past
practices, and no improvement on the Leased Property encroaches on any
adjoining property or any easements or right-of-ways on, under or over
the Leased Property which, individually or in the aggregate,
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would in any material respect affect the value thereof or materially
interfere with or materially impair the present and continued use
thereof in the usual and normal conduct of the business of CNET;
(7) CNET is not in breach of any, and is currently complying
with, all covenants, conditions, restrictions, easements and similar
matters affecting the Leased Property, which breach or failure to
comply, individually or in the aggregate, would in any material respect
affect the value of the Leased Property or materially interfere with or
materially impair the present and continued use thereof in the usual
and normal course of business of CNET, consistent with past practices;
(8) to the knowledge of CNET, the buildings and improvements
located on the Leased Property, and the present use thereof, comply
with all zoning, fire, health and safety Laws which, individually or in
the aggregate, would in any material respect affect the value of the
Leased Property or materially interfere with or materially impair the
present and continued use thereof in the usual and normal course of
business of CNET, consistent with past practices; and
(9) the water supply and sewage and waste disposal facilities
available at each such Leased Property have been adequate for the
business of CNET as currently conducted and as proposed to be conducted
in the future, which, individually or in the aggregate, would in any
material respect affect the value of the Leased Property or materially
interfere with or materially impair the present and continued use
thereof in the usual and normal course of business of CNET, consistent
with past practices.
(b) Equipment. CNET or CNET Sub, as the case may be, has good and
indefeasible title to all machinery and equipment, computers, office supplies,
furniture, parts, transportation equipment and other tangible personal property
used in the businesses of CNET and CNET Sub (the "Equipment"), free and clear of
all Encumbrances other than Permitted Encumbrances and Encumbrances set forth in
Schedule 5.11(b).
(c) Receivables. At the Closing, all accounts receivable of CNET and
CNET Sub reflected on the July 31, 1996 Balance Sheet, plus additional accounts
receivable of CNET or CNET Sub arising after July 31, 1996 and less any accounts
receivables collected in full after July 31, 1996 (the "Receivables") will
constitute valid and enforceable claims of CNET or CNET Sub, as the case may be,
enforceable by it in accordance with the terms of the instruments or documents
creating them. Except as set forth on Schedule 5.11(c), the Receivables are free
and clear of all Encumbrances other than Permitted Encumbrances. All Receivables
have arisen from bona fide transactions in the ordinary course of CNET's or CNET
Sub's business. Subject to the expiration of contractual acceptance periods with
respect to certain Receivables, all Receivables are good and collectible in the
ordinary course of business at the aggregate recorded amounts thereof, net of
the allowance for doubtful accounts (as determined in accordance with GAAP as
consistently applied). Schedule 5.11(c) is an accurate and complete aged
accounts receivable report for CNET as of August 31, 1996, specifically
identifying all Receivables still subject to a contractual acceptance period.
Any prepayments of Receivables have been treated as a reduction of the
Receivables or are included as "liabilities" on the balance sheets included in
the Financial Statements.
(d) Intellectual Property. Schedule 5.11(d) is an accurate and complete
disclosure of all patents, trademark and service mark registrations, corporate
name registrations, trade name registrations, copyright registrations,
industrial design registrations, mask work registrations and all applications
for any of the foregoing, owned by or developed by or for or used by CNET and
CNET Sub, in connection with the business of CNET and CNET Sub as and where now
conducted. The items disclosed in Schedule 5.11(d), together with all other
trademarks and service marks, trade names, copyrightable works, trade secrets,
proprietary information, know-how, and all other intellectual property of any
type, owned by or developed by or for or used by CNET or CNET Sub, in connection
with the business of CNET and CNET Sub as and where now conducted, constitute
the "Intellectual Property." Schedule 5.11(d) also is an accurate and complete
description of (1) all agreements and obligations of CNET and CNET Sub, or
Encumbrances, relating to the Intellectual Property, and (2) all claims,
asserted and unasserted (but known to CNET and probable of assertion) by CNET
and CNET Sub against other Persons with respect to the Intellectual Property,
and (3) claims, asserted and unasserted (but known to CNET and probable of
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assertion), against CNET or CNET Sub by any Person based on the Intellectual
Property, or any use of the Intellectual Property by CNET or CNET Sub, or
otherwise in connection with the business of CNET and CNET Sub as and where now
conducted. To the extent that CNET or CNET Sub uses the intellectual property of
another Person, such use is lawful and in accordance with any applicable
agreement with such other Person. Except as disclosed in Schedule 5.11(d),
neither CNET nor CNET Sub is a party to any agreement with any other Person with
respect to the use of any Intellectual Property. Except as disclosed in Schedule
5.11(d), each of CNET and CNET Sub owns or possesses all licenses and permits,
and all rights to use all Intellectual Property and has no knowledge of any
conflict with the asserted rights of any others. Except as disclosed in Schedule
5.11(d), there are no instances where it has been held or claimed and there is
no basis upon which a valid claim may be made, that any of the Intellectual
Property or any use of the Intellectual Property by CNET or CNET Sub or any
business of CNET or CNET Sub as and where now conducted infringes upon any
intellectual property rights of any Person, except for any infringements as
would, individually or in the aggregate, have only an immaterial effect on the
business, results of operations or financial condition of CNET and CNET Sub,
taken as a whole. Except as disclosed in Schedule 5.11(d), there are no
instances where CNET or CNET Sub has claimed, and, to the knowledge of CNET,
there is no basis upon which a claim may be made, that any Person infringes upon
any rights of CNET or CNET Sub with respect to the Intellectual Property, except
for any infringements as would, individually or in the aggregate, have only an
immaterial effect on the business, results of operations or financial condition
of CNET and CNET Sub, taken as a whole.
(e) Contract Rights. Schedule 5.11(e), together with the other
Schedules to this Agreement, sets forth all of the material executory contracts,
agreements and commitments of CNET and CNET Sub of any kind or nature, including
(1) any contract, agreement or commitment which requires CNET or CNET Sub to
make aggregate payments thereunder in excess of $20,000, (2) any contract,
agreement or commitment pursuant to which CNET or CNET Sub is entitled to
receive aggregate payments thereunder in excess of $20,000 and (3) any joint
venture, partnership, participation or cost sharing agreement, material license
agreement, material lease, note or other evidence of indebtedness, security
agreement, mortgage, noncompetition agreement or power of attorney, whether
written or unwritten so long as it is an enforceable obligation (collectively,
the "Material Contracts"). The rights of CNET or CNET Sub, as the case may be,
under all Material Contracts are valid and enforceable by CNET or CNET Sub, as
the case may be, in all material respects in accordance with their respective
terms except as such enforceability may be limited by applicable bankruptcy,
insolvency and other similar laws affecting creditors' rights generally and by
such principles of equity as may affect the availability of equitable remedies.
Neither CNET nor CNET Sub, as the case may be, is in default in any material
respect (nor does any circumstance exist which, with notice or the passage of
time or both, would result in such a default) under the Material Contracts. To
the knowledge of CNET, the other party to each Material Contract is not in
default thereunder in any material respect (nor does any circumstance exist
which, with notice or the passage of time or both, would result in such a
default). To the knowledge of CNET, there is no threatened cancellation of any
Material Contract. To the knowledge of CNET, there is no outstanding dispute
under any Material Contract, except for any dispute under a particular Material
Contract which would have only an immaterial effect on such Material Contract.
All amendments or supplements to the Material Contracts and all material notices
with respect to such Material Contracts are specifically identified in Schedule
5.11(e).
5.12 Condition of Tangible Assets.
(a) Fixtures. The fixtures and leasehold improvements on the Leased
Property are in good condition and repair, ordinary wear and tear excepted, and
all electric, gas, water and sewer utilities serving the Leased Property are
adequate for the current use of the Leased Property.
(b) Hazardous Substances. For purposes of this Agreement, the following
terms shall have the following meanings:
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings relating in any
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way to any Environmental Law (for purposes of (1) and (2) below, "Claims") or to
any material provision of any permit issued under any such Environmental Law,
including:
(1) any and all Claims by Governmental Authorities for
investigation, oversight, enforcement, cleanup, removal, response,
remedial or other actions or damages pursuant to any applicable
Environmental Law; and
(2) any and all Claims by any third party seeking damages,
response costs, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials or
arising from alleged injury or threat of injury to health, safety or
the environment arising from Hazardous Materials.
"Environmental Law" means any applicable Law now in effect, and any
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to the environment,
health or safety, or hazardous, toxic or dangerous materials, substances or
wastes, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. ss.ss. 9601 et seq. ("CERCLA"); the
Toxic Substances Control Act, as amended, 15 U.S.C. ss.ss. 2601 et seq.; the
Clean Air Act, as amended, 42 U.S.C. ss.ss. 7401 et seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. ss.ss.1251 et seq.; the Federal
Insecticide, Fungicide, and Rodenticide Act, as amended, 7 U.S.C. ss.ss.136, et
seq.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C.
ss.ss.1801 et seq.; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. ss.ss. 6901 et seq. ("RCRA"); the Safe Drinking Water Act, 42 U.S.C.
ss.ss. 300f et seq.; and any similar state or local Law.
"Hazardous Materials" means "hazardous substances" as defined in
Section 101(14) of CERCLA, "hazardous waste" and "hazardous constituents" as
defined in RCRA and its implementing regulations, and any other substances
defined as pollutants, contaminants, toxic, hazardous or harmful or dangerous to
human health or the environment under any applicable Environmental Law,
including:
(1) any petroleum or petroleum products, chlorinated solvents,
explosives, radioactive materials, asbestos, asbestos products, urea
formaldehyde foam insulation, polychlorinated biphenyls (PCB's),
including transformers or other equipment that contain dielectric fluid
containing detectible levels of polychlorinated biphenyls, and radon
gas;
(2) any hazardous, toxic or dangerous waste, substance or
material defined as such, or as harmful or dangerous to human health or
the environment, in (or for purposes of) any current Environmental Law
or currently listed as such pursuant to any Environmental Law; and
(3) any other chemical, material or substance, the addition of
which to the air, earth, surface water or groundwater is prohibited,
limited or regulated by any Environmental Law.
"CNET Property" means (1) any real property and improvements presently
owned, leased, used, operated or occupied by CNET or CNET Sub, and (2) any other
real property and improvements at any previous time owned, leased, used,
operated or occupied by CNET or CNET Sub.
"Release" means disposing, depositing, discharging, injecting,
spilling, leaking, leaching, dumping, emitting, escaping, emptying, seeping,
placing and the like (including abandoning or disposing of any barrels,
containers or other closed receptacles containing any Hazardous Materials) into
or upon any land or water (including surface or ground water) or air, or
otherwise entering into the environment.
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Except as set forth on Schedule 5.12:
(1) to the knowledge of CNET, during the tenancy of CNET with
respect to any CNET Property, Hazardous Materials have not been
illegally generated, used, treated or stored on, or transported
(whether illegally or not) to or from, any CNET Property;
(2) to the knowledge of CNET, during the tenancy of CNET with
respect to any CNET Property, no asbestos-containing materials or other
Hazardous Materials have been installed in or affixed to structures on
any CNET Property;
(3) to the knowledge of CNET, during the tenancy of CNET with
respect to any CNET Property, Hazardous Materials have not been
disposed of or otherwise Released on any CNET Property, and Hazardous
Materials used on or generated at any CNET Property have not at any
time been illegally disposed of on any other property;
(4) CNET and CNET Sub are currently, and have at all times in
the past been, in material compliance with all applicable Environmental
Laws and the requirements of any permits, licenses, authorizations and
other governmental consents issued under such Environmental Laws with
respect to any CNET Property during the tenancy of CNET with respect to
such CNET Property;
(5) there are no past, pending or, to the knowledge of CNET,
threatened Environmental Claims against CNET or CNET Sub or any CNET
Property currently occupied by CNET or CNET Sub;
(6) there are no facts or circumstances, conditions or
occurrences on any CNET Property or otherwise which are known to CNET
that could reasonably be anticipated by CNET or CNET Sub:
(A) to form the basis of an Environmental Claim
against CNET, CNET Sub or any CNET Property currently used or
occupied by CNET or CNET Sub; or
(B) to materially interfere with the ownership,
occupancy or use of such CNET Property as currently used or
occupied by CNET or CNET Sub, or the ability to transfer such
CNET Property, under any Environmental Law; and
(7) to the knowledge of CNET, there are not now, nor have
there been during the tenancy of CNET with respect to any CNET
Property, any aboveground or underground storage tanks located on any
CNET Property.
(c) Equipment. All of the Equipment is in good condition and repair,
ordinary wear and tear excepted, and adequate for its current use in the conduct
of CNET's or CNET Sub's business, except for any such condition and repair or
adequacy which is immaterial to the business, results of operations or financial
condition of CNET and CNET Sub, taken as a whole.
5.13 Leases. Except as set forth in Schedule 5.13, none of the Leased
Property or Equipment is leased by CNET or CNET Sub to any other Person and,
except for the Leased Property or as set forth on Schedule 5.13, none of the
real or tangible personal property used in the business of CNET or CNET Sub is
leased by it from any other Person.
5.14 Arms-Length Transactions. Except as set forth in Schedule 5.14,
since January 31, 1994, all of the material transactions with third Persons by
CNET or CNET Sub have been conducted on an arms-length basis. Except as set
forth on Schedule 5.14, (1) to the knowledge of CNET, none of the Shareholders,
officers or directors of CNET, CNET Sub or their respective Affiliates or
Relatives has any direct or indirect interest, profit participation or ownership
(other than through non-controlling investments in securities of publicly-held
corporations)
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in businesses which are competitors of CNET or CNET Sub, (2) except for routine
travel advances made to employees of CNET in the ordinary course of business,
neither CNET nor CNET Sub has any outstanding loans or other advances to any
shareholder, officer, director or employee of CNET or CNET Sub or their
respective Affiliates or Relatives and (3) to the knowledge of CNET, none of the
Shareholders, officers or directors of CNET or CNET Sub or their respective
Affiliates or Relatives is an Affiliate of any Person that has a material
business relationship with CNET or CNET Sub. "Relative" means any brother or
sister (whether by whole or half blood or adoption), spouse or lineal ascendant
or descendant. Schedule 5.14 lists all travel advances to employees of CNET or
CNET Sub as of July 31, 1996.
5.15 Lawfully Operating. Except as set forth in Schedule 5.15, neither
CNET nor CNET Sub is in default or violation of, (1) any Law applicable to CNET
or CNET Sub or by which any of their property or assets is bound or affected or
(2) the provisions of any note, bond, mortgage, indenture, contract, agreement,
understanding, arrangement, commitment, lease, license, permit, franchise or
other instrument or obligation to which CNET or CNET Sub is a party or by which
CNET or CNET Sub or any of their property or assets is bound or affected, nor
does any circumstance exist which with notice or the passage of time or both
would result in such a default or violation, except for any such violations or
defaults (1) which, individually or in the aggregate, would have only an
immaterial effect on the business, results of operations or financial condition
of CNET and CNET Sub, taken as a whole, and (2) which would not prevent or delay
consummation of the Merger, or otherwise prevent CNET or any Equity Holder from
performing its, his or her obligations under this Agreement or the
Acknowledgments. Except as set forth in Schedule 5.15, CNET and CNET Sub have
been and currently are conducting their business, and the Leased Property has
been and now is being used and operated, in compliance with all Laws applicable
to the same. CNET and CNET Sub hold all of the licenses, permits and other
governmental franchises required for the conduct of their respective businesses
as now conducted except for absences which, individually or in the aggregate,
would have only an immaterial effect on the business, results of operations or
financial condition of CNET and CNET Sub, taken as a whole.
5.16 No Litigation. Schedule 5.16 sets forth all pending and, if known
to CNET, threatened lawsuits or administrative proceedings or investigations to
which CNET or CNET Sub is a party or to which any of their assets are subject.
Neither CNET nor CNET Sub is subject to any currently existing order, writ,
injunction or decree relating to its operations. Except as described in Schedule
5.16, there are no material "loss contingencies" (as defined in Statement of
Financial Accounting Standards No. 5 issued by the Financial Accounting
Standards Board in March 1975 ("FAS 5")), which would be required by FAS 5 to be
disclosed or accrued in consolidated financial statements of CNET and CNET Sub
were such statements prepared at the time this warranty is made or deemed made.
5.17 Labor Matters. Since January 31, 1991, neither CNET nor CNET Sub
has been a party to any collective bargaining agreement and neither has been the
subject of any union activity or organized labor dispute, and there has not been
any strike of any kind called or, to the knowledge of CNET, threatened to be
called against CNET or CNET Sub. Neither CNET nor CNET Sub has violated any
applicable Law relating to labor or labor practices or has any liability to any
of its employees, agents or consultants in connection with grievances by, or the
termination or employment of, such employees, agents or consultants, except for
any such violations or liability which, individually or in the aggregate, would
have only an immaterial effect on the business, results of operations or
financial condition of CNET and CNET Sub, taken as a whole. To the knowledge of
CNET, there is no union campaign being conducted to solicit cards from employees
to authorize a union to request a National Labor Relations Board certification
election with respect to any of CNET's or CNET Sub's employees.
5.18 [INTENTIONALLY OMITTED]
5.19 Brokers. Neither CNET nor CNET Sub has entered into any contract,
arrangement or understanding with any Person which may result in the obligation
of CNET or CNET Sub or Glenayre or Merger Sub to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
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negotiations leading to this Agreement or the consummation of the Transactions.
CNET is not aware of any claim for payment of any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the Transactions.
5.20 Glenayre Common Stock Ownership. Neither CNET nor CNET Sub owns
any shares of Glenayre Common Stock or other securities convertible into
Glenayre Common Stock.
5.21 Accounts at Financial Institutions. Schedule 5.21 describes all
accounts, vaults and safe deposit boxes used by, or in the name of, CNET or CNET
Sub at any financial institution (including any bank, trust company, savings and
loan or stock broker), including the account, vault or box number, the
institution at which the account, vault or box is maintained, and the
signatories authorized for the account or Persons authorized to have access to
the vault or box.
5.22 Insurance. Schedule 5.22 identifies and briefly describes all
policies of insurance now in effect covering the assets, properties and business
of CNET and CNET Sub and all life insurance policies maintained by them. CNET
has delivered an accurate and complete copy of each of the policies listed on
Schedule 5.22 to Glenayre. Schedule 5.22 also describes all claims made by CNET
or CNET Sub since January 31, 1992 under any policies of insurance covering the
assets, properties or business of CNET or CNET Sub. Since January 31, 1992,
neither CNET nor CNET Sub has done anything by way of action or inaction that
invalidates any of such policies in whole or in part. Since January 31, 1992, no
insurance policy of CNET or CNET Sub has been cancelled by the insurer and no
application by CNET or CNET Sub for insurance has been rejected by any insurer.
5.23 Warranty and Product Liability Matters. Except as set forth in
Schedule 5.11(e) or Schedule 5.23, the products and services provided by CNET
and CNET Sub are in compliance with and meet all express and implied warranties
and the requirements and standards of all Laws applicable to the sale or
provision of such products and services, except for any such noncompliance as
would, individually or in the aggregate, have only an immaterial effect on the
business, results of operations or financial condition of CNET and CNET Sub,
taken as a whole. Except as set forth in Schedule 5.11(e) or Schedule 5.23, no
product or service warranty or liability claims are pending or, to the knowledge
of CNET, threatened against CNET or CNET Sub or in respect of products of
services sold or provided by it.
5.24 Warranty, Repurchase and Other Service Obligations. Schedule
5.11(e) and Schedule 5.24 describe (1) all material warranty obligations of CNET
or CNET Sub and all material warranty contracts, agreements, understandings or
arrangements to which CNET or CNET Sub is a party or by which any of their
property or assets is bound, including express warranties, implied warranties
and warranties established by a course of dealing and (2) all material service
and repurchase contracts, agreements, understandings or arrangements to which
CNET or CNET Sub is a party to or by which any of their property or assets is
bound. True and complete copies of such agreements have been delivered to
Glenayre.
5.25 Customers and Suppliers. Schedule 5.25(A) hereto lists, with
respect to the period from February 1, 1993 to January 31, 1996, the 30 largest
customers (by dollar volume) of CNET and CNET Sub during such period (showing
the dollar volume for each). Schedule 5.25(B) hereto lists, with respect to the
period from February 1, 1995 to June 30, 1996, the 40 largest suppliers (by
dollar volume) of CNET during such period (showing the dollar volume of each).
Except to the extent set forth in Schedule 5.11(e), Schedule 5.25(A) or Schedule
5.25(B), since January 31, 1996, to CNET's knowledge, no material adverse change
has occurred in the business relationship of CNET or CNET Sub with its customers
and suppliers reflected in Schedule 5.25(A) and Schedule 5.25(B) and CNET has no
knowledge that any such customer or supplier intends to cease or substantially
reduce purchasing or supplying goods or services from or to CNET or CNET Sub, or
is currently involved in any bankruptcy, liquidation or similar proceeding or
has any right to assert any claim against CNET or CNET Sub.
5.26 Guarantees. Neither CNET nor CNET Sub is a guarantor or otherwise
liable for any liability or obligation (including indebtedness) of any other
Person.
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5.27 Prospective Changes. Except as set forth on Schedule 5.27, CNET
knows of no impending changes in CNET's or CNET Sub's business, assets,
liabilities, relations with employees, competitive situation or relations with
suppliers or customers, or in any governmental actions or regulations affecting
CNET's or CNET Sub's business, which, if they occur, would reasonably be
expected to have a CNET Material Adverse Effect, except for (i) general economic
conditions, (ii) matters having a similar effect on Glenayre and CNET, (iii)
matters of general knowledge in CNET's industry of which Glenayre reasonably
should be aware due to the nature of its own business or (iv) pending or adopted
federal statutes, laws and regulations.
5.28 Full Disclosure. All of the representations of CNET, CNET Sub and
each Equity Holder herein or in the Schedules and Exhibits hereto or in the
Acknowledgments or the statements in the certificates to be provided to Glenayre
pursuant to Sections 5.3(a) and 5.10(a) are true, correct and complete in all
material respects and no written representation, warranty or statement made by
CNET, CNET Sub or any Equity Holder in or pursuant to this Agreement or the
Acknowledgments contains any untrue statement of a material fact or omits to
state any material fact necessary to make such representation, warranty, or
statement, in light of the circumstances under which it was made, not misleading
to Glenayre.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF
GLENAYRE AND MERGER SUB
Glenayre and Merger Sub hereby jointly and severally represent and
warrant to CNET and the Shareholders that:
6.1 Organization and Qualification. Each of Glenayre and Merger Sub is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the requisite corporate
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted. Merger Sub has not engaged in any activities other than in connection
with the Transactions. Glenayre and Merger Sub are each duly qualified or
licensed as a foreign corporation to do business, and each is in good standing,
in each jurisdiction where the character of the properties owned, leased, or
operated by such corporation or the nature of its business makes such
qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Glenayre Material Adverse Effect.
6.2 Certificate of Incorporation and Bylaws. The Articles or
Certificate of Incorporation and the Bylaws of Glenayre and Merger Sub are in
full force and effect. Neither Glenayre nor Merger Sub is in violation of any
provision of its Articles or Certificate of Incorporation or Bylaws.
6.3 Capitalization. The authorized capital stock of Glenayre consists
of 200,000,000 shares of Glenayre Common Stock and 5,000,000 shares of Preferred
Stock, par value $.01 per share ("Glenayre Preferred Stock"). As of September
29, 1996, (1) approximately 59,861,244 shares of Glenayre Common Stock were
issued and outstanding, all of which shares were validly issued and are fully
paid and nonassessable and (2) approximately 4,727,483 shares of Glenayre Common
Stock are reserved for issuance pursuant to outstanding stock options. As of the
date hereof, no shares of Glenayre Preferred Stock are issued and outstanding.
The authorized capital stock of Merger Sub consists of 1,000 shares of common
stock, of which, as of the date hereof, 1,000 shares are issued and outstanding
and held of record by Glenayre free and clear of all Encumbrances, except for
restrictions imposed by applicable securities Laws. These shares were validly
issued and are fully paid and nonassessable. The shares of Glenayre Common Stock
to be issued pursuant to the Merger will, when issued, (1) be duly authorized,
validly issued, fully paid and nonassessable, (2) be free and clear of any
Encumbrances except for applicable resale restrictions under Rule 145, under any
Affiliate Letter and under any Standstill Letter, (3) not be subject to any
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preemptive rights, and (4) be registered under the Securities Act and the
Exchange Act and registered or exempt from registration under applicable Blue
Sky Laws.
6.4 Authority Relative to this Agreement. Each of Glenayre and Merger
Sub has all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
Transactions. The execution and delivery of this Agreement by Glenayre and
Merger Sub and the consummation by Glenayre and Merger Sub of the Transactions
have been duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of Glenayre or Merger Sub are necessary
to authorize this Agreement or to consummate the Transactions (other than the
filing and recordation of the appropriate merger documents as required by the
TBCA). This Agreement has been duly and validly executed and delivered by
Glenayre and Merger Sub and, assuming the due authorization, execution and
delivery by CNET and the Principal Shareholders, constitutes a legal, valid and
binding obligation of each of Glenayre and Merger Sub, enforceable against them
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency and other similar clause affecting creditors'
rights generally and by such principles of equity as may affect the availability
of equitable remedies.
6.5 No Conflict; Required Filings and Consents.
(a) Except as set forth in Schedule 6.5, the execution and delivery of
this Agreement by Glenayre and Merger Sub do not, and the performance of the
Transactions by Glenayre and Merger Sub will not, (1) violate the Articles or
Certificate of Incorporation or Bylaws of Glenayre or Merger Sub, (2) except for
any violations of such Law which, individually or in the aggregate, would have
only an immaterial effect on the business, results of operations or financial
condition of Glenayre, violate any Law applicable to Glenayre or Merger Sub or
by which any of their property or assets is bound or affected, or (3) result in
any breach of or constitute a default (or any event which with notice or the
passage of time or both would result in a default) under, or give to others any
right of termination, amendment, acceleration or cancellation of, or result in
the creation of an Encumbrance (other than a Permitted Encumbrance) on any
property or asset of Glenayre or Merger Sub pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation, to which Glenayre or Merger Sub is a party or by
which either of them or any of their property or assets is bound or affected,
except in each case for breaches or defaults which, individually or in the
aggregate, would have only an immaterial effect on the business, results of
operations or financial condition of Glenayre.
(b) The execution and delivery of this Agreement by Glenayre and Merger
Sub do not, and the performance of the Transactions by Glenayre and Merger Sub
will not, require any consent or authorization of, or filing with or
notification to, any Governmental Authority, except (1) for (i) applicable
requirements, if any, of the Exchange Act, the Securities Act, the NASDAQ Stock
Market and Blue Sky Laws and (ii) filing and recordation of appropriate merger
documents as required by the TBCA, and (2) where failure to obtain such
consents, approvals, authorizations or to make such filings or notifications,
would not prevent or delay consummation of the Merger in any material respect,
or otherwise prevent Glenayre or Merger Sub from performing its obligations
under this Agreement in any material respect, and would not, individually or in
the aggregate, have a Glenayre Material Adverse Effect.
6.6 SEC Reports. Glenayre has filed all forms, reports and documents
required to be filed by it under the Exchange Act with the SEC since January 1,
1996, and has delivered to CNET (1) its Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, (2) its Quarterly Reports on Form 10-Q for
the periods ended March 31, 1996 and June 30, 1996, respectively, (3) all proxy
statements relating to Glenayre's meetings of shareholders held since January 1,
1996 and (4) all Form 8-K's filed by Glenayre with the SEC in 1996 (the forms,
reports and other documents referred to in clauses (1), (2), (3) and (4) above
being referred to herein, collectively, as the "Glenayre SEC Reports"). The
Glenayre SEC Reports (1) were prepared in accordance with the material
requirements of the Exchange Act and the rules and regulations thereunder and
(2) did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
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necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
6.7 Brokers. Glenayre has not entered into any contract, arrangement or
understanding with any Person which may result in the obligation of CNET, CNET
Sub, Glenayre or Merger Sub to pay any finder's fees, brokerage or other agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the Transactions. Glenayre is not aware
of any claim for any finder's fees, brokerage or agent's commissions or other
like payments in connection with the negotiations leading to this Agreement or
the consummation of the Transactions.
6.8 Federal Income Tax Representations.
(a) Prior to the Merger, Glenayre will be in control of Merger Sub
within the meaning of Section 368(c) of the Code.
(b) Glenayre has no present plan or intention to cause CNET to issue
additional shares of its stock that would result in Glenayre losing control of
the Surviving Corporation within the meaning of Section 368(c) of the Code.
(c) Glenayre has no present plan or intention to reacquire any of its
stock issued in the Merger, except for any Escrowed Shares pursuant to Sections
4.9 and 4.10.
(d) Glenayre has no present plan or intention to liquidate the
Surviving Corporation; to merge the Surviving Corporation with or into another
corporation; to sell or otherwise dispose of the stock of the Surviving
Corporation except for transfers of stock to another corporation controlled by
Glenayre; or to cause the Surviving Corporation to sell or otherwise dispose of
any of its assets, except for dispositions made in the ordinary course of
business or transfers of assets to a corporation controlled by Glenayre.
(e) Following the Merger, Glenayre's present intent is that the
Surviving Corporation will continue the historic business of CNET or use a
significant portion of the historic business assets of CNET in a business.
(f) Glenayre does not own, nor has it owned during the past five years,
any shares of the stock of CNET.
(g) Each of Glenayre and Merger Sub is undertaking the Merger for a
bona fide business purpose and not merely for the avoidance of federal income
tax.
(h) Merger Sub will have no liabilities assumed by CNET, and will not
transfer to CNET any assets subject to liabilities, in the Merger.
(i) Neither Glenayre nor Merger Sub is an investment company as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(j) The payment under Section 4.2 of cash in lieu of fractional shares
of Glenayre Common Stock is solely for the purpose of avoiding the expense and
inconvenience to Glenayre of issuing fractional shares and does not represent
separately bargained-for consideration.
(k) As of the Effective Date, the fair market value of the assets of
Merger Sub will exceed the sum of Merger Sub's liabilities plus the amount of
other liabilities, if any, to which Merger Sub's assets are subject to.
(l) Glenayre has no present plan or intention to settle at a discount
any intercorporate indebtedness existing between CNET and Glenayre or between
Merger Sub and CNET.
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ARTICLE 7
COVENANTS
7.1 Covenants of Glenayre and CNET. During the period from the date
hereof and continuing until the Effective Time (except as expressly contemplated
or permitted hereby, or to the extent CNET consents in writing in the case of
Glenayre's obligations and to the extent Glenayre consents in writing in the
case of CNET's obligations) each of Glenayre and CNET covenants with the other
that, insofar as the obligations relate to it:
(a) Glenayre and CNET and their respective subsidiaries shall each
carry on and conduct their respective businesses only in the ordinary course in
substantially the same manner as previously conducted and shall use all
commercially reasonable efforts to preserve intact their present business
organizations, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having business dealings with
them to the end that their goodwill and ongoing businesses shall not be impaired
in any material respect at the Effective Time.
(b) Glenayre and CNET and their respective subsidiaries shall cooperate
in all commercially reasonable respects and promptly prepare, and Glenayre shall
file with the SEC as soon as practicable, a Registration Statement on Form S-4
(the "Form S-4") under the Securities Act, with respect to the Glenayre Common
Stock issuable in the Merger (including shares of Glenayre Common Stock issuable
in substitution for CNET Common Stock pursuant to Section 4.5), a portion of
which Registration Statement shall also serve as the proxy statement with
respect to the meeting (or consent in lieu of a meeting) of the shareholders of
CNET in connection with the Merger (the "Proxy Statement/Prospectus"). The
respective parties will cause the Proxy Statement/Prospectus and the Form S-4 to
comply as to form in all material respects with the applicable provisions of the
Securities Act and the rules and regulations thereunder. Glenayre shall use all
commercially reasonable efforts, and CNET will cooperate in all commercially
reasonable respects with Glenayre, to have the Form S-4 declared effective by
the SEC as promptly as practicable. Glenayre shall use all commercially
reasonable efforts to obtain, prior to the effective date of the Form S-4, all
necessary state securities law permits or approvals required to carry out the
Transactions. CNET shall furnish all information concerning CNET, CNET Sub and
the Shareholders as Glenayre may reasonably request in connection with such
actions. As promptly as practicable after the Form S-4 shall have become
effective, CNET shall mail the Proxy Statement/Prospectus to its shareholders.
Glenayre agrees that the Proxy Statement/Prospectus at the time of mailing
thereof and at the time of the meeting of the shareholders of CNET, will not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of circumstances under which they were made, not misleading; provided,
however, that the foregoing shall not apply to the extent that any such untrue
statement of a material fact or omission to state a material fact is based on
information provided by CNET for use in the Proxy Statement/Prospectus. CNET
agrees that the information relating to CNET and CNET Sub provided to Glenayre
for use in the Proxy Statement/Prospectus, at the time of mailing thereof and at
the time of the meeting of the shareholders of CNET (or during the period that
consents are solicited or received), will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Neither the Proxy Statement/Prospectus nor
any amendment or supplement to the Proxy Statement/Prospectus will be made by
Glenayre or CNET without the approval of the other party. Glenayre will advise
CNET, promptly after it receives notice thereof, of the time when the Form S-4
has become effective. Glenayre and CNET each hereby (1) consents to the use of
its name, and on behalf of its Affiliates, the names of such Affiliates and to
the inclusion of financial statements and business information relating to such
party and its Affiliates (in each case, to the extent required by applicable
securities Laws) in the Form S-4 or Proxy Statement/Prospectus and (2) agrees to
use commercially reasonable efforts to obtain the written consent of any Person
retained by it which may be required to be named (as an expert or otherwise) in
the Form S-4 or Proxy Statement/Prospectus. The form of Proxy (or consent)
accompanying the Proxy Statement/Prospectus will state that a vote by a
shareholder of CNET in favor of the Merger shall also constitute (1) the
approval of this Agreement, including the indemnification obligations of the
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Shareholders under Article 9, (2) the approval of the Escrow Agreement and all
of the arrangements relating thereto, including the placement in escrow of the
portion of the Merger Consideration described in Section 4.9 and (3) the
appointment of the Shareholders' Representative pursuant to the terms of Article
4A, and such form of Proxy shall be in a form reasonably satisfactory to
Glenayre and CNET.
(c) CNET and Glenayre shall each use commercially reasonable efforts to
obtain and furnish to the other party prior to the Effective Time the written
consents set forth on Schedules 5.5 and 6.5.
(d) Glenayre, Merger Sub and CNET shall cooperate and use commercially
reason-able efforts (1) to prepare all documentation, to effect all filings and
to obtain all consents and authorizations of all Governmental Authorities and
other third Persons necessary to consummate the Transactions and (2) to cause
the Transactions to be consummated as expeditiously as is reasonably
practicable.
(e) Except as and to the extent required by Law, Glenayre and CNET each
hereby agree not to disclose or use, and each shall cause its representatives
not to disclose or use, any confidential information with respect to the other
party(ies) hereto furnished, or to be furnished, by such other party(ies) or
their representatives in connection herewith at any time or in any manner other
than the use of such confidential information by such parties and their
representatives in connection with their evaluation of the Merger. Except and as
to the extent required by Law, neither CNET, CNET Sub nor the Representatives
(defined in Section 7.2(a)) shall make any public statements regarding the
Merger or this Agreement without the prior approval of Glenayre.
7.2 Covenants of CNET and the Principal Shareholders. CNET and the
Principal Shareholders covenant and agree with Glenayre that during the period
from the date hereof and continuing until the Effective Time (except as
expressly contemplated or permitted hereby, or to the extent that Glenayre shall
otherwise consent in writing):
(a) Until February 28, 1997 (or if this Agreement has been terminated
pursuant to Article 10, the date of such termination), CNET and the Principal
Shareholders agree that (1) they shall not, and shall direct and use
commercially reasonable efforts to cause CNET's directors, officers, employees,
shareholders, advisors, accountants and attorneys (the "Representatives"),
including such Representatives of any of CNET's affiliated Persons, not to
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making or implementation of any proposal or offer (including any proposal or
offer to its shareholders) with respect to a merger, acquisition, consolidation
or similar transaction involving, or any purchase of all or any significant
portion of the assets (other than in the ordinary course of business of CNET or
CNET Sub) or any equity securities of CNET or CNET Sub (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal") or engage in
any negotiations concerning, or provide any confidential information or data to,
or, other than as may be required by their fiduciary obligations under
applicable Law, have any discussions with, any Person relating to an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal, or otherwise consider the adoption of an Acquisition
Proposal, whether or not unsolicited; (2) they will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
Persons conducted previously with respect to any of the foregoing and will take
the necessary steps to inform the Representatives of the obligations undertaken
in this Section 7.2(a); and (3) they will notify Glenayre immediately if any
such inquiries or proposals are received by, any such information is requested
from, or any such negotiations or discussions are sought to be initiated or
continued with, any of them.
(b) Promptly after the date of this Agreement and subject to the timing
of the SEC's review of Form S-4, CNET shall take all action necessary in
accordance with Texas Law and its Articles of Incorporation and Bylaws to
convene a special meeting of CNET's shareholders (or seek consent in lieu of a
meeting) for the purpose of considering and approving the Merger, and CNET and
the Principal Shareholders shall consult with Glenayre in connection therewith.
CNET and the Principal Shareholders shall use commercially reasonable efforts to
solicit from the shareholders of CNET proxies in favor of the Merger (and
consents to be bound by the terms of this Agreement).
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(c) CNET and the CNET Sub will make all normal and customary repairs,
replacements, and improvements to their facilities, and without limiting the
generality of the foregoing or the covenants set forth in Section 7.1(a),
neither CNET nor CNET Sub will, without the prior written consent of Glenayre or
as otherwise contemplated by this Agreement:
(1) change any provision of its Articles of Incorporation or
Bylaws (or equivalent organizational documents);
(2) except for the issuance of CNET Common Stock pursuant to
the exercise of any CNET Stock Options and any related agreements,
change the number of shares of the authorized, issued or outstanding
capital stock or share capital of CNET or CNET Sub, including any
issuance, purchase, redemption, split, combination or reclassification
thereof, or issue or grant any option, warrant, call, commitment,
subscription, right or agreement to purchase relating to the authorized
or issued capital stock or share capital of CNET or CNET Sub, or
declare, set aside or pay any dividend or other distribution in cash or
in kind with respect to the outstanding capital stock or share capital
of CNET or CNET Sub;
(3) incur any liabilities or obligations, whether directly or
indirectly, or by way of guaranty, and whether or not evidenced by any
note, bond, debenture, or similar instrument, except in the ordinary
course of business consistent with past practices and prior periods;
(4) except as set forth in Schedule 7.2(c)(4), make any
capital expenditures (or enter into any lease required to be
capitalized in accordance with GAAP) individually in excess of $20,000
or in the aggregate in excess of $50,000;
(5) pay any bonuses or commissions to any employee of CNET or
CNET Sub except as set forth on Schedule 7.2(c)(5); enter into any new
or amend in any respect any existing employment agreement with any
Person; adopt any new or amend in any respect any existing Plan, except
as may be otherwise required by Law; purchase any additional "key man"
life insurance policy covering any employee or director of CNET or CNET
Sub, or any other Person; grant any increase in compensation or
benefits of any kind to its employees, officers or directors, except
regularly scheduled general increases in the ordinary course of
business and consistent with past practices and policies; or effect any
change in any respect in retirement benefits to any class of employees
or officers, except as otherwise required by Law;
(6) sell, mortgage, pledge, or otherwise dispose of or
encumber any asset owned by CNET or CNET Sub, other than sales,
mortgages, pledges, or other dispositions or Encumbrances occurring in
the ordinary course of business consistent with past practices and
prior periods;
(7) incur or collect receivables, or extend loans or advances,
incur or pay trade payables or accrued liabilities in any manner other
than consistent with past practices and prior periods and in the
ordinary course of business;
(8) cancel without payment or satisfaction in full, waive or
extend the time for performance of, any notes, loans, or other
obligations inuring to the benefit of CNET or CNET Sub unless such
cancellation or termination occurs in the ordinary course of business
of CNET or CNET Sub consistent with past practices or unless such
cancellations or terminations, individually or in the aggregate, would
have only an immaterial effect on the business, results of operations
or financial condition of CNET and CNET Sub, taken as a whole;
(9) make any material modification of or material amendment to
any of the contracts or agreements listed or described on any Schedule
to this Agreement;
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(10) fail to use commercially reasonable efforts to maintain
in full force and effect all insurance now carried by CNET or CNET Sub;
(11) institute any changes in management personnel or any
material change in any management policy; or
(12) make any agreement or commitment by or on behalf of CNET
or CNET Sub to do or take any of the actions referred to in the
foregoing Section 7.2(c)(1) through (11).
(d) At least 30 days prior to the Closing Date, CNET shall deliver to
Glenayre a list, which shall be reasonably satisfactory to Glenayre, of names
and addresses of those Persons who were, in CNET's reasonable judgment after
discussion with its counsel, Gardere & Wynne, at the record date for its
shareholders' meeting to approve the Merger, "affiliates" (each such Person, a
"CNET Affiliate Shareholder") of CNET within the meaning of Rule 145. CNET shall
provide Glenayre such information and documents as Glenayre shall reasonably
request for purposes of reviewing such list. CNET shall deliver or cause to be
delivered to Glenayre prior to the Closing Date, from each of the CNET Affiliate
Shareholders identified in the foregoing list, an Affiliate Letter. Glenayre
shall be entitled to place legends as specified in such Affiliate Letters on the
certificates evidencing any Glenayre Common Stock to be received by such
Affiliates pursuant to the terms of this Agreement and to issue appropriate stop
transfer instructions to the transfer agent for the Glenayre Common Stock
consistent with the terms of such Affiliate Letters.
(e) Without the prior written consent of Glenayre, CNET shall not
knowingly take any action which would cause or would be reasonably likely to
cause the conditions upon the obligations of the parties hereto to effect the
Transactions not to be fulfilled, including taking, causing to be taken, or
permitting or suffering to be taken or to exist any action, condition or thing
which would cause the representations and warranties made by CNET or CNET Sub
herein not to be true, correct and accurate as of any time between the date
hereof and the Closing Date.
(f) CNET shall promptly provide to Glenayre monthly and
quarterly consolidated financial statements of CNET.
(g) CNET shall not (1) knowingly take any action, or knowingly fail to
take any action, that would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a)(2)(E) of the Code; or (2)
enter into any contract, agreement, commitment or arrangement with respect to
the foregoing.
(h) Upon at least 24 hours' written notice to CNET, CNET and CNET Sub
shall afford to the officers, employees, advisors, attorneys and accountants of
Glenayre access during normal business hours to the offices, properties,
records, books, contracts and other documents (including computer files,
retrievable programs and similar documentation) of CNET and CNET Sub to the
extent that Glenayre shall reasonably request and shall furnish to Glenayre such
additional information as shall be reasonably requested by Glenayre; provided
that neither the furnishing of such information nor any investigation made
heretofore or hereafter by Glenayre shall affect Glenayre's right to rely on any
representation or warranty made by CNET or any Shareholder.
7.3 Covenants of Glenayre. Glenayre covenants with CNET that during the
period from the date hereof and continuing until the Effective Time (except as
expressly contemplated or permitted hereby, or to the extent that CNET shall
otherwise consent in writing):
(a) Glenayre shall promptly prepare and submit to the NASDAQ Stock
Market a listing application covering the shares of Glenayre Common Stock
issuable in the Merger, and shall use commercially reasonable efforts to obtain,
prior to the Effective Time, approval for the listing of such Glenayre Common
Stock, subject to official notice of issuance.
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(b) Glenayre shall not (1) knowingly take any action, or knowingly fail
to take any action, that would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a)(2)(E) of the Code; or (2)
enter into any contract, agreement, commitment or arrangement with respect to
the foregoing.
(c) Without the prior written consent of CNET, Glenayre shall not
knowingly take any action which would cause or be reasonably likely to cause the
conditions upon the obligations of the parties hereto to effect the Transactions
not to be fulfilled, including without limitation, taking, causing to be taken,
or permitting or suffering to be taken or to exist any action, condition or
thing which would cause the representations and warranties made by Glenayre
herein not to be true, correct and accurate as of any time between the date
hereof and the Closing Date.
7.4 Additional Covenant of Glenayre. Glenayre covenants with CNET that,
promptly after the Closing, it will use commercially reasonable efforts to cause
all officers, directors and employees of CNET to be released from all guaranties
of CNET's indebtedness, and shall indemnify such officers, directors and
employees from and against any and all losses and liabilities under such
guaranties from and after the Closing.
ARTICLE 8
CONDITIONS
8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the Transactions shall have been approved in the
requisite manner, according to the Articles of Incorporation and By-laws of CNET
and Texas Law, by the holders of the issued and outstanding shares of capital
stock of CNET entitled to vote thereon, which approval and the voting thereon
shall be certified by the Chief Executive Officer of CNET.
(b) No action or proceeding shall have been instituted before a court
or other Governmental Authority to restrain or prohibit the Transactions or to
obtain an amount of damages or other material relief in connection with the
execution of the Agreement or the related agreements or the consummation of the
Merger; and no Governmental Authority shall have given notice to any party
hereto to the effect that consummation of the Transactions would constitute a
violation of any applicable Law or that it intends to commence proceedings to
restrain consummation of the Merger.
(c) The Form S-4 shall have become effective, no stop orders suspending
its effectiveness shall have been issued, and no proceedings for that purpose
shall have been instituted or, to the knowledge of Glenayre or CNET, shall be
contemplated.
(d) All consents, authorizations, orders and approvals of (or filings
or registrations with) any Governmental Authority required in connection with
the execution, delivery and performance of this Agreement shall have been
obtained or made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time and except where the
failure to have obtained or made any such consent, authorization, order,
approval, filing or registration would not have a material adverse effect on the
business of Glenayre and CNET, taken as a whole, following the Effective Time.
(e) The shares of Glenayre Common Stock issuable in the Merger shall
have been approved for listing, subject to official notice of issuance, on the
NASDAQ Stock Market.
(f) Glenayre, Merger Sub and CNET shall have executed and delivered the
Articles of Merger and appropriate certificates for filing with the Secretary of
State of Texas.
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(g) Glenayre, the Shareholders' Representative and the Escrow Agent
shall have entered into the Escrow Agreement.
8.2 Conditions to Obligation of CNET to Effect the Merger. The
obligations of CNET to effect the Merger shall be subject to the fulfillment at
or prior to the Closing Date of the following conditions:
(a) Glenayre shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of Glenayre and Merger Sub contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date, and CNET shall have received a certificate of the Chief Executive Officer
of Glenayre, dated the Closing Date, certifying to such effect.
(b) From the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business or
operations of Glenayre that would have or would be reasonably likely to have a
Glenayre Material Adverse Effect other than any such change that affects CNET,
CNET Sub and Glenayre in a substantially similar manner.
(c) CNET shall have received a written opinion letter, dated as of the
Closing Date, from Kennedy Covington Lobdell & Hickman, L.L.P. substantially in
the form of Exhibit E attached hereto.
(d) CNET shall have received a good standing certificate for Glenayre
from the Secretary of State of Delaware and for Merger Sub from the Secretary of
State of Texas.
(e) CNET shall have received from Glenayre and Merger Sub certified
copies of all resolutions adopted by the Board of Directors of each respective
corporation and the shareholders of Merger Sub in connection with this Agreement
and the Transactions.
(f) The Merger will qualify as a "reorganization" within the meaning of
Section 368(a)(2)(E) of the Code. In connection therewith, the Shareholders
shall have received a written opinion letter, dated as of the Closing Date, from
Gardere & Wynne, L.L.P. substantially in the form of Exhibit G attached hereto.
8.3 Conditions to Obligation of Glenayre and Merger Sub to Effect the
Merger. The obligations of Glenayre and Merger Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) CNET and the Principal Shareholders shall have performed their
agreements contained in this Agreement required to be performed on or prior to
the Closing Date and the representations and warranties of CNET and the
Principal Shareholders contained in this Agreement and in the Certificates
referred to in Section 5.3(a) and 5.10(a) shall be true and correct in all
material respects as of the Closing Date, except as updated pursuant to Section
11.11, and Glenayre shall have received a certificate of the Chief Executive
Officer of CNET and of the Principal Shareholders, dated the Closing Date,
certifying to such effect.
(b) [INTENTIONALLY OMITTED]
(c) Glenayre shall have received from Ernst & Young, L.L.P. "comfort"
letters, (1) dated as of the effective date of the Prospectus/Proxy Statement,
in accordance with SAS No. 72 (Letters for Underwriters and Certain Other
Requesting Parties), as amended by SAS No. 76, and (2) dated either as of the
date of the CNET shareholders' meeting to approve the Merger or if there is no
meeting dated as of the end of the period for soliciting and receiving consents
from the shareholders, a bringdown of the letter provided in clause (1).
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(d) From the date of this Agreement through the Effective Time, there
shall not have occurred any change in the financial condition, business,
operations or prospects of CNET or CNET Sub that would have or would be
reasonably likely to have a CNET Material Adverse Effect.
(e) Glenayre shall have received a written opinion letter, dated as of
the Closing Date, from Gardere & Wynne substantially in the form of Exhibit F-1
attached hereto and a written opinion letter, dated as of the Closing Date, from
Womble Carlyle Sandridge & Rice, P.L.L.C. substantially in the form of Exhibit
F-2 attached hereto.
(f) The consents set forth in Schedules 5.5 and 6.5 shall have been
obtained in form and substance satisfactory to Glenayre.
(g) Glenayre shall have received an Affiliate Letter from each CNET
Affiliate Shareholder.
(h) Glenayre shall have received an executed Acknowledgment (Option
Holders) from each of the Option Holders.
(i) Glenayre shall have received (1) good standing certificates for
CNET from the Secretary of State of each state where CNET is qualified to do
business (other than Texas) and (2) a Certification of Account Status for CNET
from the Comptroller of Public Accounts of the State of Texas.
(j) The individuals listed on Schedule 8.3(j) shall have executed
Noncompetition Agreements.
(k) [INTENTIONALLY OMITTED]
(l) All shareholder, voting or other agreements with respect to the
CNET Common Stock or any capital stock of CNET Sub shall have been terminated as
of the Closing Date.
(m) Glenayre shall have received from CNET (1) certified copies of all
resolutions adopted by the Board of Directors and shareholders of CNET in
connection with this Agreement and the Transactions, (2) original minute books
and stock record books relating to CNET and (3) a current extract from the
Commercial Register for CNET Sub.
(n) Any shareholders, directors, officers or employees of CNET or CNET
Sub who have received loans or advances from CNET or CNET Sub (other than
routine travel advances) shall agree to pay off such loans or advances as set
forth on Schedule 8.3(n).
(o) [INTENTIONALLY OMITTED]
(q) CNET shall have provided to Glenayre a schedule, certified by the
chief financial officer of CNET, of all travel advances to employees of CNET or
CNET Sub as of the Closing Date.
(r) CNET shall have provided to Glenayre, an accurate and complete aged
accounts receivable report for CNET, certified by the chief financial officer of
CNET, as of a date within 10 Business Days of the Effective Time, specifically
identifying all Receivables still subject to a contractual acceptance period.
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ARTICLE 9
INDEMNIFICATION
9.1 Indemnification. The Shareholders shall, jointly and severally,
indemnify, defend and hold harmless Glenayre, CNET and CNET Sub and their
respective successors and assigns, officers, directors, employees, agents and
Affiliates (collectively "Glenayre Indemnitees") from and against any and all
Loss or Losses which the Glenayre Indemnitees, or any one or more of them, may
sustain or incur, directly or indirectly, arising out of or incident to or by
reason of (1) the falsity or incorrectness of any representation or warranty
made by any Shareholder or CNET in this Agreement, the
Acknowledgments/Transmittal Letters or any document, certificate or other
agreement entered into or furnished (regardless of when furnished) by any Equity
Holder, CNET or CNET Sub pursuant to this Agreement or the
Acknowledgments/Transmittal Letters or (2) any breach of any covenant to be
performed by or on the part of any Equity Holder or CNET under this Agreement,
the Acknowledgments/Transmittal Letters or any document, certificate, or other
agreement or instrument entered into, furnished or to be furnished by any Equity
Holder, CNET or CNET Sub pursuant to this Agreement or the
Acknowledgments/Transmittal Letters.
9.2 Notice; Defense of Third Party Claims. If any matter shall arise
which Glenayre in good faith believes involves or gives rise to a claim by any
Glenayre Indemnitee against the Shareholders under the provisions of Section 9.1
(an "Indemnity Claim"), Glenayre shall give prompt written notice thereof (the
"Notice of Claim") to the Shareholders' Representative, the Principal
Shareholders and the Escrow Agent stating with reasonable specificity the nature
of the Indemnity Claim. If any Indemnity Claim is based upon any claim, demand,
suit, proceeding or action of any third party against any Glenayre Indemnitee (a
"Third Party Claim"), then Glenayre shall, or shall cause CNET or CNET Sub to,
undertake the defense of such Third Party Claim, shall conduct such defense or
settle such Third Party Claim as would a reasonable and prudent person to whom
no indemnity is available and shall permit the Shareholders' Representative to
participate in (but not control) such defense to the extent provided in this
Section 9.2. For purposes of this Section 9.2, the Shareholders' Representative
shall be permitted to participate, in his capacity as Shareholders'
Representative, in such defense (directly and through legal counsel of his
selection) by (i) reviewing, at his request, the relevant documents with respect
to such Third Party Claim, (ii) being periodically updated by Glenayre and its
legal counsel as to the status of such Third Party Claim and the defense thereof
and (iii) having an opportunity from time to time to discuss with Glenayre and
its legal counsel matters related to such Third Party Claim and the defense
thereof and (iv) having a right to receive from Glenayre notices of, and a right
to attend (but not participate), in all depositions and judicial or arbitration
hearings. Glenayre agrees to pay 50% of any expenses incurred by the
Shareholders' Representative in connection with such participation in any and
all Third Party Claims to the extent permitted under this Section 9.2 up to a
maximum of $50,000 of such expenses, so that the maximum aggregate amount
payable by Glenayre in connection therewith is a total of $25,000 for all Third
Party Claims. The Shareholders shall be responsible for paying any such expenses
not payable by Glenayre hereunder.
9.3 Definition of Loss or Losses. For purposes of this Agreement,
"Loss" or "Losses" shall mean any and all actual liabilities, losses, damages,
actions, suits, proceedings, claims, demands, assessments, fines, penalties,
judgments, fees, costs and expenses (including reasonable accountants' and
attorneys' fees) of every nature and character arising out of the matters or
circumstances referred to in Section 9.1. "Loss" shall not include any
consequential damages other than consequential damages which are included within
a Third Party Claim and shall not include the expenses of the Shareholders'
Representative to be paid by Glenayre pursuant to Section 9.2.
9.4 Limitation of Shareholders' Liability Except to the extent
expressly provided in Section 9.4(d), the Shareholders' liability for
indemnification under Section 9.1 and for all other claims under this Agreement
(other than common law fraud) shall be limited as follows:
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(a) Deductible Losses. The Shareholders shall not have any liability
for any Loss otherwise indemnifiable by the Shareholders hereunder except to the
extent that the aggregate amount of Losses exceeds $150,000.
(b) Maximum Loss. Subject to Section 9.4(d), the Shareholders shall not
have any liability for any Loss otherwise indemnifiable by the Shareholders
hereunder in excess, on a cumulative basis, of the amount of the Escrow.
(c) Time Limit for Claims. The Shareholders shall not have any
liability for any Loss with respect to which a Notice of Claim has not been
given to the Shareholders' Representative prior to (i) the date of completion of
the first audit of financial statements containing the combined operations of
Glenayre and CNET for those matters that would be expected to be encountered in
the audit process and (ii) 12 months after the Closing Date for all other
matters. The Shareholders shall continue to be liable for any Indemnity Claim
for which a Notice of Claim has been given within the time period specified in
the foregoing sentence until such Indemnity Claim has been satisfied or
otherwise resolved.
(d) Restrictions. Notwithstanding anything to the contrary contained
herein, the limitations on the Shareholders' indemnification liability in this
Section 9.4 shall not apply in any manner whatsoever to (1) the obligation of
the Shareholders to pay any of the fees and expenses which they are to bear
under Section 4.8, (2) common law fraud, (3) equitable relief in the nature of
specific performance or injunctive relief prior to the Effective Time, (4) any
remedies available to Glenayre under the Noncompetition Agreements and (5) any
remedies available to Glenayre under Section 10.5.
9.5 Indemnification Rights under Texas Business Corporation Act, Etc.
Section 1 of Article VII of the Bylaws and Article Eleven of the Articles of
Incorporation of CNET provide certain indemnification and exculpation rights to
persons who are or were a director, officer, employee or agent of CNET, or
persons who are not or were not directors, officers, employees or agents of CNET
but who are or were serving at the request of CNET as a director, officer,
trustee, employee, agent or similar functionary of another foreign or domestic
corporation, trust, partnership, joint venture, sole proprietorship, employee
benefit plan or other enterprise, to the full extent permitted by Article 2.02-1
of the TBCA and Article 1302-7.06 of the Texas Miscellaneous Corporation Laws
Act, respectively (the "Indemnification Rights"). The Shareholders acknowledge
and agree that the Indemnification Rights shall not apply in any manner
whatsoever to any Indemnity Claims by the Glenayre Indemnitees against any of
the Shareholders in their capacities as shareholders of CNET with respect to
their indemnification obligations under Article 9. The Shareholders also confirm
to Glenayre that none of the Shareholders are entitled to any indemnification
and exculpation from CNET except as provided under Article 2.02- 1 of the TBCA
and Article 1302-7.06 of the Texas Miscellaneous Corporation Laws Act.
ARTICLE 10
TERMINATION
10.1 Termination by Mutual Consent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, before
or after the approval of this Agreement by the shareholders of CNET, by the
mutual consent of Glenayre and CNET.
10.2 Termination by Either Glenayre or CNET. This Agreement may be
terminated and the Merger may be abandoned by action or authorization of the
Board of Directors of either Glenayre or CNET if (1) the Merger shall not have
been consummated by February 28, 1997, or (2) the approval of CNET's
shareholders required by Section 8.1(a) shall not have been obtained at a
meeting duly convened therefor (or at any adjournment thereof) or pursuant to a
written consent in lieu of a meeting, or (3) a United States federal or state
court of competent jurisdiction, or any Governmental Authority, shall have
issued an order, decree or ruling or taken any
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other action permanently restraining, enjoining or otherwise prohibiting the
Transactions and such order, decree, ruling or other action shall have become
final and nonappealable; provided, however, that the party seeking to terminate
this Agreement pursuant to this clause (3) shall have used all reasonable
efforts to remove such order, decree, ruling or action.
10.3 Termination by CNET. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval by the shareholders of CNET, by action or authorization of the
Board of Directors of CNET if (1) there has been a breach by Glenayre or Merger
Sub of any representation or warranty contained in this Agreement which would
have or would be reasonably likely to have a Glenayre Material Adverse Effect or
(2) there has been a material breach of any of the covenants or agreements set
forth in this Agreement on the part of Glenayre, which breach is not curable or,
if curable, is not cured within 30 days after written notice of such breach is
given by CNET to Glenayre.
10.4 Termination by Glenayre. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, by action or
authorization of the Board of Directors of Glenayre if (1) there has been a
breach by CNET or CNET Sub of any representation or warranty contained in this
Agreement which would have or would be reasonably likely to have a CNET Material
Adverse Effect or (2) there has been a material breach of any of the covenants
or agreements set forth in this Agreement on the part of CNET or CNET Sub, which
breach is not curable or, if curable, is not cured within 30 days after written
notice of such breach is given by Glenayre to CNET.
10.5 Effect of Termination and Abandonment. Upon termination of this
Agreement pursuant to this Section, this Agreement shall be void and of no other
effect, and there shall be no liability by reason of this Agreement or the
termination thereof on the part of any party hereto or on the part of the
respective directors, officers, employees, agents or shareholders of any of
them, in each case except that the agreements set forth in Section 7.1(e) and
Articles 10 and 11 shall survive termination of this Agreement pursuant to this
Article 10. Notwithstanding anything to the contrary contained in this Section
10.5, any party hereto shall be liable to any other party hereto for the willful
breach by such first party of its representations, warranties, covenants or
agreements contained herein.
10.6 Extension; Waiver. At any time prior to the Effective Time,
Glenayre or CNET, by action taken or authorized by its Board of Directors, may,
to the extent legally allowed, (1) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (2) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (3) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of Glenayre or CNET to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The right of Glenayre or CNET to terminate this Agreement
pursuant to this Article 10 shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any party hereto,
whether prior to or after execution of this Agreement.
ARTICLE 11
GENERAL PROVISIONS
11.1 Effectiveness of Representations and Warranties.
(a) Except as set forth in Section 11.1(b), the representations,
warranties, covenants and agreements of each party hereto shall remain operative
and in full force and effect, regardless of any investigation made by or on
behalf of any other party hereto, any Person controlling any such party or any
of their officers or directors, whether prior to or after the execution of this
Agreement. All statements contained in the Schedules hereto shall
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be deemed to be representations and warranties by the parties hereunder.
However, no disclosure in any Schedule shall be construed as an admission by
CNET or the Shareholders that the disclosed item is material.
(b) Subject to the limitations for asserting claims under Section
9.4(c), the representations, warranties, covenants and agreements in this
Agreement shall survive the Closing if the Closing occurs or as provided in
Section 10.5 upon termination of this Agreement pursuant to Article 10.
11.2 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered, mailed or transmitted, and shall be effective
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the facsimile numbers
specified below:
(a) If to Glenayre or Merger Sub:
Glenayre Technologies, Inc.
5935 Carnegie Boulevard
Charlotte, North Carolina 28209
Attention: Kenneth C. Thompson
Facsimile No.: (704) 553-7878
with a copy to:
Kennedy Covington Lobdell & Hickman, L.L.P.
NationsBank Corporate Center, Suite 4200
100 North Tryon Street
Charlotte, North Carolina 28202
Attention: Eugene C. Pridgen, Esq.
Facsimile No.: (704) 331-7598
(b) If to CNET:
CNET, Inc.
4975 Preston Park Boulevard, 8th Floor
Plano, Texas 75093
Attention: David M. Zumwalt
Facsimile No.: (214) 867-6800
With a copy to:
Gardere & Wynne, L.L.P.
3000 Thanksgiving Tower
Dallas, Texas 75201-4761
Attention: Richard A. Tulli, Esq.
Facsimile No.: (214) 999-4270
A-47
<PAGE>
(c) If to the Shareholders' Representative:
David M. Zumwalt
6823 Prestonshire Lane
Dallas, Texas 75225
Facsimile No.: (214) 739-8779
With a copy to:
Gardere & Wynne, L.L.P.
3000 Thanksgiving Tower
Dallas, Texas 75201-4761
Attention: Richard A. Tulli, Esq.
Facsimile No.: (214) 999-4270
11.3 Assignment; Binding Effect; Benefit. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns.
11.4 Entire Agreement. This Agreement, the Exhibits and the Schedules
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto including the Acquisition Agreement and Plan of
Merger dated as of August 14, 1996 among the parties. No addition to or
modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
11.5 Amendment. This Agreement may be amended by the parties hereto at
any time before or after approval of matters presented in connection with the
Merger by the shareholders of CNET, but after any such shareholder approval, no
amendment shall be made which by Law requires the further approval of
shareholders without obtaining such further approval. This Agreement may not be
modified or amended except by an instrument in writing signed on behalf of
Glenayre, Merger Sub, CNET and the Principal Shareholders.
11.6 Governing Law. The validity of this Agreement, the construction of
its terms and the determination of the rights and duties of the parties hereto
shall be governed by and construed in accordance with the laws of the United
States and those of the State of North Carolina applicable to contracts made and
to be performed wholly within such state and without regard to the conflicts of
laws principles thereof.
11.7 Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
11.8 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including any investigation by or on behalf of any
party, shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained in this Agreement. Any waiver hereunder by Glenayre shall not release
or otherwise affect the obligations of any Equity Holder hereunder except to the
extent expressly provided in such waiver. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
A-48
<PAGE>
11.9 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
11.10 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of competent
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
11.11 Updating of Schedules and Certificates.
(a) So long as CNET and the Principal Shareholders comply with their
covenants under Article 7 to the extent applicable, CNET and the Principal
Shareholders shall have the right to update the Schedules of this Agreement, and
Certificates referred to in this Agreement, which are described below in this
Section 11.11(a) (to the extent, but only to the extent, described below) from
time to time prior to the Effective Time to reflect changes that may occur after
the date of this Agreement; provided that any changes to such Schedules or
Certificates shall have no effect for purposes of determining whether Glenayre's
closing condition set forth in Section 8.3(a) has been satisfied as of the
Effective Time, but shall have the effect of precluding any Indemnity Claim
based on any such changes which have been disclosed in all material respects.
The Schedules and Certificates subject to the provisions of this Section
11.11(a) are as follows:
Certificate referred to in Section 5.3(a)
Certificate referred to in Section 5.10(a)
Schedule 5.8, but only with respect to the
matters or actions referred to in Section
5.8(b), 5.8(c), 5.8(d) (only in regard to
capital expenditures), 5.8(f), 5.8(g),
5.8(h) and 5.8(i)
Schedule 5.11(d), but only to add additional
Intellectual Property
Schedule 5.21
Schedule 5.22, but only to the extent that
any such changes would, individually or in
the aggregate, have only an immaterial
effect on the business, results of
operations or financial condition of CNET
and CNET Sub, taken as a whole
A-49
<PAGE>
(b) Except with Glenayre's written consent (which Glenayre may give or
not give in its sole discretion), CNET and the Principal Shareholders shall have
no right to update the Schedules of this Agreement which are described below in
this Section 11.11(b) after the date of this Agreement to reflect changes that
may occur after such date. Any such changes must be listed as exceptions to the
Certificate referred to in Section 8.3(a), but any such exceptions shall have no
effect for purposes of determining whether Glenayre's closing condition set
forth in Section 8.3(a) has been satisfied as of the Effective Time and shall
not preclude any Indemnity Claim based upon any such exceptions. The Schedules
subject to the provisions of this Section 11.11(b) are as follows:
Schedule 4.5
Schedule 4.10
Schedule 5
Schedule 5.1
Schedule 5.2
Schedule 5.3
Schedule 5.4
Schedule 5.5
Schedule 5.7
Schedule 5.9
Schedule 5.8, except as expressly provided in Section 11.11(a)
Schedule 5.10(b)
Schedule 5.10(d)
Schedule 5.10(e)
Schedule 5.10(g)
Schedule 5.11(a)
Schedule 5.11(b)
Schedule 5.11(c)
Schedule 5.11(d), except as expressly provided in Section 11.11(a)
Schedule 5.11(e)
Schedule 5.12
Schedule 5.13
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<PAGE>
Schedule 5.14
Schedule 5.15
Schedule 5.16
Schedule 5.22, except as expressly provided in Section 11.11(a)
Schedule 5.23
Schedule 5.24
Schedule 5.25(A)
Schedule 5.25(B)
Schedule 5.27
Schedule 7.2(c)(4)
Schedule 7.2(c)(5)
Schedule 8.3(j)
Schedule 8.3(n)
A-51
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
[CORPORATE SEAL] GLENAYRE TECHNOLOGIES, INC.
ATTEST: By: s/Ramon D. Ardizzone
Ramon D. Ardizzone
By: s/Billy C. Layton Chairman of the Board and Chief Executive
Officer
[CORPORATE SEAL] CNET ACQUISITION CORP.
ATTEST: By: s/Kenneth C. Thompson
Name: Kenneth C. Thompson
By: s/Billy C. Layton Title: President
[CORPORATE SEAL] CNET, INC.
ATTEST: By: s/David M. Zumwalt
Name: David M. Zumwalt
By: s/Lance Shipp Title: Chairman and CEO
s/David M. Zumwalt [SEAL]
David M. Zumwalt
s/Scott R. Greenwell [SEAL]
Scott R. Greenwell
s/Charles D. Staggs [SEAL]
Charles D. Staggs
A-52
<PAGE>
EXHIBIT A-1
TO BE COMPLETED BY EACH SHAREHOLDER
WHO RECEIVES GLENAYRE COMMON STOCK IN THE MERGER
TRANSMITTAL LETTER
(SHAREHOLDERS)
Glenayre Technologies, Inc.
5935 Carnegie Boulevard
Charlotte, NC 28209
Attention: Stan Ciepcielinski
Ladies and Gentlemen:
The undersigned holder of Common Stock of CNET, Inc. ("CNET") hereby
acknowledges that he, she or it has received and reviewed (1) the
Prospectus/Proxy Statement dated _____________, 1996 (hereinafter referred to as
the "Prospectus/Proxy Statement") and (2) the Acquisition Agreement and Plan of
Merger dated as of _________, 1996 by and among Glenayre Technologies, Inc.
("Glenayre"), CNET Acquisition Corp., CNET and certain shareholders of CNET
(hereinafter referred to as the "Acquisition Agreement") attached as Annex I to
the Prospectus/Proxy Statement. Pursuant to the terms of the Acquisition
Agreement, CNET Acquisition Corp., which is a wholly-owned subsidiary of
Glenayre, will merge with and into CNET (the "Merger"), and after the Merger,
CNET will be a wholly-owned subsidiary of Glenayre. Capitalized terms used but
not otherwise defined herein shall have the same meanings as are ascribed to
them in the Acquisition Agreement.
1. This Transmittal Letter should be completed, signed and mailed or delivered
with the certificates (and stock powers executed in blank as described below) of
the undersigned that previously represented shares of CNET Common Stock, to
David M. Zumwalt of CNET at the following address:
CNET, Inc.
4975 Preston Park Boulevard, 8th Floor
Plano, Texas 75093
David M. Zumwalt will deliver this Transmittal Letter and the
certificates and stock powers to Glenayre on my behalf.
2. The undersigned hereby delivers to Glenayre (1) the below-described
certificates, which are enclosed herewith, together with duly executed stock
powers relating thereto, in exchange for (A) a fraction (expressed as a decimal)
of one share of Glenayre Common Stock equal to the Exchange Ratio (determined in
accordance with the Acquisition Agreement) for each such surrendered share of
CNET Common Stock, (B) cash in an amount equal to $1,000,000 divided by the
total number of shares of CNET Common Stock issued and outstanding immediately
prior to the Effective Time (the "Cash Amount") for each such surrendered share
of CNET Common Stock and (C) cash in lieu of fractional shares determined by
multiplying the fractional interest to which the undersigned would otherwise be
entitled by the Closing Price of the Glenayre Common Stock on the NASDAQ Stock
Market on the Trading Day immediately before the Effective Time, as provided in
the Acquisition Agreement.
3. The undersigned hereby warrants that the undersigned is the legal owner, free
and clear of all Encumbrances, of the shares of CNET Common Stock described
below and that the undersigned has full authority to deliver to you the
certificate(s) identified below and that such delivery does not require the
consent of any third party. The undersigned will, upon request, execute any
additional documents reasonably necessary to complete the
A-53
<PAGE>
delivery of such certificate(s). The undersigned acknowledges and agrees that
the other Shareholders shall be third party beneficiaries of the foregoing
representation. The undersigned shall indemnify each and every Shareholder from
any damages incurred by such Shareholder as a result of any inaccuracy in such
representation.
Please issue (1) the shares of Glenayre Common Stock the undersigned is
entitled to receive, (2) a check in payment of the Cash Amount the undersigned
is entitled to receive and (3) a check in payment for fractional shares in the
name of the registered owner, and please mail such shares and checks to the
registered owner at the address specified below.
DESCRIPTION OF CERTIFICATE(S) DELIVERED
(SEE INSTRUCTIONS 2 AND 3)
CNET COMMON STOCK
Number of Shares of
Name of Registered Owner Certificate Common Stock Repre-
(as they appear on certificate(s)) Number sented by Such Certificate
Total Shares of
Common Stock
A-54
<PAGE>
o_____________________________________________________________________________o
o_____________________________________________________________________________o
(Signature(s) of Owner(s)) (See Instruction 2)
(Must be signed by registered owner(s) exactly as name(s) appear(s) on stock
certificate(s). If signature is by attorney, executor, administrator, trustee or
guardian or others acting in a fiduciary capacity, please set forth full title
and see Instruction 2.)
Name(s) _______________________________________________________________________
_______________________________________________________________________
(Please Print)
Address________________________________________________________________________
_______________________________________________________________________________
(Include Zip Code)
______________________________ ___________________________________________
(Area Code and Telephone No.) (Tax Identification or Social Security No.)
Dated ______________________________
(See Instruction 7)
<TABLE>
<CAPTION>
PAYER'S NAME: GLENAYRE TECHNOLOGIES, INC.
<S> <C> <C>
PART 1 - PLEASE PROVIDE YOUR TIN (SOCIAL _______________
SECURITY NUMBER OR EMPLOYER IDENTIFI- Social Security Number
SUBSTITUTE CATION NUMBER) IN THE BOX AT RIGHT OR
AND CERTIFY BY SIGNING AND DATING BE- ____________________________
Form W-9 LOW Employer Identification Number
Department of the Treasury
Internal Revenue Service
Payer's Request for Taxpayer
Identification Number [TIN]
PART 2 - Check the box if you are NOT
subject to backup withholding under the
provisions of Section 3406(a)(1)(C) of the
Internal Revenue Code because (1) you have
not been notified that you are subject to
backup withholding as a result of failure
to report all interest or dividends or (2)
the Internal Revenue Service has notified
you that you are no longer subject to
backup withholding o [ ]
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I
CERTIFY THAT THE INFORMATION PROVIDED ON THIS PART 3 --
FORM IS TRUE, CORRECT, AND COMPLETE
SIGNATUREo DATEo Awaiting TIN o[ ]
</TABLE>
A-55
<PAGE>
INSTRUCTIONS
1. DELIVERY OF TRANSMITTAL LETTER AND CERTIFICATES. This Transmittal
Letter or a photocopy hereof, filled in and signed, must be used in connection
with a delivery of certificates.
THE METHOD OF DELIVERY OF ALL DOCUMENTS IS AT THE OPTION AND RISK OF THE
SHAREHOLDER, BUT IT IS RECOMMENDED THAT DOCUMENTS BE DELIVERED EITHER PERSONALLY
OR BY REGISTERED MAIL PROPERLY INSURED WITH RETURN RECEIPT REQUESTED.
2. SIGNATURES ON LETTER OF TRANSMITTAL AND ENDORSEMENTS. In case of
endorsement or signatures by executors, administrators, trustees, guardians,
attorneys, corporations and the like, the certificates delivered must be
accompanied by evidence satisfactory to Glenayre of authority of the person to
make the endorsement, or to sign, together with all supporting documents
necessary to validate the delivery. If certificates are delivered by joint
holders or owners, all such persons must sign. If certificates are registered in
different forms, it will be necessary to fill in, sign and submit as many
separate Transmittal Letters or photocopies thereof as there are different
registrations of certificates.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate number(s) and the number of shares of CNET Common Stock should be
listed on a separate signed schedule attached hereto.
4. DEPOSIT OF CERTIFICATES. Issuance of shares of Glenayre Common Stock,
payment for the Cash Amount and payment for fractional shares will be made only
against deposit of the certificates of CNET Common Stock to be exchanged
therefor with Glenayre as set forth herein.
5. LOST OR STOLEN CERTIFICATES. Please notify Glenayre in writing at
its address set forth above for the procedure to be followed if any certificate
has been lost, stolen, destroyed or mutilated and replacement instructions will
be mailed to you.
6. DISSENTERS RIGHTS. Shareholders who are seeking to exercise their
dissenters rights under the Texas Business Corporation Act should not deliver
certificates for shares pursuant to this Transmittal Letter.
7. SUBSTITUTE FORM W-9. IF YOU HAVE NOT PREVIOUSLY PROVIDED GLENAYRE WITH
YOUR SOCIAL SECURITY NUMBER OR OTHER TAXPAYER IDENTIFICATION NUMBER ON FORM W-9
OR CERTIFIED THEREIN THAT YOU ARE NOT SUBJECT TO BACK-UP WITHHOLDING, YOU SHOULD
COMPLETE THE SUBSTITUTE FORM W-9 INCLUDED HEREIN.
All questions with respect to this Transmittal Letter will be determined
by Glenayre, which determinations shall be conclusive and binding. Questions
should be directed to Stan Ciepcielinski at Glenayre at the address set forth
above or by telephone at (704) 553-0038.
Additional copies of this Transmittal Letter may be obtained from Glenayre
at its address set forth above. Photocopies of this Transmittal Letter will be
accepted, however.
A-56
<PAGE>
EXHIBIT A-2
TO BE COMPLETED BY EACH OPTION HOLDER
ACKNOWLEDGMENT
(OPTION HOLDERS)
Glenayre Technologies, Inc.
5935 Carnegie Boulevard
Charlotte, NC 28209
Attention: Stan Ciepcielinski
Ladies and Gentlemen:
The undersigned holder of options to purchase Common Stock ("CNET Stock
Options") of CNET, Inc. ("CNET") hereby acknowledges that he or she has received
and reviewed (1) the Prospectus/Proxy Statement dated ________, 1996
(hereinafter referred to as the "Prospectus/Proxy Statement") and (2) the
Acquisition Agreement and Plan of Merger dated as of ___________, 1996 by and
among Glenayre Technologies, Inc. ("Glenayre"), CNET Acquisition Corp., CNET and
certain shareholders of CNET (hereinafter referred to as the "Acquisition
Agreement") attached as Annex I to the Prospectus/Proxy Statement. Pursuant to
the terms of the Acquisition Agreement, CNET Acquisition Corp., which is a
wholly-owned subsidiary of Glenayre, will merge with and into CNET (the
"Merger"), and after the Merger, CNET will be a wholly-owned subsidiary of
Glenayre. Capitalized terms used but not otherwise defined herein shall have the
same meanings as are ascribed to them in the Acquisition Agreement.
1. CNET STOCK OPTIONS.
(a) The undersigned hereby confirms that, at the Effective Time, CNET's
obligations with respect to each outstanding CNET Stock Option held by the
undersigned, as amended in the manner described in this Paragraph 1, shall be
assumed by Glenayre. The CNET Stock Options so assumed by Glenayre shall not
expire and shall continue to have, and be subject to, the same terms and
conditions as set forth in the CNET Stock Option Plans and agreements pursuant
to which such CNET Stock Options were granted as in effect immediately prior to
the Effective Time, except that the undersigned hereby confirms that such Stock
Options and the Stock Option Agreements with respect thereto are amended as
follows: (1) each CNET Stock Option shall be exercisable for that number of
whole shares of Glenayre Common Stock equal to the product of the number of
shares of CNET Common Stock covered by such CNET Stock Option immediately prior
to the Effective Time, multiplied by the Option Exchange Ratio and rounded to
the nearest whole number of shares of Glenayre Common Stock and (2) the price at
which each such CNET Stock Option is exercisable shall be divided by the Option
Exchange Ratio (rounded up to the nearest cent).
(b) The undersigned understands that Glenayre shall reserve for issuance
the aggregate number of shares of Glenayre Common Stock that will become
issuable upon the exercise of all CNET Stock Options pursuant to this Paragraph
1.
(c) The undersigned understands that, promptly after the Effective Time,
Glenayre will provide to the undersigned a schedule which sets forth (1) the
number of shares of CNET Common Stock for which such option is exercisable and
the exercise price with respect thereto and (2) the number of shares of Glenayre
Common Stock for which each such option shall be exercisable upon its assumption
by Glenayre and the exercise price therefor as determined pursuant to this
Paragraph 1.
A-57
<PAGE>
o_____________________________________________________________________________o
(Signature of Holder of CNET Stock Options)
Name(s) _______________________________________________________________________
_______________________________________________________________________
(Please Print)
Address________________________________________________________________________
_______________________________________________________________________________
(Include Zip Code)
______________________________ ___________________________________________
(Area Code and Telephone No.) (Tax Identification or Social Security No.)
Dated ______________________________
A-58
<PAGE>
EXHIBIT B
FORM OF AFFILIATE LETTER
___________, 1996
Glenayre Technologies Inc.
5935 Carnegie Boulevard
Charlotte, NC 28209
Attention: Stan Ciepcielinski
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed
to be an "affiliate" of CNET, Inc., a Texas corporation ("CNET"), as the term
"affiliate" is defined for purposes of paragraphs (c) and (d) of Rule 145 of the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "Securities Act"). Pursuant to the terms of the Acquisition Agreement and
Plan of Merger dated as of __________, 1996 (the "Acquisition Agreement"), among
Glenayre Technologies, Inc., a Delaware corporation ("Glenayre"), CNET
Acquisition Corp., a Texas corporation that is a wholly-owned subsidiary of
Glenayre ("Merger Sub"), CNET and certain shareholders of CNET, Merger Sub will
be merged with and into CNET, which will become a wholly-owned subsidiary of
Glenayre (the "Merger").
As a result of the Merger, I may receive shares of common stock, $.02
par value per share, of Glenayre ("Glenayre Common Stock") or options to
purchase shares of Glenayre Common Stock (the "Glenayre Options") (the Glenayre
Common Stock, the Glenayre Options and any Glenayre Common Stock issued upon
conversion of the Glenayre Options are collectively referred to hereinafter as
the "Glenayre Securities") in exchange for shares of the common stock of CNET or
options to purchase CNET common stock.
I represent, warrant and covenant to Glenayre that in the event I
receive any Glenayre Securities as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the
Glenayre Securities in violation of the Securities Act or the Rules and
Regulations.
B. I have carefully read this letter and the Acquisition Agreement and
discussed the requirements of such documents and other applicable limitations
upon my ability to sell, transfer or otherwise dispose of the Glenayre
Securities to the extent I felt necessary with my counsel or counsel for CNET.
C. I have been advised that the issuance of Glenayre Common Stock to me
pursuant to the Merger has been registered with the SEC under the Securities Act
on a Registration Statement on Form S-4. However, I have also been advised that,
since at the time the Merger was submitted for a vote of the shareholders of
CNET, I may be deemed to have been an affiliate of CNET and the distribution by
me of the Glenayre Securities has not been registered under the Act, I may not
sell, transfer or otherwise dispose of the Glenayre Securities issued to me in
the Merger unless (i) such sale, transfer or other disposition has been
registered under the Securities Act, (ii) such sale, transfer or other
disposition is made in conformity with Rule 145 promulgated by the SEC under the
Securities Act, or (iii) in the opinion of counsel reasonably acceptable to
Glenayre, or a "no-action" letter obtained by me from the staff of the SEC, such
sale, transfer or other disposition is otherwise exempt from registration under
the Securities Act. Pursuant to the regulations of the Securities and Exchange
Commission as currently in effect, I may make bona fide gifts or distributions
without consideration so long as the recipients thereof agree not to sell,
transfer
A-59
<PAGE>
Glenayre Technologies, Inc.
___________, 1996
Page __
or otherwise dispose of the Glenayre Common Stock except as provided herein.
With respect to a transfer under Section C(ii) above, I understand that unless
you have a reasonable basis for believing to the contrary, such transfer will be
viewed by you as in conformity with Rule 145 upon my delivery to you or your
transfer agent of a broker's letter in customary form stating that the
requirements of Rule 145(d)(1) have been met.
D. I understand that Glenayre is under no obligation to register the
sale, transfer or other disposition of the Glenayre Securities by me or on my
behalf under the Securities Act or to take any other action necessary in order
to make compliance with an exemption from such registration available other than
to timely file all reports as required under the Securities Exchange Act of
1934, as amended, and the rules and regulations of the SEC thereunder.
E. I also understand that stop transfer instructions will be given to
Glenayre's transfer agent with respect to the Glenayre Common Stock and that
there will be placed on the certificates for the Glenayre Common Stock issued to
me in the Merger or issued to me upon conversion of the Glenayre Options, or any
substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED ________, 1996 BETWEEN
THE REGISTERED HOLDER HEREOF AND GLENAYRE TECHNOLOGIES, INC., A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF GLENAYRE
TECHNOLOGIES, INC."
F. I also understand that unless the transfer by me of my Glenayre
Securities has been registered under the Securities Act or in a sale in
conformity with the provisions of Rule 145, Glenayre reserves the right to put
the following legend on the certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ACQUIRED FROM A PERSON
WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933."
It is understood and agreed that the legend(s) set forth in paragraphs
E and, if applicable, F above shall be removed by delivery of substitute
certificates without such legend if such legend is not required for purposes of
the Securities Act or this letter. It is understood and agreed that such
legend(s) and the stop orders referred to above will be removed if (i) two years
shall have elapsed from the date the undersigned acquired the Glenayre
Securities received in the Merger and the provisions of Rule 145(d)(2) are then
available to the undersigned, (ii) three years shall have elapsed from the date
the undersigned acquired the Glenayre Securities received in the Merger and the
provisions of Rule 145(d)(3) are then applicable to the undersigned, or (iii)
Glenayre has received either an opinion of counsel, which opinion and counsel
shall be reasonably satisfactory to Glenayre, or a "no action" letter obtained
A-60
<PAGE>
Glenayre Technologies, Inc.
___________, 1996
Page __
by the undersigned from the staff of the SEC, to the effect that the
restrictions imposed by Rule 145 under the Securities Act no longer apply to the
undersigned.
Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of CNET as described in the first paragraph of
this letter, or as a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter.
Very truly yours,
___________________________________
Accepted this _____ day of
________________, 1996 by
GLENAYRE TECHNOLOGIES, INC.
By: __________________________________
Name: ________________________________
Title: _______________________________
A-61
<PAGE>
EXHIBIT C
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of the ___
day of _________, 1996 by and among GLENAYRE TECHNOLOGIES, INC., a Delaware
corporation ("Glenayre"); DAVID M. ZUMWALT, as agent and attorney-in-fact for
the Shareholders identified on Schedule 1 hereto (the "Shareholders'
Representative"); and FIRST UNION NATIONAL BANK OF NORTH CAROLINA (the "Escrow
Agent").
Statement of Purpose
Pursuant to the terms of an Acquisition Agreement dated as of August ___, 1996
among Glenayre, CNET Acquisition Corp., CNET, Inc. ("CNET") and certain
shareholders of CNET (the "Acquisition Agreement"), CNET Acquisition Corp.,
which is a wholly-owned subsidiary of Glenayre, is merging with and into CNET
(the "Merger"), which will then become a wholly-owned subsidiary of Glenayre.
Pursuant to the Acquisition Agreement, Glenayre is delivering to the Escrow
Agent on the date hereof a certificate issued in the name of the Shareholders'
Representative to be held as agent for the benefit of each Shareholder
identified on Schedule 1 hereto with respect to the number of shares of the
common stock of Glenayre shown on Schedule 1 hereto. The Escrowed Shares and the
Escrowed Funds (each of which is defined below) shall be held in escrow by the
Escrow Agent subject to the terms, provisions and conditions set forth herein as
security for the indemnification obligations of the Shareholders under Article 9
of the Acquisition Agreement. The Shareholders' Representative has been
appointed to act as agent and attorney in fact for the Shareholders in
connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing Statement of Purpose and the
mutual promises contained herein, the parties hereto hereby agree as follows:
1. GENERAL.
(a) Definitions. In addition to any other terms defined elsewhere in this
Agreement, including any Schedule hereto (unless such Schedule provides for a
different definition), as used herein, the following terms shall have the
following meanings:
"Acknowledgments/Transmittal Letters" means the Transmittal Letter
(Shareholders) or Acknowledgment (Option Holders) executed and delivered to
Glenayre by each Equity Holder in connection with the Merger.
"Affiliate" means any Person which (1) directly or indirectly controls, is
controlled by or is under common control with a specified Person, (2) owns or
controls 5% or more of the outstanding equity interests of a specified Person or
(3) is an officer, director, general partner or trustee of a specified Person.
For this purpose, the term "control" means possession, directly or indirectly
(through one or more intermediaries), of the power to direct or cause the
direction of management and policies of a Person through an ownership of voting
securities or other ownership interests, contract, voting trust or otherwise.
"Business Day" means any day other than a Saturday, Sunday or legal holiday in
the State of North Carolina.
"Closing" means the consummation of the Merger.
"Closing Date" means the date on which the Closing occurs.
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"Closing Price" means the price at which the last sale of Glenayre Common Stock
is made on the NASDAQ Stock Market, as reported for each Trading Day in the
NASDAQ Stock Market issues section of the WALL STREET JOURNAL.
"CNET Common Stock" means the Common Stock of CNET.
"CNET Sub" means CNET GmbH, a German Gesellschaft mit beschrankter Haftung and
a wholly-owned subsidiary of CNET.
"Effective Time" means the date on which the Plan of Merger becomes effective.
"Equity Holder" means a holder of CNET Common Stock or an option to purchase
CNET Common Stock.
"Escrow" means all Escrowed Shares and Escrowed Funds.
"Escrowed Funds" is defined in Paragraph 4 of this Agreement.
"Escrowed Shares" is defined in Paragraph 4 of this Agreement.
"Expiration Date" means the date which is one year after the Effective Time.
"Glenayre Common Stock" means the $.02 par value Common Stock of Glenayre.
"Glenayre Indemnitees" means Glenayre, CNET and CNET Sub and their respective
successors, assigns, officers, directors, employees, agents and Affiliates.
"Glenayre Transfer Agent" means American Stock Transfer & Trust Company, 6201
15th Avenue, 3rd Floor, Brooklyn, NY 11219 and its successors and assigns.
"Indemnity Claim" means any matter which arises which may involve or give rise
to a claim by Glenayre against the Shareholders for any Loss.
"Loss" or "Losses" means any and all actual liabilities, losses, damages,
actions, suits, proceedings, claims, demands, assessments, fines, penalties,
judgments, fees, costs and expenses (including reasonable accountants' and
attorneys' fees) of every nature and character sustained or incurred, directly
or indirectly, by the Glenayre Indemnitees, arising out of or incident to or by
reason of (1) the falsity or incorrectness of any representation or warranty
made by any Shareholder or CNET in the Acquisition Agreement, the
Acknowledgments/Transmittal Letters or any document, certificate or other
agreement entered into or furnished (regardless of when furnished) by any Equity
Holder, CNET or CNET Sub pursuant to the Acquisition Agreement or the
Acknowledg-ments/Transmittal Letters or (2) any breach of any covenant to be
performed by or on the part of any Equity Holder or CNET under the Acquisition
Agreement, the Acknowledgments/Transmittal Letters or any document, certificate,
or other agreement or instrument entered into, furnished or to be furnished by
any Equity Holder, CNET or CNET Sub pursuant to the Acquisition Agreement or the
Acknowledgments/Transmittal Letters.
"NASDAQ Stock Market" means the electronic securities market operated by The
NASDAQ Stock Market, Inc., a wholly owned subsidiary of the National Association
of Securities Dealers, Inc.
"Notice of Claim" means the written notice given to the Shareholders'
Representative, the other Principal Shareholders and the Escrow Agent by
Glenayre which states the specific nature and amount of an Indemnity Claim with
reasonable detail as to the alleged basis of the Indemnity Claim. The Notice of
Claim shall also set forth the manner in which such claim shall be satisfied,
whether by delivery of Escrowed Shares or Escrowed Funds.
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"Plan of Merger" means the Plan of Merger to be filed with the Texas Secretary
of State in connection with the Merger.
"Principal Shareholders" means David M. Zumwalt, Scott R. Greenwell and
Charles D. Staggs.
"Reference Price" means the Closing Price per share of Glenayre Common Stock on
the NASDAQ Stock Market on the date the Acquisition Agreement was executed
(subject to appropriate adjustment in the event of a stock dividend on, or
split-up or other recapitalization of, the Glenayre Common Stock).
"Shareholders" means, collectively, the shareholders of CNET who are
identified in Schedule 1.
(b) All representations, warranties, agreements, undertakings and obligations
of the Shareholders' Representative contained herein are made by the
Shareholders' Representative as agent for the Shareholders.
(c) All instructions received by the Escrow Agent from Glenayre must be signed
by an authorized representative of Glenayre, as shown on Schedule 2 hereto (an
"Authorized Representative"). Instructions received from the Shareholders'
Representative will be signed by the Shareholders' Representative, that
individual's specimen signature being found on the execution page of this
Agreement.
2. CONSENT OF SHAREHOLDERS. By virtue of the Shareholders' approval of the
Acquisition Agreement, the Shareholders, who are entitled to receive the Merger
Consideration (as such term is defined in the Acquisition Agreement) pursuant
and subject to the Acquisition Agreement, have, without the necessity of any
further act of any Shareholder, consented to: (a) the establishment of the
Escrow to secure certain obligations which may be owed to the Glenayre
Indemnitees under the Acquisition Agreement in the manner set forth herein, (b)
the appointment of the Shareholders' Representative as their representative for
purposes of this Agreement and as attorney-in-fact and agent for and on behalf
of each Shareholder, and the taking by the Shareholders' Representative of any
and all actions and the making of any decisions required or permitted to be
taken or made by them under this Agreement (including the settling of claims,
the release of Escrowed Shares or Escrowed Funds and related actions) and (c)
all of the other terms, conditions and limitations in this Agreement.
3. APPOINTMENT OF THE ESCROW AGENT. Glenayre and the Shareholders'
Representative hereby appoint the Escrow Agent as Escrow Agent, and the Escrow
Agent hereby accepts such appointment, with respect to the "Escrow" as that term
is herein defined.
4. THE ESCROW. Concurrently with the execution and delivery hereof, Glenayre
has delivered to the Escrow Agent a certificate representing the shares of
Common Stock of Glenayre described on Schedule 1 hereto, and the Shareholders'
Representative has delivered to the Escrow Agent an executed blank stock power
with respect to such certificate. Such shares, together with all shares issued
in payment or distribution of any stock dividend on or split-up or other
recapitalization of, or in respect of, any such escrowed shares, and any
securities or other property issued or distributed with respect to such shares
in connection with any merger, consolidation or liquidation of Glenayre are
referred to herein as the "Escrowed Shares"; provided, however, that all
proceeds received by the Escrow Agent upon the sale of any Escrowed Shares
(together with any interest or other income earned thereon) shall be treated as
"Escrowed Shares" to the extent provided in Paragraph 5(b) below. Glenayre will
instruct the Glenayre Transfer Agent to deliver to the Escrow Agent any
additional certificates for the Escrowed Shares. Any property other than capital
stock of Glenayre and cash dividends on the such capital stock, including any
non-cash dividends paid on the Escrowed Shares, which is delivered to the Escrow
Agent to be held hereunder (together with any interest or other income earned
thereon) is referred to herein as "Escrowed Funds." Glenayre will instruct the
Glenayre Transfer Agent to deliver any non-cash property payable upon the
Escrowed Shares to the Escrow Agent. Any dividends or other distributions on the
Escrowed Shares in the form of cash shall be paid directly to the Shareholders
in accordance with their respective proportionate percentages of the Escrow as
shown on Schedule 3.
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5. THE ESCROW AGENT'S DUTIES. Except as may be otherwise provided in Paragraph
12, in which event the special instructions in said Paragraph 12 shall be
controlling, the Escrow Agent shall hold the Escrow in safekeeping and deliver
the same or any part thereof, only as set forth in this Agreement.
(a) Term of Escrow. Except as provided in subsection (d) hereof, the Escrow
shall not be released by the Escrow Agent until the Expiration Date.
(b) Escrowed Shares. The Escrow Agent shall hold the Escrowed Shares and shall
not release such shares or otherwise allow such shares to be sold or transferred
other than pursuant to the terms of this Agreement. At the written direction of
the Shareholders' Representative (pursuant to written instructions received by
the Shareholders' Representative from any Shareholder) delivered to the Escrow
Agent at least five business days in advance, the Escrow Agent shall deliver to
the broker specified in such written directions for sale (in accordance with
such written instructions, in such reasonable detail as the Escrow Agent may
request) any of the Escrowed Shares owned by such Shareholder so long as all
proceeds from the sale of any such Escrowed Shares (less any broker's
commissions or other costs and expenses paid in connection therewith) shall be
deposited with the Escrow Agent and held hereunder as Escrowed Funds; provided,
however, that for purposes of Paragraph 5 of this Agreement only, such proceeds
deposited with the Escrow Agent (and any interest or other income earned
thereon) shall be applied to a Loss as if such proceeds (and any interest or
other income earned thereon) were the Escrowed Shares that were sold in
accordance with this paragraph. For example, if sales proceeds of $4,500 are
deposited into escrow hereunder as the result of the sale of 100 Escrowed Shares
owned by a Shareholder, then for purposes of satisfying such Shareholder's share
of any Loss, the $4,500 so deposited (plus any interest or other income earned
thereon) shall be treated as 100 Escrowed Shares, the value of each share of
which is the Reference Price.
(c) Formula for Number of Escrowed Shares to be Returned to Glenayre. To the
extent that Escrowed Shares are applied to any portion of a Loss pursuant to
Paragraph 6 herein, the number of Escrowed Shares to be so applied shall be
determined by Glenayre pursuant to the terms of the Acquisition Agreement and
shall be set forth in the Notice of Claim. Such Escrowed Shares to be so
returned to Glenayre shall be allocated among the Shareholders in accordance
with Paragraph 5(e) herein.
(d) Investment of Escrowed Funds. The Escrow Agent shall invest and reinvest
cash balances each day in such money market or other short-term investment funds
as shall be specified in writing by the Shareholders' Representative; provided,
however, that no investment or reinvestment may be made except in the following:
(i) direct obligations of the United States of America or obligations the
principal of and the interest on which are unconditionally guaranteed by the
United States of America;
(ii) certificates of deposit issued by any bank, bank and trust company, or
national banking association (including the Escrow Agent and its affiliates),
which certificates of deposit are insured by the Federal Deposit Insurance
Corporation or a similar governmental agency;
(iii) repurchase agreements with any bank, trust company, or national
banking association (including the Escrow Agent and its affiliates); or
(iv) any money market fund substantially all of which is invested in the
foregoing investment categories, including any money market fund managed by the
Escrow Agent and any of its affiliates.
If the Escrow Agent has not received written instructions from the
Shareholders' Representative at any time that an investment decision must be
made, the Escrow Agent shall invest such cash balances, or any portion thereof
as to which no such written instruction has been received, in investments
described in clause (iv) above. Each of the foregoing investments shall be made
in the name of the Escrow Agent. No investment shall be made in any instrument
or security that has a maturity of greater than six (6) months. Notwithstanding
anything to the contrary
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contained herein, the Escrow Agent may, without notice to either Glenayre or the
Shareholders' Representative, sell or liquidate any of the foregoing investments
at any time if the proceeds thereof are required for any release of funds
permitted or required hereunder, and the Escrow Agent shall not be liable or
responsible for any loss, cost or penalty resulting from any such sale or
liquidation. With respect to any funds received by the Escrow Agent for deposit
into the Escrowed Funds or any written instruction from the Shareholders'
Representative received by the Escrow Agent with respect to investment of any
funds in the Escrowed Funds after ten o'clock, a.m., Charlotte, North Carolina,
time, the Escrow Agent shall not be required to invest such funds or to effect
such investment instruction until the next day upon which banks in Charlotte,
North Carolina are open for business.
(e) Distribution of the Escrow.
(i) The Escrow Agent shall apply the Escrow to any Loss, and distribute the
Escrow to Glenayre, in accordance with Paragraph 6 of this Agreement,
(ii) Not later than five Business Days after the Expiration Date, the
Escrow Agent shall deliver to the Shareholders' Representative (for delivery to
the Shareholders) the Escrow then held by the Escrow Agent, less the Escrow for
which a Notice of Claim was received by the Escrow Agent prior to the
Expiration Date; and such Escrow so distributed to the Shareholders shall be
allocated among the Shareholders in accordance with their proportionate
percentages of the Escrow as shown on Schedule 3 attached hereto. Any retained
Escrow shall, upon final determination or settlement of the claim that is the
subject of the Notice of Claim, be applied thereto in accordance with Paragraph
6 of this Agreement and any balance delivered to the Shareholders'
Representative (for delivery to the Shareholders) in accordance with the
Shareholders' then respective interests in the retained Escrow.
6. APPLICATION OF ESCROW TO A LOSS.
(a) At any time prior to the Expiration Date, if Glenayre intends to make any
Indemnity Claim, Glenayre shall give the Escrow Agent, the Shareholders'
Representative and the other Principal Shareholders a Notice of Claim, together
with notice that Glenayre intends to apply all or a part of the Escrow (in the
manner provided in Paragraph 6(e) of this Agreement) to the payment of the Loss
specified in such Notice of Claim. In the event that a Loss has not been
liquidated or determined, Glenayre may, at any time prior to the Expiration
Date, give the Escrow Agent, the Shareholders' Representative and the other
Principal Shareholders a Notice of Claim in which Glenayre describes the
specific nature of the Indemnity Claim and makes a good faith estimate of the
Loss. In such event, the Escrow Agent shall retain as Escrow the amounts set
forth in the Notice of Claim with respect to such estimate in accordance with
the instructions set forth in such Notice of Claim. Upon final determination or
settlement of such claim, Glenayre shall submit to the Escrow Agent a revised
Notice of Claim, which Notice of Claim shall be subject to the procedures set
forth in this Agreement as if it were the original Notice of Claim. In no event
shall the Escrow Agent be obligated to perform any calculations to determine the
amount of the Loss or any other amounts set forth in the Notice of Claim.
(b) If the Shareholders' Representative does not give written notice to
Glenayre and the Escrow Agent, within 15 Business Days after the giving of such
Notice of Claim, that he protests the proposed application of the Escrow to the
Loss as specified in such Notice of Claim, then the Escrow shall be applied to
such Loss as set forth in such Notice of Claim.
(c) If the Shareholders' Representative does give written notice to Glenayre
and the Escrow Agent, within 15 Business Days after the giving of such Notice of
Claim, that he protests the proposed application of the Escrow to the Loss as
specified in such Notice of Claim, then Glenayre and the Shareholders'
Representative shall attempt in good faith to resolve the disagreement with
respect to such proposed application. In the event that Glenayre and the
Shareholders' Representative cannot resolve such disagreement within 15 Business
Days after the
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Shareholders' Representative gives notice to Glenayre that he protests such
application, then the proposed application shall be referred by Glenayre to, and
settled by, binding arbitration in accordance with the Rules of Commercial
Arbitration of the American Arbitration Association. The arbitration panel or
arbitrator (as applicable) shall be selected as provided in Paragraph 6(d) of
this Agreement. The arbitration panel or arbitrator (as applicable) shall
determine the amount, if any, of such proposed Loss and the application of the
Escrow thereto. The venue of the arbitral proceedings shall be in Mecklenburg
County, North Carolina. The proceedings shall be governed by the Rules of
Commercial Arbitration of the American Arbitration Association. In reaching a
decision, the arbitration panel or arbitrator (as applicable) shall apply the
principles of law that a North Carolina court, in applying North Carolina law,
would use in the event of litigation on the same issues. The decision rendered
by the arbitration panel or arbitrator (as applicable) shall be final and
binding on Glenayre, the Shareholders, the Shareholders' Representative and the
Escrow Agent. Judgment on the award rendered by the arbitration panel or
arbitrator (as applicable) may be entered in any court having jurisdiction
thereof. Each of Glenayre and the Shareholders shall bear its or their own
attorneys' fees, fees for expert witnesses and all other costs incurred by it or
them in connection with the Indemnity Claim which is the subject of the
arbitration. Glenayre and the Shareholders shall share equally any attorneys'
fees, fees for expert witnesses and all other costs incurred by the Escrow Agent
in connection with the arbitration of such Indemnity Claim (including without
limitation costs incurred by Glenayre pursuant to Paragraph 17(b) hereof) and
any fees charged by the arbitrators or the American Arbitration Association.
(d) In the event that the Shareholders' Representative protests the proposed
application of the Escrow to a Loss as provided in Paragraph 6(c) and Glenayre
and the Shareholders' Representative cannot resolve such disagreement within the
15-Business Day period specified in Paragraph 6(c), then promptly thereafter
Glenayre shall name a professionally qualified individual to serve as an
arbitrator on the arbitration panel to determine the application of the Escrow
to such Loss and shall give the Shareholders' Representative notice thereof;
within 15 Business Days after such notice, the Shareholders' Representative
shall name a second professionally qualified individual to serve as an
arbitrator on such arbitration panel; and the two individuals so named shall
agree upon and name a third individual to serve as an arbitrator on such
arbitration panel. In the event that the Shareholders' Representative does not
name a second individual to serve on the arbitration panel within 15 Business
Days after notice by Glenayre to the Shareholders' Representative of the name of
its arbitrator, then the arbitrator named by Glenayre shall serve as the sole
arbitrator. In the event that the two individuals named by Glenayre and the
Shareholders' Representative, respectively, cannot agree on a third member
within 15 Business Days after such second arbitrator is named, then the
selection of a third individual to serve on the arbitration panel shall be made
by the American Arbitration Association or, if the American Arbitration
Association fails to choose an arbitrator within 15 Business Days after request
by any Glenayre or the Shareholders' Representative, by the Chief Resident
Superior Court Judge of Mecklenburg County, North Carolina.
(e) Subject to the last sentence of this Paragraph 6(e), each Shareholder shall
be liable only for his Proportionate Percentage (as shown on Schedule 3 hereto)
of any Loss indemnifiable under this Agreement. The liability of each
Shareholder as so determined may be satisfied, at the written direction of the
Shareholders' Representative to Glenayre and the Escrow Agent within 15 Business
Days after such Notice of Claim is given to the Shareholders' Representative
(or, if such Indemnity Claim is contested pursuant to Paragraph 6(c), within 15
Business Days after final resolution of such Indemnity Claim as provided in
Paragraph 6(c)), by the Escrow Agent's payment of Escrowed Funds to Glenayre,
the Escrow Agent's delivery of the Escrowed Shares to Glenayre, or any
combination of the foregoing. In the absence of any such direction by the
Shareholders' Representative within the 15-Business Day period described above,
the Proportionate Percentage of a Loss by such Shareholder shall, subject to the
provisions of Paragraph 6(b) and (c) with respect to the application of the
Escrow to the Loss, be satisfied in accordance with the directions specified by
Glenayre in the Notice of Claim with respect to such Loss. For purposes of
applying the Escrow to a Loss to satisfy the indemnity obligation of any
Shareholder, (1) the value of any Escrowed Funds so applied shall be the dollar
amount (or fair market value, as applicable) of such Escrowed Funds as of the
date of such application and (2) the value of any Escrowed Shares so applied
shall be the number of such Escrowed Shares, multiplied by the Reference Price.
Notwithstanding anything to the contrary contained herein, the limitations on
the Shareholders' indemnification liability in this Paragraph 6(e) shall not
apply in any
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manner whatsoever to (1) the obligation of the Shareholders to pay any of the
fees and expenses which they are to bear under Section 4.8 of the Acquisition
Agreement, (2) common law fraud, (3) equitable relief in the nature of specific
performance or injunctive relief prior to the Effective Time, (4) any remedies
available to Glenayre under the Noncompetition Agreement, dated as of the date
hereof, with David M. Zumwalt or the Noncompetition Agreement, dated as of the
date hereof, with Scott R. Greenwell and (5) any remedies available to Glenayre
under Section 10.5 of the Acquisition Agreement in the event of termination of
the Acquisition Agreement.
7. THE ESCROW AGENT'S AUTHORITY TO ACT.
(a) The Escrow Agent may act in accordance with the terms of this Agreement
upon any written notice, request, waiver, consent, certificate, receipt,
authorization, power of attorney or other document which it in good faith
believes to be genuine.
(b) The Escrow Agent shall be deemed to have properly delivered any item of
Escrow upon (i) placing the item in the United States mail in a suitable package
or envelope with first class prepaid postage affixed, addressed to the addressee
at such addressee's address as set forth in this Agreement or such other address
as the party shall have furnished to the Escrow Agent in writing; (ii) delivery
in person at the Escrow Agent's offices; or (iii) delivery in any other manner
pursuant to written instructions of the person to whom delivery is to be made.
(c) In performing its duties under this Agreement, or upon the claimed failure
to perform any of its duties hereunder, the Escrow Agent shall not be liable to
anyone for damages, losses or expenses which may be incurred as a result of the
Escrow Agent so acting or failing to so act; provided, however, the Escrow Agent
shall not be relieved from liability for damages arising out of its proven gross
negligence or willful misconduct under this Agreement.
8. OTHER AGREEMENTS. The Escrow Agent is not a party to, nor is it bound by,
any other agreement or undertaking between Glenayre and the Shareholders, the
Shareholders' Representative or any of them, or any of them and other persons,
it being the intention of the parties hereto that the Escrow Agent assent to and
be obligated to give consideration only to the terms and provisions hereof.
Unless otherwise provided in Paragraph 12, the Escrow Agent shall have no duty
to determine or inquire into the happening or occurrence of any event or
contingency or the performance or failure of performance of any of Glenayre, the
Shareholders or the Shareholders' Representative with respect to arrangements or
contracts with each other or with others, the Escrow Agent's sole duty hereunder
being to hold the Escrow and to dispose of and deliver the same in accordance
with instructions given to it as provided in Paragraphs 5 and 6 of this
Agreement.
9. STANDARD OF CARE.
(a) The Escrow Agent undertakes to perform such duties and only such duties as
are specifically set forth in this Agreement and no implied covenants or
obligations shall be read into this Agreement against the Escrow Agent.
(b) If the Escrow Agent is required by the terms hereof to determine the
occurrence of any event or contingency, the Escrow Agent shall, in making such
determination, be liable only for its proven willful misconduct or gross
negligence, as determined in light of all the circumstances, including the time
and facilities available to it in the ordinary conduct of its business. In
determining the occurrence of any such event or contingency the Escrow Agent may
request from Glenayre or any of the Shareholders or the Shareholders'
Representative or any other person such reasonable additional evidence as the
Escrow Agent in its sole discretion may deem necessary to determine any fact
relating to the occurrence of such event or contingency, and may at any time
inquire of and consult with others, including without limitation, Glenayre or
any of the Shareholders or the Shareholders' Representative, and the Escrow
Agent shall not be liable for any damages resulting from its delay in acting
hereunder pending its receipt and examination of additional evidence requested
by it.
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(c) Whenever the Escrow Agent is required by the terms hereof to take action
upon the occurrence of any event of contingency, the time prescribed for such
action shall in all cases be a reasonable time after written notice received by
the Escrow Agent for the happening of such event or contingency; provided,
however, that this provision shall not be deemed to limit or reduce the time
allowed the Escrow Agent for action as provided in Paragraph 9(b).
10. RESIGNATION AND REMOVAL OF THE ESCROW AGENT. The Escrow Agent may resign
from the performance of its duties hereunder at any time by giving ten (10)
days' prior written notice to Glenayre and the Shareholders' Representative or
may be removed, with or without cause, by Glenayre and the Shareholders'
Representative, acting jointly by furnishing joint written instructions to the
Escrow Agent, at any time by the giving of ten (10) days' prior written notice
to the Escrow Agent. Such resignation or removal shall take effect upon the
appointment of a successor Escrow Agent as provided hereinbelow. Upon any such
notice of resignation or removal, Glenayre and the Shareholders' Representative
jointly shall appoint a successor Escrow Agent hereunder, which shall be a
commercial bank, trust company or other financial institution with a combined
capital and surplus in excess of $10,000,000. Upon the acceptance in writing of
any appointment as the Escrow Agent hereunder by a successor Escrow Agent, such
successor Escrow Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Escrow Agent, and the
retiring Escrow Agent shall be discharged from its duties and obligations under
this Agreement, but shall not be discharged from any liability for actions taken
as the Escrow Agent hereunder prior to such succession. After any retiring
Escrow Agent's resignation or removal, the provisions of this Agreement shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was the Escrow Agent under this Agreement.
11. LIABILITY OF THE ESCROW AGENT.
(a) The Escrow Agent shall have no liability or obligation with respect to the
Escrow except for the Escrow Agent's proven willful misconduct or gross
negligence. The Escrow Agent's sole responsibility shall be for the safekeeping,
investment, and disbursement of the Escrow in accordance with the terms of this
Agreement. The Escrow Agent shall have no implied duties or obligations and
shall not be charged with knowledge or notice of any fact or circumstance not
specifically set forth herein. The Escrow Agent may rely upon any instrument,
not only as to its due execution, validity and effectiveness, but also as to the
truth and accuracy of any information contained therein, which the Escrow Agent
shall in good faith believe to be genuine, to have been signed or presented by
the person or parties purporting to sign the same and to conform to the
provisions of this Agreement. The Shareholders' Representative represents and
warrants that he is authorized as agent and attorney-in-fact to make and enter
into this Agreement on behalf of the Shareholders. In no event shall the Escrow
Agent be liable for incidental, indirect, special, consequential or punitive
damages. The Escrow Agent shall not be obligated to take any legal action or
commence any proceeding in connection with the Escrow, any account in which
Escrowed Funds are deposited, this Agreement or the Acquisition Agreement, or to
appear in, prosecute or defend any such legal action or proceeding. The Escrow
Agent may consult legal counsel selected by it in the event of any dispute or
question as to the construction of any of the provisions hereof or of any other
agreement or of its duties hereunder, and shall incur no liability and shall be
fully indemnified from any liability whatsoever in acting in good faith in
accordance with the opinion or instruction of such counsel. Glenayre and the
Shareholders' Representative (but only as agent and attorney-in-fact for the
Shareholders), jointly and severally, shall promptly pay, upon demand, the
reasonable fees and expenses of any such counsel.
(b) The Escrow Agent is authorized, in its sole discretion, to comply with
orders issued or process entered by any court with respect to the Escrow,
without determination by the Escrow Agent of such court's jurisdiction in the
matter. If any portion of the Escrow is at any time attached, garnished or
levied upon under any court order, or in case the payment, assignment, transfer,
conveyance or delivery of any such property shall be stayed or enjoined by any
court order, or in case any order, judgment or decree shall be made or entered
by any court affecting such property or any part thereof, then and in any such
event, the Escrow Agent is authorized, in its sole discretion, but in good
faith, to rely upon and comply with any such order, writ, judgment or decree
which
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it is advised by legal counsel selected by it is binding upon it without the
need for appeal or other action; and if the Escrow Agent complies with any such
order, writ, judgment or decree, it shall not be liable to any of the parties
hereto or to any other person or entity by reason of such compliance even though
such order, writ, judgment or decree may be subsequently reversed, modified,
annulled, set aside or vacated.
12. INDEMNIFICATION OF THE ESCROW AGENT. From and at all times after the date
of this Agreement, Glenayre and the Shareholders' Representative (but only as
agent and attorney-in-fact for the Shareholders), jointly and severally, shall,
to the fullest extent permitted by law and to the extent provided herein,
indemnify and hold harmless the Escrow Agent and each director, officer,
employee, attorney, agent and affiliate of Escrow Agent (collectively, the
"Indemnified Parties") against any and all actions, claims (whether or not
valid), losses, damages, liabilities, costs and expenses of any kind or nature
whatsoever (including without limitation reasonable attorney's fees, costs and
expenses) incurred by or asserted against any of the Indemnified Parties from
and after the date hereof, whether direct, indirect or consequential, as a
result of or arising from or in any way relating to any claim, demand, suit,
action or proceeding (including any inquiry or investigation) by any person,
including without limitation Glenayre or the Shareholders' Representative,
whether threatened or initiated, asserting a claim for any legal or equitable
remedy against any person under any statute or regulation, including, but not
limited to, any federal or state securities laws, or under any common law or
equitable cause or otherwise, arising from or in connection with the
negotiation, preparation, execution, performance or failure of performance of
this Agreement or any transactions contemplated herein, whether or not any such
Indemnified Party is a party to any such action, proceeding, suit or the target
of any such inquiry or investigation; provided, however, that no Indemnified
Party shall have the right to be indemnified hereunder for any liability finally
determined by a court of competent jurisdiction, subject to no further appeal,
to have resulted solely from the gross negligence or willful misconduct of such
Indemnified Party. If any such action or claim shall be brought or asserted
against any Indemnified Party, such Indemnified Party shall promptly notify
Glenayre and the Shareholders' Representative in writing, and Glenayre and the
Shareholders' Representative shall assume the defense thereof, including the
employment of counsel and the payment of all expenses. Such Indemnified Party
shall, in its sole discretion, have the right to employ separate counsel (who
may be selected by such Indemnified Party in its sole discretion) in any such
action and to participate in the defense thereof, and the fees and expenses of
such counsel shall be paid by such Indemnified Party, except that Glenayre
and/or the Shareholders' Representative shall be required to pay such fees and
expenses if (a) Glenayre and/or the Shareholders' Representative agree to pay
such fees and expenses, (b) Glenayre and/or the Shareholders' Representative
shall fail to assume the defense of such action or proceeding or shall fail, in
the reasonable discretion of such Indemnified Party, to employ counsel
satisfactory to the Indemnified Party in any such action or proceeding, (c)
Glenayre or the Shareholders' Representative is the plaintiff in any such action
or proceeding or (d) the named parties to any such action or proceeding
(including any impleaded parties) include both Indemnified Party and Glenayre
and/or the Shareholders' Representative, and Indemnified Party shall have been
advised by counsel that there may be one or more legal defenses available to it
which are different from or additional to those available to Glenayre or the
Shareholders' Representative. Glenayre and the Shareholders' Representative (but
only as agent and attorney-in-fact for the Shareholders) shall be jointly and
severally liable to pay fees and expenses of counsel pursuant to the preceding
sentence, except that any obligation to pay under clause (a) shall apply only to
the party so agreeing. All such fees and expenses payable by Glenayre and/or the
Share- holders' Representative pursuant to the foregoing sentence shall be paid
from time to time as incurred, both in advance of and after the final
disposition of such action or claim. All of the foregoing losses, damages, costs
and expenses of the Indemnified Parties shall be payable by Glenayre and the
Shareholders' Representative (but only as agent and attorney-in-fact for the
Shareholders), jointly and severally, upon demand by such Indemnified Party. The
obligations of Glenayre and the Shareholders' Representative under this
Paragraph 12 shall survive any termination of this Agreement and the resignation
or removal of Escrow Agent.
The parties agree that neither the payment by Glenayre or the Shareholders'
Representative of any claim by the Escrow Agent or any Indemnified Party for
indemnification hereunder nor the disbursement of any amounts to the Escrow
Agent or any Indemnified Party from the Escrow in respect of a claim by the
Escrow Agent or any Indemnified Party for indemnification shall impair, limit,
modify or affect, as between Glenayre and the
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Shareholders' Representative, on behalf of the Shareholders, the respective
rights and obligations of Glenayre, on the one hand, and the Shareholders'
Representative, on behalf of the Shareholders, on the other hand, under the
Acquisition Agreement.
13. TIME OF PERFORMANCE. Whenever under the terms hereof the time for
performance of any provision shall fall on a date which is not a regular
business day of the Escrow Agent, the performance thereof on the next succeeding
regular business day of the Escrow Agent shall be deemed to be in full
compliance. Whenever time is referred to in this Agreement, it shall be the time
recognized by the Escrow Agent in the ordinary conduct of its normal business
transactions.
14. DEATH, DISABILITY, ETC. The death, disability, bankruptcy, insolvency,
reorganization or absence of any of Glenayre, the Shareholders' Representative
or any of the Shareholders shall not affect or prevent performance by the Escrow
Agent of its obligations or its right to rely upon instructions received
hereunder.
15. EXAMINATION OF THE ESCROWED SHARES. Glenayre or the Shareholders'
Representative may examine the certificate(s) for the Escrowed Shares during the
regular business hours of the Escrow Agent; such examination shall, however, be
permitted only in the presence of an officer of the Escrow Agent.
16. REMEDIES OF THE ESCROW AGENT.
(a) As additional consideration for and as an inducement for the Escrow Agent
to act hereunder, it is understood and agreed that in the event of any
disagreement between the parties to this Agreement or in the event any other
person or entity claims an interest in the Escrow or any part thereof, and such
disagreement or claim results in adverse claims and demands being made by them
or any of them in connection with or for any part of the Escrow, the Escrow
Agent shall be entitled, at the option of the Escrow Agent, to refuse to comply
with the instructions or demands of the parties to this Agreement, or any of
such parties, so long as such disagreement or adverse claim shall continue. In
such event, the Escrow Agent shall not be required to make delivery or other
disposition of the Escrow. Anything herein to the contrary notwithstanding, the
Escrow Agent shall not be or become liable to Glenayre, the Shareholders'
Representative or the Shareholders or any of them for the failure of the Escrow
Agent to comply with the conflicting or adverse demands of Glenayre or the
Shareholders' Representative or any of such parties or of any other persons or
entities claiming an interest in the Escrow or any part thereof. The Escrow
Agent shall be entitled to refrain and refuse to deliver or otherwise dispose of
the Escrow or any part thereof or to otherwise act hereunder, as stated above,
unless and until (i) the rights of the parties and all other persons and
entities claiming an interest in the Escrow have been duly determined in
accordance with Paragraph 6(c) or (ii) the parties to this Agreement and such
other persons and entities have reached an agreement resolving their differences
and have notified the Escrow Agent in writing of such agreement and have
provided the Escrow Agent with indemnity satisfactory to it against any
liability, claims or damages resulting from compliance by the Escrow Agent with
such agreement. In addition to the foregoing, the Escrow Agent shall have the
right to tender into the registry or custody of any court having jurisdiction,
any part of or all of the Escrow. Upon such tender, the parties hereto agree
that the Escrow Agent shall be discharged from all further duties under this
Agreement; provided, however, that the filing of any such legal proceedings
shall not deprive the Escrow Agent of its compensation hereunder earned prior to
such filing and discharge of the Escrow Agent of its duties hereunder.
(b) While any arbitration or proceeding arising out of or relating to this
Agreement or the Escrow is pending, whether the same be initiated by the Escrow
Agent or by others, the Escrow Agent shall have the right at its option to stop
all further performance of this Agreement and performance of instructions
(except its duty to safe keep the Escrow and to invest Escrowed Funds) until all
differences shall have been resolved by agreement or until the rights of all
parties shall have been fully and finally determined in accordance with
Paragraph 6(c) hereof. The rights of the Escrow Agent under this paragraph are
in addition to all other rights which it may have by law or otherwise.
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17. FEES AND EXPENSES.
(a) Glenayre hereby agrees to pay the Escrow Agent for its ordinary services
hereunder the fees determined in accordance with, and payable as specified in,
the Schedule of Fees set forth in Schedule 4 attached hereto. In addition,
Glenayre hereby agrees to pay to the Escrow Agent its expenses incurred in
connection with this Agreement, including, but not limited to, legal fees and
expenses, in the event the Escrow Agent deems it necessary to retain counsel.
Such expenses shall be paid to the Escrow Agent within 10 days following receipt
by Glenayre of a written statement setting forth such expenses.
(b) Glenayre agrees that in the event any controversy arises under or in
connection with this Agreement or the Escrow, or the Escrow Agent is made a
party to or intervenes in any litigation pertaining to this Agreement or the
Escrow, to pay to the Escrow Agent reasonable compensation for its extraordinary
services and to reimburse the Escrow Agent for all cost and expenses associated
with such controversy or litigation, including, but not limited to legal fees
and expenses. The Escrow Agent shall give Glenayre notice prior to incurring any
such fees, costs or expenses, and an estimate of the amount of such fees, costs
and expenses.
(c) Each of Glenayre and the Shareholders' Representative warrants and agrees
with the Escrow Agent that, unless otherwise expressly set forth in this
Agreement, there is no security interest in the Escrow or any part thereof; no
financing statement under the Uniform Commercial Code of any jurisdiction is on
file in any jurisdiction claiming a security interest in or describing, whether
specifically or generally, the Escrow or any part thereof; and the Escrow Agent
shall have no responsibility at any time to ascertain whether or not any
security interest exists in the Escrow or any part thereof or to file any
financing statement under the Uniform Commercial Code of any jurisdiction with
respect to the Escrow or any part thereof.
(d) In the event fees and expenses of the Escrow Agent are to be paid pursuant
to Paragraph 12 hereof, it is understood and agreed by Glenayre and the
Shareholders that such fees and expenses are in addition to those described
above and that such fees and expenses shall be subject to periodic review and
modification by the Escrow Agent as determined by the Escrow Agent in its sole
discretion.
18. EFFECTIVE DATE. The effective date of this Agreement shall be the date
hereof.
19. TERMINATION. Unless sooner terminated as hereinafter provided, this
Agreement shall terminate without action of any party when all of the terms
hereof shall have been fully performed.
20. COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be deemed an original, and such counterparts shall constitute and be one
and the same instrument.
21. ASSIGNMENT OF INTERESTS. None of Glenayre or the Shareholders shall assign
or attempt to assign or transfer his or its interest hereunder or any part
thereof.
22. AMENDMENTS. This Agreement cannot be amended or modified except by another
agreement in writing signed by all the parties hereto or by their respective
successors in interest.
23. HEADINGS. The paragraph headings contained herein are for convenience of
reference only and are not intended to define, limit or describe the scope or
intent of any provision of this agreement.
24. GOVERNING LAW. This Agreement shall be deemed to have been made and shall
be construed and interpreted in accordance with the laws of the State of North
Carolina without giving effect to the conflict of laws principles thereof.
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25. CONSENT TO JURISDICTION AND VENUE. In the event that any party hereto
commences a lawsuit or other proceeding relating to or arising form this
Agreement, the parties hereto agree that the United States District Court for
the Western District of North Carolina shall have the sole and exclusive
jurisdiction over any such proceeding. If such court lacks federal subject
matter jurisdiction, the parties agree that the Superior Court Division of the
General Court of Justice of Mecklenburg County, North Carolina shall have sole
and exclusive jurisdiction. Any of these courts shall be proper venue of any
such lawsuit or judicial proceeding and the parties hereto waive any objection
to such venue. The parties hereto consent to and agree to submit to the
jurisdiction of any of the courts specified herein and agree to accept service
of process to vest personal jurisdiction over them in any of these courts.
26. WITHHOLDING. The Escrow Agent shall not be responsible or liable for
determination or payment of any taxes assessed against the Escrow or the income
therefrom nor for the preparation or filing of any tax returns other than
withholding required by statute or treaty. Each of Glenayre and the
Shareholders' Representative agrees to provide the Escrow Agent any information
necessary to perform any such required withholding and the Escrow Agent shall be
entitled to rely on such information. The Escrow Agent will establish the
account holding the Escrow under the TIN of the Shareholders' Representative; if
Escrow Agent is responsible for tax reporting as set forth in this Paragraph 26,
it will be rendered under the aforementioned TIN. A W-9 certifying to the
party's withholding status in the form set forth on Schedule 5 attached hereto
will be completed at closing.
27. NOTICES. All notices and other communications given or made pursuant hereto
shall be in writing and shall be deemed to have been duly given or made as of
the date delivered, mailed or transmitted, and shall be effective upon receipt,
if delivered personally, mailed by registered or certified mail (postage
prepaid, return receipt requested) to the parties at the following addresses (or
at such other address for a party as shall be specified by like changes of
address) or sent by electronic transmission to the facsimile numbers specified
below:
If to Glenayre:
Glenayre Technologies, Inc.
5935 Carnegie Boulevard
Charlotte, North Carolina 28209
Attention: Stan Ciepcielinski
Facsimile No.: (704) 553-7878
with a copy to:
Kennedy Covington Lobdell & Hickman, L.L.P.
NationsBank Corporate Center, Suite 4200
100 North Tryon Street
Charlotte, North Carolina 28202
Attention: Eugene C. Pridgen, Esq.
Facsimile No.: (704) 331-7598
If to the Shareholders' Representative:
David M. Zumwalt
6823 Prestonshire Lane
Dallas, Texas 75225
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with a copy to:
Gardere & Wynne, L.L.P.
3000 Thanksgiving Tower
Dallas, Texas 75201-4761
Attention: Richard A. Tulli, Esq.
Facsimile No.: (214) 999-4270
If to the Principal Shareholders:
David M. Zumwalt
6823 Prestonshire Lane
Dallas, Texas 75225
Scott R. Greenwell
6806 Winterberry Drive
Austin, Texas 78750
Charles D. Staggs
6616 Tawny Oak
Plano, Texas 75024
If to the Escrow Agent:
First Union National Bank of
North Carolina, as Escrow Agent
Bond Administration
230 S. Tryon Street, 9th Floor
Charlotte, North Carolina 28288-1179
Attention: Shannon Stahel
Facsimile No.: (704) 383-7316
28. REPORTS. At least quarterly, the Escrow Agent shall provide Glenayre and
the Shareholders' Representative with a full accounting of the Escrow and a
report of all transactions regarding the Escrow (including receipts, investments
and disbursements) not previously reported.
29. DEALINGS. The Escrow Agent and any stockholder, director, officer or
employee of the Escrow Agent may buy, sell and deal in any of the securities of
Glenayre and become pecuniarily interested in any transaction in which Glenayre
or the Shareholders' Representative may be interested, and contract and lend
money to Glenayre or the Shareholders' Representative and otherwise act as fully
and freely as though it were not Escrow Agent under this Agreement. Nothing
herein shall preclude the Escrow Agent from acting in any other capacity for
Glenayre or the Shareholders' Representative or for any other entity.
30. FUTURE REPRESENTATION BY GARDERE & WYNNE, L.L.P. Glenayre has no objection
to, and will not object to, and on behalf of CNET in its capacity as sole
shareholder thereof from and after the Effective Date, hereby waives any
conflict of interest arising from Gardere & Wynne, L.L.P. representing the
Shareholders' Representative and/or the Shareholders with respect to any dispute
under this Agreement or the Acquisition Agreement notwithstanding its previous
representation of CNET, including but not limited to its representation of CNET,
in the transactions contemplated by the Acquisition Agreement.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first stated above.
GLENAYRE TECHNOLOGIES, INC.
By:
Title:
SHAREHOLDERS' REPRESENTATIVE:
David M. Zumwalt, as Agent and
Attorney-in-Fact for the Shareholders
TIN:
ESCROW AGENT:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as Escrow Agent
By:
Title:
ATTACHMENTS
Schedule 1 - Shareholders and Description of Escrow
Schedule 2 - Glenayre Authorized Representative(s)
Schedule 3 - Shareholders' Proportionate Percentages
Schedule 4 - Fee Schedule
Schedule 5 - Form W-9
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SCHEDULE 1
SHAREHOLDERS AND DESCRIPTION OF ESCROWED SHARES
Number of Shares of
Glenayre Common Stock
Name to be Placed in Escrow
[TO BE INSERTED]
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SCHEDULE 2
GLENAYRE AUTHORIZED REPRESENTATIVE(S)
Name Signatures
Ramon D. Ardizzone
Stanley Ciepcielinski
Billy C. Layton
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SCHEDULE 3
SHAREHOLDERS' PROPORTIONATE PERCENTAGES
Name Proportionate Percentage
[TO BE INSERTED]
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SCHEDULE 4
FEE SCHEDULE
ACCEPTANCE FEE $500
ANNUAL ADMINISTRATIVE FEE $1,500
Covers the performance of administrative duties defined in the Agreement,
periodic statements of assets held, deposits and withdrawals of assets.
OUT OF POCKET EXPENSES
The cost of certain miscellaneous business expenses such as telephone charges,
correspondence, stationery, legal fees, travel expenses, envelopes and postage
will be billed at actual costs.
TAX REPORTING
Includes producing and mailing of individual 1099's, if necessary ($10 per each
1099 mailed).
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EXHIBIT D-1
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "Agreement") is dated as of the ____ day of
_____, 1996, by and between GLENAYRE TECHNOLOGIES, INC., a Delaware corporation
(the "Corporation"), and DAVID M. ZUMWALT ("Shareholder").
W I T N E S S E T H :
WHEREAS, pursuant to the Acquisition Agreement and Plan of Merger dated as of
August 14, 1996 (the "Acquisition Agreement") by and among the Corporation, CNET
Acquisition Corp., a Texas corporation that is a wholly-owned subsidiary of the
Corporation ("Merger Sub"), CNET, Inc., a Texas corporation ("CNET"), and
certain shareholders of CNET, Merger Sub will be merged with and into CNET,
which will become a wholly-owned subsidiary of the Corporation (the "Merger");
WHEREAS, CNET is engaged in the "Business" (as defined below); and
WHEREAS, the value to the Corporation of the Merger is dependent in part upon
the Corporation's ability to have CNET continue the Business and to obtain for
its benefit the good will and going concern value associated therewith; and
WHEREAS, in connection with the Closing under the Acquisition Agreement and as
a material condition thereof and material inducement to Glenayre therefor, the
Shareholder has agreed to enter into certain covenants relating to competition
and confidentiality as set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged by the Shareholder, the Shareholder does hereby agree with the
Corporation as follows:
1. NONCOMPETITION, NON-DISCLOSURE AND RELATED MATTERS.
(a) In addition to other terms defined in this Agreement, the following terms
when used in this Agreement shall have the following meanings:
"Business" means the development, sale or licensing (as licensor) of
software for propagation analysis for the design of wireless communications
networks or software for recording, monitoring and analyzing data from wireless
communications networks for use in the management or control of such networks;
provided, however, that, notwithstanding anything to the contrary contained
herein, the term, "Business" shall be limited to the development, sale or
licensing (as licensor) of software that is substantially the same or performs
substantially the same function as software or software products that CNET has
developed, is actively developing or has documented plans for future
development (including, without limitation, the Business Analysis Tool) as of
the Effective Time.
"Competition" means engagement in the Business.
"Customer" means any Person to whom any products, processes, goods or
services have heretofore been sold or licensed or offered for sale or license,
or from whom purchases or licenses thereof have been solicited, at any time
during the two years preceding the date of this Agreement, by CNET.
"Employee" means any individual employed by the Corporation or CNET or
any of their affiliates at any time during the Restricted Period.
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"Person" means an individual, corporation, partnership, limited
liability company, joint venture, trust or other entity.
"Restricted Period" means the period beginning on the date hereof and
ending on the second anniversary of the termination of the Shareholder's
employment by the Corporation, CNET or any of their affiliates.
"Restricted Territory" means the United States of America.
(b) The Shareholder agrees that during the Restricted Period he will not either
directly or indirectly:
(1) engage in any Competition in any Restricted Territory; or
(2) be or become an employee, officer, director, shareholder, partner,
agent or consultant of, or acquire or have any proprietary or other equity
interest in, or otherwise participate or assist in the business of, any Person
who engages in any Competition in any Restricted Territory; provided, that the
Shareholder may own, directly or indirectly, solely as a passive investment,
securities issued by such Person if such securities are publicly traded and do
not constitute more than 2% in the aggregate of the outstanding equity
securities of such Person.
In the event that the Shareholder desires to engage in any activity, or have any
interest or participation, or serve in any capacity, prohibited by this
Paragraph 1(b), then the Shareholder may seek Glenayre's consent for the same
and Glenayre may, in its absolute discretion, so consent in writing.
(c) The Shareholder agrees that during the Restricted Period he will not,
directly or indirectly through or on behalf of any other Person, solicit or
enter into any transaction with any Customer for the purpose of any sale or
license to such Customer of products, processes, goods or services the sale or
license of which would constitute Competition.
(d) The Shareholder agrees that during the Restricted Period he will not
without Glenayre's consent (which consent shall be in Glenayre's sole
discretion), directly or indirectly through or on behalf of any other Person,
induce or attempt to induce any Employee to leave his or her employment with the
Corporation or CNET or any of their affiliates; provided, however, that the
Shareholder shall not be prohibited from merely placing want ads in public
publications or engaging a recruiter to recruit employees (but without providing
the names of any Employees to any such recruiter).
(e) The Shareholder understands that in his capacity as a shareholder, officer,
director and an employee of CNET, he has obtained "Confidential Information"
relating to the Business. As used herein, the term "Confidential Information"
means any information or compilations of information (including without
limitation trade secrets, technology, names, addresses or needs of customers,
other customer or supplier lists, formulae, patterns, devices, plans or
processes or any other proprietary information relating to the Business) of CNET
which is private or confidential in that it is not known or available to the
public or generally in the industry and gives CNET an opportunity to obtain an
advantage over competitors who do not know or use it. The Shareholder shall not,
without the prior written consent of the Corporation, at any time during or
after the Restricted Period (1) use or disclose any such Confidential
Information outside the Corporation (or its affiliated companies, including
CNET), (2) aid in the removal from CNET or delivery to any third party of any
such Confidential Information or (3) sell, exchange or give away or otherwise
dispose (or assist therein) of any such Confidential Information now or
hereafter owned by CNET, whether or not the same shall or may have been
originated, discovered or developed by the Shareholder. The Shareholder
acknowledges and confirms that he has or claims no proprietary interest in any
such information, or in any technology, invention, patent, trademark or other
intellectual property of, used or to be acquired by the Corporation, CNET or any
of their affiliates at any time during the Restricted Period.
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(f) The Shareholder acknowledges that, in view of the nature of the Business
and the business objectives of the Corporation in entering into this Agreement
and the Acquisition Agreement, the restrictions contained in this Section 1 are
reasonably necessary to protect the legitimate business interests of the
Corporation, and that any violation of such restrictions will result in
irreparable injury to the Corporation for which damages will not be an adequate
remedy. The Shareholder therefore acknowledges that if he violates any such
restrictions, the Corporation shall be entitled to preliminary and permanent
injunctive relief as well as to an equitable accounting of earnings, profits and
other benefits arising from such violation.
(g) If any of the provisions contained in this Section 1 shall for any reason
be held to be overly broad as to duration, scope, activity or subject, any such
provision shall be construed by limiting and reducing it, so as to be
enforceable to the extent compatible with the applicable law or the
determination by a court of competent jurisdiction.
(h) The rights and remedies of the Corporation hereunder are not exclusive of
or limited by or in limitation of any other rights or remedies which it may
have, whether at law, in equity, by contract or otherwise, all of which shall be
cumulative. Without limiting the generality of the foregoing, the rights and
remedies of the Corporation hereunder, and the obligations and liabilities of
the Shareholder hereunder, are in addition to their respective rights, remedies,
obligations and liabilities under the law of unfair competition.
2. SEVERABILITY. Should any provision of this Agreement or part thereof be held
under any circumstances in any jurisdiction to be invalid or unenforceable, such
invalidity or unenforceability shall not affect the validity or enforceability
of any other provision or other part of such provision, or of such provision or
part thereof under any other circumstances or in any other jurisdiction.
3. GOVERNING LAW. The construction, validity and enforceability of this
Agreement shall be governed by the laws of the State of Texas.
4. NO WAIVER. No failure or delay of the Corporation in enforcing any of its
rights hereunder at any time shall constitute or evidence any waiver of such
rights.
5. CONSENT TO JURISDICTION. Each of the parties hereby consents and agrees to
the non-exclusive jurisdiction of all courts sitting in the State of Texas in
connection with any claim, dispute or controversy arising under or in connection
with this Agreement or any actual or alleged breach hereof.
6. MISCELLANEOUS. This Agreement and the Acquisition Agreement constitute the
sole and entire agreement and understanding between the parties hereto as to the
subject matter hereof, and supersedes all prior discussions, agreements and
understandings of every kind and nature between them as to such subject matter.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, personal representatives, successors and
assigns. The captions of this Agreement are for convenience of reference only
and shall not affect in any manner any of the terms, covenants or conditions
hereof. Words of the masculine gender shall mean and include correlative words
of the feminine and neuter genders and words importing the singular number shall
mean and include the plural number and vice versa. This Agreement may be
executed in multiple counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the Corporation
and the Shareholder as of the day and year first above written.
GLENAYRE TECHNOLOGIES, INC.
By:
Name:
Title:
----------------
David M. Zumwalt
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EXHIBIT D-2
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "Agreement") is dated as of the ____ day of
_____, 1996, by and between GLENAYRE TECHNOLOGIES, INC., a Delaware corporation
(the "Corporation"), and SCOTT R. GREENWELL ("Shareholder").
W I T N E S S E T H :
WHEREAS, pursuant to the Acquisition Agreement and Plan of Merger dated as of
August 14, 1996 (the "Acquisition Agreement") by and among the Corporation, CNET
Acquisition Corp., a Texas corporation that is a wholly-owned subsidiary of the
Corporation ("Merger Sub"), CNET, Inc., a Texas corporation ("CNET"), and
certain shareholders of CNET, Merger Sub will be merged with and into CNET,
which will become a wholly-owned subsidiary of the Corporation (the "Merger");
WHEREAS, CNET is engaged in the "Business" (as defined below); and
WHEREAS, the value to the Corporation of the Merger is dependent in part upon
the Corporation's ability to have CNET continue the Business and to obtain for
its benefit the good will and going concern value associated therewith; and
WHEREAS, in connection with the Closing under the Acquisition Agreement and as
a material condition thereof and material inducement to Glenayre therefor, the
Shareholder has agreed to enter into certain covenants relating to competition
and confidentiality as set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged by the Shareholder, the Shareholder does hereby agree with the
Corporation as follows:
1. NONCOMPETITION, NON-DISCLOSURE AND RELATED MATTERS.
(a) In addition to other terms defined in this Agreement, the following terms
when used in this Agreement shall have the following meanings:
"Business" means the development, sale or licensing (as licensor) of
software for propagation analysis for the design of wireless communications
networks or software for recording, monitoring and analyzing data from wireless
communications networks for use in the management or control of such networks;
provided, however, that, notwithstanding anything to the contrary contained
herein, the term, "Business" shall be limited to the development, sale or
licensing (as licensor) of software that is substantially the same or performs
substantially the same function as software or software products that CNET has
developed, is actively developing or has documented plans for future
development (including, without limitation, the Business Analysis Tool) as of
the Effective Time.
"Competition" means engagement in the Business.
"Customer" means any Person to whom any products, processes, goods or
services have heretofore been sold or licensed or offered for sale or license,
or from whom purchases or licenses thereof have been solicited, at any time
during the two years preceding the date of this Agreement, by CNET.
"Employee" means any individual employed by the Corporation or CNET or
any of their affiliates at any time during the Restricted Period.
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"Person" means an individual, corporation, partnership, limited
liability company, joint venture, trust or other entity.
"Restricted Period" means the period beginning on the date hereof and
ending on the second anniversary of the Closing (as defined in the Acquisition
Agreement).
"Restricted Territory" means the United States of America.
(b) The Shareholder agrees that during the Restricted Period he will not either
directly or indirectly:
(1) engage in any Competition in any Restricted Territory; or
(2) be or become an employee, officer, director, shareholder, partner,
agent or consultant of, or acquire or have any proprietary or other equity
interest in, or otherwise participate or assist in the business of, any Person
who engages in any Competition in any Restricted Territory; provided, that the
Shareholder may own, directly or indirectly, solely as a passive investment,
securities issued by such Person if such securities are publicly traded and do
not constitute more than 2% in the aggregate of the outstanding equity
securities of such Person.
In the event that the Shareholder desires to engage in any activity, or have any
interest or participation, or serve in any capacity, prohibited by this
Paragraph 1(b), then the Shareholder may seek Glenayre's consent for the same
and Glenayre may, in its absolute discretion, so consent in writing.
(c) The Shareholder agrees that during the Restricted Period he will not,
directly or indirectly through or on behalf of any other Person, solicit or
enter into any transaction with any Customer for the purpose of any sale or
license to such Customer of products, processes, goods or services the sale or
license of which would constitute Competition.
(d) The Shareholder agrees that during the Restricted Period he will not
without Glenayre's consent (which consent shall be in Glenayre's sole
discretion), directly or indirectly through or on behalf of any other Person,
induce or attempt to induce any Employee to leave his or her employment with the
Corporation or CNET or any of their affiliates; provided, however, that the
Shareholder shall not be prohibited from merely placing want ads in public
publications or engaging a recruiter to recruit employees (but without providing
the names of any Employees to any such recruiter).
(e) The Shareholder understands that in his capacity as a shareholder, officer,
director and an employee of CNET, he has obtained "Confidential Information"
relating to the Business. As used herein, the term "Confidential Information"
means any information or compilations of information (including without
limitation trade secrets, technology, names, addresses or needs of customers,
other customer or supplier lists, formulae, patterns, devices, plans or
processes or any other proprietary information relating to the Business) of CNET
which is private or confidential in that it is not known or available to the
public or generally in the industry and gives CNET an opportunity to obtain an
advantage over competitors who do not know or use it. The Shareholder shall not,
without the prior written consent of the Corporation, at any time during or
after the Restricted Period (1) use or disclose any such Confidential
Information outside the Corporation (or its affiliated companies, including
CNET), (2) aid in the removal from CNET or delivery to any third party of any
such Confidential Information or (3) sell, exchange or give away or otherwise
dispose (or assist therein) of any such Confidential Information now or
hereafter owned by CNET, whether or not the same shall or may have been
originated, discovered or developed by the Shareholder. The Shareholder
acknowledges and confirms that he has or claims no proprietary interest in any
such information, or in any technology, invention, patent, trademark or other
intellectual property of, used or to be acquired by the Corporation, CNET or any
of their affiliates at any time during the Restricted Period.
A-85
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(f) The Shareholder acknowledges that, in view of the nature of the Business
and the business objectives of the Corporation in entering into this Agreement
and the Acquisition Agreement, the restrictions contained in this Section 1 are
reasonably necessary to protect the legitimate business interests of the
Corporation, and that any violation of such restrictions will result in
irreparable injury to the Corporation for which damages will not be an adequate
remedy. The Shareholder therefore acknowledges that if he violates any such
restrictions, the Corporation shall be entitled to preliminary and permanent
injunctive relief as well as to an equitable accounting of earnings, profits and
other benefits arising from such violation.
(g) If any of the provisions contained in this Section 1 shall for any reason
be held to be overly broad as to duration, scope, activity or subject, any such
provision shall be construed by limiting and reducing it, so as to be
enforceable to the extent compatible with the applicable law or the
determination by a court of competent jurisdiction.
(h) The rights and remedies of the Corporation hereunder are not exclusive of
or limited by or in limitation of any other rights or remedies which it may
have, whether at law, in equity, by contract or otherwise, all of which shall be
cumulative. Without limiting the generality of the foregoing, the rights and
remedies of the Corporation hereunder, and the obligations and liabilities of
the Shareholder hereunder, are in addition to their respective rights, remedies,
obligations and liabilities under the law of unfair competition.
2. SEVERABILITY. Should any provision of this Agreement or part thereof be held
under any circumstances in any jurisdiction to be invalid or unenforceable, such
invalidity or unenforceability shall not affect the validity or enforceability
of any other provision or other part of such provision, or of such provision or
part thereof under any other circumstances or in any other jurisdiction.
3. GOVERNING LAW. The construction, validity and enforceability of this
Agreement shall be governed by the laws of the State of Texas.
4. NO WAIVER. No failure or delay of the Corporation in enforcing any of its
rights hereunder at any time shall constitute or evidence any waiver of such
rights.
5. CONSENT TO JURISDICTION. Each of the parties hereby consents and agrees to
the non-exclusive jurisdiction of all courts sitting in the State of Texas in
connection with any claim, dispute or controversy arising under or in connection
with this Agreement or any actual or alleged breach hereof.
6. MISCELLANEOUS. This Agreement and the Acquisition Agreement constitute the
sole and entire agreement and understanding between the parties hereto as to the
subject matter hereof, and supersedes all prior discussions, agreements and
understandings of every kind and nature between them as to such subject matter.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, personal representatives, successors and
assigns. The captions of this Agreement are for convenience of reference only
and shall not affect in any manner any of the terms, covenants or conditions
hereof. Words of the masculine gender shall mean and include correlative words
of the feminine and neuter genders and words importing the singular number shall
mean and include the plural number and vice versa. This Agreement may be
executed in multiple counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document.
A-86
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Corporation
and the Shareholder as of the day and year first above written.
GLENAYRE TECHNOLOGIES, INC.
By:
Name:
Title:
------------------
Scott R. Greenwell
A-87
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EXHIBIT E
[Date]
CNET, Inc. and its Shareholders
4975 Preston Park Boulevard, 8th Floor
Plano, Texas 75093
Re: Acquisition Agreement and Plan of Merger dated as of August
___, 1996 (the "Acquisition Agreement") by and among Glenayre
Technologies, Inc. ("Glenayre"), CNET Acquisition Corp.
("Merger Sub"), CNET, INC. ("CNET") and the Principal
Shareholders of CNET
Ladies and Gentlemen:
We have acted as counsel to Glenayre Technologies,Inc. and its wholly-owned
subsidiary, CNET Acquisition Corp. ("Merger Sub"), in connection with the merger
of Merger Sub with and into CNET pursuant to the terms of the Acquisition
Agreement (the "Merger"). This opinion is given to you pursuant to Section
8.2(c) of the Acquisition Agreement. All capitalized terms used and not
otherwise defined herein shall have the meanings ascribed to such terms in the
Acquisition Agreement.
In rendering the opinions set forth below, we have examined originals or copies
of the Acquisition Agreement and the Escrow Agreement (such documents being
referred to herein individually as a "Transaction Document" and collectively as
the "Transaction Documents") and originals or copies, certified or otherwise
identified to our satisfaction, of such other documents, corporate records and
certificates of public officials and corporate officers, and have made such
investigations of fact and law, as we have deemed relevant and necessary as a
basis for such opinions.
In giving the opinions expressed herein and making our investigations in
connection herewith, we have assumed (a) the due authorization, execution and
delivery by the parties thereto other than Glenayre and Merger Sub of the
documents examined by us, (b) the genuineness of all signatures of individuals,
(c) the due existence of all corporations other than Glenayre and Merger Sub and
the personal legal capacity of all individual signatories, (d) the authenticity
of all documents presented to us as originals, (e) the conformity to the
originals of all documents presented to us as copies, and (f) the integrity and
completeness of the corporate minute books of Glenayre and Merger Sub presented
to us for our examination, and we have no reason to believe that the foregoing
assumptions are unwarranted.
We have also assumed that the Transaction Documents and the transactions
evidenced thereby, are valid, binding and enforceable against all parties
thereto other than Glenayre and Merger Sub.
Based upon and subject to the foregoing, and subject to the comments and
qualifications set forth below, we are of the opinion that:
1. Glenayre is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Merger Sub is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Texas.
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<PAGE>
CNET, Inc. and its Shareholders
__________, 1996
Page __
2. Glenayre and Merger Sub each has all requisite corporate power and
authority own, lease and operate its properties and to carry on its
business as now conducted and to enter into and perform its obligations
under the Transaction Documents.
3. The execution, delivery and performance by Glenayre and Merger Sub of
the Transaction Documents have been duly authorized by all necessary
action on the part of Glenayre and Merger Sub. The Transaction
Documents have been duly executed and delivered by Glenayre and Merger
Sub, and assuming the due execution and delivery by the other parties
thereto, each Transaction Document constitutes the legal, valid and
binding obligation of Glenayre and Merger Sub, enforceable against them
in accordance with their respective terms.
4. The execution and delivery by Glenayre and Merger Sub of the
Transaction Documents do not, and the consummation of the transactions
contemplated thereunder and compliance by Glenayre and Merger Sub with
the terms, conditions and provisions of the Transaction Documents will
not, (i) violate any provision of the certificate or articles of
incorporation or bylaws of either Glenayre or Merger Sub, (ii) violate
any federal or North Carolina law, statute, rule or regulation of any
administrative agency or governmental body applicable to Glenayre or
Merger Sub, or to our knowledge, any judgment, order, writ,
stipulation, injunction, award or decree of any federal or North
Carolina court, arbiter, administrative agency or governmental body
that is addressed to and binding on Glenayre or Merger Sub or (iii)
constitute a breach or default under, or violate, any of the terms,
conditions or provisions of any material contract, undertaking,
indenture or other agreement or instrument binding on Glenayre or
Merger Sub and known to us, except for breaches or defaults which
individually or in the aggregate, would have only an immaterial effect
on the business, results of operations or financial condition of
Glenayre.
5. Except for the filing of the Articles of Merger containing the
Acquisition Agreement with the Texas Secretary of State and certain
other filings not yet due as of the date hereof, no authorization,
approval or consent of, or declaration or filing with, or taking of any
action in respect of or by, any federal or North Carolina governmental
authority or regulatory body, is necessary or required in connection
with the execution and delivery by Glenayre and Merger Sub of the
Transaction Documents or the performance by Glenayre or Merger Sub of
their respective obligations thereunder.
6. The authorized capital stock of Glenayre consists of 200,000,000 shares
of Common Stock, $.02 par value per share ("Glenayre Common Stock"),
and 5,000,000 shares of Preferred Stock, $.01 par value per share. The
authorized capital stock of Merger Sub consists of 1,000 shares of
Common Stock, all of which are issued and outstanding and owned by
Glenayre.
7. The shares of Glenayre Common Stock to be issued in the Merger, when
issued upon the terms and for the consideration set forth in the
Acquisition Agreement and the Plan of Merger, will have been duly
authorized and will be validly issued, fully paid and nonassessable,
and will not have been issued in violation of any preemptive rights.
8. The shares of Glenayre Common Stock to be issued in the Merger have
been approved for listing on the NASDAQ Stock Market.
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<PAGE>
CNET, Inc. and its Shareholders
__________, 1996
Page __
9. We have been informed by the SEC that the Registration Statement on
Form S-4 for the shares of Glenayre Common Stock to be issued in the
Merger has become effective under the Securities Act, and no stop order
suspending the effectiveness of the Registration Statement has been
issued under the Securities Act and no proceedings therefor have been
instituted or threatened by the SEC. The shares of Glenayre Common
Stock to be issued in the Merger conform to all statements relating
thereto contained in such Registration Statement (or incorporated
therein by reference) or the Prospectus contained therein (or
incorporated therein by reference).
Our opinions set forth above are subject to the following additional
qualifications:
(i) Enforcement of the Transaction Documents may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar state or federal debtor relief laws in
effect from time to time and which affect the enforcement of
creditors' rights in general.
(ii) Enforcement of the Transaction Documents is subject to the
effect of general principles of equity and the possible
unavailability of specific performance or injunctive relief
regardless of whether considered in a proceeding in equity or
at law.
(iii) Any part of the opinion set forth above relating to compliance
with or a lack of violation of the provisions of any laws,
statutes, rules or regulations, or relating to the obtaining
of all necessary governmental or regulatory approvals, does
not include any opinion with respect to any laws, statutes or
regulations of any county, city or other political subdivision
of the State of North Carolina.
(iv) Opinions or statements herein given "to our knowledge" or
qualified as "known to us" and the factual matters on which we
have relied in giving other opinions herein (except for our
opinions as to corporate matters that we have given in
reliance upon our own investigation of the minute books of
Glenayre and Merger Sub and certificates of public officials
and officers of Glenayre and Merger Sub) are based upon (a)
information coming to the attention of the lawyers in our firm
who have given substantive attention to the transactions
contemplated by the Transaction Documents and (b) the
representations and warranties of Glenayre and Merger Sub
contained in the Acquisition Agreement. We have made no review
of the public record.
(v) We are licensed to practice law in the State of North
Carolina. Our opinions expressed above are limited to the laws
of the State of North Carolina and the federal laws of the
United States, and we express no opinion with respect to the
laws of any other jurisdiction, including principles of
conflict of laws. As to matters governed by Texas law, we have
relied upon the opinion of Leonard, Hurt & Parvin, Texas
counsel, for purposes of this opinion letter.
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<PAGE>
CNET, Inc. and its Shareholders
__________, 1996
Page __
The opinions expressed herein may be relied upon by CNET, its Board of
Directors and shareholders, and may not be relied upon by any other party
without the prior written consent of the undersigned.
Very truly yours,
KENNEDY COVINGTON LOBDELL & HICKMAN, L.L.P.
By:
Eugene C. Pridgen
Partner
A-91
<PAGE>
EXHIBIT F-1
[Letterhead of Gardere & Wynne, L.L.P.]
________________, 199_
Glenayre Technologies, Inc.
5935 Carnegie Boulevard
Charlotte, North Carolina 28209
Gentlemen:
We have acted as counsel to CNet, Inc., a Texas corporation ("CNet"), in
connection with the execution and delivery of, and the consummation of the
transactions described in, the Acquisition Agreement and Plan of Merger dated as
of October ___, 1996 among CNet, certain shareholders of CNet, CNet Acquisition
Corp. ("CNet Acquisition"), and you (the "Agreement"). This opinion letter is
being delivered pursuant to Section 8.3(e) of the Agreement. Capitalized terms
used in this opinion letter shall have the meanings ascribed thereto in the
Agreement, unless otherwise specifically defined herein.
In rendering the opinions expressed herein, we have examined originals or
copies, certified or otherwise authenticated to our satisfaction, of the
Agreement and the Officers' Certificate of CNet of even date herewith and
attached as Exhibit A hereto (the "Officers' Certificate").
In addition, we have examined such other documents and other items as we have
deemed necessary for the purpose of rendering the opinions expressed herein. In
our examination, we have assumed the genuineness of all signatures, the legal
capacity or competency of natural Persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as conformed or reproduction copies, and the
authenticity of the originals of such conformed or reproduction copies.
As to various facts material to the opinions expressed herein, we have relied
upon written and oral statements, representations, and certificates of public
officials, of certain officers of CNet (including, without limitation, the
Officers' Certificate), and of the Principal Shareholders, and (except as
otherwise specifically set forth herein) we have not made any investigation as
to the accuracy or completeness of the information obtained thereby. We have
assumed, without investigation or verification, that none of such information
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements not misleading.
Based upon the foregoing, and subject to the exceptions, limitations, and
qualifications hereinafter stated, we are of the following opinions:
1. CNet has been duly incorporated and is validly existing and in good standing
under the laws of the State of Texas, with requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now conducted and to enter into and perform its obligations under the
Agreement.
2. CNet's execution and delivery of, and performance of its obligations under,
the Agreement have been duly authorized by all necessary corporate action of
CNet, and no other corporate proceedings on the part of CNet are necessary to
authorize its execution and delivery of, and performance of its obligations
under, the Agreement. The Agreement has been duly executed and delivered by CNet
and the Principal Shareholders. The
A-92
<PAGE>
Glenayre Technologies, Inc.
__________, 199_
Page __
Agreement has been duly approved by the shareholders of CNet in accordance with
the Texas Business Corporation Act (the "TBCA").
3. The execution and delivery of the Agreement by CNet and the Principal
Shareholders and the consummation of the Merger by CNet pursuant to the
Agreement do not (i) violate (a) any federal or Texas statute, rule or
regulation applicable to CNet or (b) to the best of our knowledge, any judgment,
order, writ, stipulation, injunction, award or decree of any federal or Texas
court, administrative agency or governmental body that is addressed to and
binding on CNet, (ii) violate the provisions of the Articles of Incorporation or
the Bylaws of CNet now in effect, (iii) result in the breach of or a default
under any of the written agreements set forth in the schedules to the Agreement,
except for breaches or defaults which individually or in the aggregate would
have only an immaterial effect on the business, results of operations or
financial condition of CNet and CNet Sub taken as a whole, or (iv) except for
the filing of Articles of Merger with the Texas Secretary of State and any
informational filings that may be required after consummation of the Merger,
require any consents, approvals, authorizations, registrations, declarations or
filings by CNet under any federal or Texas statute applicable to CNet that have
not been obtained or completed.
4. The authorized capital stock of CNet consists of 150,000,000 shares of
common stock (the "Common Stock"), of which __________ shares are issued and
outstanding and are owned of record by the shareholders of CNet as set forth on
Exhibit B to this opinion letter. All of the issued and outstanding shares of
Common Stock have been duly authorized and validly issued and are fully paid and
non-assessable and free of preemptive rights under the TBCA and the Articles of
Incorporation and the Bylaws of CNet in effect at the time of issuance. To our
knowledge based solely on a review of the minute books of CNet provided to us by
CNet, options to purchase ________ shares of the Common Stock are outstanding,
which options were not granted in violation of any preemptive rights under the
TBCA or the Articles of Incorporation and the Bylaws of CNet in effect on the
date of grant. To the best of our knowledge, except as set forth in Schedule 5.3
to the Agreement, there are no other options, warrants or other rights,
agreements, arrangements or commitments of any character to which CNet or any of
the Shareholders is a party relating to the issued or unissued Common Stock of,
or other equity interests in, CNet.
5. Upon the filing of Articles of Merger containing the Agreement as a "plan of
merger" under the TBCA and other statutorily required information, executed by
duly authorized officers of each of CNet and CNet Acquisition, with the Texas
Secretary of State, together with appropriate tax clearance certificates as
required by applicable Texas law and regulations, the Merger will be effective
in accordance with the TBCA.
The opinions expressed herein are subject to the following exceptions,
limitations, and qualifications:
A. The phrase "to the best of our knowledge" refers only to the actual current
consciousness of attorneys in this Firm who have represented CNet in connection
with the transactions described in the Agreement and does not indicate or imply
that any independent investigation has been made by any of such attorneys with
respect to the matters covered thereby, other than discussions with, or reliance
upon certificates of, certain officers of CNet and the Principal Shareholders.
B. The opinions expressed herein are limited to the laws and regulations of the
State of Texas and to the federal laws and regulations of the United States of
America, and we assume no responsibility as to applicability or the effect of
any other laws or regulations. No opinion is expressed herein with respect to
any laws or regulations of any county, city, or other political subdivision of
the State of Texas.
A-93
<PAGE>
Glenayre Technologies, Inc.
__________, 199_
Page __
C. The opinions expressed herein are rendered as of the time immediately
preceding the Effective Time.
D. We have assumed that the Agreement has been duly authorized, executed, and
delivered by each party thereto other than CNet and the Principal Shareholders
and constitutes the legal, valid, and binding obligations of each such other
party, enforceable against each such other party in accordance with its terms.
E. We have assumed that the Agreement and the Escrow Agreement constitute the
legal, valid and binding obligations of CNet and the Principal Shareholders,
enforceable against each of them in accordance with their respective terms.
However, we refer you to the separate opinion letter of even date herewith of
CNet's special North Carolina counsel for the transaction, Womble Carlyle
Sandridge & Rice, PLLC, addressing enforceability of the Agreement as to CNet
and the Principal Shareholders and the Escrow Agreement as to the Shareholders'
Representative.
F. The opinions expressed herein are limited to the matters specifically
addressed, and no opinion is implied or may be inferred beyond the matters so
specifically addressed. Without limiting the generality of the foregoing, no
opinions are expressed herein as to the applicability to or the effect of the
antitrust laws and regulations or the securities laws and regulations of the
United States of America or the State of Texas to the Agreement or any of the
transactions described therein.
G. The opinions expressed herein are rendered as of the date of this opinion
letter, and we undertake no obligation to advise you of, or to supplement any of
such opinions because of, any changes or developments in fact or law that may
hereafter come to our attention.
The opinions expressed herein are solely for your benefit in connection with
the transactions described in the Agreement and may not be relied upon for any
other purpose or by any other Person without our prior written consent. No part
of this opinion letter may be used, circulated, quoted, or otherwise referred to
in any document or report, or provided to or used by any other Person without
our prior written consent.
Very truly yours,
GARDERE & WYNNE, L.L.P.
By:
Richard A. Tulli, Partner
A-94
<PAGE>
EXHIBIT F-2
[Date]
Glenayre Technologies, Inc.
5935 Carnegie Boulevard
Charlotte, NC 28209
Re: Acquisition Agreement and Plan of Merger dated as of August __, 1996 by
and among Glenayre Technologies, Inc., CNet Acquisition Corp. and the
Principal Shareholders of CNet, Inc. (the "Acquisition Agreement")
Ladies and Gentlemen:
We have acted as North Carolina counsel to CNet, Inc., a Texas corporation
("CNet"), in connection with the merger of CNet Acquisition Corp. (the "Merger
Sub"), a wholly owned subsidiary of Glenayre Technologies, Inc., with and into
CNet pursuant to the terms of the Acquisition Agreement (the "Merger"). This
opinion is being delivered pursuant to Section 8.3(e) of the Acquisition
Agreement. Capitalized terms used and not otherwise defined in this opinion
letter shall have the meanings given to them in the Acquisition Agreement.
In rendering the opinion set forth below, we have examined originals or copies
of the Acquisition Agreement and the Escrow Agreement. In addition, we have
examined such other documents as we have deemed necessary for the purpose of
rendering the opinion set forth below.
In our examination, we have assumed (a) the due authorization, execution and
delivery by the parties thereto of the Acquisition Agreement and the Escrow
Agreement, (b) the Acquisition Agreement constitutes a legally valid and binding
obligation of each party thereto other than CNet and the Principal Shareholders,
enforceable against each such party in accordance with its terms, (c) the Escrow
Agreement constitutes a legally valid and binding obligation of each party
thereto other than the Shareholders' Representative, enforceable against each
such party in accordance with its terms, (d) the effectiveness of the Merger
under the TBCA, (e) the authenticity of all documents presented to us as
originals and (f) the conformity to the originals of all documents presented to
us as copies.
Based upon and subject to the foregoing, and subject to the exceptions and
limitations set forth below, we are of the opinion that the Acquisition
Agreement constitutes the legal, valid and binding obligation of CNet and the
Principal Shareholders, enforceable against them in accordance with its terms,
and the Escrow Agreement constitutes the legal, valid and binding obligation of
the Shareholders' Representative, enforceable against the Shareholders'
Representative in accordance with its terms.
The opinion set forth above is subject to bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar state or federal
debtor relief laws in effect from time to time and which affect the enforcement
of creditor's rights in general and is subject to the effect of general
principles of equity and the possible unavailability of specific performance or
injunctive relief regardless of whether considered in a proceeding in equity or
at law.
The opinion set forth above is limited to the laws of the State of North
Carolina and the federal laws of the United States, and we express no opinion
with respect to the laws of any other jurisdiction.
A-95
<PAGE>
The opinion set forth above is rendered as of the date of this opinion letter,
and we undertake no obligation to advise you of any changes or developments in
fact or law that may later come to our attention.
The opinion set forth above is solely for your benefit in connection with the
transactions described in the Acquisition Agreement and the Escrow Agreement and
may not be relied upon by any other party without the prior written consent of
the undersigned.
Very truly yours,
WOMBLE CARLYLE SANDRIDGE & RICE
A Professional Limited Liability Company
By:
Garza Baldwin, III
A-96
<PAGE>
EXHIBIT G
GARDERE & WYNNE, L.L.P.
FORM OF TAX OPINION
(214) 999-3000
______________, 199_
CNET, Inc.
4975 Preston Park Boulevard, 8th Floor
Plano, Texas 75093
Gentlemen:
We have acted as counsel to CNET, Inc., a Texas corporation ("CNET"), in
connection with the execution and delivery of the Acquisition Agreement dated on
or about October __, 1996 (the "Acquisition Agreement") by and among Glenayre
Technologies, Inc., a Delaware corporation ("Glenayre"); CNET Acquisition Corp.,
a Texas corporation and a wholly-owned subsidiary of Glenayre ("Merger Sub");
David M. Zumwalt, Scott R. Greenwell and Charles D. Staggs (collectively, the
"Principal Shareholders"). The Acquisition Agreement provides for the merger of
Merger Sub with and into CNET (the "Merger"), with CNET surviving. This opinion
letter is being furnished to you pursuant to the Acquisition Agreement. Unless
otherwise defined herein or the context hereof otherwise requires, each term
used herein with its initial letter capitalized has the meaning ascribed to such
term in the Acquisition Agreement.
We have examined, are familiar with and are relying upon (without any
independent investigation or review thereof) the truth and accuracy, at all
relevant times, of originals or copies, certified or otherwise authenticated to
our satisfaction, of such documents (including all exhibits and schedules
thereto) and records of CNET and its subsidiaries, and such statutes,
regulations and instruments as we have deemed necessary or advisable for the
purposes of this opinion letter, including, without limitation, the Acquisition
Agreement and the representations made by (i) CNET and Glenayre in the
Acquisition Agreement, (ii) CNET in the officer's certificate issued by CNET in
connection with the Merger, and (iii) certain Shareholders in connection with
the Merger (collectively, the "Representations").
In connection with rendering our opinion, we have assumed the following:
(a) the accuracy of the Representations;
(b) the due authorization, execution and delivery of the Acquisition Agreement
by CNET, Glenayre, Merger Sub and the Principal Shareholders and that the
Acquisition Agreement constitutes the legal, valid and binding obligation of
CNET, Glenayre, Merger Sub and the Principal Shareholders, enforceable against
each party in accordance with its terms, and will be effective under the laws of
the State of Delaware and of the State of Texas;
(c) based on letters provided to us by certain Shareholders, there is no plan
or intention by any Shareholder who owns one percent (1%) or more of the CNET
Common Stock, to sell, exchange, dispose of, or otherwise engage in any other
transaction that would result in a reduction in the risk of ownership or a
direct or
A-97
<PAGE>
___________, 199_
CNET, Inc.
Page __
indirect disposition of a number of shares of Glenayre Common Stock received in
the Merger that would reduce the Shareholders' ownership of Glenayre Common
Stock to a number of shares having an aggregate fair market value, as of the
date of the Merger, of less than fifty percent (50%) of the aggregate fair
market value of all of the formerly outstanding CNET Common Stock immediately
prior to the Merger;
(d) all outstanding indebtedness of CNET is properly classified for federal
income tax purposes as debt rather than stock, and thus the Shareholders are
exchanging CNET stock constituting control of CNET for Glenayre voting stock in
the Merger; and
(e) none of the compensation or other similar payments received by any
stockholder-employee of CNET pursuant to any employment, consulting or similar
arrangement is or will be separate consideration for, or allocable to, any of
his CNET Common Stock; none of the Glenayre Common Stock received by any
stockholder- employee of CNET pursuant to the Merger is or will be separate
consideration for, or allocable to, any employment, consulting or similar
arrangement; and the compensation paid to any stockholder-employee of CNET
pursuant to any such employment, consulting or similar arrangement is or will be
for services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's-length for similar services.
In connection with rendering our opinion, we have also considered applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and
Department of Treasury regulations promulgated under the Code (whether proposed,
temporary, or final) now in effect (collectively, "Treasury Regulations"),
pertinent judicial authorities regarding applicable provisions of the Code and
Treasury Regulations, interpretive rulings of the Internal Revenue Service
("IRS") and such other federal tax-related authorities as we have considered
relevant.
Based upon the foregoing and subject to the assumptions, exceptions,
qualifications and limitations set forth herein, we are of the opinion that the
Merger will, under current law, constitute a reorganization under Code Sections
368(a)(1)(A) and 368(a)(2)(E), and CNET, Glenayre and Merger Sub will each be a
party to the reorganization within the meaning of Code Section 368(b). As a
reorganization under Code Sections 368(a)(1)(A) and 368(a)(2)(E), the Merger
will have the following federal income tax consequences for CNET, Glenayre and
Merger Sub and the Shareholders:
(a) no gain or loss will be recognized by the Shareholders upon their receipt
of Glenayre Common Stock and cash in exchange for CNET Common Stock in the
Merger, except that:
(i) cash received by a Shareholder in lieu of a fractional share
of Glenayre Common Stock will result in capital gain or loss to the Shareholder
equal to the difference between the cash received and the Shareholder's basis in
the CNET Common Stock allocable to such fractional share interest, provided that
the CNET Common Stock is held as a capital asset at the time of the Merger, and
(ii) if the CNET Common Stock is held as a capital asset at the
time of the Merger, a Shareholder will recognize capital gain in an amount equal
to the excess of (x) the sum of the fair market value of the Glenayre Common
Stock and the amount of cash (other than cash in lieu of fractional shares)
received in the Merger over (y) the Shareholder's basis in the CNET Common Stock
surrendered in the Merger (except the basis in the CNET Common Stock allocable
to a fractional share interest), provided that the payment of cash in the Merger
does not have the effect of a dividend within the meaning of Code Section
356(a)(2);
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___________, 199_
CNET, Inc.
Page __
(b) the tax basis of the Glenayre Common Stock received in the Merger by each
Shareholder will equal the tax basis at the time of the Merger of the
Shareholder's CNET Common Stock (other than basis allocable to fractional share
interests for which cash is received) exchanged in the Merger, increased by the
sum of (i) the gain, if any, recognized by the Shareholder in connection with
the Merger (other than the gain allocable to the sale of fractional shares for
cash) and (ii) the amount of cash received, if any, that is treated as a
dividend, and reduced by the amount of cash (other than cash in lieu of
fractional shares) received in the Merger;
(c) the holding period for tax purposes of the Glenayre Common Stock received
by each Shareholder in the Merger will include the period for which the CNET
Common Stock surrendered in exchange therefor was held by the recipient,
provided the CNET Common Stock is held as a capital asset at the time of the
Merger;
(d) CNET, Glenayre and Merger Sub will not recognize income, gain, or loss
solely as a result of the Merger; and
(e) a CNET shareholder who exercises dissenter's rights and receives a cash
payment for CNET Common Stock will recognize capital gain or loss equal to the
difference between the cash received and the shareholder's basis in CNET Common
Stock, provided that the CNET Common Stock is held as a capital asset and the
cash payment constitutes a distribution in exchange for the CNET Common Stock
and not a dividend distribution pursuant to Code Section 302.
In addition to the assumptions set forth above, this opinion is subject to the
exceptions, limitations and qualifications set forth below:
1. No opinion is implied or may be inferred as to the federal, state, local or
foreign tax consequences that may result from the Merger under the provisions of
any section of the Code or Treasury Regulations not specifically discussed
herein that may also be applicable to the Merger.
2. The opinion expressed herein regarding the federal income tax consequences
of the Merger is based upon our best judgment regarding the application of
federal income tax laws arising under the Code, the Treasury Regulations,
existing judicial decisions, administrative regulations and published rulings
and procedures. Our opinion is not binding on the IRS or any court or other
governmental entity, and the IRS is not precluded from asserting a contrary
position. Furthermore, no assurance can be given that future legislative,
judicial or administrative changes, on either a prospective or retroactive
basis, would not adversely affect the accuracy of the opinion expressed herein.
Nevertheless, we disclaim any obligation to advise you of, or to supplement our
opinion because of, any changes in fact or law which might affect our opinion.
3. No opinion is expressed (i) as to any transaction other than the Merger as
described in the Acquisition Agreement, (ii) as to the Merger if it is not
consummated in accordance with the terms of the Acquisition Agreement without
waiver or breach of any material provision thereof, or (iii) if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
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<PAGE>
___________, 199_
CNET, Inc.
Page __
4. The opinions expressed herein are solely for the benefit of CNET and the
Shareholders and may not be relied upon by any other person(s) without our prior
written consent.
Very truly yours,
GARDERE & WYNNE, L.L.P.
By:
Stephen D. Good, Partner
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ANNEX B
Articles 5.11 through 5.13 of the Texas Business Corporation Act.
5.11 RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN CORPORATE
ACTIONS.- A. Any shareholder of a domestic corporation shall have the right to
dissent from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this Act and the
shareholder holds shares of a class or series that was entitled to vote thereon
as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise provided in
the articles of incorporation) of all, or substantially all, the property and
assets, with or without good will, of a corporation requiring the special
authorization of the shareholders as provided by this Act;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which
the shares of the corporation of the class or series held by the shareholder are
to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in which
there is a single surviving or new domestic or foreign corporation, or from any
plan of exchange, if (1) the shares held by the shareholder are part of a class
shares of which are listed on a national securities exchange, or are held of
record by not less than 2,000 holders, on the record date fixed to determine the
shareholders entitled to vote on the plan of merger or the plan of exchange, and
(2) the shareholder is not required by the terms of the plan of merger or the
plan of exchange to accept for his shares any consideration other than (a)
shares of a corporation that, immediately after the effective time of the merger
or exchange, will be part of a class or series of shares of which are (i)
listed, or authorized for listing upon official notice of issuance, on a
national securities exchange, or (ii) held of record by not less than 2,000
holders, and (b) cash in lieu of fractional shares otherwise entitled to be
received.
5.12 PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTION.-
A. Any shareholder of any domestic corporation who has the right to dissent from
any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1) (a) With respect to proposed corporate action that is submitted to a
vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action, setting
out that the shareholder's right to dissent will be exercised if the action is
effective and giving the shareholder's address, to which notice thereof shall be
delivered or mailed in that event. If the action is effected and the shareholder
shall not have voted in favor of the action, the corporation, in the case of
action other than a merger, or the surviving or new corporation (foreign or
domestic) or other entity that is liable to discharge the shareholder's right of
dissent, in the case of a merger, shall, within ten (10) days after the action
is effected, deliver or mail to the shareholder written notice that the action
has been effected, and the shareholder may, within ten (10) days from the
delivery or mailing of the notice, make written demand on the existing,
surviving, or new corporation (foreign or domestic) or other entity, as the case
may be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and class
of the shares owned by the shareholder and the fair value of the shares as
estimated by the shareholder. Any shareholder failing to make demand within the
ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved pursuant
to Section A of Article 9.10 of this Act, the corporation, in the case of action
other than a merger, and the surviving or new corporation (foreign or domestic)
or other entity that is liable to discharge the shareholder's right of dissent,
in the case of a merger, shall, within ten (10) days after the date the action
is effected, mail to each shareholder of record as of the effective date of the
action notice of the fact and date of the action and that the shareholder may
exercise the shareholder's right to dissent from the action. The notice shall be
accompanied by a copy of this Article and any articles or documents filed by the
corporation with the
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Secretary of State to effect the action. If the shareholder shall not have
consented to the taking of the action, the shareholder may, within twenty (20)
days after the mailing of the notice, make written demand on the existing,
surviving, or new corporation (foreign or domestic) or other entity, as the case
may be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the date the written
consent authorizing the action was delivered to the corporation pursuant to
Section A of Article 9.10 of this Act, excluding any appreciation or
depreciation in anticipation of the action. The demand shall state the number
and class of shares owned by the dissenting shareholder and the fair value of
the shares as estimated by the shareholder. Any shareholder failing to make
demand within the twenty (20) day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, of a
demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or other
entity shall deliver or mail to the shareholder a written notice that shall
either set out that the corporation (foreign or domestic) or other entity
accepts the amount claimed in the demand and agrees to pay that amount within
ninety (90) days after the date on which the action was effected, and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed, or shall contain an estimate by the corporation
(foreign or domestic) or other entity of the fair value of the shares, together
with an offer to pay the amount of that estimate within ninety (90) days after
the date on which the action was effected, upon receipt of notice within sixty
(60) days after that date from the shareholder that the shareholder agrees to
accept that amount and, in the case of shares represented by certificates, upon
the surrender of the certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall be
made within ninety (90) days after the date on which the action was effected
and, in the case of shares represented by certificates, upon surrender of the
certificates duly endorsed. Upon payment of the agreed value, the shareholder
shall cease to have any interest in the shares or in the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall he given by the clerk to the
parties in interest. The report shall be subject to exceptions
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<PAGE>
to be heard before the court both upon the law and the facts. The court shall by
its judgment determine the fair value of the shares of the shareholders entitled
to payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation
(foreign or domestic) or other entity, as the case may be, pursuant to the
payment of the agreed value of the shares or pursuant to payment of the judgment
entered for the value of the shares, as in this Article provided, shall, in the
case of a merger, be treated as provided in the plan of merger and, in all other
cases, may be held and disposed of by the corporation as in the case of other
treasury shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by
this Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
5.13 PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS. - A. Any
shareholder who has demanded payment for his shares in accordance with either
Article 5.12 or 5.16 of this Act shall not thereafter be entitled to vote or
exercise any other rights of a shareholder except the right to receive payment
for his shares pursuant to the provisions of those articles and the right to
maintain an appropriate action to obtain relief on the ground that the corporate
action would be or was fraudulent, and the respective shares for which payment
has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder,
the corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by
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a court shall have been filed within the time provided in Article 5.12 or 5.16
of this Act, as the case may be, or if after the hearing of a petition filed
pursuant to Article 5.12 or 5.16, the court shall determine that such
shareholder is not entitled to the relief provided by those articles, then, in
any such case, such shareholder and all persons claiming under him shall be
conclusively presumed to have approved and ratified the corporate action from
which he dissented and shall be bound thereby, the right of such shareholder to
be paid the fair value of his shares shall cease, and his status as a
shareholder shall be restored without prejudice to any corporate proceedings
which may have been taken during the interim, and such shareholder shall be
entitled to receive any dividends or other distributions made to shareholders in
the interim.
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PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 102(7) of the DGCL enables a Delaware corporation to eliminate
or limit, through provisions in its original or amended articles of
incorporation, the personal liability of a director for violations of the
director's fiduciary duties, except (i) for any breach of the director's duty of
loyalty to the corporation or its shareholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) any liability imposed pursuant to Section 174 of the DGCL (providing
for liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions) or (iv) for any transaction from which a director
derived an improper personal benefit. The Restated Certificate of Incorporation
of Glenayre contains provisions limiting the personal liability of its directors
to the fullest extent permitted by the DGCL.
Section 145 of the DGCL provides that a Delaware corporation may
indemnify any persons, including officers and directors, who are, or are
threatened to be made, parties to any threatened, pending or completed legal
action, suit or proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided, such officer, director, employee, or agent acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to criminal proceedings, had no
reasonable cause to believe that the challenged conduct was unlawful. A Delaware
corporation may indemnify officers and directors in an action brought by or in
the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must provide indemnification against the
expenses (including attorneys' fees) that such officer or director actually and
reasonably incurred.
The Restated Certificate of Incorporation of Glenayre provides for
indemnification of directors and officers of Glenayre to the fullest extent
permitted by the DGCL.
Section 145(g) of the DGCL authorizes a Delaware corporation to provide
liability insurance for directors and officers for certain losses arising from
claims or charges made against them while acting in their capacities as
directors or officers of the corporation. Glenayre has a policy insuring its
directors and officers and directors and officers of its subsidiary companies
and Glenayre and its subsidiaries to the extent they may be required or
permitted to indemnify such directors or officers, against certain liabilities
arising from acts or omissions in the discharge of their duties that they shall
become legally obligated to pay.
Item 21.(a) Exhibits.
2 Acquisition Agreement and Plan of Merger and all exhibits thereto
(filed herewith as Annex A)
5 Opinion and Consent of Kennedy Covington Lobdell & Hickman,
L.L.P. (filed herewith)
8 Opinion of Kennedy Covington Lobdell & Hickman, L.L.P. (filed
herewith)
23.1 Consent of Ernst & Young, LLP (filed herewith)
23.2 Consent of Deloitte & Touche LLP (filed herewith)
23.3 Consent of Deloitte & Touche LLP (filed herewith)
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23.4 Consents of Kennedy Covington Lobdell & Hickman, L.L.P. (see
Exhibits 5 and 8)
23.5 Consent of David Rubin & Associates, Inc. (filed herewith)
24 Power of Attorney (see page II-4)
99.1 Form of Transmittal Letter (Shareholders) (filed herewith as
Exhibit A-1 to Annex A)
99.2 Form of Acknowledgment (Option Holders) (filed herewith as
Exhibit A-2 to Annex A)
99.3 Letter of David Rubin & Associates, Inc. (filed herewith)
(b) Financial Statement Schedules.
None.
Item 22. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) to file during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or event arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information statement.
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement related to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) to remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c)(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or any party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
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(2) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Charlotte, State of North
Carolina, on November 7, 1996.
GLENAYRE TECHNOLOGIES, INC.
By: s/ Stanley Ciepcielinski
Name: Stanley Ciepcielinski
Title: Executive Vice President and Chief Financial Officer
POWER OF ATTORNEY
Each of the undersigned, being a director and/or officer of Glenayre
Technologies, Inc. ("Glenayre"), hereby nominates, constitutes, and appoints
Ramon D. Ardizzone, Gary B. Smith and Stanley Ciepcielinski, or any one of them
severally, to be his or her true and lawful attorney-in-fact and to sign in his
or her name and on his or her behalf in any and all capacities stated below, and
to file with the Securities and Exchange Commission (the "Commission"), any and
all amendments, including post-effective amendments, to this Registration
Statement, making such changes in the Registration Statement as such
attorney-in-fact deems appropriate, and generally to do all such things on his
or her behalf in any and all capacities stated below to enable Glenayre to
comply with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
s/ Ramon D. Ardizzone Chairman of the Board, Chief November 7, 1996
- ---------------------------------
Ramon D. Ardizzone Executive Officer and Director
(Principal Executive Officer)
s/ Gary G. Smith Director, President and Chief November 7, 1996
- --------------------------------- Operating Officer
Gary B. Smith
s/ Clarke H. Bailey Director November 7, 1996
- ---------------------------------
Clarke H. Bailey
s/ Gerald B. Cramer Director November 7, 1996
- ---------------------------------
Gerald B. Cramer
II-4
<PAGE>
s/ Barry W. Gray Director November 7, 1996
- ---------------------------------
Barry W. Gray
s/ John J. Hurley Director November 7, 1996
- ---------------------------------
John J. Hurley
s/ Thomas C. Israel Director November 7, 1996
- ---------------------------------
Thomas C. Israel
s/ Edward J. Rosenthal Director November 7, 1996
- ---------------------------------
Edward J. Rosenthal
s/ Stanley Ciepcielinski Executive Vice President, November 7, 1996
- ---------------------------------
Stanley Ciepcielinski Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer)
s/ Billy C. Layton Vice President, Controller and Chief November 7, 1996
- ---------------------------------
Billy C. Layton Accounting Officer (Principal
Accounting Officer)
</TABLE>
II-5
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
EXHIBITS
ITEM 21(a)
to
FORM S-4
GLENAYRE TECHNOLOGIES, INC.
Commission File No. 0-15761
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
2 Acquisition Agreement and Plan of Merger and all exhibits thereto
(filed herewith as Annex A)
5 Opinion and Consent of Kennedy Covington Lobdell & Hickman,
L.L.P. (filed herewith)
8 Opinion of Kennedy Covington Lobdell & Hickman, L.L.P. (filed
herewith)
23.1 Consent of Ernst & Young, LLP (filed herewith)
23.2 Consent of Deloitte & Touche LLP (filed herewith)
23.3 Consent of Deloitte & Touche LLP (filed herewith)
23.4 Consents of Kennedy Covington Lobdell & Hickman, L.L.P. (see
Exhibits 5 and 8)
23.5 Consent of David Rubin & Associates, Inc. (filed herewith)
24 Power of Attorney (see page II-4)
99.1 Form of Transmittal Letter (Shareholders) (filed herewith as
Exhibit A-1 to Annex A)
99.2 Form of Acknowledgment (Option Holders) (filed herewith as
Exhibit A-2 to Annex A)
99.3 Letter of David Rubin & Associates, Inc. (filed herewith)
</TABLE>
<PAGE>
************************************APPENDIX**********************************
PROXY APPENDIX
PRELIMINARY COPY
CNET, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD DECEMBER 20, 1996
The undersigned hereby appoints DAVID M. ZUMWALT and SCOTT R.
GREENWELL, and each or either of them proxies, with full power of substitution,
with the powers the undersigned would possess if personally present, to vote, as
designated below, all shares of the Common Stock of the undersigned in CNET,
Inc. ("CNET") at the Special Meeting of Shareholders to be held on December 20,
1996, commencing at 9:00 a.m., local time, at the offices of CNET, 4975 Preston
Park Boulevard, Suite 800, Plano, Texas or at any adjournments or postponements
thereof.
This proxy will be voted FOR item 1 unless otherwise specified. The
Board of Directors recommends voting for item 1.
1. A proposal to approve and adopt an Acquisition Agreement and Plan of
Merger dated as of October 16, 1996 (the "Agreement") among Glenayre
Technologies, Inc., a Delaware corporation ("Glenayre"), CNET
Acquisition Corp., a Texas corporation and wholly-owned subsidiary of
Glenayre ("Glenayre Sub"), CNET, and David M. Zumwalt, Scott R.
Greenwell and Charles D. Staggs, providing for the merger of Glenayre
Sub with and into CNET, with CNET continuing as the surviving
corporation and as a wholly-owned subsidiary of Glenayre, and the
approval and appointment of David M. Zumwalt as the Shareholders'
Representative (the "Merger"). Under the Agreement, each share of CNET
Common Stock, other than shares, if any, held by shareholders who
perfect their rights to dissent under the Texas Business Corporation
Act, will be converted into the right to receive (i) a fraction of one
share of Glenayre Common Stock equal to the Stock Exchange Ratio (as
defined below) and (ii) cash equal to $1,000,000 divided by the number
of shares of CNET Common Stock outstanding immediately prior to the
effectiveness of the Merger. Each stock option right to purchase one
share of CNET Common Stock (a "CNET Stock Option") will be converted
into the right to purchase a fraction of one share of Glenayre Common
Stock, $.02 par value, equal to the Option Exchange Ratio (as defined
below) and the option exercise price will be adjusted by dividing the
current option exercise price by the Option Exchange Ratio. No portion
of the cash will be received by holders of CNET Stock Options. The
Option Exchange Ratio is a fraction deter- mined by dividing 400,000 by
the sum of the number of shares of CNET Common Stock outstanding
immediately prior to the effectiveness of the Merger and the number of
shares of CNET Common Stock subject to CNET Stock Options at the same
time. The Glenayre Option Shares is the number of shares of Glenayre
Common Stock reserved for issuance upon exercise of the CNET Stock
Options, after conversion to options to purchase Glenayre Common Stock
upon the effectiveness of the Merger. The Stock Exchange Ratio is a
fraction determined by dividing 370,000 less the Glenayre Option Shares
by the number of shares of CNET Common Stock outstanding immediately
prior to the effectiveness of the Merger.
( ) FOR ( ) AGAINST ( ) ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
matters incidental to the Special Meeting.
Receipt of the Notice of Special Meeting and accompanying Proxy
Statement/Prospectus is hereby acknowledged. THIS PROXY WILL BE VOTED AS
SPECIFIED HEREIN, AND, UNLESS OTHERWISE DIRECTED, WILL BE VOTED FOR ITEM 1.
Please date, sign exactly as printed below and return promptly in the
enclosed postage-paid envelope.
Dated: , 1996.
(When signing as attorney, executor,
administrator, trustee, guardian,
etc., give title as such. If a joint
account, each joint owner should
sign personally.)
<PAGE>
Exhibit 5
KENNEDY COVINGTON LOBDELL & HICKMAN, L.L.P.
ATTORNEYS AT LAW
NationsBank Corporate Center
Suite 4200
100 North Tryon Street
Charlotte, North Carolina 28202-4006
Telephone 704/331-7400
Facsimile 704/331-7598
November 7, 1996
Glenayre Technologies, Inc.
5935 Carnegie Boulevard
Charlotte, North Carolina 28209
Gentlemen:
You have requested our opinion in connection with the registration
under the Securities Act of 1933, as amended, of 370,000 shares of the $.02 par
value Common Stock (the "Common Stock") of Glenayre Technologies, Inc., a
Delaware corporation (the "Company"), by the Registration Statement on Form S-4
(the "Registration Statement") to be filed by you with the Securities and
Exchange Commission in connection with the Company's acquisition of CNET, Inc.,
a Texas corporation ("CNET"), pursuant to the terms of an Acquisition Agreement
and Plan of Merger dated October 16, 1996 by and among the Company, CNET, CNET
Acquisition Corp., a Texas corporation and a wholly-owned subsidiary of the
Company, David M. Zumwalt, Scott R. Greenwell and Charles D. Staggs (the
"Agreement").
We have made such investigations of law, examined original copies,
certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates of public officials and other instruments, and
received such statements from officers and representatives of the Company, as we
have deemed necessary for purposes of this opinion.
Based upon the foregoing, we are of the opinion that the 370,000 shares
of the Common Stock to be issued and sold by the Company pursuant to the
Registration Statement have been duly and validly authorized and, when issued in
accordance with the terms of the Agreement and the terms of any stock options as
provided therein, will be validly issued, fully paid and nonassessable upon
receipt by the Company of the consideration therefor.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Sincerely,
KENNEDY COVINGTON LOBDELL & HICKMAN, L.L.P.
<PAGE>
Exhibit 8
KENNEDY COVINGTON LOBDELL & HICKMAN, L.L.P.
ATTORNEYS AT LAW
NationsBank Corporate Center
Suite 4200
100 North Tryon Street
Charlotte, North Carolina 28202-4006
Telephone 704/331-7400
Facsimile 704/331-7598
November 7, 1996
Glenayre Technologies, Inc.
5935 Carnegie Boulevard
Charlotte, North Carolina 28209
Gentlemen:
We have acted as counsel to Glenayre Technologies, Inc., a Delaware
corporation ("Glenayre"), in connection with the planned merger (the "Merger")
of CNET Acquisition Corp., a Texas corporation and a wholly-owned subsidiary of
Glenayre ("Merger Sub"), with and into CNET, Inc., a Texas corporation ("CNET"),
pursuant to an Acquisition Agreement and Plan of Merger dated as of October 16,
1996 (the "Agreement") among Glenayre, Merger Sub, CNET, David M. Zumwalt, Scott
R. Greenwell and Charles D. Staggs (collectively, the "Principal Shareholders").
Capitalized terms not otherwise defined herein shall have the same meaning set
forth in the Agreement.
For purposes of the opinion set forth below, we have reviewed and
relied upon (a) the Agreement (including all exhibits and schedules thereto and
all representations, warranties, covenants and assumptions, as applicable, made
therein), (b) the Proxy Statement/Prospectus included in the Registration
Statement on Form S-4 to be filed by Glenayre with the Securities
and Exchange Commission (the "Registration Statement") and (c) such other
documents, records and instruments as we have deemed necessary or appropriate as
a basis for our opinion. In addition, in rendering our opinion we have relied
upon certain statements, representations and warranties made by Glenayre, Merger
Sub, CNET and the Principal Shareholders, and in the Agreement and the Proxy
Statement/Prospectus, which we have neither investigated nor verified. We have
assumed that such statements, representations and warranties are true, accurate,
complete and fully satisfied, and will continue to be so through the Effective
Time and that no actions that are inconsistent with such statements,
representations and warranties will be taken.
In addition, we have made and, with your permission, relied upon, the
following assumptions, each to be true and accurate in all respects as of the
consummation of the Agreement and immediately prior to the Effective Time,
unless the context indicates otherwise:
(i) The Merger will be consummated in accordance with the
Agreement as described in the Proxy Statement/Prospectus (including
satisfaction of all covenants and conditions to the obligations of the
parties without amendment or waiver thereof).
<PAGE>
Glenayre Technologies, Inc.
November 7, 1996
Page 2
(ii) The Merger will qualify as a merger under the laws of the
State of Texas.
(iii) Each of Glenayre, Merger Sub and CNET will comply with
all reporting and record-keeping obligations with respect to the Merger
required under the Internal Revenue Code of 1986, as amended (the
"Code") and the regulations thereunder (the "Treasury Regulations").
(iv) The Agreement and all other documents and instruments
referred to therein or in the Proxy Statement/Prospectus are valid and
binding, and enforceable against each party thereto, in accordance with
their terms and will be effective under the laws of the State of
Delaware and the State of Texas.
(v) The fair market value of the Glenayre Common Stock and
other consideration received by each CNET shareholder pursuant to the
Merger will equal the fair market value of the CNET Common Stock
exchanged therefor.
(vi) At the Effective Time, CNET will not have any outstanding
warrants, options, convertible securities or any other right (including
the CNET Stock Options) pursuant to which any person could acquire
stock in CNET.
(vii) CNET has no declared but unpaid dividends.
(viii) Following the Effective Time, CNET will (A) hold assets
that had comprised immediately prior to the Effective Time (1) at least
90% of the fair market value of the net assets, and 70% of the fair
market value of the gross assets, held by it, and (2) 90% of the fair
market value of the net assets, and 70% of the fair market value of the
gross assets, held by Merger Sub and (B) continue its historic business
or use a significant portion of its historic business assets in the
conduct of its business. For purposes of this assumption, any amounts
paid to CNET's shareholders in the form of cash or property other than
shares of Glenayre Common Stock (whether due to the exercise of
dissenter rights, the receipt of cash in lieu of fractional shares or
otherwise) or by CNET or Merger Sub for expenses related to the Merger
shall be deemed to have been paid at the Effective Time.
(ix) Except with respect to the exercise of dissenter rights
pursuant to Section 4.7 of the Agreement, the receipt of cash in lieu
of fractional shares pursuant to Section 4.2 of the Agreement and the
receipt of cash pursuant to Section 4.1(a)(2) of the Agreement, each
CNET shareholder shall transfer all of such shareholder's CNET Common
Stock solely in exchange for shares of Glenayre Common Stock in the
manner provided in the Agreement.
(x) As of the Effective Time, the Escrowed Shares will appear
as issued and outstanding on the balance sheet of Glenayre, and the
Escrowed Shares shall be legally outstanding under Delaware law.
<PAGE>
Glenayre Technologies, Inc.
November 7, 1996
Page 3
(xi) All voting rights of the Escrowed Shares will be
exercisable by the CNET shareholders or their authorized agent or
agents.
(xii) All ordinary income dividends paid on Escrowed Shares
will be distributed currently to the CNET shareholders in accordance
with the Escrow Agreement.
(xiii) Following the Effective Time, each of CNET, the CNET
shareholders and Glenayre will not take any actions that would cause
the Merger to fail to qualify as a tax-free reorganization under
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
(xiv) None of Glenayre, Merger Sub and CNET is an "investment
company" as defined in Section 368(a)(2)(F) of the Code.
(xv) Payment of cash in lieu of fractional interests of CNET
Common Stock is not separately bargained for consideration and
represents a mere mechanical rounding off of the fractional share
interests.
(xvi) The total cash consideration that will be paid in the
Merger to CNET shareholders in lieu of fractional shares of Glenayre
Common Stock will not exceed 1% of the total consideration that will be
given in the transaction to the CNET shareholders in exchange for their
CNET Common Stock.
(xvii) The fractional share interests of each CNET shareholder
will be aggregated, and no CNET shareholder will receive cash or other
property with respect to such fractional share interests in an amount
equal to or greater than the value of one full share of Glenayre Common
Stock.
(xviii) There will be no change in the terms, conditions or
provisions of the CNET Stock Options that immediately prior to the
Effective Time were incentive stock options, within the meaning of
I.R.C. ss. 422(b) of the Code ("CNET Statutory Stock Options") upon the
assumption thereof by Glenayre, except for (A) the substitution of
Glenayre Common Stock for CNET Common Stock to be received upon the
exercise of CNET Stock Options after the Effective Time, (B) the
adjustment in the number and exercise price based upon the Option
Exchange Ratio to maintain the same value of the CNET Stock Options at
the Effective Time that they had immediately prior to the Effective
Time, and (C) the acceleration of the time within which the CNET Stock
Options may be exercised, all in accordance with the terms of the CNET
Statutory Stock Options and in the manner described in the Proxy
Statement/Prospectus.
(xix) There is no intercorporate indebtedness existing between
Glenayre and CNET or between Merger Sub and CNET that was issued,
acquired, or will be settled at a discount.
<PAGE>
Glenayre Technologies, Inc.
November 7, 1996
Page 4
(xx) Pursuant to the Merger, shares of Glenayre Common Stock
will be exchanged for 80% or more of the shares of CNET Common Stock
outstanding immediately prior to the Effective Time. For purposes of
this assumption, any shares of CNET Common Stock acquired by CNET or
Glenayre at anytime within one year of the Effective Time including
from dissenters pursuant to Section 4.7 of the Agreement or with
respect to fractional shares pursuant to Section 4.2 of the Agreement
shall be deemed to be outstanding immediately prior to the Effective
Time. Also, for purposes of the calculation under this clause, none of
the Escrowed Shares are deemed to be issued and outstanding at the
Effective Time or anytime thereafter.
(xxi) At the Effective Time, the fair market value of CNET's
assets will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
(xxii) CNET is not under the jurisdiction of a court in a
bankruptcy or other case under Title 11 of the United States Code, or a
receivership, foreclosure or similar proceeding in a federal or state
court.
(xxiii) To the best of their collective knowledge, the
Principal Shareholders and other members of the senior management of
CNET are not aware of any plan or intention by the CNET shareholders to
sell, exchange, transfer or otherwise dispose of any of their Glenayre
Common Stock after the Merger.
(xxiv) There is no plan or intention by any CNET shareholder
who owns 1% or more of the CNET Common Stock to sell, exchange or
otherwise dispose of a number of shares of Glenayre Common Stock
received in the Merger that would reduce the CNET shareholders'
combined ownership of Glenayre Common Stock to a number of shares
having an aggregate fair market value, as of the Effective Time, of
less than 50% of the aggregate fair market value of all of the CNET
Common Stock outstanding immediately prior to the Effective Time taking
into account any other consideration received by such shareholders,
including the receipt of cash in lieu of fractional shares, and the
CNET shareholders shall otherwise have and retain the Glenayre Common
Stock received in the Merger in amounts and for such periods of time as
shall be required to satisfy the "continuity of interest" requirement
for the Merger to qualify as a reorganization under Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code. For purposes of this
assumption, the shares of CNET Common Stock exchanged for cash in lieu
of fractional shares of Glenayre Common Stock will be treated as
outstanding as of the Effective Time.
(xxv) No CNET shareholder who is or was an employee, agent,
consultant, independent contractor or other service provider of CNET (a
"CNET Shareholder-Employee") will receive compensation as separate
consideration for, or allocable to, any of such CNET shareholder's CNET
Common Stock.
(xxvi) None of the Glenayre Common Stock received by any CNET
Shareholder-Employee pursuant to the Merger is or will be a separate
consideration
<PAGE>
Glenayre Technologies, Inc.
November 7, 1996
Page 5
for, or allocable to, any employment, agency, consulting or similar
arrangement, and the compensation that is, or has been paid, to any
CNET Shareholder-Employee is, has been, and will be, for services
actually rendered and commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
Any inaccuracy in, or breach of, any of the aforementioned statements,
representations, warranties and assumptions or any change after the date hereof
in applicable law could adversely affect our opinion. No ruling has been (or
will be) sought from the Internal Revenue Service by Glenayre, Merger Sub or
CNET as to the Federal income tax consequences of any aspect of the Merger.
In rendering our opinion, we have considered the applicable provisions
of the Code, the Treasury Regulations thereunder, judicial authorities, rulings
of the Internal Revenue Service and such other authorities as we have deemed
relevant.
Based upon, and subject to, the foregoing as well as the limitations
set forth below, it is our opinion, under presently applicable Federal income
tax law, that:
(1) The Merger of Merger Sub with and into CNET will be a
"reorganization" within the meaning of Section 368(a)(1)(A) of the Code
by reason of application of Section 368(a)(2)(E) of the Code.
(2) No material gain or loss for Federal income tax purposes
will be recognized by Glenayre, Merger Sub or CNET in the transactions
constituting the Merger.
(3) A CNET shareholder who receives cash in lieu of a
fractional share interest in Glenayre Common Stock pursuant to the
Merger generally will recognize gain or loss for Federal income tax
purposes in an amount equal to the difference between the payment
received for the fractional share interest and the CNET shareholder's
adjusted basis in the fractional share interest.
(4) A CNET shareholder who exercises the right to dissent in
connection with the Merger and receives only money in exchange for such
shareholder's CNET Common Stock will be treated as having received such
money as a distribution in redemption of such shareholder's CNET Common
Stock and will recognize gain or loss equal to the difference between
the amount of money received and the adjusted basis of such
shareholder's CNET Common Stock, unless such payment, under each such
shareholder's particular facts and circumstances, is deemed to have the
effect of a dividend distribution and not a redemption treated as an
exchange under the principles of Section 302 of the Code.
(5) CNET shareholders who receive Glenayre Common Stock and
money in exchange for their shares of CNET Common Stock (other than
payments made in lieu of receiving a fractional share of Glenayre
Common Stock and payments, if any, made to CNET shareholders exercising
dissenter rights, which transactions will be taxed in the manner
described in paragraphs (3) and (4), respectively, above) will not
<PAGE>
Glenayre Technologies, Inc.
November 7, 1996
Page 6
recognize a taxable loss but may be required to recognize a taxable
gain. The amount of taxable gain that a CNET shareholder will be
required to recognize will equal the lesser of (i) the amount of the
excess, if any, of the fair market value of such CNET shareholder's
shares of CNET Common Stock over the adjusted tax basis of those shares
or (ii) the amount of money and the fair market value of any property
other than Glenayre Common Stock received by such CNET shareholder in
connection with the Merger, excluding from this computation any shares
of CNET Common Stock (and the consideration deemed received therefor)
treated as sold to Glenayre in lieu of receiving fractional shares of
Glenayre Common Stock. Such gain will be taxed as a capital gain unless
the money received is deemed to have the effect of a dividend, in which
case it will be taxed as a dividend to the extent of such shareholder's
ratable share of the corporation's undistributed earnings and profits.
Whether the money received is taxed as a dividend will depend on each
CNET shareholder's particular facts and circumstances and will be
determined under the principles of the United States Supreme Court's
decision of Commissioner v. Clark, 489 U.S. 726 (1989) and Section 302
of the Code, by assuming that such CNET shareholder received only
shares of Glenayre Common Stock in exchange for such shareholder's
shares of CNET Common Stock and immediately thereafter surrendered a
portion of the Glenayre Common Stock having a fair market value equal
to the amount of money received in redemption of such shares.
(6) CNET Option Holders will not recognize gain or loss as a
result of Glenayre's assumption of the CNET Statutory Stock Options,
and the tax attributes of the CNET Statutory Stock Options will not be
changed by the Merger.
(7) Capital gains recognized by a CNET shareholder in
connection with the sale or exchange of CNET Common Stock in connection
with the Merger will be long-term capital gains; provided that, the
CNET shareholder has held for more than one year the CNET Common Stock
deemed sold or exchanged, in whole or in part, in connection with the
Merger.
(8) Each CNET shareholder's tax basis in, and holding period
for, such shareholder's shares of CNET Common Stock will carryover to
the Glenayre Common Stock received in exchange therefor (including
fractional shares of Glenayre Common Stock deemed received and then
redeemed as described in paragraph 3 above).
No opinion is expressed as to any matter not specifically addressed
above, including, without limitation, no opinion being expressed with respect to
any CNET Stock Options that immediately prior to the Effective Time were not
incentive stock options within the meaning of Section 422(b) of the Code. Also,
no opinion is expressed as to the tax consequences of any of the transactions
under any foreign, state or local tax law, nor is any opinion expressed as to
the Federal income tax consequences to those shareholders subject to special
treatment under the Federal income tax laws (for example, insurance companies,
tax-exempt organizations, financial institutions or broker-dealers or persons
who are not citizens or residents of the United States or who are foreign
corporations, foreign partnerships or foreign estates or trusts). Furthermore,
our opinion is based on Federal income tax law and administrative practice in
effect as of the Effective Time, and we do not
<PAGE>
Glenayre Technologies, Inc.
November 7, 1996
Page 7
undertake to advise you as to any changes after the Effective Time of any
Federal income tax law or administrative practice that may affect our opinion
unless we are specifically retained to do so.
The tax consequences described above may not be applicable to a CNET
shareholder who acquired CNET Common Stock pursuant to the exercise of an
employee stock option or as remuneration for services rendered.
We hereby consent to the filing of this opinion as an exhibit to the
aforementioned Registration Statement. In giving this consent, however, we do
not admit that we are "experts" within the meaning of Section 11 of the
Securities Act of 1933, as amended, or are within the category of persons whose
consent is required by Section 7 of said Act.
This opinion has been delivered to you for the purpose of being
included as an exhibit to the Registration Statement and is intended solely for
your benefit. It may not be relied upon for any other purpose or by any other
person or entity.
Sincerely,
KENNEDY COVINGTON LOBDELL & HICKMAN, L.L.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITOR
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Information" and "Experts" in the Registration Statement
(Form S-4 No. 333- ) and related Prospectus of Glenayre Technologies, Inc. for
the registration of 370,000 shares of its common stock and to the incorporation
by reference therein of our report dated January 31, 1996, with respect to the
consolidated financial statements and schedule of Glenayre Technologies, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1995,
filed with the Securities and Exchange Commission.
We also consent to the use therein of our report dated June 6, 1996 with respect
to the consolidated financial statements of CNET, Inc.
s/ Ernst & Young LLP
Charlotte, North Carolina
November 5, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Glenayre Technologies, Inc. on Form S-4 of our report dated February 3, 1995,
appearing in the Annual Report on Form 10-K of Glenayre Technologies, Inc. for
the years ended December 31, 1995, and to the references to us under the heading
"Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Glenayre Technologies, Inc.
listed in Item 14. This financial statement schedule is the responsibility of
the Corporation's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
s/ Deloitte & Touche LLP
Charlotte, North Carolina
November 6, 1996
<PAGE>
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Glenayre Technologies,
Inc. on Form S-4 of our report dated June 28, 1994, on the consolidated
financial statements of CNET, Inc. for the year ended January 31, 1994,
appearing in the Proxy Statement/ Prospectus, which is part of this Registration
Statement, and to the reference to us under the heading "Experts" in such Proxy
Statement/Prospectus.
Deloitte & Touche LLP
s/ Deloitte & Touche LLP
Dallas, Texas
November 5, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF DAVID RUBIN & ASSOCIATES, INC.
We hereby consent to the use of our name and the description of our
report dated July 15, 1996, under the caption "THE MERGER--Background and
Reasons for the Merger" in the Proxy Statement/Prospectus of CNET, Inc., which
Proxy Statement/Prospectus is part of the Registration Statement on Form S-4 of
Glenayre Technologies, Inc. By giving such consent, we do not hereby admit that
we are experts with respect to any part of such Registration Statement within
the meaning of the term "expert" as used in, or that we come within the category
of persons whose consent is required under, the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
DAVID RUBIN & ASSOCIATES, INC.
By s/ David Rubin
David Rubin, President
Newton, Massachusetts
November 4, 1996
<PAGE>
Exhibit 99.3
David Rubin & Associates, Inc.
140 Sumner Street
Newton, Massachusetts 02159
Phone: (617) 965-8066
Fax: (617) 964-5187
David Rubin
President
July 15, 1996
Glenayre Technologies, Inc.
5935 Carnegie Boulevard
Charlotte, North Carolina 28209
Dear Sirs:
David Rubin & Associates, Inc. (DRA) consults on business opportunities,
strategic plans, markets, competitive positions, and products for the wireless
industries including cellular, Personal Communications Services (PCS), and
paging.
In our assignment for Glenayre Technologies, DRA independently reviewed the
products of CNET, Inc. (CNET): Basic Operations System (BOS) and Wireless
Network Graphics System (WiNGS). We evaluated features and capabilities of these
products against wireless industry needs. As part of this review, we checked
satisfaction with these products by interviewing several principal customers.
Both BOS and WiNGS are important products in the wireless industry. BOS is a
collection of UNIX-based software tools that provide network operators with the
elements necessary to integrate, monitor, and manage complex communications and
computing networks in real time.
BOS provides the ability to control a vast array of remote equipment with a
single standardized system. Through real-time system status monitoring and
comprehensive historical data, BOS provides meaningful information about system
components, subsystems, and overall network operation.
WiNGS is a high performance network design software tool used by Radio Frequency
(RF) engineers to interactively configure and expand complex wireless
communications systems.
WiNGS is UNIX-based and features three-dimensional system performance modeling,
field measurement integration, as well as advanced capabilities for automated
frequency planning and microcell analysis for digital and analog technologies.
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July 15,1996 2
Glenayre Technologies, Inc.
Charlotte, North Carolina 28209
Based on our product analysis, our customer interviews, and our wireless
industry expertise, we draw the following conclusions with respect to BOS, and
WiNGS and desirable product directions for CNET.
Both BOS and WiNGS are successful products, but BOS is more strongly positioned
than is WiNGS. CNET is a respected supplier of both products.
CNET should grow and maintain BOS and WiNGS, while maintaining customer focus.
They should prioritize product development efforts to respond to customer needs
which include:
(bullet) Broadening the already strong integration between BOS and
WiNGS.
(bullet) Continuing to update both products to support new technologies
such as paging, narrowband PCS, and broadband PCS as they
become important to the wireless industries.
(bullet) Continuing to make the products easier to use, especially by
field personnel.
In summary, BOS and WiNGS are successful software products in the wireless
industry and are positioned for even greater success in the future.
Sincerely yours
s/David Rubin
David Rubin
DR:cr
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