SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 17, 1998
Computone Corporation
-------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-16172 23-2472952
- --------------- ---------- --------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
1060 Windward Ridge Parkway, Suite 100, Alpharetta, Georgia 30005
- ----------------------------------------------------------- ------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 625-0000
N/A
------------------------------------------
(Former name or former address, if changed since last report)
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Item 5. Other Events.
Registrant was unable to file its Form 10-KSB Annual Report
for Registrant's fiscal year ended April 3, 1998 by the scheduled due date of
July 2, 1998 for the reasons indicated in Registrant's Form 12b-25 as filed with
the Securities and Exchange Commission (the "Commission") on July 2, 1998 and
to which reference is hereby made. Based upon discussions with Registrant's
auditors, BDO Seidman LLP, and the current status of the audit of Registrant's
financial statements for its fiscal year ended April 3, 1998, Registrant
currently estimates that it will file its Form 10-KSB for its fiscal year ended
April 3, 1998 on or about August 7, 1998. Registrant currently anticipates that
the opinion of BDO Seidman LLP to be included in Registrant's Form 10-KSB for
its fiscal year ended April 3, 1998 will contain a "going concern"
qualification.
On November 21, 1996, the Commission issued a Formal Order of
Private Investigation relating to Registrant. Since that date, certain former
and current officers of Registrant have testified in the investigation. On June
22, 1998, Registrant was advised by the staff of the Commission's Atlanta
District Office (the "Staff") of the Staff's intention to recommend an
enforcement action against Registrant for alleged violations of the federal
securities laws. Specifically, the Staff intends to recommend the filing of a
complaint in federal court seeking a permanent injunction against Registrant for
violating Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a),
13 (b) (2)(A), 13(b) (2)(B) and 13(b)(5) of the Securities Exchange Act of 1934
and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder. The alleged
violations arise from Registrant's reporting of certain revenues in violation of
generally accepted accounting principles in periodic filings made by Registrant
for the following fiscal periods: Form 10-KSB Annual Reports for the fiscal
years ended April 7, 1995, April 5, 1996 and April 4, 1997 and Form 10-QSB
Quarterly Reports for the fiscal quarters ended October 1, 1993, January 7,
1994, July 1, 1994, October 7, 1994, January 6, 1995, July 7, 1995, October 6,
1995, July 5, 1996, July 3, 1997 and October 3, 1997.
Registrant has advised the Staff of Registrant's intention to negotiate
a mutually acceptable settlement of this matter.
Since Registrant's Annual Meeting of Stockholders on November
25, 1997, the following changes have occurred in Registrant's Board of Directors
and executive officers:
(a) On December 1, 1997, William C. Lovely, a director of
Registrant since 1993, resigned as a director of Registrant.
(b) On April 30, 1998, Thomas J. Anderson, President of
Registrant since November 3, 1992, Chief Executive Officer of Registrant since
April 25, 1996 and a director of Registrant since 1993, resigned as the
President, the Chief Executive, an employee and a director of Registrant.
(c) On April 27, 1998, John D. Freitag, Chairman of the Board
and Chief Executive Officer of Registrant from November 3, 1992 to April 25,
1996 and a director of Registrant since 1992, was appointed Acting President and
Chief Executive Officer of
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Registrant effective April 30, 1998 pending the retention of a permanent new
President and Chief Executive Officer of Registrant.
(d) On July 27, 1998, Gregory A. Alba, Vice President, Finance
and Administration, and Chief Financial Officer of Registrant since April 1996
and Controller of Registrant for 20 months prior thereto, resigned as Vice
President, Finance and Administration, Chief Financial Officer and an employee
of Registrant. Registrant has entered into a consulting arrangement with Mr.
Alba pursuant to which Mr. Alba will provide assistance to Registrant's
management and independent auditors pending the filing of Registrant's Form
10-KSB Annual Report for its fiscal year ended April 3, 1998.
(e) On July 27, 1998, Registrant appointed Greg Roseberry, the
Controller of Registrant since April 1996, Acting Chief Financial Officer of
Registrant pending the retention of a permanent new Chief Financial Officer of
Registrant.
(f) On July 31, 1998, Registrant appointed Perry S. Pickerign
as President, Chief Executive Officer and a director of Registrant effective as
of August 1, 1998. Mr. Pickerign has been a self-employed consultant since
September 1997, was Director of Marketing for Comtrol Corporation from June 1993
to September 1997, was a strategic planning and marketing consultant for Home
Builders International from June 1992 to June 1993 and previously held
management positions with ITT Financial Services and 3M Company.
(g) On July 31, 1998, Joel Weber, a founder of Registrant, was
appointed as a director of Registrant. Mr. Weber has been a self-employed
consultant since 1994; was a Vice President of Step 1 Systems Corporation from
1991 to 1994 and was Vice President and Chief Scientist of Registrant from 1987
to 1991.
On July 16, 1998, Registrant's Board of Directors approved a
modification of Registrant's revenue recognition policy to be effective
beginning with the fourth quarter of fiscal 1998. The modification will result
in the deferral of recognition of revenue on sales to all customers who are not
the ultimate end user of Registrant's products until such time as the product
has been sold through to an end user and further assuming that no other
uncertainties exist which would otherwise preclude revenue recognition.
Registrant has appointed an Audit Committee of Registrant's
Board of Directors, the members of which are Joel Weber, John D. Freitag and
Richard A. Hansen, a director of Registrant since 1992 and Chairman of
Registrant's Board of Directors since April 25, 1996.
On July 22, 1998, Registrant was notified by The Nasdaq Stock
Market, Inc. that effective July 29, 1998 Registrant's Common Stock would be
delisted from the Nasdaq SmallCap Market because of Registrant's failure to make
a timely filing of Registrant's Form 10-KSB Annual Report for Registrant's
fiscal year ended April 3, 1998. On July 27, 1998, Registrant filed an appeal
with The Nasdaq Stock Market, Inc., and the appeal is currently pending.
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On June 5, 1998, Registrant entered into an Agreement and Plan
of Reorganization (the "Agreement") with Ladia Communications Technologies,
Inc., a newly formed subsidiary of Registrant ("LCTI"), New Computone
Corporation, a newly formed subsidiary of Registrant ("Newco"), Ladia, L.L.C., a
Massachusetts limited liability company ("Ladia") and the members of Ladia. A
copy of the Agreement is included as Exhibit 1 to this Form 8-K Report and
reference is made to such exhibit for a full statement of the terms and
conditions of the transactions contemplated by the Agreement. In summary, the
Agreement provides that the current holders of Registrant's Common Stock and the
current members of Ladia will become stockholders of LCTI and Registrant and
Ladia will be subsidiaries of LCTI. The Agreement provides that the current
members of Ladia and the holders of approximately $250,000 of debt owed by Ladia
would initially receive approximately 430,000 shares of LCTI Common Stock and,
subject to the satisfaction of certain specified criteria relating to Ladia
financial performance through April 30, 1999, could receive up to 8.1 million
additional shares of LCTI Common Stock.
A copy of Registrant's June 9, 1998 press release relating to
the execution of the Agreement is included as Exhibit 2 to this Form 8-K Report.
Registrant and Ladia are currently renegotiating certain terms
of the Agreement. Registrant cannot currently predict when the renegotiation of
the Agreement will be completed or when the transactions contemplated by the
Agreement will be consummated.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired:
Not applicable.
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(b) Pro forma financial information:
Not applicable.
(c) Exhibits:
1. Agreement and Plan of Reorganization dated
as of June 5, 1998 by and among Computone
Corporation, Ladia Communications
Technologies, Inc., New Computone
Corporation, Ladia, L.L.C. and the members
of Ladia, L.L.C.
2. June 9, 1998 press release issued by Computone
Corporation.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMPUTONE CORPORATION
Date: August 3, 1998 By: /s/ Greg Roseberry
---------------------------
Greg Roseberry,
Acting Chief Financial Officer
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EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
1 Agreement and Plan of Reorganization dated as of
June 5, 1998 by and among Computone Corporation,
Ladia Communications Technologies, Inc., New
Computone Corporation, Ladia, L.L.C. and the mem-
bers of Ladia, L.L.C.
2 June 9, 1998 press release issued by Computone Cor-
poration.
EXHIBIT 1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
COMPUTONE CORPORATION,
LADIA COMMUNICATIONS TECHNOLOGIES, INC.,
NEW COMPUTONE CORPORATION, LADIA, L.L.C.
AND THE MEMBERS OF LADIA L.L.C.
June 5, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AGREEMENT AND PLAN OF REORGANIZATION.............................................-1-
RECITALS.........................................................................-1-
ARTICLE I THE EXCHANGE..........................................................-1-
Section 1.1 Exchange of Interests...............................................-1-
Section 1.2 Debt Conversion.....................................................-2-
Section 1.3 Management Incentive Plan...........................................-2-
Section 1.4 Preliminary Exchange Closing........................................-2-
Section 1.5 Contingent Shares...................................................-3-
Section 1.6 Managers............................................................-4-
Section 1.7 Tax-Free Treatment..................................................-4-
Section 1.8 Accounting Treatment................................................-4-
ARTICLE II THE MERGER...........................................................-4-
Section 2.1 Effective Time of the Merger........................................-4-
Section 2.2 Closing.............................................................-5-
Section 2.3 Effects of the Merger...............................................-5-
Section 2.4 Certificate of Incorporation........................................-5-
Section 2.5 Bylaws..............................................................-5-
Section 2.6 Directors and Officers..............................................-5-
Section 2.7 Tax-Free Treatment..................................................-6-
Section 2.8 Accounting Treatment................................................-6-
Section 2.9 Affiliate Restrictions..............................................-6-
ARTICLE III CONVERSION OF SECURITIES IN MERGER..................................-6-
Section 3.1 Conversion of Shares................................................-6-
Section 3.2 Exchange of Certificates............................................-7-
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF LADIA AND PRINCIPAL
MEMBERS..............................................................-8-
Section 4.1 Existence. Good Standing. Compliance with Law.......................-8-
Section 4.2 Capitalization of Ladia.............................................-9-
Section 4.3 Authority...........................................................-9-
Section 4.4 Consents and Approvals; No Violations...............................-9-
Section 4.5 Ladia Financial Statements.........................................-10-
Section 4.6 Undisclosed Liabilities............................................-10-
Section 4.7 Absence of Certain Changes or Events...............................-10-
Section 4.8 Certain Agreements.................................................-11-
Section 4.9 Taxes..............................................................-12-
Section 4.10 Title to Assets....................................................-13-
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Section 4.11 Condition of Personal Property....................................-13-
Section 4.12 List of Contracts and Other Data..................................-13-
Section 4.13 Business Property Rights..........................................-14-
Section 4.14 Compliance with Applicable Law....................................-14-
Section 4.15 No Breach or Default..............................................-14-
Section 4.16 Labor Controversies...............................................-15-
Section 4.17 Litigation........................................................-15-
Section 4.18 Transactions with Affiliates......................................-15-
Section 4.19 Environmental Matters.............................................-15-
Section 4.20 ERISA Plans.......................................................-16-
Section 4.21 No Brokers........................................................-16-
Section 4.22 Pooling Matters...................................................-17-
Section 4.23 Information Supplied..............................................-17-
Section 4.24 No Misrepresentation or Omission..................................-17-
ARTICLE IVA REPRESENTATIONS AND WARRANTIES OF MEMBERS.........................-17-
Section 4A.1 Capitalization of Ladia...........................................-17-
Section 4A.2 Authority.........................................................-17-
Section 4A.3 Consent and Approvals; No Violations..............................-18-
Section 4A.4 No Brokers........................................................-18-
Section 4A.5 Ownership of Interest.............................................-18-
Section 4A.6 Information Supplied..............................................-18-
Section 4A.7 No Misrepresentations or Omission.................................-19-
ARTICLE V REPRESENTATIONS AND WARRANTIES OF COMPUTONE.......................-19-
Section 5.1 Existence. Good Standing. Compliance with Law.....................-19-
Section 5.2 Capitalization of Computone.......................................-19-
Section 5.3 Authority.........................................................-20-
Section 5.4 Consents and Approvals; No Violations.............................-21-
Section 5.5 Computone SEC Documents...........................................-21-
Section 5.6 Undisclosed Liabilities...........................................-22-
Section 5.7 Absence of Certain Changes or Events..............................-22-
Section 5.8 Information Supplied..............................................-23-
Section 5.9 Certain Agreements................................................-24-
Section 5.10 Taxes.............................................................-24-
Section 5.11 Title to Assets...................................................-25-
Section 5.12 Condition of Personal Property....................................-25-
Section 5.13 List of Contracts and Other Data..................................-25-
Section 5.14 Business Property Rights..........................................-26-
Section 5.15 Compliance with Applicable Law....................................-26-
Section 5.16 No Breach or Default..............................................-27-
Section 5.17 Labor Controversies...............................................-27-
Section 5.18 Litigation........................................................-27-
Section 5.19 Transactions with Affiliates......................................-28-
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Section 5.20 Environmental Matters.............................................-28-
Section 5.21 ERISA Plans.......................................................-28-
Section 5.22 No Brokers........................................................-29-
Section 5.23 Pooling Matters...................................................-29-
Section 5.24 No Misrepresentation or Omission..................................-29-
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF HC AND NEWCO....................-30-
Section 6.1 Existence. Good Standing. Compliance with Law.....................-30-
Section 6.2 Capitalization of HC..............................................-30-
Section 6.3 Capitalization of Newco...........................................-30-
Section 6.4 Authority.........................................................-31-
Section 6.5 Consents and Approvals; No Violations.............................-31-
Section 6.6 Undisclosed Liabilities...........................................-32-
Section 6.7 Absence of Certain Changes or Events..............................-32-
Section 6.8 Information Supplied..............................................-33-
Section 6.9 Certain Agreements................................................-33-
Section 6.10 Taxes.............................................................-33-
Section 6.11 Title to Assets...................................................-34-
Section 6.12 Condition of Personal Property....................................-34-
Section 6.13 List of Contracts and Other Data..................................-34-
Section 6.14 Business Property Rights..........................................-35-
Section 6.15 Compliance with Applicable Law....................................-35-
Section 6.16 No Breach or Default..............................................-35-
Section 6.17 Labor Controversies...............................................-36-
Section 6.18 Litigation........................................................-36-
Section 6.19 Transactions with Affiliates......................................-36-
Section 6.20 Environmental Matters.............................................-36-
Section 6.21 ERISA Plans.......................................................-37-
Section 6.22 No Brokers........................................................-37-
Section 6.23 Pooling Matters...................................................-37-
Section 6.24 No Misrepresentation or Omission..................................-37-
ARTICLE VII ADDITIONAL COVENANTS AND AGREEMENTS...............................-37-
Section 7.1 Conduct of Computone, HC, Newco and Ladia Prior to the Preliminary
Exchange Closing and the Merger Closing........................-37-
Section 7.2 HC Governance.....................................................-39-
Section 7.3 Stockholder Meeting...............................................-39-
Section 7.4 Legal Conditions to the Merger or Exchange........................-39-
Section 7.5 Cooperation.......................................................-39-
Section 7.6 Satisfactory Affiliate Agreements.................................-40-
Section 7.7 Expenses..........................................................-40-
Section 7.8 Public Announcements..............................................-40-
Section 7.9 Issuance of HC Common Stock and Ladia Options.....................-41-
Section 7.10 Consents..........................................................-41-
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Section 7.11 Stockholders' Agreement...........................................-41-
Section 7.12 Accountants' Letters..............................................-42-
Section 7.13 Actions by Ladia..................................................-42-
Section 7.14 Role of HC and Computone..........................................-43-
Section 7.15 Limitations on Certain Transactions...............................-43-
Section 7.16 Commission Filings................................................-43-
Section 7.17 Equity Financing..................................................-43-
ARTICLE VIII CONDITIONS TO THE PRELIMINARY EXCHANGE CLOSING....................-44-
Section 8.1 Conditions to Closing of HC.......................................-44-
Section 8.2 Conditions to Closing of Ladia and the Members....................-45-
Section 8.3 Conditions to Closing of HC, Ladia and the Members................-46-
ARTICLE IX CONDITIONS TO THE MERGER CLOSING..................................-47-
Section 9.1 Conditions to Closing of Computone................................-47-
Section 9.2 Conditions to Closing of HC and Newco.............................-48-
Section 9.3 Conditions to Closing of HC, Newco and Computone..................-49-
ARTICLE X COMPUTONE OPTIONS AND WARRANTS...................................-50-
Section 10.1 Computone's Stock Options and Warrants...........................-50-
ARTICLE XI TERMINATION......................................................-50-
Section 11.1 Mutual Consent...................................................-50-
Section 11.2 By Any Party.....................................................-50-
Section 11.3 By Computone.....................................................-51-
Section 11.4 By Ladia.........................................................-51-
Section 11.5 By HC............................................................-51-
ARTICLE XII MISCELLANEOUS....................................................-52-
Section 12.1 Notice...........................................................-52-
Section 12.2 Binding Effect; Benefits.........................................-53-
Section 12.3 Entire Agreement.................................................-53-
Section 12.4 Governing Law....................................................-53-
Section 12.5 Non-Survival of Representations, Warranties and Agreements.......-53-
Section 12.6 Counterparts.....................................................-53-
Section 12.7 Headings.........................................................-54-
Section 12.8 Waivers..........................................................-54-
Section 12.9 Merger of Documents..............................................-54-
Section 12.10 Incorporation of Schedules.......................................-54-
Section 12.11 Assignability....................................................-54-
Section 12.12 Severability.....................................................-54-
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EXHIBIT A Certificate of Merger................................................-65-
EXHIBIT B Merger Agreement.....................................................-66-
EXHIBIT C Form of Affiliates Agreement.........................................-67-
EXHIBIT D Form of Stockholders Agreement.......................................-68-
</TABLE>
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement"), dated as
of the 5th day of June, 1998, is entered into by and among Computone
Corporation, a Delaware corporation ("Computone"), Ladia Communications
Technologies, Inc., a Delaware corporation ("HC"), New Computone Corporation, a
Delaware corporation ("Newco"), Ladia, L.L.C., a Massachusetts limited liability
company ("Ladia") and the members of Ladia listed on Schedule A attached hereto
(individually, a "Member" and collectively, the "Members").
RECITALS
WHEREAS, the Board of Directors of HC and the Members deem it advisable
and in the best interests of HC, Ladia, the Members and the stockholders of HC
for the Members to exchange their Membership Interests (as hereinafter defined)
in Ladia for shares of common stock of HC, with the result that HC shall become
a member of Ladia (the "Exchange") and shall designate a second member of Ladia
in order to satisfy the requirements of the Massachusetts Limited Liability
Company Act; and
WHEREAS, the Board of Directors of Computone, HC and Newco deem it
advisable and in the best interests of their respective corporations and
stockholders for Newco to merge with and into Computone, with the separate
corporate existence of Newco ceasing and Computone being the surviving
corporation (the "Surviving Corporation") as a wholly-owned subsidiary of HC
(the "Merger"); and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), that the Exchange shall qualify
as a tax-free transfer under Section 351 of the Code and that this Agreement is
intended to be and is adopted as a plan of reorganization; and
WHEREAS, for accounting purposes, it is intended that both the Exchange
and the Merger shall be accounted for as a pooling of interests.
NOW, THEREFORE, in consideration of the premises, the provisions and
the respective agreements set forth in this Agreement, and in order to set forth
the terms and conditions of the Exchange and the Merger and the mode of carrying
the same into effect, the parties hereto, intending to be legally bound, hereby
agree as follows:
ARTICLE I
THE EXCHANGE
Section 1.1 Exchange of Interests. Upon and subject to the terms and
conditions hereof, at the Preliminary Exchange Closing (as defined in Section
1.5 hereof), (a) each Member shall transfer all of such Member's interest in
Ladia (individually, a "Membership Interest" and collectively, the "Membership
Interests") to HC and (b) in exchange for the transfer of each
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Member's Membership Interest, HC shall issue and deliver to the transferring
Member (i) the number of shares (the "Initial Member Shares") of the common
stock, $0.01 par value, of HC (the "HC Common Stock") equal to such Member's
Membership Interest (as a percentage of all Membership Interests outstanding at
the Preliminary Exchange Closing Date) multiplied by 408,851, subject to the
adjustment contemplated by Section 7.17 hereof and (ii) the contingent right to
receive a pro rata share of certain additional shares of the HC Common Stock
pursuant to Section 1.5 hereof.
Section 1.2 Debt Conversion. Upon and subject to the terms and
conditions hereof including the adjustment contemplated by Section 7.17 hereof,
at the Preliminary Exchange Closing, $250,000 of the original principal amount
of the debt evidenced by the demand note, dated October 22, 1997, issued by
Ladia to Coutts (Jersey) Limited in the original principal amount of $500,000
shall be converted into (i) 21,518 shares of the HC Common Stock (the "1997 Note
Shares") and (ii) the contingent right to receive a pro rata share of certain
additional shares of the HC Common Stock pursuant to Section 1.5 hereof.
Section 1.3 Management Incentive Plan. Prior to the Preliminary
Exchange Closing, HC will establish a management incentive plan for key
employees of Ladia (the "HC Ladia Incentive Plan") pursuant to which an
aggregate of 1,661,465 shares of HC Common Stock will be reserved for issuance
upon the exercise of option granted thereunder. As of such Preliminary Exchange
Closing, Ladia and the Compensation Committee of HC's Board of Directors shall
agree upon the Ladia employees who shall be granted options (the "Ladia
Options") under the HC Ladia Incentive Plan and the number of shares of HC
Common Stock which such employees shall be entitled to purchase (the "Ladia
Option Shares"). The Ladia Options shall have an exercise price of $7.00 per
Ladia Option Share, shall have a term of ten years, shall be incentive options
to the greatest extent possible and shall contain such other terms and
conditions as shall be approved by the Compensation Committee of HC's Board of
Directors after consideration of the recommendations of Frances Lynch.
Section 1.4 Preliminary Exchange Closing. A preliminary closing of the
Exchange (the "Preliminary Exchange Closing") will take place at 10:00 a.m. on a
date to be specified by the parties, which shall be no later than the earlier to
occur of September 30, 1998 or the second business day after satisfaction or
waiver of the conditions set forth in Article VIII hereof (the "Preliminary
Exchange Closing Date") at the offices of Duane, Morris & Heckscher LLP, One
Liberty Place, Philadelphia, Pennsylvania 19103, unless another place or time is
agreed to in writing by the parties hereto. The Preliminary Exchange Closing
shall take place simultaneously with the Merger Closing (as defined in Section
2.2 hereof), and the Preliminary Exchange Closing Date shall be the same date as
the Effective Date (as defined in Section 2.1) of the Merger.
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Section 1.5 Contingent Shares.
(a) If, during the period commencing May 1, 1998 and expiring
April 30, 1999 (the "Revenues Measurement Period"), Ladia has at least
$10,000,000 in Cumulative Gross Revenues and maintains a Cumulative Gross Margin
of not less than 4%, the Members and the holder(s) of the 1997 Note Shares, as
holders of shares of the HC Common Stock, shall be entitled to receive at the
Final Exchange Closing (as hereinafter defined) the number of additional shares
of the HC Common Stock (the "Additional Shares") set forth below, subject to
adjustment as set forth in Section 7.17 hereof:
If Revenues are at least But less than Number of Additional Shares
- ------------------------ ------------- ---------------------------
$10,000,000 $15,000,000 737,776
$15,000,000 $20,000,000 2,039,770
$20,000,000 $25,000,000 4,109,590
$25,000,000 8,080,400
(b) Each Member and holder of 1997 Note Shares shall be
entitled to receive at the Final Exchange Closing a number of Additional Shares
equal to the total number of Additional Shares multiplied by a fraction, the
numerator of which is the number of Initial Member Shares and/or 1997 Note
Shares to which such Member or holder is entitled pursuant to Section 1.1 hereof
and the denominator of which is the sum of the number of Initial Member Shares
and 1997 Note Shares.
(c) Promptly following the receipt by HC of the report of its
regular independent certified public accountants with respect to its audited
financial statements for the fiscal year ending April 2, 1999, HC shall
calculate the number of Additional Shares issuable with respect to the portion
of the Revenues Measurement Period ended on such date, based on Cumulative Gross
Revenues and Cumulative Gross Margins from May 1, 1998 through such date.
Promptly following the preparation by HC of its unaudited financial statements
for the period from April 3, 1999 through and including April 30, 1999, HC shall
calculate the number of Additional Shares issuable with respect to such period
based on Cumulative Gross Revenues and Cumulative Gross Margins from the
Preliminary Exchange Closing through the end of such Revenues Measurement
Period. HC's Board of Directors shall be authorized, in its discretion and based
on its good faith assessment of the business and prospects of Ladia, to reduce
the specified revenue thresholds that must be achieved in order for the Members
and the holder(s) of the 1997 Note Shares to be entitled to receive any
particular number of Additional Shares.
(d) For purposes of this Agreement, "Cumulative Gross
Revenues" shall mean, for any period, the accrued aggregate price per minute
invoiced by Ladia to all of its customers during such period, less any rebates,
commissions, discounts, returns or other credits granted or credited by Ladia to
any customer with respect to any such invoices, regardless of
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when granted or credited and "Cumulative Gross Margins" shall mean, for any
period (i) the accrued aggregate price per minute invoiced by Ladia to all of
its customers during such period, less any rebates, commissions, discounts,
returns or other credits granted or credited by Ladia to any customer with
respect to any such invoices, regardless of when granted or credited, minus (ii)
the accrued aggregate cost per minute invoiced to Ladia by all of its suppliers
during such period divided by (iii) Ladia's Cumulative Gross Revenues for such
period.
(e) The final closing of the Exchange (the "Final Exchange
Closing"), will take place at 10:00 a.m. on a date to be specified by the
parties, which shall be no later than May 31, 1999 (the "Final Exchange Closing
Date") at the offices of Duane, Morris & Heckscher LLP, One Liberty Place,
Philadelphia, Pennsylvania, 19103, unless another time or place is agreed to in
writing by the parties hereto. At the Final Exchange Closing, HC shall deliver
to the Members and the holder(s) of the 1997 Note Shares to Additional Shares to
which they are entitled pursuant to the provisions of this Section 1.5.
Section 1.6 Managers. Subject to the provisions of Section 7.13 hereof,
the Managers of Ladia on and immediately following the Preliminary Exchange
Closing Date shall be Frances Lynch (who shall be designated as the Chair of the
Board of Managers under Ladia's Operating Agreement), Robert E. Lynch or his
designee and Richard A. Hansen, each of whom shall serve in accordance with the
Operating Agreement of Ladia (the "Operating Agreement"). The Operating
Agreement shall provide that any expansion of the Board of Managers beyond three
(3) members shall be effected in increments of two (2), one of whom in each case
shall be designated by Frances Lynch and one of whom in each case shall be
designated by Richard A. Hansen. Such designation rights, and any rights to
remove a manager, shall be specified in the Operating Agreement. In her capacity
as Chair of the Board of Managers, Frances Lynch shall have the powers and shall
function under the Operating Agreement as would the President and Chief
Executive Officer of corporate entity.
Section 1.7 Tax-Free Treatment. The Exchange is intended to constitute
a tax-free transfer under Section 351 of the Code, and the parties shall not
report the Exchange on any tax return in a manner or take any action
inconsistent therewith.
Section 1.8 Accounting Treatment. The parties intend that the Exchange
shall be treated by HC as pooling of interests for accounting purposes.
ARTICLE II
THE MERGER
Section 2.1 Effective Time of the Merger. Upon the terms and subject to
the conditions hereof, a certificate of merger (the "Certificate of Merger")
substantially in the form of Exhibit A attached hereto shall be duly prepared
and executed by the Surviving Corporation (as defined in Section 2.3) and, not
later than the Merger Closing Date (as defined in Section 2.2), shall be
delivered to the Secretary of State of the State of Delaware for filing as
provided in the Delaware
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General Corporation Law (the "DGCL"). As soon as practicable after the date
hereof, Computone, Newco and HC shall enter into a Plan of Merger substantially
in the form of Exhibit B attached hereto (the "Merger Agreement") which shall
provide for the Merger in accordance with the laws of the State of Delaware. The
Merger shall become effective upon the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware (the "Effective Time"; the date
on which the Effective Time occurs is hereinafter referred to as the "Effective
Date").
Section 2.2 Closing. The closing of the Merger (the "Merger Closing")
will take place at 10:00 a.m. on a date to be specified by the parties, which
shall be no later than the earlier to occur of September 30, 1998 or the second
business day after satisfaction or waiver of the conditions set forth in Article
IX hereof (the "Merger Closing Date") at the offices of Duane, Morris and
Heckscher LLP, One Liberty Place, Philadelphia, Pennsylvania 19103, unless
another place or time is agreed to in writing by the parties hereto. The Merger
Closing shall take place simultaneously with the Preliminary Exchange Closing,
and the Effective Date shall be the same date as the Preliminary Exchange
Closing Date.
Section 2.3 Effects of the Merger. The Merger shall have the effects
set forth in the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time: (a) Newco shall merge with and into
Computone, which shall be the surviving corporation in the Merger (the
"Surviving Corporation") and a wholly owned subsidiary of HC; (b) the separate
corporate existence of Newco shall thereupon cease and (c) all the properties,
rights, privileges, powers and franchises of Computone and Newco shall vest in
the Surviving Corporation and all debts, liabilities and duties of Computone
and Newco shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 2.4 Certificate of Incorporation. The Certificate of
Incorporation of Computone as in effect on the Effective Date, as amended by the
Certificate of Merger, shall be the Certificate of Incorporation of the
Surviving Corporation, it being understood that such Certificate of
Incorporation does not and shall not contain any provision requiring the
approval of a greater percentage of outstanding shares eligible to vote on any
matter submitted to the stockholders for a vote than is set forth under the
DGCL.
Section 2.5 Bylaws. The Bylaws of Computone as in effect on the
Effective Date shall be the Bylaws of the Surviving Corporation; provided,
however, that such Bylaws shall not contain any provision requiring the approval
of a greater percentage of outstanding shares eligible to vote on any matter
submitted to the stockholders for approval than is set forth under the DGCL.
Section 2.6 Directors and Officers. The Directors of the Surviving
Corporation on and immediately following the Effective Date shall be Richard A.
Hansen (Chair), Frances Lynch and a person to be designated by Frances Lynch on
or before Closing, each of whom shall serve in accordance with the Bylaws of the
Surviving Corporation. The officers of the Surviving Corporation on and
immediately following the Effective Date shall be determined by the Board
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of Directors of the Surviving Corporation, each of whom will serve in accordance
with the Bylaws of the Surviving Corporation.
Section 2.7 Tax-Free Treatment. The Merger is intended to constitute a
tax-free reorganization under Section 368(a) of the Code, and the parties shall
not report the Merger on any tax return in a manner or take any action
inconsistent therewith.
Section 2.8 Accounting Treatment. The parties intend that the Merger
shall be treated by Computone and HC as a pooling of interests for accounting
purposes.
Section 2.9 Affiliate Restrictions. In addition to any other
restrictions set forth herein, all of the Merger Shares (as defined in Section
3.1 hereof) to be received by any Computone Affiliate (for purposes of Rule 145)
shall be subject to the restrictions imposed by the Securities Act of 1933, as
amended (the "Securities Act"), and Rule 145 promulgated thereunder, and the
certificates evidencing such shares shall bear a restrictive legend to reflect
such restrictions.
ARTICLE III
CONVERSION OF SECURITIES IN MERGER
Section 3.1 Conversion of Shares. As of the Effective Date, by virtue
of the Merger and without any action on the part of the holder of any shares of
common stock, par value $0.01 per share, of Computone (the "Computone Common
Stock") or the holder of any shares of common stock, par value $0.01 per share,
of Newco (the "Newco Common Stock"):
(a) Capital Stock of Computone. Each share of Common Stock,
par value $0.01 per share, of Computone except Dissenters' Shares (as
hereinafter defined) issued and outstanding immediately prior to the Effective
Date shall be converted into and exchanged for one validly issued, fully paid
and nonassessable share of Common Stock, par value $0.01 per share, of HC (the
"Merger Shares").
(b) Capital Stock of Newco. Each share of Common Stock, par
value $0.01 per share, of Newco issued and outstanding immediately prior to the
Effective Date shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of Common Stock, par value $0.01 per share,
of the Surviving Corporation.
(c) Cancellation of HC Shares. All HC Common Stock owned by
Computone as of the Effective Date shall be canceled and retired and shall cease
to exist, and no stock of HC or the Surviving Corporation or other consideration
shall be delivered in exchange therefor.
(d) Dissenters' Rights. Shares of Computone Common Stock that
have not been voted for adoption of the Merger and with respect to which
appraisal rights have been properly demanded in accordance with the DGCL
("Dissenters' Shares") shall not be converted into HC Common Stock as set forth
in Section 3.1(a) on the Effective Date, but shall be
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converted into the right to receive from Newco such consideration as may be
determined to be due with respect to such Dissenters' Shares pursuant to the
provisions of the DGCL. Computone shall give Newco (i) prompt notice of any
written demands for appraisals, withdrawals of demands for appraisal and any
other instruments in respect thereof received by Computone and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
demands for appraisal. Computone will not, except with the prior written consent
of Newco, voluntarily make any payment with respect to any demands for appraisal
or settle or offer to settle any such demands. The Surviving Corporation will
pay all sums due to holders of Dissenters' Shares.
Section 3.2 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, HC shall deposit
with an agent designated by HC (the "Exchange Agent"), for the benefit of the
holders of Computone Common Stock (other than Dissenters' Shares), for exchange
in accordance with this Article III, through the Exchange Agent, certificates
representing the Merger Shares issuable pursuant to Section 3.1(a) in exchange
for outstanding Computone Common Stock.
(b) Exchange Procedures. As soon as practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail
to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding Computone Common Stock (the
"Certificates") whose shares were converted pursuant to Section 3.1(a) into the
right to receive Merger Shares (i) a letter of transmittal and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for
certificates representing Merger Shares. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by HC, together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of Merger Shares which such holder has the
right to receive pursuant to the provisions of this Article III, and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Computone Common Stock which is not registered in the
transfer records of Computone, a certificate representing the proper number of
Merger Shares may be issued to a transferee if the Certificate representing such
Computone Common Stock is presented to the Exchange Agent, 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 3.2, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender a certificate representing Merger Shares.
(c) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the Effective Time with
respect to Merger Shares with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the Merger
Shares represented thereby until the holder of record of such Certificate shall
surrender such Certificate as provided herein. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole Merger Shares
issued in exchange therefor, without interest, (i) at
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the time of such surrender, the amount of dividends or other distributions with
a record date after the Effective Time theretofore paid with respect to such
Merger Shares and (ii) at the appropriate payment date, the amount of dividends
or other distributions, if any, with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such Merger Shares.
(d) No Further Ownership Rights in Computone Common Stock. All
Merger Shares issued upon the surrender for exchange of Computone Common Stock
in accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Computone Common Stock subject,
however, to the Surviving Corporation's obligation to pay any dividends or make
any other distributions with a record date prior to the Effective Time which may
have been declared or made by Computone on such Computone Common Stock prior to
the date hereof and which remain unpaid at the Effective Time, and there shall
be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the Computone Common Stock which was outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article III.
(e) Termination of Exchange Fund. Any Merger Shares which
remain undistributed to the stockholders of Computone for one year after the
Effective Time shall be delivered to HC, upon demand, and any stockholders of
Computone who have not theretofore complied with this Article III shall
thereafter look only to HC for payment of their claim for Merger Shares and any
dividends or distributions with respect to Merger Shares.
(f) No Liability. None of Computone, HC or Newco, or any
affiliate of any of them, shall be liable to any holder of shares of Computone
Common Stock for such shares (or dividends or distributions with respect
thereto) delivered to a public official to the extent required by any applicable
abandoned property, escheat or similar law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LADIA AND PRINCIPAL MEMBERS
The Ladia Nominee Trust, John Sinclair and Frances Lynch (collectively,
the "Principal Members") and Ladia jointly and severally represent and warrant
to Computone and HC as follows:
Section 4.1 Existence. Good Standing. Compliance with Law. Ladia is a
limited liability company duly organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts. Ladia is duly licensed or
qualified to do business as a foreign limited liability company and is in good
standing under the laws of any other jurisdiction in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except for jurisdictions in which
the failure to be so qualified or to be in good standing would not have a
material adverse effect on Ladia's business
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as a whole. Ladia has all requisite power and authority to own its properties
and carry on its business as now conducted. The copies of Ladia's Certificate of
Organization and Operating Agreement which have been delivered to Computone are
complete and correct. Ladia is not in default with respect to any order of any
court, governmental authority or arbitration board or tribunal to which Ladia is
a party or is subject, and Ladia is not in violation of any laws, ordinances,
governmental rules or regulations to which it is subject, except for laws,
ordinances, governmental rules or regulations the violation of which would not
have a material adverse effect on Ladia's business as a whole. Ladia has
obtained all licenses, permits and other authorizations and has taken all action
required by applicable law or governmental regulation necessary for the conduct
of its business as now conducted, except for licenses, permits, authorizations
or actions the violation of which or the failure to obtain or take which would
not have a material adverse effect on Ladia's business as a whole.
Section 4.2 Capitalization of Ladia.
(a) Schedule A sets forth a complete and accurate list of all
outstanding Membership Interests.
(b) Except as disclosed in Section 4.2 of the disclosure
schedule prepared by Ladia and attached hereto as Schedule B (the "Ladia
Disclosure Schedule"), there are no outstanding rights, warrants, options,
subscriptions, agreements or commitments giving anyone any right to require
Ladia or any Member to sell or issue any Membership Interest.
(c) Except as disclosed in Section 4.2 of the Ladia Disclosure
Schedule, there are no outstanding contractual obligations of Ladia or any
Member to repurchase, redeem or otherwise acquire any Membership Interest.
(d) Ladia has no Subsidiaries. For purposes of this Agreement,
a "Subsidiary" is any corporation or other organization, whether incorporated
or unincorporated, (i) of which either a person (A) directly or indirectly owns
securities or interests having by their terms ordinary voting power to elect a
majority of the Board of Directors or other persons performing a similar
function with respect to such corporation or other organization or (B) is a
general partner (excluding any partnerships the general partnership interests of
which held by such person directly or indirectly do not have a majority of the
voting interest in such partnership) or (ii) which is otherwise deemed to be a
significant subsidiary of a person within the meaning of Regulation S-X
promulgated by the Securities and Exchange Commission (the "Commission") as in
effect on the date hereof.
Section 4.3 Authority. Ladia and, to the knowledge of Ladia and each
Principal Member, each of the Members has all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by Ladia and the Members
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of Ladia and, to the knowledge of
Ladia and each Principal Member, the Members. This Agreement has been duly
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executed and delivered by Ladia and, to the knowledge of Ladia and each
Principal Member, each Member and constitutes their valid and binding
obligation, enforceable against them in accordance with its terms.
Section 4.4 Consents and Approvals; No Violations. Except as set forth
in Section 4.4 of the Ladia Disclosure Schedule, the execution and delivery of
this Agreement by Ladia and the Members do not, and the consummation by Ladia
and the Members of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under (i) any
provision of the Certificate of Organization or the Operating Agreement of Ladia
or (ii) any mortgage, indenture, lease, or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Ladia or, to the knowledge of Ladia
and each Principal Member, any Member or their respective properties or assets,
other than any such conflicts, violations, defaults, terminations, cancellations
or accelerations which individually or in the aggregate would not have a
material adverse effect on Ladia's business as a whole or on the Membership
Interests. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality (a "Governmental Entity") is
required by or with respect to Ladia or, to the knowledge of Ladia and each
Principal Member, any Member in connection with the execution and delivery of
this Agreement by Ladia or any Member or the consummation by Ladia or any Member
of the transactions contemplated hereby, except such consents, approvals,
orders, authorizations, registrations, declarations and/or filings which if not
obtained or made would not have a material adverse effect on Ladia's business as
a whole or on the Membership Interests.
Section 4.5 Ladia Financial Statements. Ladia has furnished a true and
complete copy of the unaudited balance sheet of Ladia as of December 31, 1997
and the related statements of income, Members' equity and cash flow and notes
thereto for the fiscal year then ended (the "Ladia Unaudited Financial
Statements"). Except as set forth on Section 4.5 of the Ladia Disclosure
Schedule, the Ladia Unaudited Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods (except as may be indicated in the notes thereto)
and fairly present the financial position of Ladia as at the dates thereof and
the results of its operations and changes in financial position for the period
then ended (subject to normal, recurring audit adjustments). Except as disclosed
in the Ladia Unaudited Financial Statements, or except as contemplated by this
Agreement or on account of the transactions contemplated hereby, since December
31, 1997 there has not been any material adverse change in the results of
operations, financial condition, assets or business of Ladia taken as a whole.
Section 4.6 Undisclosed Liabilities. Ladia has no liabilities, either
accrued, absolute, contingent or otherwise, of a nature required to be reflected
in a balance sheet or related notes prepared in accordance with generally
accepted accounting principles consistently applied which are not reflected or
provided for in the Ladia Unaudited Financial Statements except (i) those
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arising after December 31, 1997 which are in the ordinary course of business and
which, in the aggregate, would not have a material effect on the financial
condition of Ladia and (ii) as and to the extent specifically described in
Section 4.6 of the Ladia Disclosure Schedule.
Section 4.7 Absence of Certain Changes or Events. Except as disclosed
in Section 4.7 of the Ladia Disclosure Schedule, since December 31, 1997, Ladia
has not:
(a) incurred any obligation or liability (fixed or, to the
knowledge of Ladia and Frances Lynch, contingent), except normal trade or
business obligations incurred in the ordinary course of business and consistent
with past practice, and except in connection with this Agreement and the
transactions contemplated hereby;
(b) discharged or satisfied any lien, security interest or
encumbrance or paid any obligation or liability (fixed or contingent), other
than in the ordinary course of business and consistent with past practice;
(c) mortgaged, pledged or subjected to any lien, security
interest or other encumbrance any of its assets or properties (other than
mechanic's, materialman's and similar statutory liens arising by operation of
law, liens for current real and personal property taxes incurred but not yet due
and payable, purchase money security interests arising as a matter of law
between the date of delivery and payment and other liens of an immaterial
nature);
(d) transferred, leased or otherwise disposed of any of its
assets or properties except in the ordinary course of business and consistent
with past practice or, except in the ordinary course of business and consistent
with past practice, acquired any assets or properties;
(e) canceled or compromised any debt or claim, except in the
ordinary course of business and consistent with past practice;
(f) waived or released any rights of material value;
(g) transferred or granted any rights under any concessions,
leases, licenses, agreements, patents, inventions, trademarks, trade names,
service marks or copyrights or with respect to any know-how;
(h) made or granted any wage or salary increase applicable to
any group or classification of employees generally, entered into any employment
contract with, or made any loan to, or entered into any material transaction of
any other nature with, any member, officer or employee of Ladia;
(i) entered into any transaction, contract or commitment which
provides for a period of performance which extends beyond twelve (12) months
from the date hereof or involves payment of or receipt after the date hereof of
amounts in excess of one percent of Ladia's net sales for the year ended
December 31, 1997, except (i) contracts listed in Section 4.7
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of the Ladia Disclosure Schedule, (ii) this Agreement and the transactions
contemplated hereby, (iii) ordinary course of business contracts for the
purchase of materials from vendors if such contracts are supported by firm
released customer purchase orders, and (iv) ordinary course of business orders
for Ladia's products; or
(j) suffered any casualty loss or damage to any of its
properties (whether or not such loss or damage shall have been covered by
insurance) which adversely affects in any material respect its ability to
conduct business.
Section 4.8 Certain Agreements. Except as disclosed in Section 4.8 of
the Ladia Disclosure Schedule, or as contemplated by this Agreement, Ladia is
not a party to any (i) agreement with any executive officer or other key
employee of Ladia (A) the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction involving
Ladia of the nature of any of the transactions contemplated by this Agreement,
(B) providing any term of employment or compensation guarantee or (C) providing
severance benefits or other benefits (which are conditioned upon a change of
control) after the termination of employment of such employee regardless of the
reason for such termination of employment or (ii) agreement or plan, including,
without limitation, any stock option plan, stock appreciation right plan or
stock purchase plan, any of the benefits of which will be materially increased,
or the vesting of benefits of which will be materially accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
Section 4.9 Taxes.
(a) Ladia (i) has duly and timely filed or caused to be filed
all federal, state, local and foreign tax returns (including, without
limitation, consolidated and/or combined tax returns) required to be filed by it
which relate to Ladia or with respect to which Ladia is liable or otherwise in
any way subject, which returns were true, correct and complete in all material
respects, (ii) has paid or fully accrued for all taxes shown to be due and
payable on such returns (which taxes are all the taxes due and payable under
such returns or pursuant to any assessment received by Ladia), and (iii) has
properly accrued, charged or established adequate reserves for all such taxes
arising in respect of Ladia for periods subsequent to the periods covered by
such returns. Except as set forth in Section 4.9 of the Ladia Disclosure
Schedule, (A) no claims for taxes have been asserted against Ladia, and no
deficiency for any taxes has been proposed, asserted or assessed which has not
been resolved or paid in full, (B) no tax return or taxable period of Ladia is
under audit, investigation or examination and Ladia has not received notice of
any pending audit, investigation or examination, (C) there are no outstanding
agreements or waivers extending the statutory period of limitation applicable to
any tax return for any period of Ladia, (D) no issue or claim has been asserted
for taxes by any taxing authority for any prior period, the adverse
determination of which could for any prior, current or future period result in a
deficiency which could have a material adverse effect on Ladia, (E) there are no
tax liens upon the assets of Ladia other than liens for taxes not yet due and
(F) no power of attorney has been granted by Ladia with respect to any matter
relating to taxes which is currently in force, other
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than, in each case, those the outcome of which, as far as reasonably can be
foreseen, will not have a material adverse effect on Ladia. Copies of all
federal and state income (or franchise) tax returns of Ladia have been made
available for inspection by Computone.
(b) Collapsible Corporation Status. No consent or agreement
has been made under Section 341 of the Code by or on behalf of Ladia or any
predecessor thereof.
(c) FIRPTA Status. Ladia is not, and has not been at any time
during the five year period preceding the date hereof, a "United States real
property holding corporation" as defined in Section 897 of the Code and the
regulations promulgated thereunder.
(d) Parachute Payments. No payments by Ladia to its officers,
directors, employees or consultants under any contract, plan or agreement,
including but not limited to this Agreement, or payments contemplated by this
Agreement, constitute "parachute payments" within the meaning of Section 280G of
the Code.
Section 4.10 Title to Assets. Section 4.10 of the Ladia Disclosure
Schedule sets forth a list of all real property owned or leased by Ladia, and
the aggregate monthly rental or other fee payable under any such lease. Except
as listed in Section 4.10 of the Ladia Disclosure Schedule, Ladia has good and
marketable title to its assets, free and clear of all security interests,
mortgages, encumbrances, liens or charges of any kind or character, except liens
for taxes not yet due and payable and such imperfections of title, liens and
easements as do not materially detract from or interfere with the present use of
the properties subject thereto or affected thereby, or otherwise materially
impair the present business operations of such properties.
Section 4.11 Condition of Personal Property. All of Ladia's tangible
personal property, equipment, fixtures and inventories used in the ordinary
course of its business are in good, merchantable condition, reasonable wear and
tear excluded, or in reasonably repairable condition, are suitable for the
purposes for which they are being used, and are valued at the lower of cost or
market in the Ladia Unaudited Financial Statements. No value in excess of
applicable reserves has been given to any inventory in the Ladia Unaudited
Financial Statements with respect to obsolete or discontinued products. All of
the inventories and equipment, including equipment leased to others, are well
maintained and in good operating condition.
Section 4.12 List of Contracts and Other Data. Section 4.12 of the
Ladia Disclosure Schedule sets forth the following:
(a) all of Ladia's registered patents, trademarks, trade
names, service marks and copyrights, if any, used in connection with the
operation of its business, and all applications, if any, pending for patents or
for trademarks, trade names, service marks or copyright registrations;
(b) all collective bargaining agreements, employment and
consulting agreements, executive compensation plans, bonus plans, deferred
compensation agreements,
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employee pension or retirement plans, employee stock purchase and stock option
plans, group life insurance, hospitalization insurance or other plans or
arrangements providing for benefits to employees of Ladia, if any;
(c) all contracts (including, without limitation, mortgages,
indentures and loan agreements) to which Ladia is a party, or to which it or any
of its assets or properties are subject and which are not specifically referred
to in Sections 4.12(a) or 4.12(b) above, and which provide for a period of
performance which extends beyond twelve (12) months from the date hereof or
involve payment of or receipt after the date hereof of amounts in excess of one
percent of Ladia's net sales for the year ended December 31, 1997, provided that
the foregoing shall not be deemed to include (i) ordinary course of business
purchase orders for materials from vendors if such purchase orders are supported
by firm released customer purchase orders for the Ladia products or (ii)
ordinary course of business orders for the Ladia products; and
(d) the names and current annual compensation rates of the top
ten (10) paid employees of Ladia.
True and complete copies of all documents and complete descriptions of
all oral understandings, if any, referred to in this Section 4.12 have been
provided or made available to Computone and its counsel.
Section 4.13 Business Property Rights. To the knowledge of Ladia, Ladia
owns or has valid rights to use all designs, know-how, trade secrets, patents,
trademarks, trade names, service marks and copyrights, if any, which are
reasonably necessary to, or used primarily in, the conduct of its business (the
"Ladia Intellectual Property") without conflict with the rights of others.
Except as set forth in Section 4.13 of the Ladia Disclosure Schedule: (i) no
claim is pending or, to Ladia's knowledge, threatened to the effect that the
present or past operation of Ladia infringes upon or conflicts with the rights
of others with respect to any Ladia Intellectual Property, where such
infringement or conflict is reasonably likely to have a material adverse effect
on Ladia's business as a whole; (ii) no claim is pending or, to Ladia's
knowledge, threatened to the effect that any Ladia Intellectual Property is
invalid or unenforceable and (iii) no contract, agreement or understanding with
any party exists which would prevent the continued use by Ladia (as currently
used by Ladia) of any Ladia Intellectual Property.
Section 4.14 Compliance with Applicable Law. Ladia holds all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Entities necessary for the lawful conduct of its business (the "Ladia Permits"),
except for failures to hold such permits, licenses, variances, exemptions,
orders and approvals which would not, individually or in the aggregate, have a
material adverse effect on Ladia. Ladia is in compliance with the terms of the
Ladia Permits, except where the failure to comply would not have a material
adverse effect on Ladia's business as a whole. The business of Ladia is not
being conducted in violation of any law, ordinance or regulation of any
Governmental Entity, except for possible violations which individually or in the
aggregate do not and, insofar as reasonably can be foreseen, in the future will
not, have a material adverse effect on Ladia's business as a whole. Except as
set forth in
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Section 4.14 of the Ladia Disclosure Schedule, as of the date of this Agreement,
no investigation or review by any Governmental Entity with respect to Ladia is
pending or, to the knowledge of Ladia and each Principal Member, threatened, nor
has any Governmental Entity notified Ladia orally or in writing of an intention
to conduct the same, other than, in each case, those the outcome of which, as
far as reasonably can be foreseen, in the future will not have a material
adverse effect on Ladia's business as a whole.
Section 4.15 No Breach or Default. Except as set forth in Section 4.15
of the Ladia Disclosure Schedule, Ladia is not in default under any material
contract to which it is a party or by which it is bound, nor has any event
occurred which, after the giving of notice or the passage of time or both, would
constitute a default under any such contract. Ladia has no reason to believe
that the parties to such contracts will not fulfill their obligations under such
contracts in all material respects or are threatened with insolvency. Ladia is
not a party to or bound by any mortgage, lien, lease, agreement, instrument,
order, judgment or decree which would prohibit or conflict with in any way the
execution or performance of this Agreement or prohibit the consummation of any
of the transactions provided for in this Agreement.
Section 4.16 Labor Controversies. Ladia is not a party to any
collective bargaining agreement. Except as set forth in Section 4.16 of the
Ladia Disclosure Schedule, there are no controversies between Ladia and any of
its employees which might reasonably be expected to materially adversely affect
the conduct of its business, or any unresolved labor grievances or unfair labor
practice or labor arbitration proceedings pending or, to the knowledge of Ladia
and each Principal Member, threatened relating to its business, and, to the
knowledge of Ladia and each Principal Member, there are no organizational
efforts presently being made or threatened involving any of Ladia's employees.
Except as set forth in Section 4.16 of the Ladia Disclosure Schedule, Ladia has
not received notice of any claim that Ladia has not complied with any laws
relating to the employment of labor, including any provisions thereof relating
to wages, hours, collective bargaining, the payment of social security and
similar taxes, equal employment opportunity, employment discrimination and
employment safety, or that Ladia is liable for any arrears of wages or any taxes
or penalties for failure to comply with any of the foregoing.
Section 4.17 Litigation. Except as set forth in Section 4.17 of the
Ladia Disclosure Schedule, there is no action, suit or proceeding with respect
to Ladia involving claims by or against Ladia or any its properties pending or,
to the knowledge of Ladia or any Principal Member, threatened, at law or in
equity, or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality. There are no
orders, judgments, injunctions or decrees of any court or governmental agency
with respect to which Ladia has been named or is a party which apply, in whole
or in part, to the business of Ladia or any of its properties, or which would
result in a material adverse change in the business or prospects of Ladia's
business as a whole.
Section 4.18 Transactions with Affiliates. Except as set forth in
Section 4.18 of the Ladia Disclosure Statement, since December 31, 1997, there
have been no transactions to which
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Ladia has been a party in which any director or officer of Ladia or any
Principal Member or a member of any such person's immediate family had or will
have any direct or indirect interest.
Section 4.19 Environmental Matters. As of the date hereof, Ladia is in
compliance with all applicable local, county, state, federal and foreign legal
requirements relating to the use, storage, handling, transport and disposal of
materials, hazardous materials and hazardous substances (the "Hazardous
Materials") including, but not limited to, the Resources Compensation and
Recovery Act (42 U.S.C. Section 6902 et seq.) and the Comprehensive
Environmental Response Compensation and Liability Act of 1980 (42 U.S.C. Section
9601). Ladia has no knowledge of any condition that would cause Ladia to incur
liability or be a responsible party with respect to Ladia's real properties
under any environmental or health regulation or act. To the knowledge of Ladia,
(i) none of Ladia's properties has ever been used as a sanitary land fill or as
a storage or dump site for Hazardous Materials, (ii) none of the listed
properties is contaminated with any Hazardous Materials, and (iii) Ladia has not
been responsible for spilling Hazardous Materials on its properties.
Section 4.20 ERISA Plans.
(a) With respect to each employee benefit plan (including,
without limitation, any "employee benefit plan", as defined in Section 3(d) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and
any material bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit, hospitalization,
insurance or other plan, arrangement or understanding (whether or not legally
binding) (all the foregoing being herein called the "Ladia Benefit Plans"),
maintained or contributed to by Ladia, Ladia has made available to Computone, or
will deliver to Computone, within 30 days after the date hereof, a true and
correct copy of (i) the most recent annual report (Form 5500) filed with the
Internal Revenue Service (the "IRS"), if any, (ii) such Ladia Benefit Plan,
(iii) each trust agreement and group annuity contract, if any, relating to such
Ladia Benefit Plan and (iv) the most recent actuarial report or valuation
relating to each Ladia Benefit Plan subject to Title IV of ERISA.
(b) Except as set forth in Section 4.20 of the Ladia
Disclosure Schedule, with respect to the Ladia Benefit Plans, individually and
in the aggregate, no event has occurred and, to the knowledge of Ladia and each
Principal Member, there exists no condition or set of circumstances in
connection with which Ladia could be subject to any liability that is reasonably
likely to have a material adverse effect on Ladia's business as a whole (except
liability for benefits claims and funding obligations payable in the ordinary
course), under ERISA, the Code or any other applicable law.
(c) Except as set forth in Section 4.20 of the Ladia
Disclosure Schedule, with respect to the Ladia Benefit Plans, individually and
in the aggregate, there are no funded benefit obligations for which
contributions have not been made or properly accrued and there are no unfunded
benefit obligations which have not been accounted for by reserves, or otherwise
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properly footnoted in accordance with generally accepted accounting principles,
on the Ladia Financial Statements which obligations are reasonably likely to
have a material adverse effect on Ladia's business as a whole.
Section 4.21 No Brokers. Except as disclosed in Section 4.21 of the
Ladia Disclosure Schedule, neither Ladia nor, to the knowledge of Ladia and each
Principal Member any Member has entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of
Ladia or any Member to pay any finder's fees, brokerage or agent's commissions
or other like payments in connection with the negotiations leading to this Agree
ment or the consummation of the transactions contemplated hereby, and neither
Ladia nor any Principal Member has knowledge of any other claim or basis for
claim for payment by it 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 contemplated hereby. Ladia and
each Principal Member shall indemnify and hold Computone and HC harmless from
and against any obligation with respect to any such fees, brokerage or agent's
commissions or other like payments.
Section 4.22 Pooling Matters. Neither Ladia nor any of Principal
Members has, based upon consultation with Ladia's independent accountants, taken
or agreed to take any action that would affect the ability of HC to account for
the business combination to be effected by the Exchange as a pooling of
interests.
Section 4.23 Information Supplied. None of the information supplied by
Ladia or any Principal Member for inclusion in the Registration Statement and
the Proxy Statement (as such terms are defined in Section 5.4 hereof) included
therein, at the date the Registration Statement is filed with the Commission and
at the time it becomes effective and at the time of the meeting of Computone's
stockholders to be held in connection with the Merger contains or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
Section 4.24 No Misrepresentation or Omission. No representation or
warranty made by Ladia in this Article IV or in any other Article or Section of
this Agreement, or in any certificate or other document furnished or required to
be furnished by Ladia pursuant hereto, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading in
light of the circumstances under which they are made.
ARTICLE IVA
REPRESENTATIONS AND WARRANTIES OF MEMBERS
Each Member severally represents and warrants to Computone and HC as
follows:
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Section 4A.1 Capitalization of Ladia.
(a) Schedule A sets forth an accurate description of such
Member's Membership Interest.
(b) There are not outstanding rights, warrants, options,
subscriptions, agreements or commitments giving anyone any right to require such
Member to sell such Member's Membership Interest.
(c) Such Member has no outstanding contractual obligation to
acquire any Membership Interest.
Section 4A.2 Authority. Such Member has all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated to be consummated by such Member. The execution and delivery of
this Agreement by such Member and the consummation of the transactions
contemplated to be consummated by such Member have been duly authorized by all
necessary action on the part of such Member. This Agreement has been duly
executed and delivered by such Member and constitutes such Member's valid and
binding obligation, enforceable against such Member in accordance with its
terms.
Section 4A.3 Consent and Approvals; No Violations. The execution and
delivery of this Agreement by such Member do not, and the consummation by such
Member of the transactions contemplated to be consummated by such Member will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time or both) or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material benefit
under any mortgage indenture, lease or other agreement or instrument, permit,
concession, franchise, license, judgement, order, decree, statute, law,
ordinance, rule or regulation applicable to such Member or such Member's
properties or assets other than any such conflicts, violations, defaults,
terminations, cancellations or accelerations that individually or in the
aggregate would not have a material adverse effect on such Member's Membership
Interest. No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to such Member in connection with the execution and delivery of this
Agreement by such Member or the consummation by such Member of the transactions
contemplated to be consummated by such Member, except such consents, approvals,
orders, authorizations, registrations, declarations and filings which, if not
obtained or made, would not have a material adverse effect on such Member's
Membership Interest.
Section 4A.4 No Brokers. Such Member has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of such Member to pay 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 contemplated hereby,
and such Member has no knowledge of any claim or basis for claim for payment by
such Member of any finder's fees, brokerage or agent's commission or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of
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the transactions contemplated hereby by such Member. Such Member shall indemnify
and hold Computone and HC harmless from and against any obligation with respect
to any such fees, brokerage or agent's commissions or other like payments.
Section 4A.5 Ownership of Interest. Such Member owns its Membership
Interest free and clear of any liens, claims, pledges or encumbrance of any
kind. The transfer by such Member of its Membership Interest to HC pursuant to
the Exchange will vest in HC good and marketable title to that Membership
Interest, free and clear of any liens, claims, pledges or encumbrances of any
kind.
Section 4A.6 Information Supplied. None of the information supplied by
such Member for inclusion in the Registration Statement and the Proxy Statement
included therein, at the date the Registration Statement is filed with the
Commission and at the time it becomes effective and at the time of the meeting
of Computone's stockholders to be held in connection with the Merger contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
Section 4A.7 No Misrepresentations or Omission. No representation or
warranty made by such Member in this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COMPUTONE
Computone represents and warrants to Ladia, the Members, HC and Newco as
follows:
Section 5.1 Existence. Good Standing. Compliance with Law. Computone
and each of its Subsidiaries is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Computone and each of its Subsidiaries is duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of any other jurisdiction in which the character of the properties
owned or leased by it therein or in which the transaction of its business makes
such qualification necessary, except for jurisdictions in which the failure to
be so qualified or to be in good standing would not have a material adverse
effect on Computone and its Subsidiaries taken as a whole. Computone and each of
its Subsidiaries has all requisite corporate power and authority to own its
properties and carry on its business as now conducted. The copies of Computone's
Certificate of Incorporation and Bylaws which have been delivered to Ladia and
HC are complete and correct. Computone is not in default with respect to any
order of any court, governmental authority or arbitration board or tribunal to
which Computone is a party or is subject, and Computone is not in violation of
any laws, ordinances, governmental rules or regulations to which it is subject,
except for laws,
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ordinances, governmental rules or regulations the violation of which would not
have a material adverse effect on Computone's business as a whole. Computone has
obtained all licenses, permits and other authorizations and has taken all action
required by applicable law or governmental regulation necessary for the conduct
of its business as now conducted, except for licenses, permits, authorizations
or actions the violation of which or the failure to obtain or take which would
not have a material adverse effect on the business of Computone and its
subsidiaries taken as a whole.
Section 5.2 Capitalization of Computone. Computone has authorized
capital stock of 10,000,000 shares of convertible redeemable preferred stock,
$0.01 par value, and 25,000,000 shares of common stock, $0.01 par value per
share (the "Computone Common Stock"). As of April 3, 1998, 7,386,623 shares of
the Computone Common Stock were issued and outstanding and no shares of
Computone's convertible redeemable preferred stock were issued or outstanding.
(a) There are no outstanding rights, warrants, options,
subscriptions, agreements or commitments giving anyone any right to require
Computone to sell or issue any capital stock or other securities, except that as
of the close of business on April 3, 1998:
(i) Computone had issued options under its
Non-Qualified Equity Incentive Plan to purchase an aggregate of 418,378 shares
of the Computone Common Stock (the "Computone Incentive Plan Shares") and had
reserved an additional 218,167 shares for future issuance under such Plan; and
(ii) Computone had issued warrants to purchase an
aggregate of 372,013 shares of the Computone Common Stock (the "Computone
Warrant Shares").
(b) Since April 3, 1998, Computone has not issued any
additional stock options, warrants or shares of the Computone Common Stock,
except shares of the Computone Common Stock which are described in Section 5.2
of the disclosure schedule prepared by Computone and attached hereto as Schedule
C (the "Computone Disclosure Schedule") and which were issuable upon the
exercise of outstanding options or warrants, in each case pursuant to the terms
of (i) the applicable agreements pursuant to which such options or warrants were
issued, (ii) the applicable Computone option plan and (iii) the Computone
Certificate of Incorporation.
(c) As of April 3, 1998, there were no outstanding contractual
obligations of Computone or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of Computone or any of its
Subsidiaries.
(d) Section 5.2 of the Computone Disclosure Schedule lists all
Subsidiaries of Computone, the jurisdiction of incorporation of each such
Subsidiary of Computone and each jurisdiction where such Subsidiary of Computone
is qualified to do business. Computone owns, directly or indirectly, all of the
securities of each of the Subsidiaries of Computone, free and
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clear of all liens, charges, pledges, security interest or other encumbrances,
and all capital stock of such Subsidiaries of Computone has been duly authorized
and validly issued and is fully paid and nonassessable. None of the Subsidiaries
of Computone has any commitment to issue or sell any shares of its capital stock
or any securities or obligations convertible into or exchangeable for, or giving
any person other than Computone or a Subsidiary of Computone any right to
acquire from a Subsidiary of Computone, any shares of its capital stock. Each
Subsidiary of Computone is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, has the
corporate power and all necessary authorizations to own all of its properties
and assets and to carry on its business as it is now being conducted, and, to
the extent required by law, is duly qualified to do business and is in good
standing in each jurisdiction in which it owns property or conducts business,
except where the failure to have such authorization or to be so qualified would
not have a material adverse affect on the business or operations of such
Subsidiary or Computone.
Section 5.3 Authority. Computone has all requisite corporate power and
authority to enter into this Agreement and the Merger Agreement and, subject
only to approval of this Agreement and the Merger Agreement by the stockholders
of Computone, to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Merger Agreement by
Computone and the consummation by Computone of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Computone, subject only to such approval by the stockholders of
Computone. This Agreement and the Merger Agreement have been duly executed and
delivered by Computone and, subject only to such approval by the stockholders of
Computone, constitute valid and binding obligations of Computone, enforceable
against Computone in accordance with their respective terms.
Section 5.4 Consents and Approvals; No Violations. Except as set forth
in Section 5.4 of the Computone Disclosure Schedule, and except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and the DGCL (all of which shall
have been made or obtained on or before the Preliminary Exchange Closing Date
and the Merger Closing Date), the execution and delivery of this Agreement and
the Merger Agreement do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both), or
give rise to a right of termination, cancellation or acceleration of any
obligation or to loss of a material benefit, under (i) any provision of the
Certificate of Incorporation or Bylaws of Computone or any Subsidiary of
Computone, or (ii) any mortgage, indenture, lease, or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Computone or any
Subsidiary of Computone or their respective properties or assets, other than any
such conflicts, violations, defaults, terminations, cancellations or
accelerations which individually or in the aggregate would not have a material
adverse effect on the business of Computone and its Subsidiaries taken as a
whole. No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Computone or any of its Subsidiaries in
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connection with the execution and delivery of this Agreement or the Merger
Agreement by Computone or the consummation by Computone of the transactions
contemplated hereby or thereby, except for the following, all of which shall
have been accomplished on or before the Preliminary Exchange Closing Date and
the Merger Closing Date: (i) the filing and effectiveness of a proxy statement
relating to the meeting of Computone's stockholders to be held in connection
with the Merger (the "Proxy Statement") under the Exchange Act, (ii) the filing
and effectiveness of a registration statement on Form S-4 (the "Registration
Statement") with the Commission in connection with the issuance of the Merger
Shares pursuant to the Merger and the Initial Member Shares, the 1997 Note
Shares and the Additional Shares pursuant to or in connection with the Exchange,
which Registration Statement shall include the Proxy Statement, (iii) the filing
of such reports under Section 13 of the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated hereby, (iv)
the filing of the Certificate of Merger or the Merger Agreement and officers'
certificates with the Secretary of State of the State of Delaware and
appropriate documents with the relevant authorities of other states in which
Computone is qualified to do business, (v) such consents, approvals,. orders,
authorizations, registration, declarations and filings as may be required under
applicable state securities laws and the laws of any foreign country and (vi)
such other consents, authorizations, filings, approvals and registrations which
if not obtained or made would not have a material adverse effect on the business
of Computone and its Subsidiaries taken as a whole.
Section 5.5 Computone SEC Documents. Computone has filed with the
Commission and has heretofore furnished to Ladia or to counsel for Ladia, a true
and complete copy of each form, report, and document required to be filed by
Computone with the Commission since April 4, 1997 (the "Computone SEC
Documents"). As of their respective filing dates: (i) the Computone SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the Securities Act, and (ii) none of the Computone SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading except to the extent, if any, corrected by a subsequently
filed Computone SEC Document. At the time filed, the financial statements of
Computone included in the Computone SEC Documents (the "Computone Financial
Statements") complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
Commission with respect thereto, had been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q of the Commission) and fairly
presented the consolidated financial position of Computone and its consolidated
Subsidiaries as at the dates thereof and the consolidated results of their
operations and changes in financial position for the periods then ended
(subject, in the case of unaudited statements, to normal, recurring audit
adjustments). Except as disclosed in the Computone SEC Documents filed prior to
the date of this Agreement, or except as contemplated by this Agreement, since
April 4, 1997, there has not been any material adverse change in the results of
operations, financial condition, assets or business of Computone and its
Subsidiaries taken as a whole.
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Section 5.6 Undisclosed Liabilities. Except as set forth on Section 5.6
of the Computone Disclosure Schedule, neither Computone nor any of its
Subsidiaries has any liabilities, either accrued, absolute, contingent or
otherwise, of a nature required to be reflected in a balance sheet or related
notes prepared in accordance with generally accepted accounting principles
consistently applied which are not reflected or provided for in the Computone
Financial Statements except those arising after April 4, 1997, (i) which are in
the ordinary course of business, (ii) which, in the aggregate would not have a
material effect on the financial condition of Computone, and (iii) the nature
and extent of which are specifically described in Section 5.6 of the Computone
Disclosure Schedule.
Section 5.7 Absence of Certain Changes or Events. Except as disclosed
in Section 5.7 of the Computone Disclosure Statement, since April 4, 1997,
neither Computone nor any of its Subsidiaries has:
(a) incurred any obligation or liability (fixed or, to its
knowledge, contingent), except normal trade or business obligations incurred in
the ordinary course of business and consistent with past practice, and except in
connection with this Agreement and the transactions contemplated hereby;
(b) discharged or satisfied any lien, security interest or
encumbrance or paid any obligation or liability (fixed or contingent), other
than in the ordinary course of business and consistent with past practice;
(c) mortgaged, pledged or subjected to any lien, security
interest or other encumbrance any of its assets or properties (other than
mechanic's, materialman's and similar statutory liens arising by operation of
law, liens for current real and personal property taxes incurred but not yet due
and payable, purchase money security interests arising as a matter of law
between the date of delivery and payment and other liens of an immaterial
nature);
(d) transferred, leased or otherwise disposed of any of its
assets or properties except in the ordinary course of business and consistent
with past practice or, except in the ordinary course of business and consistent
with past practice, acquired any assets or properties;
(e) canceled or compromised any debt or claim, except in the
ordinary course of business and consistent with past practice;
(f) waived or released any rights of material value;
(g) transferred or granted any rights under any concessions,
leases, licenses, agreements, patents, inventions, trademarks, trade names,
service marks or copyrights or with respect to any know-how;
(h) made or granted any wage or salary increase applicable to
any group or classification of employees generally, entered into any employment
contract with, or made any
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loan to, or entered into any material transaction of any other nature with, any
officer or employee of Computone or any of its Subsidiaries;
(i) entered into any transaction, contract or commitment which
provides for a period of performance which extends beyond twelve (12) months
from the date hereof or involves payment of or receipt after the date hereof of
amounts in excess of one percent of Computone's net sales for the year ended
April 4, 1997, except (i) contracts listed in Section 5.13 of the Computone
Disclosure Schedule, (ii) this Agreement and the transactions contemplated
hereby, (iii) ordinary course of business contracts for the purchase of
materials from vendors if such contracts are supported by firm released customer
purchase orders, and (iv) ordinary course of business orders for Computone's
products; or
(j) suffered any casualty loss or damage to any of its
properties (whether or not such loss or damage shall have been covered by
insurance) which adversely affects in any material respect its ability to
conduct business.
Section 5.8 Information Supplied. None of the information supplied by
Computone for inclusion in the Registration Statement, and the Proxy Statement
included therein, at the date the Registration Statement is filed with the
Commission and at the time it becomes effective and at the time of the meeting
of Computone's stockholders to be held in connection with the Merger, contains
or will contain any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
Section 5.9 Certain Agreements. Except as disclosed in Section 5.9 of
the Computone Disclosure Schedule, or as contemplated by this Agreement, neither
Computone nor any of its Subsidiaries is a party to any (i) agreement with any
executive officer or other key employee of Computone or any Subsidiary of
Computone (A) the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving Computone or
any Subsidiary of Computone of the nature of any of the transactions
contemplated by this Agreement and the Merger Agreement, (B) providing any term
of employment or compensation guarantee or (C) providing severance benefits or
other benefits (which are conditioned upon a change of control) after the
termination of employment of such employee regardless of the reason for such
termination of employment or (ii) agreement or plan, including; without
limitation, any stock option plan, stock appreciation right plan or stock
purchase plan, any of the benefits of which will be materially increased, or the
vesting of benefits of which will be materially accelerated, by the occurrence
of any of the transactions contemplated by this Agreement and the Merger
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement and the Merger
Agreement.
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Section 5.10 Taxes.
(a) Computone and each of its Subsidiaries (i) has duly and
timely filed or caused to be filed all federal, state, local and foreign tax
returns (including, without limitation, consolidated and/or combined tax
returns) required to be filed by it which relate to Computone or any of its
Subsidiaries or with respect to which Computone or any of its Subsidiaries is
liable or otherwise in any way subject, which returns were true, correct and
complete in all material respects, (ii) has paid or fully accrued for all taxes
shown to be due and payable on such returns (which taxes are all the taxes due
and payable under such returns or pursuant to any assessment received by
Computone or any of its Subsidiaries), and (iii) has properly accrued, charged
or established adequate reserves for all such taxes arising in respect of
Computone or any of its Subsidiaries for periods subsequent to the periods
covered by such returns. Except as set forth in Section 5.10 of the Computone
Disclosure Schedule, (A) no claims for taxes have been asserted against
Computone or any of its Subsidiaries, and no deficiency-for any taxes has been
proposed, asserted or assessed which has not been resolved or paid in full, (B)
no tax return or taxable period of Computone or any of its Subsidiaries is under
audit, investigation or examination and none of Computone or any of its
Subsidiaries has received notice of any pending audit, investigation or
examination, (C) there are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return for any period of
Computone or its Subsidiaries, (D) no issue or claim has been asserted for taxes
by any taxing authority for any prior period, the adverse determination of which
could for any prior, current or future period result in a deficiency which could
have a material adverse effect on Computone and its Subsidiaries taken as a
whole, (E) there are no tax liens upon the assets of Computone or any of its
Subsidiaries other than liens for taxes not yet due and (F) no power of attorney
has been granted by Computone or any of its Subsidiaries with respect to any
matter relating to taxes which is currently in force, other than, in each case,
those the outcome of which, as far as reasonably can be foreseen, will not have
a material adverse effect on Computone and its Subsidiaries taken as a whole.
Copies of all federal and state income (or franchise) tax returns of Computone
or any of its Subsidiaries have been made available for inspection by HC and
Ladia.
(b) Collapsible Corporation Status. No consent or agreement
has been made under Section 341 of the Code by or on behalf of Computone or its
Subsidiaries or any predecessor thereof.
(c) FIRPTA Status. Computone is not, and has not been at any
time during the five year period preceding the date hereof, a "United States
real property holding corporation" as defined in Section 897 of the Code and the
regulations promulgated thereunder.
(d) Parachute Payments. No payments by Computone or its
Subsidiaries to its officers, directors, employees or consultants under any
contract, plan or agreement, including but not limited to this Agreement, or
payments contemplated by this Agreement constitute "parachute payments" within
the meaning of Section 280G of the Code.
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Section 5.11 Title to Assets. Section 5.11 of the Computone Disclosure
Schedule sets forth a list of all real property owned or leased by Computone or
any of its Subsidiaries, and the aggregate monthly rental or other fee payable
under any such lease. Except as listed in Section 5.11 of the Computone
Disclosure Schedule, Computone and each of its Subsidiaries has good and
marketable title to its assets, free and clear of all security interests,
mortgages, encumbrances, liens or charges of any kind or character, except
liens for taxes not yet due and payable and such imperfections of title, liens
and easements as do not materially detract from or interfere with the present
use of the properties subject thereto or affected thereby, or otherwise
materially impair the present business operations of such properties.
Section 5.12 Condition of Personal Property. All of Computone's and its
Subsidiaries' tangible personal property, equipment, fixtures and inventories
used in the ordinary course of its business are in good, merchantable condition,
reasonable wear and tear excluded, or in reasonably repairable condition, are
suitable for the purposes for which they are being used, and are valued at the
lower of cost or market in the Computone Financial Statements. No value in
excess of applicable reserves has been given to any inventory in the Computone
Financial Statements with respect to obsolete or discontinued products. All of
the inventories and equipment, including equipment leased to others, are well
maintained and in good operating condition.
Section 5.13 List of Contracts and Other Data. Section 5.13 of the
Computone Disclosure Schedule sets forth the following:
(a) all of Computone's and its Subsidiaries' registered
patents, trademarks, trade names, service marks and copyrights, if any, used in
connection with the operation of Computone's and its Subsidiaries' business, and
all applications, if any, pending for patents or for trademarks, trade names,
service marks or copyright registrations;
(b) all collective bargaining agreements, employment and
consulting agreements, executive compensation plans, bonus plans, deferred
compensation agreements, employee pension or retirement plans, employee stock
purchase and stock option plans, group life insurance, hospitalization insurance
or other plans or arrangements providing for benefits to employees of Computone
or any of its Subsidiaries, if any;
(c) all contracts (including, without limitation, mortgages,
indentures and loan agreements) to which Computone or any of its Subsidiaries is
a party, or to which it or any of its assets or properties are subject and which
are not specifically referred to in Sections 5.13(a) or 5.l3(b) above and which
provide for a period of performance which extends beyond twelve (12) months from
the date hereof or involve payment of or receipt after the date hereof of
amounts in excess of one percent of Computone's net sales for the year ended
April 4, 1997, provided that the foregoing shall not be deemed to include (i)
ordinary course of business purchase orders for materials from vendors if such
purchase orders are supported by firm released customer purchase orders for
Computone's products or (ii) ordinary course of business orders for Computone's
products; and
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(d) the names and current annual compensation rates of the top
ten (10) paid employees of Computone or any of its Subsidiaries.
True and complete copies of all documents and complete descriptions of
all oral understandings, if any, referred to in this Section 5.13 have been
provided or made available to HC, Ladia and their counsel.
Section 5.14 Business Property Rights. To the knowledge of Computone,
Computone owns or has valid rights to use all designs, know-how, trade secrets,
patents, trademarks, trade names, service marks and copyrights, if any, which
are reasonably necessary to, or used primarily in, the conduct of Computone's
and its Subsidiaries' businesses (the "Computone Intellectual Property") without
conflict with the rights of others. Except as set forth in Section 5.14 of the
Computone Disclosure Schedule: (i) no claim is pending or, to Computone's
knowledge, threatened to the effect that the present or past operation of
Computone or its Subsidiaries infringes upon or conflicts with the rights of
others with respect to any Computone Intellectual Property, where such
infringement or conflict is reasonably likely to have a material adverse effect
on Computone and its Subsidiaries taken as a whole; (ii) no claim is pending or,
to Computone's knowledge, threatened to the effect that any Computone
Intellectual Property is invalid or unenforceable and (iii) no contract,
agreement or understanding with any party exists which would prevent the
continued use by Computone or its Subsidiaries (as currently used by Computone
or its Subsidiaries) of any Computone Intellectual Property.
Section 5.15 Compliance with Applicable Law. Computone and its
Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "Computone Permits"), except for failures to hold
such permits, licenses, variances, exemptions, orders and approvals which would
not, individually or in the aggregate, have a material adverse effect on the
business of Computone and its Subsidiaries taken as a whole. Computone and its
Subsidiaries are in compliance with the terms of the Computone Permits, except
where the failure to comply would not have a material adverse effect on
Computone and its Subsidiaries taken as a whole. The businesses of Computone and
its Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except for possible violations which
individually or in the aggregate do not, and, insofar as reasonably can be
foreseen, in the future will not, have a material adverse effect on the business
of Computone and its Subsidiaries taken as whole. Except as set forth in Section
5.15 of the Computone Disclosure Schedule, as of the date of this Agreement, no
investigation or review by any Governmental Entity with respect to Computone and
its Subsidiaries is pending or, to the best knowledge of Computone, threatened,
nor has any Governmental Entity notified Computone orally or in writing of an
intention to conduct the same, other than, in each case, those the outcome of
which, as far as reasonably can be foreseen, in the future will not have a
material adverse effect on the business of Computone and its Subsidiaries taken
as a whole.
Section 5.16 No Breach or Default. Except as set forth in Section 5.16
of the Computone Disclosure Schedule, neither Computone nor any of its
Subsidiaries is in default under any
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material contract to which it is a party or by which it is bound, nor has any
event occurred which, after the giving of notice or the passage of time or both,
would constitute a default under any such contract. Neither Computone nor any of
its Subsidiaries has reason to believe that the parties to such contracts will
not fulfill their obligations under such contracts in all material respects or
are threatened with insolvency. Neither Computone nor any of its Subsidiaries is
a party to or bound by any mortgage, lien, lease, agreement, instrument, order,
judgment or decree which would prohibit or conflict with in any way the
execution or performance of this Agreement or prohibit the consummation of any
of the transactions provided for in this Agreement.
Section 5.17 Labor Controversies. Neither Computone nor any of its
Subsidiaries is a party to any collective bargaining agreement. Except as set
forth in Section 5.17 of the Computone Disclosure Schedule, there are no
controversies between Computone and any of its employees or any Subsidiary of
Computone and any of its employees which might reasonably be expected to
materially adversely affect the conduct of its business, or any unresolved labor
grievances or unfair labor practice or labor arbitration proceedings pending, or
to the knowledge of Computone or such Subsidiary threatened relating to its
business, and to the knowledge of Computone or such Subsidiary there are no
organizational efforts presently being made or threatened involving any of
Computone's or any of its Subsidiaries' employees. Neither Computone nor any of
its Subsidiaries has received notice of any claim that Computone or such
Subsidiary has not complied with any laws relating to the employment of labor,
including any provisions thereof relating to wages, hours, collective
bargaining, the payment of social security and similar taxes, equal employment
opportunity, employment discrimination and employment safety, or that Computone
or such Subsidiary is liable for any arrears of wages or any taxes or penalties
for failure to comply with any of the foregoing.
Section 5.18 Litigation. Except as set forth in Section 5.18 of the
Computone Disclosure Schedule there is no action, suit or proceeding with
respect to Computone or any of its Subsidiaries involving claims by or against
Computone, any of its Subsidiaries or any of their respective properties,
pending or, to the knowledge of Computone, threatened, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality. There are no orders,
judgments, injunctions or decrees of any court or governmental agency with
respect to which Computone or any of its Subsidiaries has been named or is a
party which apply, in whole or in part, to the business of Computone or any of
its Subsidiaries or any of their respective properties, or which would result in
a material adverse change in the business or prospects of Computone and its
Subsidiaries taken as a whole.
Section 5.19 Transactions with Affiliates. Except as set forth in the
Section 5.19 of the Computone Disclosure Statement, since April 4, 1997, there
have been no transactions to which Computone or any of its Subsidiaries has been
a party in which any director, officer or 5% stockholder of Computone or a
member of his immediate family had or will have any direct or indirect interest.
Section 5.20 Environmental Matters. As of the date hereof, Computone is
in compliance with all applicable local, county, state, federal and foreign
legal requirements relating to the use,
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storage, handling, transport and disposal of materials, hazardous materials and
hazardous substances (the "Hazardous Materials") including, but not limited to,
the Resources Compensation and Recovery Act (42 U.S.C. Section 6902 et seq.)
and the Comprehensive Environmental Response Compensation and Liability Act of
1980 (42 U.S.C. Section 9601). Computone has no knowledge of any condition that
would cause Computone to incur liability or be a responsible party with respect
to Computone's real properties under any environmental or health regulation or
act. To the knowledge of Computone, (i) none of Computone's properties has ever
been used as a sanitary land fill or as a storage or dump site for Hazardous
Materials, (ii) none of the listed properties is contaminated with any Hazardous
Materials; and (iii) Computone has not been responsible for spilling Hazardous
Materials on its properties.
Section 5.21 ERISA Plans.
(a) With respect to each employee benefit plan (including,
without limitation, any "employee benefit plan", as defined in Section 3(d) of
the ERISA), and any material bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, insurance or other plan, arrangement or understanding
(whether or not legally binding) (all the foregoing being herein called the
"Computone Benefit Plans"), maintained or contributed to by Computone or any of
its Subsidiaries, Computone has made available to HC and Ladia, or will deliver
to HC and Ladia within 30 days after the date hereof, a true and correct copy of
(i) the most recent annual report (Form 5500) filed with the IRS, if any, (ii)
such Computone Benefit Plan, (iii) each trust agreement and group annuity
contract, if any, relating to such Computone Benefit Plan and (iv) the most
recent actuarial report or valuation relating to each Computone Benefit Plan
subject to Title IV of ERISA.
(b) With respect to the Computone Benefit Plans, individually
and in the aggregate, no event has occurred, and to the knowledge of Computone
and its Subsidiaries, there exists no condition or set of circumstances in
connection with which Computone and its Subsidiaries could be subject to any
liability that is reasonably likely to have a material adverse effect on the
business of Computone and its Subsidiaries taken as a whole (except liability
for benefits claims and funding obligations payable in the ordinary course),
under ERISA, the Code or any other applicable law.
(c) Except as set forth in Section 5.21 of the Computone
Disclosure Schedule, with respect to the Computone Benefit Plans, individually
and in the aggregate, there are no funded benefit obligations for which
contributions have not been made or properly accrued and there are no unfunded
benefit obligations which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted accounting principles,
on the Computone Financial Statements, which obligations are reasonably likely
to have a material adverse effect on Computone and its Subsidiaries, taken as a
whole.
Section 5.22 No Brokers. Except as disclosed in Section 5.22 of the
Computone Disclosure Schedule, Computone has not entered into any contract,
arrangement or understanding
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with any person or firm which may result in the obligation of Computone to pay
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 contemplated hereby, and Computone is not aware of any other
claim or basis for 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 contemplated hereby.
Computone shall indemnify and hold HC, Ladia and the Members harmless from and
against any obligation with respect to any such fees, brokerage or agent's
commissions or other like payments.
Section 5.23 Pooling Matters. Neither Computone nor any of its
affiliates has, to its knowledge and based upon consultation with its
independent accountants, taken or agreed to take any action that would affect
the ability of Computone and HC to account for the business combination to be
effected by the Merger as a pooling of interests.
Section 5.24 No Misrepresentation or Omission. No representation or
warranty made by Computone in this Article V or in any other Article or Section
of this Agreement, or in any certificate or other document furnished or required
to be furnished by Computone pursuant hereto, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained herein or therein not misleading
in light of the circumstances under which they are made.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF HC AND NEWCO
HC and Newco jointly and severally represent and warrant to Ladia, the
Members and Computone as follows:
Section 6.1 Existence. Good Standing. Compliance with Law. Each of HC
and Newco is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Each of HC and Newco is duly
licensed or qualified to do business as a foreign corporation and is in good
standing under the laws of any other jurisdiction in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except for jurisdictions in which
the failure to be so qualified or to be in good standing would not have a
material adverse effect on the business of HC and Newco taken as a whole. Each
of HC and Newco has all requisite corporate power and authority to own its
properties and carry on its business as now conducted. The copies of the
Certificate of Incorporation and Bylaws of HC and Newco which have been
delivered to Ladia and Computone are complete and correct. Neither HC nor Newco
is in default with respect to any order of any court, governmental authority or
arbitration board or tribunal to which HC or Newco is a party or is subject.
Neither HC nor Newco is in violation of any laws, ordinances, governmental rules
or regulations to which it is subject, except for laws, ordinances, governmental
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rules or regulations the violation of which would not have a material adverse
effect on HC's or Newco's business as a whole. HC and Newco have obtained all
licenses, permits and other authorizations and has taken all action required by
applicable law or governmental regulation necessary for the conduct of their
respective business as now conducted, except for licenses, permits,
authorizations or actions the violation of which or the failure to obtain or
take which would not have a material adverse effect on the business of HC and
Newco taken as a whole. HC and Newco were organized in May 1998 and neither has
conducted any material operations to date.
Section 6.2 Capitalization of HC. HC has authorized capital stock of
10,000,000 shares of convertible redeemable preferred stock, $0.01 par value per
share, and 50,000,000 shares of common stock, $0.01 par value per share (the "HC
Common Stock"). As of the date of this Agreement, one share of the HC Common
Stock was issued and outstanding and owned beneficially and of record by
Computone (which share shall be canceled and retired, and shall cease to exit,
upon the Effective Time of the Merger, as provided in Section 3.1(c)), and no
shares of HC convertible redeemable preferred stock were issued or outstanding.
There are no outstanding rights, warrants, options, subscriptions, agreements or
commitments giving anyone any right to require HC to sell or issue any capital
stock or other securities. HC has no Subsidiaries other than Newco.
Section 6.3 Capitalization of Newco. Newco has authorized capital stock
of 100 shares of common stock, $0.01 par value per share (the "Newco Common
Stock"). As of the date of this Agreement, one share of the Newco Common Stock
was issued and outstanding and owned beneficially and of record by HC. There are
no outstanding rights, warrants, options, subscriptions, agreements or
commitments giving anyone any right to require Newco to sell or issue any
capital stock or other securities. Newco has no Subsidiaries.
Section 6.4 Authority. Each of HC and Newco has all requisite corporate
power and authority to enter into this Agreement and the Merger Agreement and,
subject only to approval of this Agreement and the Merger Agreement by the
stockholders of Computone, to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Merger
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of HC and Newco. This Agreement and the Merger Agreement have been duly executed
and delivered by HC and Newco and constitute valid and binding obligations of HC
and Newco, enforceable against them in accordance with their respective terms.
Section 6.5 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act and the
DGCL (all of which shall have been made or obtained on or before the Preliminary
Exchange Closing Date and the Merger Closing Date), the execution and delivery
by HC and Newco of this Agreement and the Merger Agreement do not, and the
consummation by HC and Newco of the transactions contemplated hereby and thereby
will not, conflict with, or result in any violation of, or default (with or
without notice
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or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to loss of a material benefit under (i) any
provision of the Certificate of Incorporation or Bylaws of HC or Newco, or (ii)
any mortgage, indenture, lease, or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to HC or Newco or their respective
properties or assets, other than any such conflicts, violations, defaults,
terminations, cancellations or accelerations which individually or in the
aggregate would not have a material adverse effect on the business of HC and
Newco taken as a whole. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to HC or Newco in connection with the execution and delivery of
this Agreement or the Merger Agreement by HC and Newco or the consummation by HC
and Newco of the transactions contemplated hereby or thereby, except (i) the
filing and effectiveness of the Proxy Statement under the Exchange Act, (ii) the
filing and effectiveness of the Registration Statement with the Commission in
connection with the issuance of the Merger Shares pursuant to the Merger and the
Initial Member Shares, the 1997 Note Shares and the Additional Shares pursuant
to or in connection with the Exchange, which Registration Statement shall
include the Proxy Statement, (iii) the filing of such reports under Section 13
of the Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby, (iv) the filing of the Certificate of Merger
of the Merger Agreement and officers' certificates with the Secretary of State
of the State of Delaware and appropriate documents with the relevant authorities
of other states in which HC or Newco is qualified to do business, (v) such
consents, approvals, orders, authorizations, registration, declarations and
filings as may be required under applicable state securities laws and the laws
of any foreign country and (vi) such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not have a
material adverse effect on the business of HC and Newco taken as a whole.
Section 6.6 Undisclosed Liabilities. Neither HC nor Newco has any
liabilities, either accrued, absolute, contingent or otherwise, of a nature
required to be reflected in a balance sheet or related notes prepared in
accordance with generally accepted accounting principles consistently applied.
Section 6.7 Absence of Certain Changes or Events. Since their
respective dates of formation, neither HC nor any Newco has:
(a) incurred any obligation or liability (fixed or, to its
knowledge, contingent), except in connection with this Agreement and the
transactions contemplated hereby;
(b) discharged or satisfied any lien, security interest or
encumbrance or paid any obligation or liability (fixed or contingent);
(c) mortgaged, pledged or subjected to any lien, security
interest or other encumbrance any of its assets or properties (other than
mechanic's, materialman's and similar statutory liens arising by operation of
law, liens for current real and personal property taxes
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incurred but not yet due and payable, purchase money security interests arising
as a matter of law between the date of delivery and payment and other liens of
an immaterial nature);
(d) transferred, leased or otherwise disposed of any of its
assets or properties or acquired any assets or properties;
(e) canceled or compromised any debt or claim;
(f) waived or released any rights of material value;
(g) transferred or granted any rights under any concessions,
leases, licenses, agreements, patents, inventions, trademarks, trade names,
service marks or copyrights or with respect to any know-how;
(h) made or granted any wage or salary increase applicable to
any group or classification of employees generally, entered into any employment
contract with, or made any loan to, or entered into any material transaction of
any other nature with, any officer or employee of HC or Newco;
(i) entered into any transaction, contract or commitment which
provides for a period of performance which extends beyond twelve (12) months
from the date hereof except this Agreement and the transactions contemplated
hereby; or
(j) suffered any casualty loss or damage to any of its
properties (whether or not such loss or damage shall have been covered by
insurance) which adversely affects in any material respect its ability to
conduct business.
Section 6.8 Information Supplied. None of the information supplied by
HC or Newco for inclusion in the Registration Statement, and the Proxy Statement
included therein, at the date the Registration Statement is filed with the
Commission and at the time it becomes effective and at the time of the meeting
of Computone's stockholders to be held in connection with the Merger, contains
or will contain any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
Section 6.9 Certain Agreements. Except as contemplated by this
Agreement, neither HC nor Newco is a party to any (i) agreement with any
executive officer or other key employee of HC or Newco (A) the benefits of which
are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving HC or Newco of the nature of any of the
transactions contemplated by this Agreement and the Merger Agreement, (B)
providing any term of employment or compensation guarantee or (C) providing
severance benefits or other benefits (which are conditioned upon a change of
control) after the termination of employment of such employee regardless of the
reason for such termination of employment or (ii) agreement or plan, including;
without limitation, any stock option plan, stock appreciation right plan or
stock
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purchase plan, any of the benefits of which will be materially increased, or the
vesting of benefits of which will be materially accelerated, by the occurrence
of any of the transactions contemplated by this Agreement and the Merger
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement and the Merger
Agreement.
Section 6.10 Taxes.
(a) HC and Newco (i) have duly and timely filed or caused to
be filed all federal, state, local and foreign tax returns (including, without
limitation, consolidated and/or combined tax returns) required to be filed by it
which relate to HC or Newco or with respect to which HC or Newco is liable or
otherwise in any way subject, which returns were true, correct and complete in
all material respects, (ii) have paid or fully accrued for all taxes shown to be
due and payable on such returns (which taxes are all the taxes due and payable
under such returns or pursuant to any assessment received by HC or Newco), and
(iii) have properly accrued, charged or established adequate reserves for all
such taxes arising in respect of HC or Newco for periods subsequent to the
periods covered by such returns. No claims for taxes have been asserted against
HC or Newco and no deficiency-for any taxes has been proposed, asserted or
assessed which has not been resolved or paid in full. No tax return or taxable
period of HC or Newco is under audit, investigation or examination and neither
HC nor Newco has received notice of any pending audit, investigation or
examination. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return for any period of HC
or Newco. No issue or claim has been asserted for taxes by any taxing authority
for any prior period, the adverse determination of which could for any prior,
current or future period result in a deficiency which could have a material
adverse effect on HC or Newco taken as a whole. There are no tax liens upon the
assets of HC or Newco other than liens for taxes not yet due. No power of
attorney has been granted by HC or Newco with respect to any matter relating to
taxes which is currently in force, other than, in each case, those the outcome
of which, as far as reasonably can be foreseen, will not have a material adverse
effect on HC or Newco taken as a whole. Copies of all federal and state income
(or franchise) tax returns of HC or Newco have been made available for
inspection by Ladia, the Members and Computone.
(b) Collapsible Corporation Status. No consent or agreement
has been made under Section 341 of the Code by or on behalf of HC or Newco or
any predecessor thereof.
(c) FIRPTA Status. Neither HC nor Newco is , and neither has
at any time during the five year period preceding the date hereof been, a
"United States real property holding corporation" as defined in Section 897 of
the Code and the regulations promulgated thereunder.
(d) Parachute Payments. No payments by HC or Newco to its
officers, directors, employees or consultants under any contract, plan or
agreement, including but not limited to this Agreement, or payments contemplated
by this Agreement constitute "parachute payments" within the meaning of Section
280G of the Code.
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Section 6.11 Title to Assets. Neither HC nor Newco owns or leases any
real property. HC and Newco have good and marketable title to its assets, free
and clear of all security interests, mortgages, encumbrances, liens or charges
of any kind or character, except liens for taxes not yet due and payable and
such imperfections of title, liens and easements as do not materially detract
from or interfere with the present use of the properties subject thereto or
affected thereby, or otherwise materially impair the present business operations
of such properties.
Section 6.12 Condition of Personal Property. All of HC's and
Computone's tangible personal property, equipment, fixtures and inventories used
in the ordinary course of its business are in good, merchantable condition,
reasonable wear and tear excluded, or in reasonably repairable condition, are
suitable for the purposes for which they are being used, and are valued at the
lower of cost or market. No value in excess of applicable reserves has been
given to any inventory with respect to obsolete or discontinued products. All of
the inventories and equipment, including equipment leased to others, are well
maintained and in good operating condition.
Section 6.13 List of Contracts and Other Data. Neither HC nor Newco
has:
(a) any registered patents, trademarks, trade names, service
marks and copyrights or any applications pending for patents or for trademarks,
trade names, service marks or copyright registrations;
(b) any collective bargaining agreements, employment and
consulting agreements, executive compensation plans, bonus plans, deferred
compensation agreements, employee pension or retirement plans, employee stock
purchase and stock option plans, group life insurance, hospitalization insurance
or other plans or arrangements providing for benefits to employees of HC or
Newco;
(c) any contracts (including, without limitation, mortgages,
indentures and loan agreements) to which it is a party, or to which it or any of
its assets or properties are subject and which are not specifically referred to
in Sections 6.13(a) or 6.l3(b) above and which provide for a period of
performance which extends beyond twelve (12) months from the date hereof; and
(d) any employees.
Section 6.14 Business Property Rights. To the knowledge of HC and
Newco, HC and Newco own or have valid rights to use all designs, know-how, trade
secrets, patents, trademarks, trade names, service marks and copyrights, if any,
which are reasonably necessary to, or used primarily in, the conduct of HC's and
Newco's businesses (the "HC/Newco Intellectual Property") without conflict with
the rights of others. No claim is pending or, to HC's or Newco's knowledge,
threatened to the effect that the present or past operation of HC or Newco
infringes upon or conflicts with the rights of others with respect to any
HC/Newco Intellectual Property, where such infringement or conflict is
reasonably likely to have a material adverse effect on HC and Newco taken as a
whole. No claim is pending or, to HC's or Newco's knowledge, threatened
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to the effect that any HC/Newco Intellectual Property is invalid or
unenforceable. No contract, agreement or understanding with any party exists
which would prevent the continued use by HC or Newco (as currently used by HC or
Newco) of any HC/Newco Intellectual Property.
Section 6.15 Compliance with Applicable Law. HC and Newco hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "HC/Newco Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which would not,
individually or in the aggregate, have a material adverse effect on the business
of HC and Newco taken as a whole. HC and Newco are in compliance with the terms
of the HC/Newco Permits, except where the failure to comply would not have a
material adverse effect on HC and Newco taken as a whole. The business of HC and
Newco are not being conducted in violation of any law, ordinance or regulation
of any Governmental Entity, except for possible violations which individually or
in the aggregate do not, and, insofar as reasonably can be foreseen, in the
future will not, have a material adverse effect on the business of HC and Newco
taken as whole. As of the date of this Agreement, no investigation or review by
any Governmental Entity with respect to HC and Newco is pending or, to the best
knowledge of HC or Newco, threatened, nor has any Governmental Entity notified
HC or Newco orally or in writing of an intention to conduct the same, other
than, in each case, those the outcome of which, as far as reasonably can be
foreseen, in the future will not have a material adverse effect on the business
of HC and Newco taken as a whole.
Section 6.16 No Breach or Default. Neither HC nor Newco is in default
under any material contract to which it is a party or by which it is bound, nor,
to HC's and Newco's knowledge, has any event occurred which, after the giving of
notice or the passage of time or both, would constitute a default under any such
contract. Neither HC nor Newco has reason to believe that the parties to such
contracts will not fulfill their obligations under such contracts in all
material respects or are threatened with insolvency. Neither HC nor Newco is a
party to or bound by any mortgage, lien, lease, agreement, instrument, order,
judgment or decree which would prohibit or conflict with in any way the
execution or performance of this Agreement or prohibit the consummation of any
of the transactions provided for in this Agreement.
Section 6.17 Labor Controversies. Neither HC nor Newco is a party to
any collective bargaining agreement. There are no controversies between HC or
Newco and any of their respective employees which might reasonably be expected
to materially adversely affect the conduct of its business, or any unresolved
labor grievances or unfair labor practice or labor arbitration proceedings
pending, or to the knowledge of HC or Newco threatened relating to its business,
and to the knowledge of HC or Newco there are no organizational efforts
presently being made or threatened involving any of HC's or Newco's employees.
Neither HC nor Newco has received notice of any claim that HC or Newco has not
complied with any laws relating to the employment of labor, including any
provisions thereof relating to wages, hours, collective bargaining, the payment
of social security and similar taxes, equal employment opportunity, employment
discrimination and employment safety, or that HC or Newco is liable for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing.
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Section 6.18 Litigation. There is no action, suit or proceeding with
respect to HC or Newco involving claims by or against HC, Newco or any of their
respective properties pending or, to the knowledge of HC or Newco, threatened,
at law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality.
There are no orders, judgments, injunctions or decrees of any court or
governmental agency with respect to which HC or Newco has been named or is a
party which apply, in whole or in part, to the business of HC or Newco or any of
their respective properties, or which would result in a material adverse change
in the business or prospects of HC and Newco taken as a whole.
Section 6.19 Transactions with Affiliates. Since their respective dates
of formation, there have been no transactions to which HC or Newco has been a
party in which any director, officer or 5% stockholder of HC or Newco or a
member of his immediate family had or will have any direct or indirect interest.
Section 6.20 Environmental Matters. As of the date hereof, HC and Newco
are in compliance with all applicable local, county, state, federal and foreign
legal requirements relating to the use, storage, handling, transport and
disposal of materials, hazardous materials and hazardous substances (the
"Hazardous Materials") including, but not limited to, the Resources Compensation
and Recovery Act (42 U.S.C. Section 6902 et seq.) and the Comprehensive
Environmental Response Compensation and Liability Act of 1980 (42 U.S.C. Section
9601). Neither HC nor Newco has any knowledge of any condition that would cause
HC or Newco to incur liability or be a responsible party with respect to HC's or
Newco's real properties under any environmental or health regulation or act. To
the knowledge of HC and Newco, (i) none of HC's or Newco's properties has ever
been used as a sanitary land fill or as a storage or dump site for Hazardous
Materials, (ii) none of the listed properties is contaminated with any Hazardous
Materials; and (iii) neither HC nor Newco has been responsible for spilling
Hazardous Materials on its properties.
Section 6.21 ERISA Plans. There is no employee benefit plan (including,
without limitation, any "employee benefit plan", as defined in Section 3(d) of
the ERISA), or any material bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, insurance or other plan, arrangement or understanding
(whether or not legally binding), maintained or contributed to by HC or Newco.
Section 6.22 No Brokers. Neither HC nor Newco has entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of HC or Newco to pay 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 contemplated hereby,
and neither HC nor Newco is aware of any other claim or basis for 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 contemplated hereby. HC and Newco shall
indemnify and hold Ladia, the Members
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and Computone harmless from and against any obligation with respect to any such
fees, brokerage or agent's commissions or other like payments.
Section 6.23 Pooling Matters. None of HC, Newco or any of their
affiliates has, to its knowledge and based upon consultation with its
independent accountants, taken or agreed to take any action that would affect
the ability of Computone and HC to account for the business combination to be
effected by the Merger as a pooling of interests.
Section 6.24 No Misrepresentation or Omission. No representation or
warranty made by HC or Newco in this Article VI or in any other Article or
Section of this Agreement, or in any certificate or other document furnished or
required to be furnished by HC or Newco pursuant hereto, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein not
misleading in light of the circumstances under which they are made.
ARTICLE VII
ADDITIONAL COVENANTS AND AGREEMENTS
The parties further covenant and agree as follows:
Section 7.1 Conduct of Computone, HC, Newco and Ladia Prior to the
Preliminary Exchange Closing and the Merger Closing. During the period from the
date hereof until the occurrence of the Effective Date and the Preliminary
Exchange Closing Date:
(a) Computone and Ladia each will conduct its operations
according to its ordinary course of business and will use commercially
reasonable efforts to maintain and preserve its business organization and
relationships with agents and all others.
(b) Except as disclosed by Computone, HC or Newco to Ladia or
by Ladia to Computone in writing prior to the date hereof, Ladia shall not,
without the prior written consent of Computone, and none of Computone, HC or
Newco shall, without the prior written consent of Ladia:
(i) incur any indebtedness for borrowed money,
assume, guarantee, endorse (other than endorsement of accounts receivable for
collection) or otherwise become responsible for the obligations of any other
individual, firm or corporation, or make any loans or advances to any
individual, firm or corporation, except any indebtedness borrowed under a line
of credit agreement with a bank which is in effect as of the date hereof;
(ii) make, declare or pay any dividend, or declare or
make any distribution on, or directly or indirectly redeem, purchase or
otherwise acquire, any shares of its outstanding capital stock or membership
interests except for shares of such capital stock purchasable from employees or
consultants at the original purchase price upon termination of
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employment or consulting in accordance with such party's usual and customary
practice, or authorize the creation or issuance of any additional shares of its
capital stock or membership interests or any options, calls or commitments
relating to its capital stock or membership interests or any securities or
obligations convertible into or exchangeable for, or giving any person any right
to subscribe for or acquire from it, any shares of its capital stock or
membership interests, or agree to take any such action;
(iii) except as necessary to consummate the
transactions contemplated in this Agreement, take any action to amend its
Certificate of Incorporation or Bylaws or Certificate of Organization or
Operating Agreement;
(iv) mortgage, pledge or otherwise encumber any of
its properties or assets;
(v) sell or transfer any of its properties or assets
or cancel, release or assign any indebtedness owed to it or any claims held by
it, except in the ordinary course of business;
(vi) make any investment of a capital nature in
excess of $250,000 for any single project either by purchase of stock or
securities, contributions to capital, property transfer or otherwise, or by the
purchase of any property or assets of any other individual, firm or corporation;
(vii) enter into or terminate any contract or
agreement, or make any change in any of its leases or contracts, other than in
the ordinary course of business;
(viii) increase in any manner the compensation or
fringe benefits of any of its officers or any employees earning over $50,000
annually or pay or agree to pay any pension or retirement allowance not required
by any existing plan or agreement to any officers or employees, or commit itself
to any pension, retirement or profit-sharing plan or agreement or employment
agreement with or for the benefit of any officer, employee or other person
provided that Ladia may, without Computone's consent, hire up to three new
employees with individual annual compensation of up to $250,000 and may hire
additional new employees with aggregate annual compensation of up to $250,000;
(ix) permit any insurance policy (excluding, however,
those policies for which no replacement is available at a cost comparable to
that currently in effect) naming it as a beneficiary or a loss payable payee to
be canceled or terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination or cancellation replacement policies
providing substantially the same coverage are in full force and effect, other
than in the ordinary course of business; or
(x) take any other action which, although not
expressly prohibited by the foregoing provisions of this Section 7.1(b), would
result or would be reasonably likely to
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result in any of such party's representations and warranties set forth in this
Agreement being untrue or in any of the conditions to the Merger or the Exchange
set forth in Article VIII or Article IX not being satisfied.
Section 7.2 HC Governance. Prior to the Preliminary Exchange Closing
and the Merger Closing, the stockholders and Board of Directors of HC shall take
such action as is necessary to cause the full Board of Directors of HC to
consist of the following persons as of the Preliminary Exchange Closing and the
Merger Closing: John D. Freitag, Richard A. Hansen, Frances Lynch, Robert Lynch
or his designee and two designees of the Computone Board of Directors.
Section 7.3 Stockholder Meeting. Computone shall call a meeting of its
stockholders to be held as promptly as practicable after the date hereof for the
purpose of voting upon this Agreement, the Merger Agreement and related matters.
Computone will, through its Board of Directors, unanimously recommend to its
stockholders (consistent with fiduciary duties) approval of such matters.
Section 7.4 Legal Conditions to the Merger or Exchange. Each party will
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on such party with respect to the Merger or
the Exchange and will promptly cooperate with and furnish information to the
other party in connection with any such requirements imposed upon any other
party or any Subsidiary of such other party in connection with the Merger or the
Exchange. Each party will take, and will cause its Subsidiaries to take, all
reasonable actions to obtain (and to cooperate with the other party and its
Subsidiaries in obtaining) any consent, authorization, order or approval of, or
any exemption by, any Governmental Entity, or other third party, required to be
obtained or made by such party or its Subsidiaries (or by the other party or
its Subsidiaries) in connection with the Merger or the Exchange or the taking of
any action contemplated thereby or by this Agreement.
Section 7.5 Cooperation. HC shall (i) prepare and file with the
Commission, as soon as is reasonably practicable after the date hereof, the
Registration Statement with respect to the Merger Shares issuable in the Merger,
the Initial Member Shares, the 1997 Note Shares and the Additional Shares (the
Initial Member Shares and the Additional Shares being hereinafter sometimes
referred to collectively as the "Exchange Shares") issuable in connection with
or pursuant to the Exchange, in each case as contemplated by this Agreement,
which Registration Statement shall include the Proxy Statement, (ii) use
commercially reasonable efforts to have the Registration Statement declared
effective by the Commission under the Securities Act as promptly as possible,
(iii) prepare and file with the Commission such supplements or amendments to
the Registration Statement as may be required by the Securities Act and/or the
rules and regulations thereunder, (iv) take all such action as may be required
under state blue sky or securities laws in connection with the transactions
contemplated by this Agreement, and (v) cooperate with Ladia, the Members, Newco
and Computone in determining whether any filings are required to be made or
consents required to be obtained in any jurisdiction prior to the Effective Date
and the Preliminary Exchange Closing Date in connection with the consummation of
the transactions contemplated by this Agreement and in making any such filings
promptly and
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in seeking to obtain timely any such consents. HC, Newco, Computone, the Members
and Ladia shall each furnish to one another's counsel all such information as
may be required in connection with the foregoing actions including without
limiting the generality of the foregoing the preparation by Ladia of such
audited financial statements for inclusion in the Registration Statement as HC's
independent accountants determine to be necessary pursuant to Regulation S-X
promulgated by the Commission.
Section 7.6 Satisfactory Affiliate Agreements. Ladia, on or prior to
the date hereof, shall have caused to be delivered to HC a list, reviewed by
Ladia's counsel, identifying all persons who were in its opinion, at the time
such list is prepared, affiliates of Ladia for purposes of Rule 145 promulgated
by the Commission under the Securities Act ("Affiliates"). Ladia shall furnish
such information and documents as HC may reasonably request for the purpose of
reviewing such list. Ladia shall cause each person who is identified as an
"Affiliate" in the list furnished pursuant to this Section 7.6 to execute a
written agreement at or prior to the Preliminary Exchange Closing Date (the
"Affiliate Agreement"), substantially in the form of Exhibit C attached hereto,
that such person will not offer or sell or otherwise dispose of any Exchange
Shares issued to such person pursuant to this Agreement in violation of the
Securities Act or the rules and regulations promulgated by the Commission
thereunder.
Section 7.7 Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expenses.
Section 7.8 Public Announcements. No party hereto and none of their
respective affiliates shall issue, or permit any agent or affiliate to issue,
any press releases or otherwise make, or permit any agent or affiliate to make,
any public statements with respect to this Agreement and the transactions
contemplated hereby without the prior written consent of each other party.
Notwithstanding the foregoing, if the parties cannot agree to the content of any
such press release or public statement, either party may, after furnishing the
proposed text thereof to the other parties and at least 24 hours' prior
consultation, issue, or permit any agent or affiliate to issue, any such press
release or make any such public statement which such party's legal counsel deems
to be required by law.
Section 7.9 Issuance of HC Common Stock and Ladia Options.
(a) HC will, on the Preliminary Exchange Closing Date and on
the Final Exchange Closing Date, issue or cause to be issued or deliver or cause
to be delivered, from the authorized but unissued shares of the HC Common Stock,
certificates for the Exchange Shares for which the Ladia Membership Interests
are to be exchanged pursuant to Article I of this Agreement. HC at all times
shall maintain a sufficient number of authorized but unissued shares of the HC
Common Stock to enable HC to issue the Exchange Shares.
(b) HC will, promptly following the Effective Date, issue or
cause to be issued or deliver or cause to be delivered, from the authorized but
unissued shares of the HC
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Common Stock, certificates for the shares of the HC Common Stock into which the
Computone Common Stock outstanding on the Effective Date shall then be converted
and the shares of the HC Common Stock to be issued upon the exercise thereafter
of stock options and warrants assumed by HC in accordance with Article X of this
Agreement. HC at all times shall maintain a sufficient number of authorized but
unissued shares of the HC Common Stock to enable HC to issue the shares
contemplated by the preceding sentence.
(c) HC at all times shall maintain a sufficient number of
authorized but unissued shares of the HC Common Stock to enable HC to issue the
Ladia Option Shares issuable on exercise of the Ladia Options. As soon as
practicable after the Preliminary Exchange Closing Date, HC shall take such
actions as shall be necessary to assure that the Ladia Option Shares are
registered on a Form S-8 registration statement filed with the Commission under
the Securities Act.
Section 7.10 Consents. Each party will use commercially reasonable
efforts to obtain the written consents, if required, of all third parties,
including, but not limited to, governmental or regulatory agencies, foreign or
domestic, to the contracts listed on the Disclosure Schedule of such party and
will furnish to the other party executed copies of those consents on or before
the Effective Date and the Preliminary Exchange Closing Date.
Section 7.11 Stockholders' Agreement. Simultaneously with the issuance
of the 1997 Note Shares, the holders of the 1997 Note Shares shall have entered
into a stockholders' agreement with Frances Lynch substantially in the form of
Exhibit D attached hereto (the "Stockholders' Agreement") pursuant to which the
holders of the 1997 Note Shares shall have given Frances Lynch (a) an
irrevocable proxy coupled with an interest to vote all of the 1997 Note Shares
and any Additional Shares issued to such holders pursuant to Section 1.5 hereof
on all matters submitted to the HC stockholders for a vote and (b) a right of
first refusal, to continue for a period of ten (10) years after the Exchange
Closing Date, to acquire some or all of the 1997 Note Shares and any Additional
Shares issued to such holders pursuant to Section 1.5 hereof if and when any one
or more of the holders thereof determine to dispose of such shares.
Section 7.12 Accountants' Letters.
(a) Ladia Accountants. Ladia shall use commercially reasonable
efforts to cause to be delivered to HC a letter of Arthur Andersen LLP (or such
other firm of independent certified public accountants as is acceptable to
Computone), dated a date within two business days before the date on which the
Registration Statement shall become effective, and addressed to HC, in form and
substance reasonably satisfactory to HC and Computone and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
(b) Computone's Accountants. Computone shall use commercially
reasonable efforts to cause to be delivered to HC a letter of BDO Seidman LLP,
Computone's independent auditors, dated a date within two business days before
the date on which the Registration
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Statement shall become effective, and addressed to HC, in form and substance
reasonably satisfactory to HC and Ladia and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
Section 7.13 Actions by Ladia. HC, Newco and Computone agree that, from
and after the Preliminary Exchange Closing and the Merger Closing and except as
specified below, Ladia, acting through its Board of Managers, and without
interference or the requirement of consent, authorization or approval from HC as
a holder of a Membership Interest in Ladia (or from any other holder or holders
of such a Membership Interest, the effective cooperation of which holder or
holders HC hereby agrees to obtain), shall have, except only in the specific
extraordinary circumstances hereinafter defined, exclusive control of Ladia's
business operations and finances. Such business operations and finances shall
include, but not be limited to, (i) the right to make acquisitions, either of
stock or assets or any combination thereof, of enterprises in the
telecommunications industry and (ii) the incurring of debt in any amount and on
any terms and conditions, provided only that such debt does not involve a
guaranty by HC and is not convertible into, and does not afford any rights to
acquire, any equity interest in Ladia or HC. For purposes of this Section 7.13,
the specific extraordinary circumstances in which Ladia shall be required to
obtain the authorization, approval or consent of HC shall include and be limited
to (A) the issuance by Ladia of any additional membership interests in Ladia of
any kind and (B) any expenditure in an amount in excess of $500,000. The
provisions of this Section 7.13 shall be null and void if either (A) the
employment by Ladia of Frances Lynch is terminated for cause within the meaning
of her employment agreement with Ladia or (B) Ladia has not generated Cumulative
Gross Revenues during the first four full fiscal quarters following the
Preliminary Exchange Closing Date of at least $25,000,000, with a Cumulative
Gross Margin during the last such quarter of at least 4%, with such calculations
being based upon the unaudited financial statements of Ladia prepared by HC's
regular independent certified public accountants in connection with the filing
by HC of its periodic reports under the Exchange Act. HC, Computone and Newco
hereby agree that, prior to the Preliminary Exchange Closing and the Merger
Closing, Ladia may effect such amendments to its Operating Agreement and
Certificate of Organization as it shall deem necessary to reflect the provisions
of this Section 7.13 and to assure that the amendments so adopted may not
thereafter by modified, revoked or rescinded without the prior written consent
of Ladia.
Section 7.14 Role of HC and Computone. From and after the Preliminary
Exchange Closing and the Merger Closing, HC and, to the extent applicable,
Computone, whether acting through their Boards of Directors or otherwise, shall
except to the extent contemplated by Section 7.13 hereof, (a) neither cause nor
permit any action to be taken, either directly or indirectly, which may
adversely affect the business, operations or prospects of Ladia or the ability
of Ladia and Frances Lynch to pursue and achieve the targets leading to the
issuance of the Additional Shares and the vesting of the Ladia Options pursuant
to Section 1.5 and Section 1.3 hereof and (b) cooperate with and support Ladia,
Frances Lynch and the Ladia Board of Managers in their management of the
business and affairs of Ladia and in their efforts to expand the growth of
Ladia's business.
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Section 7.15 Limitations on Certain Transactions. During the Revenues
Measurement Period, HC will not, without Ladia's prior consent: (a) issue
additional shares of HC Common Stock or other equity in HC; (b) make any
distribution to holders of HC Common Stock from the proceeds of the sale of any
such additional shares of HC Common Stock or other equity of HC; or (c) sell or
otherwise transfer its membership interests in Ladia.
Section 7.16 Commission Filings. In connection with the intended
treatment of the Exchange and the Merger as a pooling of interests for
accounting purposes (as set forth in Section 1.8 and Section 2.8 hereof), HC
covenants and agrees that, as promptly as reasonably practicable and, in any
event, within forty-five (45) days after the end of the first full fiscal
quarter of HC beginning after the Final Exchange Closing Date, HC shall cause to
be filed with the Commission a completed Form 10-Q, including therein the
required statement of the financial results for the combined operations of HC,
Ladia and Computone as of the end of the fiscal quarter just completed.
Section 7.17 Equity Financing.
(a) On or before the Preliminary Exchange Closing Date, HC
shall use commercially reasonable efforts to raise $5,000,000 of additional
equity (the "Equity Financing").
(b) The number of Initial Member Shares, 1997 Note Shares and
Additional Shares to be issued to the Members and the holders of the 1997 Note
Shares shall be subject to increase based on the number of shares of HC Common
Stock issued by HC in the Equity Financing or into which the securities issued
by HC in the Equity Financing are convertible, directly or indirectly
(collectively, the "New HC Equity Shares") as follows:
(i) the aggregate number of additional shares of HC
Common Stock issuable to the holders of the Initial Member Shares and the 1997
Note Shares shall equal 5.0% of (A) the number of New HC Equity Shares divided
by (B) 0.95 with such shares being issued on a pro rata basis to the holders of
the Initial Member Shares and the 1997 Note Shares; and
(ii) The number of Additional Shares specified in the
schedule set forth in Section 1.5(a) shall be increased by a number of shares
equal to (A) the number of New HC Equity Shares; (B) divided by "x"; (C)
multiplied by "y", where "x" and "y" have the respective values set forth below
opposite the respective revenue levels below and (D) reduced by the number of
shares issued pursuant to Section 7.17(b)(i) hereof:
If Revenues are at least But less than x y
- ------------------------ ------------- --- ---
$10,000,000 $15,000,000 .875 .125
$15,000,000 $20,000,000 .768 .232
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If Revenues are at least But less than x y
- ------------------------ ------------- --- ---
$20,000,000 $25,000,000 .643 .357
$25,000,000 .49 .51
ARTICLE VIII
CONDITIONS TO THE PRELIMINARY EXCHANGE CLOSING
Section 8.1 Conditions to Closing of HC. The obligation of HC to effect
the Exchange shall be, unless waived, subject to and conditioned upon the
satisfaction at or prior to the Preliminary Exchange Closing Date of each of the
following conditions:
(a) All representations and warranties of Ladia and the
Members contained in this Agreement and in the Ladia Disclosure Schedule shall
be true and correct at and as of the Preliminary Exchange Closing Date in all
material respects and Ladia and the Members shall have performed, in all
material respects, all agreements and covenants and satisfied all conditions on
their part to be performed or satisfied by the Preliminary Exchange Closing Date
pursuant to the terms of this Agreement, and, with respect to matters relating
to Ladia, HC shall have received a certificate of an authorized member of the
Board of Managers of Ladia and of each Member, dated the Preliminary Exchange
Closing Date, to such effect.
(b) There shall have been no material adverse change since
December 31, 1997 in the financial condition, operating results, business or
affairs of Ladia, and Ladia shall not have suffered any material loss (whether
or not insured) by reason of physical damage caused by fire, earthquake,
accident or other calamity which (i) substantially affects the value of its
assets, properties or business and (ii) has a material adverse effect on Ladia's
business as a whole, and HC shall have received a certificate of an authorized
officer of Ladia, dated the Preliminary Exchange Closing Date, to such effect.
(c) HC shall have received from Edwards & Angell LLP, counsel
for Ladia, an opinion, dated the Preliminary Exchange Closing Date, in form and
substance satisfactory to Computone and its counsel.
(d) Each of the current Ladia employees specified on Schedule
D attached hereto (each, a "Contracting Ladia Employee") shall have entered into
an employment agreement with HC (each, an "HC Employment Agreement") on terms
acceptable to HC and such employee.
(e) Ladia shall have delivered to HC certificates of the
Secretary of State of The Commonwealth of Massachusetts certifying as of a date
reasonably close to the Preliminary Exchange Closing Date that Ladia has filed
all required reports, paid all required fees and taxes
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and is, as of such date, in good standing and authorized to transact business as
a domestic limited liability company.
(f) The Members shall have executed and delivered to HC
appropriate instruments transferring the Membership Interests in Ladia to HC.
(g) HC shall have received from each Ladia Affiliate an
executed copy of an Affiliates Agreement as contemplated by Section 7.6 hereof.
(h) All warrants, options or other rights to acquire any
Membership Interest in Ladia shall have been exercised or duly waived and
terminated.
Section 8.2 Conditions to Closing of Ladia and the Members. The
obligation of Ladia and the Members to effect the Exchange shall be, unless
waived by Ladia, subject to and conditioned upon the satisfaction at or prior to
the Preliminary Exchange Closing Date of each of the following conditions:
(a) All representations and warranties of HC and Computone
contained in this Agreement and in the Computone Disclosure Schedule shall be
true and correct at and as of the Preliminary Exchange Closing Date in all
material respects and HC and Computone shall have performed all agreements and
covenants and satisfied all conditions on their part to be performed or
satisfied by the Preliminary Exchange Closing Date pursuant to the terms of this
Agreement, and the Members shall have received a certificate of an authorized
officer of each of HC and Computone, dated the Preliminary Exchange Closing
Date, to such effect.
(b) There shall have been no material adverse change since
April 4, 1997 in the financial condition, operating results, business or affairs
of either HC or Computone, and neither HC nor Computone shall have suffered any
material loss (whether or not insured) by reason of physical damage caused by
fire, earthquake, accident or other calamity which (i) substantially affects the
value of its assets, properties or business and (ii) has a material adverse
effect on the business of HC and Computone taken as a whole, and Ladia and the
Members shall have received a certificate of authorized officers of HC and of
Computone, dated the Preliminary Exchange Closing Date, to such effect.
(c) HC and Computone shall have delivered to Ladia and the
Members certificates of the Secretary of State of Delaware certifying as of a
date reasonably close to the Preliminary Exchange Closing Date that HC and
Computone have filed all required reports, paid all required fees and taxes and
are, as of such date, in good standing and authorized to transact business as
domestic corporations.
(d) The Members shall have received from Duane, Morris &
Heckscher LLP, counsel for HC, an opinion dated the Preliminary Exchange Closing
Date in form and substance satisfactory to Ladia and its counsel.
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(e) The holders of the Note Shares shall have entered into the
Stockholders Agreement as contemplated by Section 7.11 hereof.
(f) The Merger Closing shall have occurred.
(g) Each Contracting Ladia Employee shall have entered into an
HC Employment Agreement") on terms acceptable to HC and the Contracting Ladia
Employee.
(h) The Registration Statement shall have been declared
effective by the Commission under the Securities Act and by all applicable state
securities regulatory authorities.
(i) The Bylaws of Computone shall be in form and substance
satisfactory to HC, Computone and Ladia.
(j) Each of HC and Computone shall have delivered to Ladia a
certificate of its corporate secretary attaching thereto a true, correct and
complete copy of its Certificate of Incorporation and Bylaws and certifying:
(i) Resolutions of its stockholders and Board of
Directors authorizing execution of this Agreement and the execution, delivery
and performance of all agreements, documents and transactions contemplated
hereby; and
(ii) the incumbency of its officers executing this
Agreement and all agreements and documents contemplated hereby.
Section 8.3 Conditions to Closing of HC, Ladia and the Members. The
obligations of HC, Ladia and the Members to effect the Exchange shall be, unless
waived by both HC and Ladia, subject to and conditioned upon satisfaction at or
prior to the Preliminary Exchange Closing Date of each of the following
conditions:
(a) Any and all consents required from third parties relating
to contracts, licenses, leases and other instruments, material to the respective
businesses of Ladia and HC shall have been obtained.
(b) No temporary restraining order, preliminary injunction or
permanent injunction or other order preventing the consummation of the Exchange
or the Merger shall have been issued by any federal or state court and remain in
effect, and no litigation seeking the issuance of such an order or injunction,
or seeking the imposition against HC, Ladia or the Members of substantial
damages if the Exchange or the Merger is consummated, shall be pending which, in
the good faith judgment of Ladia or the Board of Directors of HC (acting upon
advice of their respective outside counsel) has a reasonable probability of
resulting in such order, injunction or damages. In the event any such order or
injunction shall have been issued, each party agrees to use its reasonable
efforts to have any such order or injunction lifted.
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(c) No statute, rule or regulation shall have been enacted by
the government of the United States or any state or agency thereof which would
make the consummation of the Exchange or the Merger illegal.
(d) Each of HC and Ladia shall have received an opinion from
its own outside counsel, in form and substance satisfactory to both parties and
substantially identical in form and substance, to the effect that, when the
Exchange is consummated in accordance with the terms of this Agreement, the
Exchange should be treated for Federal income tax purposes as a tax free
transfer within the meaning of Section 351 of the Code.
(e) HC and Ladia shall have received letters from Arthur
Andersen LLP (or such other firm of independent certified public accountants as
is acceptable to Computone) and BDO Seidman LLP, each dated as of the date
hereof and confirmed in writing at the Exchange Closing Date and addressed to HC
and Ladia, stating that (i) in the case of Arthur Andersen LLP (or such other
firm), Ladia qualifies as a poolable entity and, in the case of BDO Seidman LLP,
HC qualifies as a poolable entity and (ii) the Exchange will be treated as a
pooling of interests under Opinion No. 16 of the Accounting Principles Board.
(f) Except as disclosed on the Computone Disclosure Schedule
or the Ladia Disclosure Schedule, there shall be no pending or threatened
litigation against any of Ladia, any Member, HC or Computone or against their
officers or directors which may have a material adverse effect on HC, Ladia or
Computone after the Exchange and the Merger.
ARTICLE IX
CONDITIONS TO THE MERGER CLOSING
Section 9.1 Conditions to Closing of Computone. The obligation of
Computone to effect the Merger shall be, unless waived, subject to and
conditioned upon the satisfaction at or prior to the Effective Date of each of
the following conditions:
(a) All representations and warranties of HC and Newco
contained in this Agreement shall be true and correct in all material respects
at and as of the Effective Date and HC and Newco shall have performed, in all
material respects, all agreements and covenants and satisfied all conditions on
their part to be performed or satisfied by the Effective Date pursuant to the
terms of this Agreement, and Computone shall have received a certificate of an
authorized officer of HC and Newco dated the Effective Date to such effect.
(b) Each of HC and Newco shall have delivered to Computone a
certificate of its corporate secretary attaching thereto a true, correct and
complete copy of its Certificate of Incorporation and Bylaws and certifying:
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(i) Resolutions of its stockholder and Board of
Directors authorizing execution of this Agreement and the execution, performance
and delivery of all agreements, documents and transactions contemplated hereby;
and
(ii) the incumbency of its officers executing this
Agreement and all agreements and documents contemplated hereby.
(c) HC shall have executed and delivered the Computone Option
Assumption Agreement (as defined in Section 10.1).
Section 9.2 Conditions to Closing of HC and Newco. The obligation of HC
and Newco to effect the Merger shall be, unless waived, subject to and
conditioned upon the satisfaction at or prior to the Effective Date of each of
the following conditions:
(a) All representations and warranties of Computone contained
in this Agreement and in the Computone Disclosure Schedule shall be true and
correct at and as of the Effective Date in all material respects and Computone
shall have performed all agreements and covenants and satisfied all conditions
on its part to be performed or satisfied by the Effective Date pursuant to the
terms of this Agreement, and HC and Newco shall have received a certificate of
an authorized officer of Computone dated the Effective Date to such effect.
(b) There shall have been no material adverse change since
April 4, 1997 in the financial condition, operating results, business or affairs
of Computone, and Computone shall not have suffered any material loss (whether
or not insured) by reason of physical damage caused by fire, earthquake,
accident or other calamity which substantially affects the value of its assets,
properties or business, and HC and Newco shall have received a certificate of an
authorized officer of Computone dated the Effective Date to such effect.
(c) Computone shall have delivered to HC and Newco a
certificate of its corporate secretary attaching thereto a true, correct and
complete copy of its Certificate of Incorporation and Bylaws and certifying:
(i) Resolutions of its stockholders and its Board of
Directors authorizing execution of this Agreement and the execution, performance
and delivery by such party of all agreements, documents and transactions
contemplated hereby; and
(ii) the incumbency of its officers executing this
Agreement and all agreements and documents contemplated hereby.
Section 9.3 Conditions to Closing of HC, Newco and Computone. The
obligations of HC, Newco and Computone to effect the Merger shall be, unless
waived by both, subject to and conditioned upon satisfaction at or prior to the
Effective Date of each of the following conditions:
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(a) The stockholders of Computone shall have duly approved
this Agreement and the Merger in accordance with Delaware law and Certificate of
Incorporation and Bylaws of Computone.
(b) The Registration Statement registering the Merger Shares
issuable as provided under this Agreement shall have been declared effective by
the Commission and the Commission shall not have issued a stop order nor
instituted a proceeding to obtain a stop order relative to the Registration
Statement.
(c) A Certificate of Merger or the Merger Agreement and
officers' certificate shall have been filed with the Secretary of State of the
State of Delaware and the Merger shall have become effective pursuant thereto.
(d) Any and all consents required from third parties relating
to contracts, licenses, leases and other instruments, material to the business
of Computone shall have been obtained.
(e) No temporary restraining order, preliminary injunction or
permanent injunction or other order preventing the consummation of the Merger or
the Exchange shall have been issued by any federal or state court and remain in
effect, and no litigation seeking the issuance of such an order or injunction,
or seeking the imposition against HC, Newco, the Surviving Corporation or
Computone of substantial damages if the Merger or the Exchange is consummated,
shall be pending which, in the good faith judgment of the Board of Directors of
HC, Newco or Computone (acting upon advice of their respective outside counsel)
has a reasonable probability of resulting in such order, injunction or damages.
In the event any such order or injunction shall have been issued, each party
agrees to use its reasonable efforts to have any such order or injunction
lifted.
(f) No statute, rule or regulation shall have been enacted by
the government of the United States or any state or agency thereof which would
make the consummation of the Merger illegal.
(g) Each of HC and Computone shall have received an opinion
from its own outside counsel in form and substance satisfactory to both parties
and substantially identical in form and substance, to the effect that, when the
Merger is consummated in accordance with the terms of this Agreement, the Merger
should be treated for Federal income tax purposes as a tax free reorganization
within the meaning of Section 368 of the Code.
(h) Newco and Computone shall have received a letter from BDO
Seidman LLP, dated as of the date hereof and confirmed in writing at the
Effective Time and addressed to Newco and Computone, stating that Newco and
Computone qualify as poolable entities and the Merger will be treated as a
pooling of interests under Opinion No. 16 of the Accounting Principles Board.
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(i) Except as disclosed on the Computone Disclosure Schedule
there shall be no pending or threatened litigation against any of Newco, HC or
Computone or against their officers or directors which may have a material
adverse effect on the Surviving Corporation after the Merger.
(j) The Exchange Closing shall have occurred.
ARTICLE X
COMPUTONE OPTIONS AND WARRANTS
Section 10.1 Computone's Stock Options and Warrants. At the Merger
Closing, HC shall execute and deliver an agreement (the "Computone Option
Assumption Agreement") pursuant to which HC shall assume each option and warrant
to purchase shares of the Computone Common Stock (the "Computone Options")
outstanding at the Effective Date, and each Computone Option shall thereafter be
exercisable for a number of shares of the HC Common Stock equal to the number of
shares of the Computone Common Stock subject to such Computone Option
immediately prior to the Effective Date (the "HC Option"). The exercise price
per share of the HC Common Stock for such Computone Options so converted shall
be the exercise price per share specified in such Computone Options. Each HC
Option shall be upon the same terms and conditions as were applicable under the
Computone Option to purchase shares of the Computone Common Stock. HC will take
all corporate and other action necessary to reserve and make available
sufficient shares of HC Common Stock for issuance upon exercise of such HC
Options, will prepare and file with the Commission registration statements on
the appropriate forms relating to the issuance upon exercise of the shares of
the HC Common Stock underlying the HC Options held by Computone employees and
will use its best efforts to have such registration statements declared
effective as soon as practicable after the Effective Date and shall maintain the
effectiveness of such registration statements.
ARTICLE XI
TERMINATION
This Agreement may be terminated and the Merger and the Exchange
abandoned at any time before the Preliminary Exchange Closing Date and the
Effective Date, whether before or after adoption of this Agreement by the
stockholders of Computone, as follows:
Section 11.1 Mutual Consent. By mutual consent of the Members and
Boards of Directors of HC, Newco and Computone.
Section 11.2 By Any Party. By Ladia, any of the Members, Computone or
HC if:
(a) there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
another party set forth in this Agreement
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and such breach of a covenant or agreement has not been cured during a period of
45 days following the giving of written notice thereof to the breaching party;
(b) the Merger Closing and the Effective Date of the Merger
shall not have occurred before December 31, 1998;
(c) the Preliminary Exchange Closing shall not have occurred
before December 31, 1998;
(d) (i) there shall be a final nonappealable order of a
federal or state court in effect preventing consummation of the Merger or the
Exchange or (ii) there shall be any action taken, or any statute, rule
regulation or order enacted, promulgated or issued by any Governmental Entity
which would make consummation of the Merger or the Exchange illegal; or
(e) there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued by any Governmental Entity,
which would (i) prohibit the ownership by HC of all of the issued and
outstanding capital stock of Computone to be acquired in the Merger or the
ownership by HC and by a person controlled by HC of all of the issued and
outstanding Membership Interests in Ladia to be acquired in the Exchange, (ii)
compel HC to dispose of all or a material portion of (A) the issued and
outstanding capital stock of Computone to be acquired in the Merger or (B) the
issued and outstanding Membership Interests of Ladia to be acquired in the
Exchange, (iii) compel HC to cause the disposition of all or a material portion
of the business or assets of Computone or Ladia to be acquired as a result of
the Merger or the Exchange, (iv) render Newco, HC or Computone unable to
consummate the Merger or (v) render HC or the Members unable to consummate the
Exchange.
Section 11.3 By Computone. By Computone's giving written notice to each
other party if the conditions set forth in Sections 9.1 and 9.3 shall not have
been complied with or performed in all material respects, without fault on the
part of Computone, and such non-compliance or non-performance shall not have
been cured or eliminated within seven days following the meeting of the
stockholders of Computone.
Section 11.4 By Ladia. By Ladia's giving written notice to each other
party if the conditions set forth in Sections 8.2 or 8.3 shall not have been
complied with or performed in all material respects, without fault on the part
of Ladia or the Members, and such non-compliance or non-performance shall not
have been cured or eliminated within seven days following the meeting of the
stockholders of Computone.
Section 11.5 By HC. By HC's giving written notice to each other party
if the conditions specified in Sections 8.1, 8.3, 9.2 or 9.3 shall not have been
complied with or performed in all material respects, without fault on the part
of HC, and such non-compliance or non-performance shall not have been cured or
eliminated within seven days following the meeting of the stockholders of
Computone.
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ARTICLE XII
MISCELLANEOUS
Section 12.1 Notice. Any notice required or permitted hereunder shall
be in writing and shall be sufficiently given if personally delivered or mailed
by certified or registered mail, return receipt requested, addressed as follows:
If to Ladia:
Ladia, L.L.C.
28 Cedar Street
Duxbury, MA 02332
Attn: Ms. Frances Lynch, President and CEO
copy to:
Edwards & Angell LLP
101 Federal Street
Boston, MA 02110
Attn: James D. McGinley, Esquire
If to a Member:
To such Member's address as set forth on
Schedule E hereto.
If to Computone, HC or Newco:
Computone Corporation
1060 Windward Ridge Parkway, Suite 100
Alpharetta, GA 30005
Attn: Mr. Richard A. Hansen, Chairman
copy to:
Duane, Morris & Heckscher LLP
One Liberty Place
Philadelphia, PA 19103-7396
Attention: Frederick W. Dreher, Esquire
or to such other address as any party shall specify by written notice so given,
and shall be deemed to have been delivered as of the date so personally
delivered or mailed.
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Section 12.2 Binding Effect; Benefits. Subject to Section 12.11, this
Agreement shall be binding upon and shall inure to the benefit of the parties to
this Agreement and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
to this Agreement or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
Section 12.3 Entire Agreement. This Agreement, together with the
Exhibits and Schedules to this Agreement, and other documents contemplated
hereby, constitute the final written expression of all of the agreements among
the parties, and is a complete and exclusive statement of those terms. It
supersedes all understandings and negotiations concerning the matters specified
herein. Any representations, promises, warranties or statements made by any
party that differ in any way from the terms of this written Agreement and the
Exhibits and Schedules to this Agreement and other documents contemplated
hereby, shall be given no force or effect. The parties specifically represent,
each to the others, that there are no additional or supplemental agreements
between them related in any way to the matters contained in this Agreement
unless specifically included or referred to in this Agreement or in the
Schedules hereto. No addition to or modification of any provision of this
Agreement shall be binding upon any party unless made in writing and signed by
all parties.
Section 12.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE. THE PARTIES
AGREE THAT JURISDICTION AND VENUE WITH RESPECT TO ANY LAWSUIT BETWEEN OR AMONG
THE PARTIES INVOLVING THE INTERPRETATION, COMPLIANCE OR ENFORCEMENT OF ANY
PROVISION UNDER THIS AGREEMENT SHALL BE EXCLUSIVELY IN THE FEDERAL COURTS
LOCATED IN THE DISTRICT OF DELAWARE.
Section 12.5 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate on the Preliminary Exchange Closing Date and the Effective Date
or upon the termination of this Agreement pursuant to Article XI, as the case
may be, except that the agreements set forth in Sections 1.3, 1.5, 1.6, 1.7,
2.6, 2.7, 3.2, 7.6, 7.7, 7.9, 7.13, 7.14, 7.15, 7.16, 10.1 and this Section
12.5, and the representation set forth in Section 4A.5, shall survive the
Preliminary Exchange Closing Date, the Effective Date, and the Final Exchange
Closing Date indefinitely and those set forth in Section 7.7 shall survive
termination indefinitely.
Section 12.6 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
Section 12.7 Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
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Section 12.8 Waivers. Any party hereto, may, by written notice to the
other parties, (i) extend the time for the performance of any of the obligations
or other actions of the other parties under this Agreement; (ii) waive any
inaccuracies in the representations or warranties of the other parties contained
in this Agreement or in any document delivered pursuant to this Agreement; (iii)
waive compliance with any of. the conditions or covenants of the other parties
contained in this Agreement; or (iv) waive performance of any of the obligations
of the other parties under this Agreement. Except as provided in the preceding
sentence, no action taken pursuant to this Agreement, including, without
limitation, 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. 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.
Section 12.9 Merger of Documents. This Agreement and all agreements and
documents contemplated hereby constitute one agreement and are interdependent
upon each other in all respects.
Section 12.10 Incorporation of Schedules. All Exhibits and Schedules
attached to this Agreement are by this reference incorporated herein and made a
part of this Agreement for all purposes as if fully set forth herein.
Section 12.11 Assignability. Neither this Agreement nor any of the
parties' rights hereunder shall be assignable without the prior written consent
of the other parties.
Section 12.12 Severability. If for any reason whatsoever, any one or
more of the provisions of this Agreement shall be held or deemed to be
inoperative, unenforceable or invalid as applied to any particular case or in
all cases, such circumstances shall not have the effect of rendering such
provision invalid in any other case or of rendering any of the other provisions
of this Agreement inoperative, unenforceable or invalid.
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year hereinabove
first set forth.
COMPUTONE CORPORATION
By: /s/ Richard A. Hansen
----------------------
Name: Richard A. Hansen
-----------------
Title: Chairman
--------
LADIA COMMUNICATIONS TECHNOLOGIES,
INC.
By: /s/ Richard A. Hansen
----------------------
Name: Richard A. Hansen
-----------------
Title: Chairman
--------
NEW COMPUTONE CORPORATION
By: /s/ Richard A. Hansen
----------------------
Name: Richard A. Hansen
-----------------
Title: Chairman
--------
LADIA, L.L.C.
By: Ladia, Corporation,
its Managing Member
By:
---------------------------------
John T. Sinclair, President
MEMBERS:
/s/ Frances Lynch
---------------------------------
Frances Lynch
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GEIST INVESTMENT TRUST
By:
-------------------------------
Name:
--------------------
Title:
-------------------
-----------------------------------
Richard Geist
-----------------------------------
Theodore Grossbart
-----------------------------------
Stephen W. Hiorns
-----------------------------------
W. Terence Jones
-----------------------------------
Harry Katz
LADIA, CORPORATION
By:
--------------------------------
John T. Sinclair, President
THE LADIA NOMINEE TRUST
By:
--------------------------------
Name:
---------------------
Title:
--------------------
-----------------------------------
Barry R. Levine
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-----------------------------------
Daniel Levy
-----------------------------------
Ray Levy
-----------------------------------
Edward Manchur
-----------------------------------
James P. Maselan
-----------------------------------
F. Martin McDermott
-----------------------------------
Frederick Pierce
-----------------------------------
Mark Pollack
-----------------------------------
Richard Pomerance
-----------------------------------
Anthony Raymond
-----------------------------------
Jerrold F. Rosenbaum
-----------------------------------
Michael Seligman
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-----------------------------------
Cynthia Seligman
-----------------------------------
John T. Sinclair
-----------------------------------
Larry Sinclair
-----------------------------------
Michael Vucci
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SCHEDULE A
Ladia Members
Percentage
Name Membership Interest
- ---- -------------------
The Ladia Nominee Trust 61.186366%
Frances Lynch 9.218798%
John T. Sinclair 7.923002%
Richard Geist 4.500000%
Geist Investment Trust 2.867701%
Frederick Pierce 1.874643%
James P. Maselan 1.854489%
W. Terence Jones 1.836319%
Richard Pomerance 1.090984%
Larry Sinclair 0.946058%
Stephen W. Hiorns 0.789818%
Ladia, Corporation 0.789818%
Ray Levy 0.771948%
Mark Pollack 0.665603%
Jerrold F. Rosenbaum 0.665603%
Theodore Grossbart 0.638073%
Anthony Raymond 0.479440%
Barry R. Levine 0.437220%
F. Martin McDermott 0.404105%
Edward Manchur 0.394909%
Michael Vucci 0.239720%
Michael and Cynthia Seligman 0.212691%
Harry Katz 0.106345%
Daniel Levy 0.106345%
Total 100.000000%
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SCHEDULE B
Ladia Disclosure Schedule
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SCHEDULE C
Computone Disclosure Schedule
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SCHEDULE D
Ladia Employees to Sign Employment Contracts
Frances Lynch
John T. Sinclair
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SCHEDULE E
Members' Addresses
Member Address
Geist, Richard A. 1905 Beacon Street
and Geist Investment Trust Waban, MA 02168
Grossbart, Theodore Goodwins Landing
Marblehead, MA 01945
Hiorns, Steven W. 227 Summit Avenue
Brookline, MA 02146
Jones, W. Terence Maselan & Jones
50 Milk Street
Boston, MA 02109
Katz, Harry 140 Broadway - 36th Floor
New York, NY 10005
Ladia Nominee Trust Ladia, Corporation
c/o John Sinclair, President
180 Ewing Drive
Stoughton, MA 02072
Ladia, Corporation c/o John Sinclair, President
180 Ewing Drive
Stoughton, MA 02072
Levine, Barry R. 154 The Lynnway
Lynn, MA 01902
Levy, Daniel 3332 Sabal Cove Lane
Long Boat Key, FL 34228
Levy, Raymond P.O. Box 93
Lincoln, MA 01773
Lynch, Frances 28 Cedar Street
Duxbury, MA 02332
Manchur, Edward L. 25 Vera Road
Middleton, MA 01949
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Maselan, James P. Maselan & Jones
50 Milk Street
Boston, MA 02109
McDermott, F. Martin 216 Sixteenth Ave., N.E.
St. Petersburg, FL 33704
Pierce, Frederick c/o Ladia, Corporation
28 Cedar Street
Duxbury, MA 02332
Pollack, Mark 46 Wauwinet Road
West Newton, MA 02165
Pomerance, Richard 45 Metacomet Street
Waban, MA 02168
Raymond, Anthony Anthony Raymond & Associates
1250 24th Street, NW
Suite 300
Washington, DC 20037-1124
Rosenbaum, Jerrold c/o Ladia, Corporation
28 Cedar Street
Duxbury, MA 02332
Seligmann, Michael & Cynthia New Horizons Club
P.O. Box 96
Ripton, VT 05766
Sinclair, John T. 180 Ewing Drive
Stoughton, MA 02072
Sinclair, Larry c/o Ladia, Corporation
28 Cedar Street
Duxbury, MA 02332
Vucci, Michael 9124 Lake Braddock Road
Burke, VA 22015
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EXHIBIT A
Certificate of Merger
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EXHIBIT B
Merger Agreement
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EXHIBIT C
Form of Affiliates Agreement
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EXHIBIT D
Form of Stockholders Agreement
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EXHIBIT 2
Computone and LADIA Sign Definitive Agreement to Combine
ALPHARETTA, Ga., June 9 /PRNewswire/ - Computone Corporation (Nasdaq: CMPT -
news) and LADIA LLC (LADIA) announced today that they have entered into a
definitive agreement to combine the two companies. The closing is subject to
approval of the shareholders of each company as well as certain other
conditions. The transaction is expected to be accounted for as a pooling of
interests and to qualify as a tax-free reorganization. The combined company will
be renamed LADIA Communications Technologies Inc. The agreement provides that
CMPT will issue up to 8.5 million CMPT common shares to LADIA members and
debtholders.
LADIA, based in Boston, Massachusetts, is a telecommunications service company
principally providing international long-distance carrier service to customers
worldwide. LADIA is constructing a national network of switches including
gateway locations in New York and Miami. LADIA's network design is expected to
permit its switches to be centrally maintained and controlled at LADIA's
computer center. LADIA believes its switching configuration will provide a
competitive advantage by optimizing the routing of calls over the LADIA carrier
network. Through its dedicated facilities and network of switches, LADIA intends
to offer a wide variety of international and domestic long-distance telephony
services. LADIA operates with a direct sales force that concentrates on selling
its telecommunications products and services to medium and large international
carrier customers as well as domestic carriers. In addition, LADIA has a network
of independent sales affiliates. LADIA also enters into joint ventures and
strategic partnerships in order to more efficiently sell its telecommunications
services and products to domestic and foreign markets.
LADIA's business plan calls for revenues of over $50 million for the full year
1998 and $100 million in 1999, with operating margins consistent with industry
standards. Barry Spillberg, Chief Operating Officer of LADIA, commented, "With
access to the capital markets through Computone, we will provide a wider range
of services to our existing customers and measurably expand our marketing and
sales base." Spillberg added, "LADIA is now positioned to execute an aggressive
business plan with exceptional growth potential."
For some time, Computone has sought to acquire a company with significant growth
potential that could substantially enhance its revenue and earnings growth, and
believes that LADIA's business plan is in-line with these requirements. In
addition, Computone hopes to gain significant additional management depth and
open up new markets for its new state-of-the-art digital communications server
TotalAccess DCS5000. This technology will assist in the routing of
communications traffic at the gateway locations for LADIA.
Management of both companies believes that the synergies between the two
companies are very strong and will be of benefit to the shareholders of
Computone. Deregulation in the telecommunications sectors worldwide should
create tremendous opportunity for growth for companies such as the combined
Computone and LADIA. As such, Computone believes that the combination of the
two companies is an excellent complement to the growth strategies of Computone.
<PAGE>
Computone Corporation designs and manufactures an extensive line of 200 -
921.6Kbps communications servers (modular and rack mount) for Ethernet TCP/IP
LANs, remote access, and INTERNET connectivity; 512 - 921.6Kbps ISDN solutions,
200 - 921.6Kbps asynchronous multi-port solutions for PCI, ISA, EISA, and Micro
Channel (modular and rack mount); and synchronous communications adapters for
ISA and PS/2. Computone has been awarded Arthur Andersen's prestigious "Fast
Tech 50" award for four consecutive years.
The forward-looking statements included in this press release are based on
current expectations, including the consummation of the transactions
contemplated by the Agreement, that involve risks and uncertainties. Actual
results including the level of sales and earnings of Computone and LADIA may
differ materially from that indicated due to the risks and uncertainties
including, but not limited to, risks associated with acquisitions, changes in
business and economic conditions, competition, availability of raw materials,
access to adequate capital on a timely basis, and the risk factors listed in the
reports that Computone files with the Securities and Exchange Commission.
Computone is located at 1060 Windward Ridge Pwy, Ste. 100 Alpharetta, GA 30005.
To reach Computone Sales: call 800-241-3946 or 770-625-0000, Fax: 770-625-0013,
E-mail: [email protected], or visit our web site: www.computone.com.
