UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number 0-50464
Netrix Corporation
(Exact name of registrant as specified in charter)
Delaware 54-1345159
(State of Incorporation) (IRS Employer Identification No.)
13595 Dulles Technology Drive, Herndon, Virginia 20171
(Address of principal executive offices) (Zip Code)
(703) 742-6000
(Registrant's telephone number, including area code)
Indicate by check number whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _____X_____ No _________
At November 12, 1999 there were 11,609,217 shares of the registrant's
Common Stock, $.05 par value per share, outstanding.
<PAGE>
NETRIX CORPORATION
FORM 10-Q
September 30, 1999
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I -- FINANCIAL INFORMATION (UNAUDITED)
ITEM 1 -- FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations for the nine
and the three months ended September 30, 1999 and 1998 2
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Unaudited Condensed Consolidated Financial Statements 5
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
PART II -- OTHER INFORMATION
ITEM 2 -- CHANGES IN SECURITIES AND USE OF PROCEEDS 17
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURE 19
</TABLE>
1
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
NETRIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
----------------------------- -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product.................................... $16,079 $16,272 $6,148 $5,849
Service.................................... 5,309 7,111 1,913 2,462
--------- --------- --------- ---------
Total revenues....................... 21,388 23,383 8,061 8,311
Cost of revenues:
Product..................................... 7,512 7,543 2,632 2,847
Service..................................... 3,638 4,024 1,130 1,264
--------- -------- -------- --------
Total cost of revenues................ 11,150 11,567 3,762 4,111
Gross profit.................... 10,238 11,816 4,299 4,200
Operating expenses:
Sales and marketing.......................... 4,621 7,774 1,589 1,788
Research and development..................... 5,337 4,939 1,979 1,696
General and administrative................... 3,683 3,080 1,365 912
Stock compensation expense................... 763 --- 763 ---
Restructuring reserve........................ 900 --- --- ---
--------- -------- -------- --------
Loss from operations.................... (5,066) (3,977) (1,397) (196)
Interest and other income, net..................... (218) (20) (45) 16
Foreign exchange gain.............................. --- 87 --- 40
--------- -------- -------- --------
Net Loss........................................... (5,284) (3,910) (1,442) (140)
Dividends and accretion on preferred stock......... (574) --- (534) ---
--------- -------- -------- --------
Net loss attributable to common stock.............. (5,858) (3,910) (1,976) (140)
- -----------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss)/gain.................... (40) (257) 61 (199)
Comprehensive loss................................. ($5,324) ($4,167) ($1,381) ($339)
- -----------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share.................... ($0.51) ($0.37) ($0.17) ($0.01)
============= ============ ============ ============
Shares used in per share calculation.............. 11,513 10,702 11,566 11,451
============= ============ ============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
2
<PAGE>
NETRIX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------ ----------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $1,645 $2,488
Restricted cash............................................ 3,053
Accounts receivable, net of allowance for doubtful
accounts of $788 and $796, respectively.............. 6,957 7,499
Inventories................................................ 4,761 5,265
Other current assets....................................... 359 472
------------ -----------
Total Current assets: 16,775 15,724
Property and equipment, net of accumulated depreciation
of $21,727 and $20,473, respectively........................ 3,043 3,823
Deposits and other assets........................................ 121 165
Goodwill, net of accumulated amortization of $1,911
and $1,712, respectively................................... 330 529
============ ===========
TOTAL ASSETS $20,269 $20,241
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit............................................. $1,174 $2,167
Accounts payable........................................... 3,907 3,011
Accrued liabilities........................................ 3,018 2,946
------------ ------------
Total current liabilities................................... 8,099 8,124
Stockholders' equity:
Preferred stock, $0.05 par value; 1,000,000 shares
authorized; 298,187 issued and outstanding,
preference in liquidation............................. 4,424 ---
Common stock, $0.05 par value; 15,000,000
shares authorized; 11,609,217 and 11,490,000
shares issued and outstanding, respectively........... 581 575
Warrants................................................... 862 257
Additional paid-in capital................................. 59,231 57,679
Deferred Compensation...................................... (637) ---
Accumulated other comprehensive loss....................... (160) (120)
Accumulated deficit........................................ (52,131) (46,274)
------------ ------------
Total stockholders' equity................................ 12,170 12,117
------------ ------------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $20,269 $20,241
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE>
NETRIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998
--------------- ------------
<S> <C> <C>
Net loss................................................................. ($5,283) ($3,910)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization........................................ 1,453 1,876
Decrease in deferred rent credit (96)
Non-Cash Interest Expense............................................ 179 ---
Deferred Compensation Expense........................................ 763
Changes in assets and liabilities -
Accounts receivable............................................... 542 (1,211)
Inventories....................................................... 504 1,439
Other current assets.............................................. 289 314
Deposits and other assets......................................... 44 260
Accounts payable.................................................. 896 (420)
Accrued liabilities............................................... 72 (684)
Other liabilities................................................. --- 0
--------------- ------------
Net cash used in operating activities............................. (541) (2,432)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................................. (474) (918)
--------------- ------------
Net cash (used in) provided by investing activities.................. (474) (918)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement...................................... 4,100 2,076
Payments on line of credit, net..................................... (993) 553
Proceeds from exercise of stock options.............................. 198 14
Proceeds from employee stock purchase plan........................... 48 90
Payment of Private Placement Costs................................... (88) ---
--------------- ------------
Net cash provided by (used in) financing activities.................. 3,265 2,733
Effect of foreign currency exchange rate changes on
cash and cash equivalents............................................ (40) (256)
--------------- ------------
2,210 (873)
Cash and cash equivalents, beginning of period.................................. 2,488 2,758
=============== ============
Cash and cash equivalents, end of period........................................ $4,698 $1,885
=============== ============
Supplemental disclosure of cash flow information
Cash paid during the period for interest..................... $293 $136
Cash paid during the period for income taxes................. --- ---
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
NETRIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
Netrix Corporation ("Netrix" or the "Company") is a worldwide provider
of VoIP and data networking products. The Company develops, manufactures,
markets, and supports networking equipment for voice, data, and image networks.
Netrix products are designed to transport voice over data networks to enable its
customers to realize significant cost savings. Netrix was incorporated in 1985.
The Company conducts operations in the United Kingdom and Hong Kong through its
wholly owned subsidiary, Netrix International Corporation (a Delaware
corporation), and in Germany and Italy through its wholly owned subsidiaries
Netrix GmbH and Netrix S.r.l., respectively. These condensed consolidated
financial statements include the accounts of the Company and its subsidiaries.
All significant intercompany transactions have been eliminated.
The Company's operations are subject to certain risks and uncertainties
including, among others, rapidly changing technology and markets, current and
potential competitors with greater financial, technological, production and
marketing resources, reliance on certain sole source suppliers and third party
contract manufacturers, and dependence on key management personnel.
The unaudited condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and include, in the opinion of
management, all adjustments, consisting of normal, recurring adjustments,
necessary for a fair presentation of interim period results. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes, however,
that its disclosures are adequate to make the information presented not
misleading. The results for such interim periods are not necessarily indicative
of results to be expected for the full year.
PROPOSED MERGER
On September 30, 1999, Netrix sigend a definitive merger agreement
with OpenROUTE Networks, Inc. (OpenROUTE) whereby OpenROUTE will merge with and
into Netrix and Netrix will be the surviving corporation. As consideration for
the merger, each holder of OpenROUTE common stock will receive one share of
Netrix common stock for each share of OpenROUTE common stock that it holds. The
agreement has been approved by the boards of directors of both companies and is
subject to the approval of the stockholders of each company.
RISKS AND OTHER IMPORTANT FACTORS
For the three months ended September 30, 1999, the Company reported
revenues of $8.1 million and a net loss attributable to common stock of $2.0
million, compared to revenues of $8.3 million and a net loss attributable to
common stock of $140,000 for the three months ended September 30, 1998. For the
nine months ended September 30, 1999, revenues were $21.4 million and the net
loss was $5.8 million, compared to revenues of $23.4 million and a net loss of
$3.9 million for the nine months ended September 30, 1998.
5
<PAGE>
On May 14,1999 the Company completed a private placement by selling and
issuing 298,187 shares of Series A 8% Convertible Preferred Stock, par value
$.05 per share, at a price of $13.75 per share, and by issuing warrants to
purchase an additional 49,818 share of Common Stock at an exercise price of
$2.75 per share. Each share of Preferred Stock has a liquidation preference
equal to its purchase price, plus accrued and unpaid dividends. Dividends are
cumulative from May 14, 1999, and are payable semi-annually, in arrears, on
April 30 and October 31 of each year, commencing October 31, 1999. Dividends are
payable in cash or shares of Common Stock, at the Company's election. The
Preferred Stock is convertible at any time prior to redemption, at the option of
the holder, into Common Stock at a conversion rate equal to five shares of
Common Stock for each share of Preferred Stock, subject to adjustment in certain
circumstances. The fair value of the Preferred Stock's beneficial conversion
feature, reflective of the difference between the conversion price of the
Preferred Stock and the market value of the underlying Common Stock on the date
of issue, constitutes, for accounting purposes, a dividend by the Company. The
beneficial conversion feature is approximately $1.2 million and the Company will
reflect the dividend as a non-cash charge to earnings in its consolidated
statement of operations in connection with the lapse of the transfer
restrictions on the underlying Common Stock. The transfer restrictions lapse in
May 2000 or in 25 percent installments when the average closing price for the
common stock over a period of 10 consecutive trading days is at least 125
percent, 156 percent, 195 percent and 244 percent of the initial conversion
price of the Preferred Stock, $2.75 per share. The Preferred Stock is redeemable
at the option of the Company at any time after the closing bid price for the
Common Stock on the NASDAQ Stock Market has equaled or exceeded $6.00 for 10
consecutive trading days. The redemption price is $17.50 per share plus accrued
but unpaid dividends to the date of repurchase.
In connection with the private placement, the Company received net
proceeds of $4.0 million which use is restricted for severance and other
restructuring activities, and marketing and sales initiatives. On June 15, 1999
the Company filed with the Securities and Exchange Commission (SEC) a
registration statement covering the resale of the Common Stock underlying the
Preferred Stock. The Company is to undertake all reasonable efforts to cause the
registration statement to be declared effective by the SEC.
As a result of the combination of the net loss for the quarter and the
proceeds of the private placement, the Company's tangible net worth increased
from $10.0 million at March 31, 1999 to $11.8 million at September 30, 1999. The
Company's initial line of credit agreement negotiated in November 1997 required
it to maintain a tangible net worth of at least $13.5 million measured at the
end of each month. Between October 31, 1998 and March 31, 1999 the Company was
in violation of this covenant. This covenant violation allowed the Company's
lending institution to call for collection of the outstanding loan balance. On
April 12, 1999 the lending institution granted the Company a waiver of past
covenant violations and waived its right to call the line of credit for these
covenant violations. The lending institution amended the line of credit
agreement to measure the Company's tangible net worth on a quarterly basis
effective January 1, 1999, and set the minimum tangible net worth covenant at
$9.8 million as of March 31, 1999 and $9.0 million for all subsequent quarters.
At March 31, 1999, June 30, 1999 and September 30,1999 the Company was in
compliance with the new covenant, and management believes that this new covenant
will be adequate for the Company to operate under in the foreseeable future.
However, there can be no assurances that the Company will not violate the new
covenant or that the outstanding loan balance will not be called by the lending
institution upon violation of the new covenant.
The success and the future of the Company is dependent on its ability
to generate net income or to increase its net worth by the sale of additional
equity. The Company's ability to generate net income is in large part dependent
on its success at increasing sales of its new products and/or controlling costs.
The Company's plan to increase revenues through sales of its Network Exchange
product line is continuing to evolve in order to exploit new marketing channels;
however, due to market conditions, competitive pressures, and other factors
beyond its control, the Company has been unable to achieve sufficient
incremental growth in new product sales to generate net income and there can be
no assurances that the Company will be able to adequately increase new product
sales and generate net income in the future.
The success of the Company is also dependent on its ability to generate
adequate cash for operations and capital needs. Its ability to generate adequate
cash for such needs is in part dependent on its success at increasing sales of
its products. The Company's plan is to increase revenues through sales of its
Network Exchange product line; however, due to market conditions and other
factors beyond its control, there can be no assurance the Company will be able
to adequately increase product sales. Therefore, the Company may have to
6
<PAGE>
generate additional cash through the sale of assets, including technologies or
the sale of debt or equity securities. Although the Company believes it has the
ability to generate additional cash through such sales, such sales may be
dilutive and there can be no assurances that adequate funds will be available or
available on terms that are reasonable or acceptable to the Company. If the
Company is unable to generate adequate cash, there could be a material and
adverse effect on the business and financial condition of the Company. The
Company has implemented cost control measures and is continually evaluating
expense levels to mitigate its liquidity risk.
For the nine months ended September 30, 1999 the Company's operating
activities used $541,000 and $2.4 million of cash, respectively. The cash used
by operations was primarily due to continued net losses from operations. At
September 30, 1999, the Company had $4.7 million in cash and cash equivalents
with $1.2 million outstanding of the $1.5 million available under the line of
credit agreement. The Company is relying on future sales and the collection of
the related accounts receivable to meet its cash obligations. The Company may be
unable to meet these obligations as they become due and may be required to
curtail its operations. If the Company is required to curtail its operations
there can be no assurances that the carrying value of the Company's assets will
be fully realized.
The Company may have to generate additional equity or cash through
other means, which may include the sale of assets, including intellectual
property and proprietary technology, the sale of equity, additional borrowings,
the sale of selected operations, or one or more strategic partnerships. Although
the Company believes it has the ability to generate additional equity and cash
through such sales, such sales may be dilutive and there can be no assurances
that adequate funds will be available, or available on terms that are reasonable
or acceptable to the Company. If the Company is unable to generate additional
equity and adequate cash, there will be a material and adverse effect on the
business and financial condition of the Company, to the extent that a sale,
liquidation or restructuring of the Company will be required, in whole or in
part.
Future operating results may be affected by a number of other factors
including the timing of new products in the market place, competitive pricing
pressures and economic conditions. As the market for the Company's products is
characterized by rapidly changing technology, the development, introduction and
evolution of competitive products may require a significant investment of
financial resources. Additionally, the Company relies on reseller channels that
are not under its control for a significant portion of its revenues,
particularly in its international regions. Also, while the Company has generally
been able to obtain adequate supplies of components to date, the interruption or
termination of the Company's current manufacturing relationships could have an
adverse effect on the Company's operating results.
2. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information." SFAS No. 130 requires that an enterprise
(a) classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the equity
section of a statement of financial position. The Company implemented SFAS No.
130 in the first quarter of 1998, and it did not have a material impact on the
financial statements. SFAS No. 131 requires the Company to report financial and
descriptive information about its reportable operating segments. The Company
adopted SFAS No. 131 for the year ended December 31, 1998.
3. CASH EQUIVALENTS:
Cash equivalents are primarily bank deposits, commercial paper, and
government agency securities with original maturities of three months or less.
These investments are carried at cost which approximates market value.
7
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4. INVENTORIES:
Inventories consisted of the following (in thousands):
September 30, 1999 December 31, 1998
------------------ -----------------
Raw materials $ 305 $ 350
Work in process 1,016 364
Finished goods 3,440 4,551
------------------ ----------------------
Total inventories $4,761 $5,265
================== ======================
5. COMMITMENTS AND CONTINGENCIES:
LINE OF CREDIT
In November 1997, the Company negotiated a $3.0 million line of credit
agreement with a lending institution to be used for working capital. This
agreement provided for interest at a per annum rate equal to the lender's prime
rate plus 2%, subject to a minimum monthly interest based on 40% utilization of
$3.0 million. In August 1998, as a result of concerns about the deterioration of
aged international accounts receivable, the Company's lending institution
eliminated international receivables as qualified accounts receivable for
borrowing collateral. The lending institution also increased the interest rate
for outstanding loan amounts to prime plus 3 1/2% from prime plus 2%. In October
1998, the lending institution reinstated a sub-line of credit up to an amount of
$600,000 for selected foreign accounts receivable.
The Company's initial line of credit agreement negotiated in November
1997 required it to maintain a tangible net worth covenant of at least $13.5
million measured at the end of each month. Between October 31, 1998 and March
31, 1999 the Company was in violation of this covenant. This covenant violation
allowed the Company's lending institution to call for collection of the
outstanding loan balance. On April 12, 1999 the lending institution granted the
Company a waiver of past covenant violations and waived its right to call the
line of credit for these covenant violations. The lending institution amended
the line of credit agreement to measure the Company's tangible net worth on a
quarterly basis effective January 1, 1999, and set the minimum tangible net
worth covenant at $9.8 million as of March 31, 1999 and $9.0 million for all
subsequent quarters. At September 30, 1999, the Company was in compliance with
the new covenant, and management believes that this new covenant will be
adequate for the Company to operate under in the foreseeable future. However,
there can be no assurances that the Company will not violate the new covenant or
that the outstanding loan balance will not be called by the Company's lending
institution upon violation of the new covenant. Concurrent with the April 1999
waiver of default, the lending institution extended the line of credit agreement
to May 31, 2001. In connection with the waiver of default and extension of the
line of credit agreement, the Company granted the lending institution 50,000
warrants to purchase Common Stock at an exercise price of $2.00 per share.
During the quarter ended March 31, 1999, the Company recognized additional
interest charges of $97,000 in relation to the fair value of these warrants.
Borrowings under the current line of credit are based on qualified
domestic accounts receivable and are collateralized by the Company's assets. At
September 30, 1999, the Company had $1.2 million outstanding of the $1.5 million
available under the line of credit agreement. At December 31, 1998, the Company
had $2.2 million outstanding of the $2.4 million available under the line of
credit.
6. SEGMENT INFORMATION:
For the year ended December 31, 1998, the Company adopted the Statement
on Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information". The Company's two reportable segments
are products and services. The Company evaluates the performance of its segments
based on gross profit. Under SFAS No. 131, the Company is required to provide
enterprise-wide disclosures about revenues by segment, long-lived assets by
geographic area and revenues from major customers.
8
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Revenues consisted of the following (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Septmber 30, Three Months Ended September 30,
------------------------------ --------------------------------
Product Group 1999 1998 1999 1998
------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
2200 $8,780 $5,453 $3,954 $1,713
2500 5,250 5,939 1,837 3,005
S1000 664 633 23 161
S10 1,173 3,221 334 603
Telecom 212 1,026 - 367
------------ ------------ ------------ -------------
Total product revenues 16,079 16,272 6,148 5,849
Service revenues 5,309 7,111 1,913 2,462
============ ============ ============ =============
Total revenues $21,388 $23,383 $8,061 $8,311
============ ============ ============ =============
</TABLE>
GEOGRAPHIC INFORMATION
The Company sells its products and services through its foreign
affiliates in the United Kingdom, Germany and Italy. Information regarding
revenues and long-lived assets attributable to the United States and to all
foreign countries is stated below. The geographic classification of product and
service revenues is based upon the location of the customer.
The Company's product and service revenues for 1999 and 1998 were
generated in the following geographic regions (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Sept 30, Three Months Ended Sept 30,
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
---- ---- ---- ----
United States $12,745 $12,384 $5,462 $5,166
Europe, Middle East and Africa 6,371 7,713 1,782 1,668
Pacific Rim and Other 2,272 3,286 817 1,477
------------ ------------ ------------ ------------
Total $21,388 $23,383 $8,061 $8,311
============ ============ ============ ============
</TABLE>
Included in domestic product and service revenues are sales through systems
integrators and distributors to the Federal Government of $25,000 for the three
months ended September 30, 1999 and $160,000 for the three months ended
September 30, 1998. For the nine months ended September 30, 1999, these sales
were $214,000 compared to $342,000 for the nine months ended September 30, 1998.
The Company's long-lived assets were located as follows:
Nine Months Ended Sept 30,
----------------------------
1999 1998
---- ----
United States $3,135 $4,808 (includes Goodwill)
United Kingdom 205 272
Germany 15 25
Italy 18 76
======== ========
Total long-lived assets $3,373 $5,181
======== ========
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SIGNIFICANT CUSTOMERS
There were no customers that accounted for greater than 10% of total
revenues for the nine months ended September 30, 1999 and 1998.
7. RESTRUCTURING CHARGE:
In April 1999, the Company implemented a restructuring of operations to
reduce and economize its work force as part of an overall plan to return to
profitability. The restructuring charges of $900,000 resulted from $843,000 of
accrued severance and benefit costs associated with a reduction-in-force of 36
employees across all functional areas of the Company, and $57,000 of accrued
facility costs resulting from the consolidation of facilities and premature
termination of various office leases. As of September 30, 1999, severance of
$602,000 and lease termination costs of $57,000 have been paid, and the
remaining severance payments of $241,000 will occur over the next six months.
The Company also paid $100,000 of final severance payments to certain
international employees that resulted from an April 1997 restructuring of
operations.
8. FOREIGN CURRENCY EXCHANGE GAIN:
Generally, assets and liabilities denominated in foreign currencies are
translated into US dollars at current exchange rates. Operating results are
translated into US dollars using the average rates of exchange prevailing during
the period. Gains or losses resulting from translation of assets and liabilities
are included in the cumulative translation adjustment account in stockholders'
equity, except for the translation effect of intercompany balances that are
anticipated to be settled in the foreseeable future. The Company had no foreign
exchange gains or losses for the nine months ended September 30, 1999, and had a
net foreign exchange gain of $87,000 for the nine months ended September 30,
1998.
9. BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share amounts are computed using the weighted
average number of common shares. Diluted earnings (loss) per share amounts are
computed using the weighted average number of common shares and common
equivalent shares having a dilutive effect during the periods; however, for the
three and nine months ended September 30, 1999 and 1998, the effect of common
stock equivalents has not been considered as they would have been antidilutive.
10. STOCKHOLDERS' EQUITY
On May 14,1999 the Company completed a private placement by selling and
issuing 298,187 shares of Series A 8% Convertible Preferred Stock, par value
$.05 per share, at a price of $13.75 per share, and by issuing warrants to
purchase an additional 49,818 share of Common Stock at an exercise price of
$2.75 per share. Each share of Preferred Stock has a liquidation preference
equal to its purchase price, plus accrued and unpaid dividends. Dividends are
cumulative from May 14, 1999, and are payable semi-annually, in arrears, on
April 30 and October 31 of each year, commencing October 31, 1999. Dividends are
payable in cash or shares of Common Stock, at the Company's election. The
Preferred Stock is convertible at any time prior to redemption, at the option of
the holder, into Common Stock at a conversion rate equal to five shares of
Common Stock for each share of Preferred Stock, subject to adjustment in certain
circumstances. The fair value of the Preferred Stock's beneficial conversion
feature, reflective of the difference between the conversion price of the
Preferred Stock and the market value of the underlying Common Stock on the date
of issue, constitutes, for accounting purposes, a dividend by the Company. The
beneficial conversion feature is approximately $1.2 million and the Company will
reflect the dividend as a non-cash charge to earnings in its consolidated
statement of operations in connection with the lapse of the transfer
restrictions on the underlying Common Stock. The transfer restrictions lapse in
May 2000 or in 25 percent installments when the average closing price for the
common stock over a period of 10 consecutive trading days is at least 125
percent, 156 percent, 195 percent and 244 percent of the initial conversion
price of the Preferred Stock, $2.75 per share. The Preferred Stock is redeemable
at the option of the Company at any time after the closing bid price for the
10
<PAGE>
Common Stock on the NASDAQ Stock Market has equaled or exceeded $6.00 for 10
consecutive trading days. The redemption price is $17.50 per share plus accrued
but unpaid dividends to the date of repurchase. In connection with the private
placement, the Company received net proceeds of $4.0 million which use is
restricted for severance and other restructuring activities, and marketing and
sales initiatives. On June 15, 1999 the Company filed with the Securities and
Exchange Commission (SEC) a registration statement covering the resale of the
Common Stock underlying the Preferred Stock. The Company is to undertake all
reasonable efforts to cause the registration statement to be declared effective
by the SEC.
11
<PAGE>
NETRIX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects" and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the Company's actual results
to differ materially from those indicated by such forward-looking statements.
These factors include, without limitation, those set forth below under the
caption "Certain Factors That May Affect Future Results".
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS. The company announced on April 21, 1999 the
appointment of two senior telecommunications executives to its board of
directors. The additions of Douglas J. Mello and Richard Yalen, formerly of The
Bell Atlantic Corporation (NYSE: BEL) and Cable and Wireless, USA (NYSE: CWP),
respectively, expands the Netrix board from 4 to 6 members. The appointments
reflect a recruitment strategy adopted by the Company's new Chairman, Steven T.
Francesco, to attract to the Board of Directors senior executives with
significant telecommunications industry experience and contacts. Both Mello and
Yalen have led telecommunications service providers that are deploying voice and
data networks based on ATM, frame relay and voice over Internet protocol.
The board also formed two new oversight committees. Board members Richard
Yalen and William T. Rooker, Jr. will head the audit committee, and John
Faccibene and Douglas Mello will direct the company's compensation committee.
The Company announced on April 26, 1999 that its newly elected Board of
Directors is overseeing an immediate operational restructuring as part of an
overall plan to return to profitability. The effort is focusing on a reduction
of fixed costs, outsourcing non-critical manufacturing and services, and an
accelerated phase-out of older/low margin products. In addition, Netrix is
aggressively expanding its direct sales force and focusing on service providers
such as ISP's, CLEC's and telecommunication carriers. In connection with the
operational restructuring, the Company has implemented a reduction-in-force
that, when combined with previous actions, has reduced headcount 25% across all
functional areas since the beginning of 1999.
The Company announced on May 11, 1999, that Stephen T. Francesco, Chairman,
was appointed CEO, and that Lynn C. Chapman will maintain his position as
President and assume the role of COO.
On May 14,1999 the Company completed a private placement by selling 298,187
shares of Series A 8% Convertible Preferred Stock, par value $.05 per share, at
a price of $13.75 per share. In connection with the private placement, the
Company received net proceeds of $4.0 million to be used to fund operations,
severance and other restructuring activities, and marketing and sales
initiatives.
On June 16, 1999, the Company announced the appointment of a senior
Microsoft executive to the board. Mr. Greg McNulty has over 23 years of
experience in the high technology sales and marketing environment, and is Senior
Group Manager of Business Development for Microsoft-Web TV Network Services
managing Web TV's relationships with RBOC's, ILEC's, CLEC's, and ISP's.
On July 12, 1999, the Company issued a joint press release with Sonus
Communications, Inc. announcing a significant milestone in the development of
the Voice Over Internet Protocol (VoIP) telephony market. The VoIP services that
Sonus Communications provides for telecommunications carriers to China using
Netrix' 2210 Series Gateways is now comparable in terms of voice quality,
connect rates and dial tone delay with direct service from China Telecom, at an
average 30 percent lower base cost to carriers.
12
<PAGE>
On July 27, 1999, the Company announced the appointment of Sean Rooney
as Senior Vice President of Sales. Rooney, formerly General manager of
Diversified markets for Sony Electronics, Inc., will lead a staff of 20
salespeople including 15 newly acquired professionals from industry competitors.
On August 5, 1999, the Company announced the appointment of Peter J.
Kendrick as Vice president and Chief Financial Officer, replacing Norman Welsch
in his day to day activities. Mr. Kendrick joins the Company with 16 years
experience as a CFO and former investment banker with a background in financial
operations, initial public offerings and mergers and acquisitions.
BACKGROUND. The results for the three and nine months of 1999 reflect
an overall decrease in the revenues and increase in expenses of the Company from
the comparable period in 1998. The increase in expenses is due primarily to an
increase in G&A expense for legal and accounting fees associated with the
changes in capital structure and management. During the first nine months of
1999, Netrix continued to experience a decline in revenues in the product line
it acquired from Republic Telcom, and a net increase in its new products, the
2210, which combines the Republic technology with Netrix switching capability.
Geographically, during the first nine months of 1999, the Company continued to
experience declining revenues from international customers, which was partially
offset by an increase in revenues from domestic customers.
In April 1999, the Company implemented a restructuring of operations to
reduce and economize its work force as part of an overall plan to return to
profitability. The restructuring charges of $900,000 resulted from $843,000
thousand of accrued severance and benefit costs associated with a
reduction-in-force of 36 employees across all functional areas of the Company,
and $57,000 of accrued facility costs resulting from the consolidation of
facilities and premature termination of various office leases. The
reduction-in-force and payment of severance will occur over a six-month period.
REVENUES. For the three months ended September 30, 1999, revenues
decreased $200,000 or 3% to $ 8.1 million, from $8.3 million for the three
months ended September 30, 1998. The decrease in revenues was due primarily to a
decrease in service revenues of $549,000, or 22%, to $1.9 million from $2.5
million. For the nine months ended September 30, 1999, revenues decreased $2.0
million, or 8.5% to $21.4 million, from $23.4 million for the nine months ended
September 30, 1998. For the three months ended September 30, 1999 product
revenues increased $300,000 or 5% to $6.1 million from $5.8 million for the
three months ended September 30, 1998. The increase in product revenues is
primarily a result of increase sales of the 2210 series product line. For the
nine months ended September 30, 1999 product sales remained essentially the same
as compared to the nine months ended September 30, 1998. For the nine months
ended September 30, 1999 service revenues decreased $1.8 million or 25% to $5.3
million from $7.1 million for the nine months ended September 30, 1998. The
decrease is a result of cancellations and non-renewals of maintenance contracts
by various customers using legacy equipment.
GROSS PROFIT. For the three months ended September 30, 1999, gross
profit increased by $100,000, or 2%, to $4.3 million, from $4.2 million for the
three months ended September 30, 1998. As a percentage of revenues, gross profit
increased to 53% for the three months ended September 30, 1999, from 51% for the
three months ended September 30, 1998. For the nine months ended September 30,
1999 gross profit decreased $1.6 million or 13% to $10.2 million from $11.8
million for the nine months ended September 30, 1998. For the three months ended
September 30, 1999 gross profit for product revenue increased $514,000 or 17% to
$3.5 million from $3.0 million for the three months ended September 30, 1998.
For the three months ended September 30, 1999 gross profit for service revenues
decreased $415,000 or 3% to $783,000 from $1.2 million for the three months
ended September 30, 1998. For the nine months ended September 30, 1999, gross
profit for product decreased $200,000 or 2% to $8.5 million from $8.7 million
for the nine months ended September 30, 1998. For the nine months ended
September 30, 1999 gross profit for service revenue decreased $1.8 million or
58% to $1.3 million from $3.1 million for the nine months ended September 30,
1998. The three and nine month gross profit changes are primarily a result of a
lower-margin product mix, a greater proportion of sales made through
distributors, which generally have higher discounts than direct retail sales,
and competitive pricing pressures. The gross profit in any particular quarter is
dependent upon the mix of products sold and the channels of distribution. As a
result, the gross profit on a quarter to quarter basis can vary within a wide
range. The three and nine month decrease in service gross profit is primarily
the result of lower service revenues from cancellations and non-renewals of
maintenance contracts by various customers using legacy equipment.
13
<PAGE>
SALES AND MARKETING. For the three months ended September 30, 1999
sales and marketing expenses decreased by $199,000, or 11%, to $1.6 million from
$1.8 million for the three months ended September 30, 1998. The quarterly
decrease is the result of reduced marketing material expenditures of $90,000 and
other cost reductions of $109,000. Sales and marketing expenses decreased $3.2
million, or 41%, to $4.6 million for the nine months ended September 30, 1999
from $7.8 million for the nine months ended September 30, 1998. The year over
year decreases are the result of a decrease in bad debt expense of $1.1 million,
and other reductions totaling $1.8 million in personnel, trade show initiatives
and advertising and marketing materials
RESEARCH AND DEVELOPMENT. For the three months ended September 30,
1999, research and development expenses increased $300,000 or 17% to $1.9
million from $1.6 million for the three months ended September 30, 1998. For the
nine months ended September 30, 1999, research and development expenses
increased $300,000 or 8% to $5.3 million from, from $5 million for the nine
months ended September 30, 1998. The year over year increase in research and
development expenses is due primarily to an increase in personnel costs of
$100,000 and an increase in consulting fees of $250,000. All of the Company's
research and development costs are expensed to operations as incurred during the
periods reported.
GENERAL AND ADMINISTRATIVE. For the three months ended September 30,
1999 General and administrative (G&A) expenses increased $450,000 or 50% to $1.4
million from $900,000 for the three months ended September 30, 1998. For the
nine months ended September 30, 1999 G&A expenses increased $600,000 or 20% to
$3.7 million from $3.1 million for the nine months ended September 30, 1998. The
increase in G&A was the result of higher accounting and legal expenses
associated with the restructuring of operations, changes to the Company's
capital structure, the renegotiation of the line of credit, the default waiver
with the Company's lending institution, and costs associated with the renewal of
the headquarters office lease.
STOCK COMPENSATION. The company incurred stock compensation expense of
$763,000 associated with stock options issued to Mr. Steven Francesco, Chairman
& CEO in July of 1999.
RESTRUCTURING RESERVE. In April 1999, the Company implemented a
restructuring of operations to reduce and economize its work force as part of an
overall plan to return to profitability. The restructuring charges of $900,000
resulted from $843,000 of accrued severance and benefit costs associated with a
reduction-in-force of 36 employees across all functional areas of the Company,
and $57,000 of accrued facility costs resulting from the consolidation of
facilities and premature termination of various office leases. The
reduction-in-force and payment of severance will occur over a six-month period.
INTEREST AND OTHER INCOME, NET. For the three months ended September
30, 1999, the company had net interest expenses of $89,000 compared to $45,000
for the three months ended September 30, 1998. The quarter over quarter increase
was primarily the result of lower interest income due to less cash available for
overnight investments. For the nine months ended September 30, 1999, net
interest expense was $293,000, compared to $138,000 for the nine months ended
September 30, 1998. The year over year increase in net interest expense is the
combined result of a $97,000 charge related to the fair value of warrants issued
to the Company's lending institution, $43,000 lower interest income due to less
cash available for overnight investments, and higher interest costs resulting
from higher rates and loan balances during 1999.
FOREIGN EXCHANGE GAIN OR LOSSES. For the three months ended September
30, 1999 the Company had no foreign exchange gains or losses compared to a
$40,000 foreign exchange gain for the three months ended September 30, 1998. For
the nine months ended September 30, 1999, the Company had no foreign exchange
gains or losses, compared to a foreign exchange gain of $87,000 for the nine
months ended September 30, 1998.
14
<PAGE>
NET LOSS. For the three months ended September 30, 1999, the Company
had a net loss of $2.0 million, compared to a net loss of $140,000 for the three
months ended September 30, 1998. For the nine months ended September 30, 1999,
the Company had a net loss of $5.8 million, compared to a net loss of $3.9
million for the nine months ended September 30, 1998. The increase in net loss
is due primarily to increase in G&A costs associated with legal and accounting
expenses of $350,000, R&D costs of $250,000, stock compensation expense of
$763,000 and a dividend on preferred stock of $534,000. The three and nine month
changes in net loss were the combined result of all of the above factors.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had $4.7 million of cash and cash
equivalents and net working capital of $8.7 million, compared to $2.5 million of
cash and cash equivalents and net working capital of $7.6 million at December
31, 1998. For the nine months ended September 30, 1999, total cash used by
operations was $541,000 compared to $2.4 million for the nine months ended
September 30, 1998. The cash used by operations was primarily due to continued
net losses from operations. The decrease in cash used in operating activities
during the nine months ended September 30, 1999, was primarily the result of a
decrease in accounts receivable of $542,000, compared to an increase in accounts
receivable of $1.2 million for the nine months ended September 30, 1998. During
the nine months ended September 30, 1999, the Company used cash to pay-down the
line of credit by $1.0 million.
In May 1999, the Company received net proceeds of $4.0 million from a
private placement of Series A Convertible Preferred Stock. In April 1998, the
Company received net proceeds of $2.1 million through a private placement of
Common Stock.
Capital acquisitions during the nine months ended September 30, 1999
were $474,000 compared to $918,000 for the nine months ended September 30, 1998.
These acquisitions were primarily equipment used for research and development
purposes and computer and test equipment.
In November 1997, the Company negotiated a $3.0 million line of credit
agreement with a lending institution to be used for working capital. This
agreement provided for interest at a per annum rate equal to the lender's prime
rate plus 2%, subject to a minimum monthly interest based on 40% utilization of
$3.0 million. In August 1998, as a result of concerns about the deterioration of
aged international accounts receivable, the Company's lending institution
eliminated international receivables as qualified accounts receivable for
borrowing collateral. The lending institution also increased the interest rate
for outstanding loan amounts to prime plus 3 1/2% from prime plus 2%. In October
1998, the lending institution reinstated a sub-line of credit up to an amount of
$600,000 for selected foreign accounts receivable. Borrowings under the line are
based on qualified domestic accounts receivable and are collateralized by the
Company's assets. At September 30, 1999, the Company had $4.7 million in cash
and cash equivalents with $1.2 million outstanding of the $1.5 million available
under the line of credit agreement. At December 31, 1998, the Company had $2.4
million of eligible borrowing availability and $2.2 million outstanding under
the line of credit. As of September 30, 1999, the Company's domestic accounts
receivable have generated adequate borrowing for operations, and the Company has
not had to use the foreign sub-line of credit.
As a result of the combination of the net loss for the quarter and the
proceeds of the private placement, the Company's tangible net worth increased
from $10 million at March 31, 1999 to $11.8 million at September 30, 1999. The
line of credit agreement negotiated in November 1997 required the Company to
maintain a tangible net worth of at least $13.5 million measured at the end of
each month. Beginning October 31, 1998 the Company had been in violation of this
covenant. This covenant violation allows the Company's lending institution to
call for collection of the outstanding loan balance. On April 12, 1999 the
lending institution granted the Company a waiver of past covenant violations and
waived its right to call the line of credit for these covenant violations.
Concurrent with the April 1999 waiver of default, the lending institution
extended the line of credit agreement to May 31, 2001. The lending institution
amended the line of credit agreement to measure the Company's tangible net worth
on a quarterly basis effective January 1, 1999, and set the minimum tangible net
worth covenant at $9.8 million as of March 31, 1999 and $9.0 million for all
subsequent quarters. As of September 30, 1999, the Company was in compliance
with the new covenant, and management believes that this new covenant will be
adequate for the Company to operate under in the foreseeable future. However,
there can be no assurances that the Company will not violate the new covenant or
that the outstanding loan balance will not be called by the lending institution
upon violation of the new covenant.
15
<PAGE>
The success of the Company is dependent on its ability to generate
adequate cash for operations and capital needs. Its ability to generate adequate
cash for such needs is in part dependent on its success in increasing sales of
its products. The Company's plan is to increase revenues through sales of its
Network Exchange product line; however, due to market conditions and other
factors beyond its control, there can be no assurance the Company will be able
to adequately increase product sales. Therefore, the Company may have to
generate additional cash through the sale of assets including technologies or
the sale of debt or equity securities. Although the Company believes it has the
ability to generate additional cash through such sales, such sales may be
dilutive and there can be no assurances that adequate funds will be available or
available on terms that are reasonable or acceptable to the Company. If the
Company is unable to generate adequate cash, there could be a material and
adverse effect on the business and financial condition of the Company. The
Company has implemented cost control measures and is continually evaluating
expense levels to mitigate its liquidity risk.
YEAR 2000
The Year 2000 presents concerns for business and consumer computing.
Aside from the well-known problems with the use of certain 2-digit date formats
as the year changes from 1999 to 2000, the Year 2000 is a special case leap
year, and dates such as 9/9/99 were used by certain organizations for special
functions. The problem exists for many kinds of software and hardware, including
mainframes, mini-computers, PCs, and embedded systems.
Netrix Corp has divided the year 2000 task into three areas of concern,
Netrix Product, Netrix Suppliers, and Netrix Internal Systems. The Company's
core products have been reviewed, tested and if required, corrective measures
have been implemented to ensure no year 2000 issues. This task is complete with
information regarding the Netrix Products available via Internet access and
software release notes. NETRIX suppliers are being asked to respond to the year
2000 issue. This will be an ongoing process and is considered a low risk to the
Company. Netrix has audited its Internal Systems and corrective measures are
being taken to correct identified year 2000 issues.
Internal Systems represent the largest area of concern for the Company.
The Internal Systems category has been further broken down into hardware and
software areas, business / operations applications, engineering applications,
Unix based technologies and PC based technologies. The Company has identified
all major hardware and software components that need to be assessed and has
performed an assessment of all hardware and software identified.
The Company has updated a majority of hardware in use and is in the
process of converting all software applications that are known to have year 2000
issues. In August 1999, NETRIX successfully completed the Y2K software
conversion upgrade for the Company's primary business / operations application
for live production use in the third quarter of 1999.
Vendors or other third parties that could affect the Company's
operations include suppliers of utility services, travel and hotel services,
office supply vendors, equipment and technology vendors, mail, telephone,
Internet and other communications services. Each of the Company's departmental
directors has been instructed to communicate with their major suppliers with
respect to such vendors' year 2000 compliance status. All of the Company's
departments have been directed to make arrangements with an alternative vendor
if it appears that the current vendor will not achieve compliance by the year
2000. There can be no guarantee, however, that the systems of the Company's
major vendors, including providers of public utilities, will be timely
converted, or that a failure to convert by another company or organization, or a
conversion that is incompatible with the Company's systems, would not have an
adverse effect on the Company.
Although the Company anticipates that minimal business disruptions will
occur as a result of year 2000 issues, possible consequences include loss of
communications with members, inability to conduct marketing efforts and on-site
16
<PAGE>
seminars as a result of travel and communications disruptions, delay in the
production and distribution of studies and reports, inability to conduct
research and surveys, and disruption of similar normal business activities. The
Company believes that the conversion and modification efforts by the Company and
its vendors will mitigate the risks associated with year 2000 issues. If,
however, the Company or its essential vendors do not complete the necessary
modifications or conversions in a timely manner or if such modifications or
conversions fail to achieve the proper results, the Company's operations may be
adversely effected.
The Company does not intend to develop any contingency plans to address
possible failures by the Company or its vendors to the year 2000 compliant with
respect to information technology systems. The Company does not believe that
such contingency plans are required because it believes that the Company and its
information technology suppliers will be year 2000 compliant before January
2000. The Company currently does not have any contingency plans to address
possible failures by its vendors to be year 2000 compliant with respect to
non-information technology systems, but expects to develop such plans by
September 1999.
While Year 2000 issues present a potential risk to the Company's
internal systems, distribution and supply chain, and facilities, the Company is
minimizing its risk with a concentrated effort. The Company is performing an
extensive assessment and is in the process of testing and remediating mission
critical components. The Company has already identified and resolved a majority
of these components, and expects that all components will be resolved by the
fourth quarter. Management currently believes that all critical systems will be
ready by January 1, 2000 and that the costs to address these issues will not
exceed the budgeted amounts. Management estimates the cost to address and
resolve Year 2000 issues will approximate $500,000, and these costs have been
included in the Company's operating plan for 1999.
PART II -- OTHER INFORMATION
Item 1.
None.
Item 2.
On September 29, 1999 Netrix issued 100,000 warrants to Kaufman Bros.,
L.P., our investment banker in connection with the OpenROUTE merger, as part of
the consideration paid to Kaufman Bros. for its services in connection with the
merger. The warrants have an exercise price of $3.00 per share and are
exercisable through August 2004. The issuance was not registered under the
Securities Act of 1933 in reliance upon Section 4(2) under the Securities Act.
Pursuant to a consulting agreement with Renwick Corporate Finance Inc.,
as part of their monthly compensation we agreed to issue to them warrants to
acquire 3,333 shares of common stock at $3.75 per share for each month of
services. The agreement was in effect during the quarter until mid-September.
The issuance was not registered under the Securities Act of 1933 in reliance
upon Section 4(2) under the Securities Act.
In September 1999, we issued warrants to a consultant who is providing
advice to us related to reducing costs associated with certain of our
operations. As consideration, we issued 7,500 warrants to the consultant,
exercisable through September 2004 at $3.00 per share. In issuing these
warrants, the company relied upon the exemption from registration under the
Securities Act provided by Section 4(2) of the Securities Act.
In connection with the offering of the Series A preferred stock, we
agreed to pay compensation to certain persons who introduced investors to us. We
offered these persons the right to receive payment either (1) in cash or (2) in
warrants to acquire common stock, and each of such persons requested payment in
warrants. Accordingly, in September 1999 the company issued 17,818 warrants
exercisable at $3.50 per share and 32,000 warrants exercisable at $2.75 per
share to these persons. Each warrant expires in 2004. In issuing these warrants,
the company relied upon the exemption from registration under the Securities Act
provided by Section 4(2) of the Securities Act.
17
<PAGE>
Item 3.
None.
Item 4.
We held our annual meeting of stockholders on July 27, 1999. The agenda
for the meeting was to discuss and vote upon four proposals:
1. The election of Richard Yalen and Gregory McNulty as directors to
serve until the annual meeting in 2002;
2. An increase in our authorized common stock to 29,000,000 shares;
3. Adoption of the 1999 Long-Term Incentive Plan; and
4. Ratification of Arthur Andersen LLP as independent public
accountants.
At the meeting Proposals 1, 2 and 4 were presented to stockholders for
approval. The meeting was adjourned until August 26, 1999 with respect to
proposal 3, and it was discussed and voted upon on that date.
The results of the votes are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Votes
Proposal Votes For Against Abstain Not voted
- -------- --------- ------- ------- ---------
1a- Election of 89.75% 6.83% - 3.42%
Richard Yalen
1b- Election of 89.72% 6.86% - 3.42%
Gregory McNulty
2- Increase in 73.14% 17.25% 0.29% 9.32%
Capital Stock
3- Adoption of Long 75.71% 17.91% 0.28% 6.10%
Term Incentive Plan
4- Approval of 94.00% 2.40% 0.18% 3.42%
Accountants
</TABLE>
Item 5.
None.
Item 6.
(a) Exhibit Index:
-------------
The exhibits listed below have been filed as part of this report.
3.1 Amended and restated certificate of incorporation
(incorporated by reference to Exhibit 3.1 to Netrix's
registration statement on Form S-1 filed on September 18,
1992, as amended (File No. 33-50464) (the "1992 S-1").
3.2 Amendment to Certificate of Incorporation dated August 26,
1999 (incorporated by reference to Exhibit 4.8 to Netrix's
registration statement on Form S-3, filed on June 16, 1999,
as amended (File No. 333-81109) (the "1999 S-3")).
18
<PAGE>
3.3 Amended and restated by-laws of Netrix (incorporated into
this registration statement by reference to Exhibit 3.2 of
the 1992 S-1).
4.1 Specimen certificate of common stock of the registrant
(incorporated by reference to Exhibit 4.2 to the 1992 S-1).
4.2 Certificate of designations for the form of Series A 8%
convertible preferred stock (incorporated by reference to
Exhibit 4.4 to the 1999 S-3).
4.3 Supplemental certificate of designations for the form of
Series A 8% convertible preferred stock (incorporated by
reference to Exhibit 4.2 to Netrix's quarterly report on
Form 10-Q filed on August 16, 1999, Commission File No.
0-50464).
4.4 Form of Warrant issued to Renwick Securities, Inc.
(incorporated by reference to Exhibit 10.3 to Netrix's
quarterly report on Form 10-Q filed on August 16, 1999,
Commission File No. 0-50464).
4.5 Form of Warrant issued to Coast Business Credit
(incorporated by reference to Exhibit 10.2 to Netrix's
quarterly report on Form 10-Q filed on August 16, 1999,
Commission File No. 0-50464).
4.6 Form of Warrant issued to Kaufman Bros., L.P.
10.1 Loan and Security Agreement dated November 18, 1997 with
Coast Business Credit, a division of Southern Pacific Bank
(incorporated by reference to Exhibit 10.8 to Netrix's
annual report on Form 10-K filed on March 31, 1998,
Commission File No. 0-50464).
10.2 Amendment to Loan an Security Agreement dated April 19, 1999
with Coast Business Credit, a division of Southern Pacific
Bank (incorporated by reference to Exhibit 10.3 to Netrix's
quarterly report on Form 10-Q filed on August 16, 1999,
Commission File No. 0-50464).
10.3 Agreement and Plan of Merger dated September 30, 1999
between Netrix Corporation and OpenROUTE Networks, Inc.
(incorporated by reference to Exhibit 2.1 to Netrix's
current report on Form 8-K filed on October 14, 1999,
Commission File No. 0-50464).
10.4 Amendment to Agreement and Plan of Merger between Netrix
Corporation and OpenROUTE Networks, Inc. dated November 9,
1999.
10.5* Employment Agreement with Steven Francesco dated March 3,
1999.
10.6* Employment Agreement with Peter Kendrick dated August 3,
1999.
10.7* Form of Retention Agreement with Executive Officers.
10.8 Manufacturing Agreement dated September 1999 with SMT Centre
S.E., Inc.
10.9* Long Term Incentive Plan, as amended.
10.10* Amended and Restated Incentive Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.1 of the Annual
Report of Form 10-K for the fiscal year ended December 31,
1995 (the "1995 10-K").
10.11* 1992 Employee Stock Purchase Plan (incorporated by reference
to Exhibit 10.2 of the 1995 10-K).
10.12* 1992 Directors Stock Option Plan (incorporated by reference
to Exhibit 10.3 of the 1995 10-K).
10.13* 1996 Stock Option Plan (incorporated by reference to Exhibit
10.4 of the 1995 10-K).
19
<PAGE>
10.14 Office Sublease, dated September 30, 1999 between Netrix and
Scoreboard, Inc..
--------------------------------
* This exhibit is a compensatory plan or arrangement in which
executive officers or directors of the Registrant participate.
+ Portions of this exhibit have been omitted subject to a pending
confidential treatment request.
(b) Reports on Form 8-K.
--------------------
None.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NETRIX CORPORATION
Date: November 12, 1999
By: /s/ Steven T. Francesco
-----------------------------------------
Steven T. Francesco
Chief Executive Officer and
Chairman of the Board of Directors
By: /s/ Lynn C. Chapman
-----------------------------------------
Lynn C. Chapman
President and Chief Operating Officer
By: /s/ Peter J. Kendrick
-----------------------------------------
Peter J. Kendrick
Vice President Finance and
Administration and Chief Financial
Officer (Principal Financial Officer)
21
<PAGE>
(a) Exhibit Index:
-------------
The exhibits listed below have been filed as part of this report.
3.1 Amended and restated certificate of incorporation
(incorporated by reference to Exhibit 3.1 to Netrix's
registration statement on Form S-1 filed on September 18,
1992, as amended (File No. 33-50464) (the "1992 S-1").
3.2 Amendment to Certificate of Incorporation dated August 26,
1999 (incorporated by reference to Exhibit 4.8 to Netrix's
registration statement on Form S-3, filed on June 16, 1999,
as amended (File No. 333-81109) (the "1999 S-3")).
3.3 Amended and restated by-laws of Netrix (incorporated into
this registration statement by reference to Exhibit 3.2 of
the 1992 S-1).
4.1 Specimen certificate of common stock of the registrant
(incorporated by reference to Exhibit 4.2 to the 1992 S-1).
4.2 Certificate of designations for the form of Series A 8%
convertible preferred stock (incorporated by reference to
Exhibit 4.4 to the 1999 S-3).
4.3 Supplemental certificate of designations for the form of
Series A 8% convertible preferred stock (incorporated by
reference to Exhibit 4.2 to Netrix's quarterly report on
Form 10-Q filed on August 16, 1999, Commission File No.
0-50464).
4.4 Form of Warrant issued to Renwick Securities, Inc.
(incorporated by reference to Exhibit 10.3 to Netrix's
quarterly report on Form 10-Q filed on August 16, 1999,
Commission File No. 0-50464).
4.5 Form of Warrant issued to Coast Business Credit
(incorporated by reference to Exhibit 10.2 to Netrix's
quarterly report on Form 10-Q filed on August 16, 1999,
Commission File No. 0-50464).
4.6 Form of Warrant issued to Kaufman Bros., L.P.
10.1 Loan and Security Agreement dated November 18, 1997 with
Coast Business Credit, a division of Southern Pacific Bank
(incorporated by reference to Exhibit 10.8 to Netrix's
annual report on Form 10-K filed on March 31, 1998,
Commission File No. 0-50464).
10.2 Amendment to Loan an Security Agreement dated April 19, 1999
with Coast Business Credit, a division of Southern Pacific
Bank (incorporated by reference to Exhibit 10.3 to Netrix's
quarterly report on Form 10-Q filed on August 16, 1999,
Commission File No. 0-50464).
10.3 Agreement and Plan of Merger dated September 30, 1999
between Netrix Corporation and OpenROUTE Networks, Inc.
(incorporated by reference to Exhibit 2.1 to Netrix's
current report on Form 8-K filed on October 14, 1999,
Commission File No. 0-50464).
10.4 Amendment to Agreement and Plan of Merger between Netrix
Corporation and OpenROUTE Networks, Inc. dated November 9,
1999.
10.5* Employment Agreement with Steven Francesco dated March 3,
1999.
10.6* Employment Agreement with Peter Kendrick dated August 3,
1999.
10.7* Form of Retention Agreement with Executive Officers.
10.8 Manufacturing Agreement dated September 1999 with SMTC
Centre S.E., Inc.
10.9* Long Term Incentive Plan, as amended.
10.10* Amended and Restated Incentive Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.1 of the Annual
Report of Form 10-K for the fiscal year ended December 31,
1995 (the "1995 10-K").
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10.11* 1992 Employee Stock Purchase Plan (incorporated by reference
to Exhibit 10.2 of the 1995 10-K).
10.12* 1992 Directors Stock Option Plan (incorporated by reference
to Exhibit 10.3 of the 1995 10-K).
10.13* 1996 Stock Option Plan (incorporated by reference to Exhibit
10.4 of the 1995 10-K).
10.14 Office Sublease, dated September 30, 1999 between Netrix and
Scoreboard, Inc.
--------------------------------
* This exhibit is a compensatory plan or arrangement in which
executive officers or directors of the Registrant participate.
+ Portions of this exhibit have been omitted subject to a pending
confidential treatment request.
23
THIS WARRANT AND THE SHARES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED
WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT
OF 1933 ("ACT"), AND THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT.
STOCK PURCHASE WARRANT
RIGHT TO PURCHASE COMMON STOCK
OF
NETRIX CORPORATION
EXPIRING AUGUST 20, 2004
NO. KB-1 100,000 SHARES
THIS CERTIFIES THAT Kaufman Bros., L.P. or its registered and permitted assigns
(collectively, "Holder") is entitled to purchase, on or before August 20, 2004
(the "Expiration Date"), 100,000 shares of the common stock ("Common Stock") of
Netrix Corporation (the "Corporation" or "Company") upon exercise of this
Warrant along with presentation of the full purchase price as provided herein.
The purchase price of the Common Sock issuable upon exercise of this Warrant
("Warrant Shares") is equal to three U.S. Dollars ($3.00) per share (the
"Exercise Price").
1. EXERCISE OF WARRANT.
(a) CASH EXERCISE. This Warrant may be exercised in whole or in part during
normal business hours on any business day on or before the Expiration Date by
(i) the presentation and surrender of this Warrant to the Company at its
principal office along with a duly executed Exercise Request specifying the
number of Warrant Shares to be purchased, and (ii) delivery of the Exercise
Price in lawful money of the United States of America to the Company for the
account of the Company by cash, wire transfer or immediately available funds to
a bank account specified by the Company, or by certified or bank cashier's
check, of the Current Warrant Price for the number of Warrant Shares specified
in the Exercise Request. Upon receipt by the Company of this Warrant and an
Exercise Request and representations, together with proper payment of the
Exercise Price, at such office, the Company agrees that such Warrant Shares
shall be deemed to be issued to the Holder as the record holder of such Warrant
Shares as of the close of business on the date on which this Warrant has been
surrendered and payment has been made for such Warrant Shares in accordance with
this Agreement and the Holder shall be deemed to be the holder of record of the
Warrant Shares, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such Warrant Shares shall
not then be actually delivered to the Holder. A stock certificate or
certificates for the Warrant Shares specified in the Exercise Request shall be
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delivered to the Holder as promptly as practicable, and in any event within
seven (7) business days, thereafter. The stock certificate(s) so delivered shall
be in any such denominations as may be reasonably specified by the Holder in the
Exercise Form. The Company shall pay any and all transfer agent fees,
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of the Warrant Shares.
(b) CASHLESS EXERCISE.
(i) This Warrant may be exercised in whole or in part by the Holder during
normal business hours on any business day on or before the Expiration Date by
the presentation and surrender of this Warrant to the Company at its principal
office along with a duly executed Exercise Request specifying the number of
Warrant Shares to be applied to such exercise. Upon receipt by the Company of
this Warrant and an Exercise Request, at such office, the Company agrees that
such Warrant Shares shall be deemed to be issued to the Holder as the record
holder of such Warrant Shares as of the close of business on the date on which
this Warrant has been surrendered and the Holder shall be deemed to be the
holder of record of the Warrant Shares, notwithstanding that the stock transfer
books of the Company shall then be closed or that certificates representing such
Warrant Shares shall not then be actually delivered to the Holder. A stock
certificate or certificates for the Warrant Shares specified in the Exercise
Request shall be delivered to the Holder as promptly as practicable, and in any
event within seven (7) Business Days, thereafter. The stock certificate(s) so
delivered shall be in any such denominations as may be reasonably specified by
the Holder in the Exercise Form. The Company shall pay any and all transfer
agent fees, documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of the Warrant Shares.
(ii) The number of Warrant Shares to be delivered upon exercise of this Warrant
pursuant to this Section 1(b) shall equal the value of this Warrant (or the
portion thereof being canceled) computed as of the date of delivery of this
Warrant to the Company using the following formula:
X = Y(A-B)
--------
A
Where:
X = the number of shares of Common Stock to be issued to
Holder under this Section 1(b);
Y = the number of Warrant Shares identified in the Notice
of Exercise as being applied to the subject exercise;
A = the Current Market Price on such date;
B = the Exercise Price on such date
For purposes of this Section 1(b)(ii), Current Market Price of one share of the
Common Stock shall mean: the per share fair market value of the Common Stock (x)
determined by the average of the daily "market prices" over a period of 10
consecutive business days before such date or (y) if and so long as there is no
exchange or over-the-counter market for the Common Stock of the Company, the
price per share established in good faith by the Board of Directors of the
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Company. The market price referred to in clause (x) above for each such business
day shall be: (A) the last sale price on such day on the principal securities
exchange on which the Common Stock is then listed or admitted to trading (or, if
no sale takes place on such day on any such exchange, the average of the closing
bid and asked prices on such day as officially quoted on any such exchange), or
(B) if the Common Stock is not then listed or admitted on any stock exchange,
the market price for each such business day shall be the last sale price on such
day (or, if no sale takes place on such day, the average of the closing bid and
asked prices on such day in the over-the-counter market), in either case as
reported through Nasdaq, (or, if such prices are not at the time so reported, as
furnished by any member of the National Association of Securities Dealers, Inc.
selected by the Company).
(c) WARRANT SHARES TO BE FULLY PAID AND NONASSESSABLE. All shares of Common
Stock issued upon the exercise of this Warrant shall be validly issued, fully
paid and nonassessable and, if the Common Stock is then listed on a securities
exchange, shall be duly listed thereon.
(d) PARTIAL EXERCISE; FRACTIONAL SHARES. If this Warrant shall have been
exercised only in part, the Company shall, at the time of delivery of the stock
certificate(s), deliver to the Holder a new Warrant evidencing the rights to
purchase the remaining Warrant Shares, which new Warrant shall in all other
respects be identical with this Warrant. The Company shall not be required upon
any exercise of this Warrant to issue a certificate representing any fraction of
a share of Common Stock, but, in lieu thereof, shall pay to the holder of this
Warrant cash in an amount equal to a corresponding fraction (calculated to the
nearest 1/100 of a share) of the Current Market Price of one share of Common
Stock as of the date of receipt by the Company of notice of exercise of this
Warrant.
(e) ACKNOWLEDGMENT OF CONTINUING OBLIGATION. The Company will, at the time of
any exercise of this Warrant in whole or in part, upon request of the holder
hereof, acknowledge in writing its then continuing obligation to such holder in
respect of any rights pursuant to this Warrant (including, without limitation,
any right to registration, if any, of the shares of Common Stock issued upon
such exercise) to which such holder shall continue to be entitled after such
exercise in accordance with this Warrant; PROVIDED, HOWEVER, that the failure of
such holder to make any such request shall not affect the continuing obligation
of the Company to such holder in respect of such rights.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES DELIVERABLE UPON EXERCISE
OF WARRANT.
The Exercise Price and the number of Shares purchasable upon the exercise of
this Warrant are subject to adjustment from time to time upon the occurrence of
the events enumerated in this paragraph.
(a) In case the Corporation shall at any time after the date of this Warrant:
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<PAGE>
(i) pay a dividend of its shares of its Common Stock or make a
distribution in shares, or rights or warrants to purchase
shares of its Common Stock with respect to its outstanding
Common Stock;
(ii) subdivide its outstanding shares of Common Stock;
(iii) combine its outstanding shares of Common Stock; or
(iv) issue any other shares of capital stock by reclassification
of its shares of Common Stock, then
the Exercise Price in effect and the number of Warrant Shares purchasable at the
time of the record date of such dividend, subdivision, combination, or
reclassification shall be proportionately adjusted so that Holder shall be
entitled to receive the aggregate number and kind of shares which, if this
Warrant had been exercised prior to such event, Holder would have owned upon
such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination, or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case of any reorganization of the Corporation, or in case of any
reclassification or change of outstanding Common Stock issuable upon exercise of
this Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
split-up or combination of the Common Stock), or in case of any consolidation or
merger of the Company with or into another entity (other than a consolidation or
merger with a subsidiary or a continuing corporation), or in case of any sale or
conveyance to another entity of all or substantially all of the property of the
Corporation, then, as a condition of such reorganization, reclassification,
change, consolidation, merger, sale, or conveyance, the Corporation or such
successor or purchasing entity, as the case may be, shall forthwith provide to
Holder a supplemental warrant (the "Supplement Warrant") which will make lawful
and adequate provision whereby Holder shall have the right thereafter to
receive, upon exercise of such Supplemental Warrant, the kind and amount of
shares and other securities and property which would have been received upon
such reorganization, reclassification, change, consolidation, merger, sale, or
conveyance by a holder of a number of shares of Common Stock equal to the number
of Shares issuable upon exercise of this Warrant immediately prior to such
reorganization, reclassification, change, consolidation, merger, sale, or
conveyance. Such Supplemental Warrant shall include provisions for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this paragraph. The above provisions of this paragraph shall
similarly apply to successive consolidations, mergers, sales, or conveyances.
3. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
(a) RESTRICTIONS ON EXERCISE AND TRANSFER. The holder of this Warrant, as of
the date of issuance hereof, represents to the Company that it is acquiring the
Warrants for its own account for investment purposes and not with a view to the
distribution thereof or of the Warrant Shares. Notwithstanding any provisions
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<PAGE>
contained in this Warrant to the contrary, this Warrant and the related Warrant
Shares shall not be transferable except pursuant to the proviso contained in the
following sentence or upon the conditions specified in this Section 3, which
conditions are intended, among other things, to insure compliance with the
provisions of the Securities Act of 1933 (the "Securities Act") and applicable
state law in respect of the transfer of this Warrant or such Warrant Shares. The
holder of this Warrant, by its acceptance hereof, agrees that it will not
transfer this Warrant or the related Warrant Shares prior to delivery to the
Company of an opinion of such holder's counsel (as such opinion and such counsel
are described in Section 3(b) hereof) or until registration of such Warrant
Shares under the Securities Act has become effective or after a sale of such
Warrant or Warrant Shares has been consummated pursuant to Rule 144 or Rule 144A
under the Securities Act; PROVIDED, HOWEVER, that such holder may freely
transfer this Warrant or such Warrant Shares (without delivery to the Company or
opinion of Counsel) (w) to one of its nominees, affiliates or a nominee thereof,
(x) to a pension or profit-sharing fund established and maintained for its
employees or for the employees of any affiliate, (y) from a nominee to any of
the aforementioned persons as beneficial owner of this Warrant or such Warrant
Shares, or (z) to a qualified institutional buyer, so long as such transfer is
effected in compliance with Rule 144A under the Securities Act.
(b) NOTICE OF INTENTION TO TRANSFER; OPINION OF COUNSEL. The Holder, by its
acceptance hereof, agrees that prior to any transfer of this Warrant or of the
related Warrant Shares (other than as permitted by Section 3(a) hereof or
pursuant to a registration under the Securities Act), the Holder will give
written notice to the Company of its intention to effect such transfer, together
with an opinion of such counsel for the Holder as shall be reasonably acceptable
to the Company, to the effect that the proposed transfer of this Warrant and/or
such Warrant Shares may be effected without registration under the Securities
Act. Upon delivery of such notice and opinion to the Company, the Holder shall
be entitled to transfer this Warrant and/or such Warrant Shares in accordance
with the intended method of disposition specified in the notice to the Company.
(c) LEGEND. Each stock certificate representing Warrant Shares issued upon
exercise or exchange of this Warrant shall bear the following legend unless the
opinion of counsel referred to in Section 3(b) states such legend is not
required:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY NOT BE TRANSFERRED EXCEPT UPON DELIVERY TO THE
CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY IN
FORM AND SUBSTANCE TO IT THAT SUCH TRANSFER WILL NOT
VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED."
The Holder understands that the Company may place, and may instruct any
transfer agent or depository for the Shares to place, a stop transfer notation
in the securities records in respect of the Shares.
(d) PIGGYBACK REGISTRATIONS.
5
<PAGE>
(1) If the Company at any time prior to September 30, 2001, proposes to
register any of its equity securities (as defined in the Securities Act), other
than securities which are convertible into shares of Common Stock, under the
Securities Act on Forms S-1, S-2 or S-3 (but not Form S-4 or S-8 or any
substantially similar form of limited scope) or on any other form upon which may
be registered securities similar to the Warrant Shares, it will at each such
time give written notice at least 30 days prior to the filing of the
registration statement to all Holders of its intention so to do. Such notice
shall specify the proposed date of the filing of the registration statement and
advise each Holder of its right to participate therein. Upon the written request
of any Holder given prior to the proposed date of filing set forth in such
notice, the Company will cause each Warrant Share not otherwise covered under an
effective registration statement that such Holder has requested the Company to
register to be registered under the Securities Act, all to the extent requisite
to permit the sale or other disposition of such Warrant Shares by such Holder.
(2) If, in the written opinion of the underwriter or underwriters
managing the public offering which is the subject of a registration pursuant to
Section 3(d)(1) (or in the event that such distribution shall not be
underwritten, in the written opinion of an investment banking firm of recognized
standing satisfactory to the Holders), the total amount of the securities to be
so registered, when added to the total amount of Warrant Shares which the
Holders have requested to be registered pursuant to Section 3(d)(1), will exceed
the maximum amount of securities of the Company which can be marketed (i) at a
price reasonably related to their then-current market value, or (ii) without
otherwise materially and adversely affecting the entire offering, then the
Company shall have the right to exclude from such registration such number of
Warrant Shares which it would otherwise be required to register pursuant to
Section 3(d)(1) as is necessary to reduce the total amount of securities to be
so registered to the maximum amount of securities which can be so marketed;
PROVIDED, HOWEVER, that if the securities (other than the Warrant Shares) to be
so registered for sale are to be offered for the account of the Company and
others, the Company may only exclude Warrant Shares pro rata with the securities
held by such other persons (it being agreed that in the case where such
registration is to be effected as a result of the exercise by a holder of the
Company's securities of such holder's right to cause such securities to be so
registered, such pro rata exclusion shall include the Company, but shall not
include such holder exercising its right to have the securities so registered).
(e) COMPANY'S OBLIGATIONS IN REGISTRATION. If and whenever the Company is
obligated by the provisions of this Section 3(d) to effect the registration of
any Warrant Shares under the Securities Act, the Company will keep the Holder
advised in writing as to the initiation of each registration and will use its
best efforts to:
(1) cause such registration statement to remain effective during the
period required for the distribution of the securities covered by the
registration statement (the "Effectiveness Period"); PROVIDED, HOWEVER, that in
the event that the Warrant Shares covered by such registration statement are not
to be sold to or through underwriters acting for the Company, the Company shall
not be required to keep such registration statement in effect, or prepare and
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<PAGE>
file any amendments or supplements thereto, after the expiration of two years
following the date of this Warrant, SUBJECT, HOWEVER to the following
restrictions:
(A) If, at any time prior to the expiration of the
Effectiveness Period, counsel to the Company (which counsel shall be experienced
in securities laws matters) has determined in good faith that it is reasonable
to conclude that the filing of a registration statement or the compliance by the
Company with its disclosure obligations in connection with such registration
statement may require the disclosure of information which the Board of Directors
of the Company has identified as material and which the Board of Directors has
determined that the Company has a bona fide business purpose for preserving as
confidential, then the Company may delay the filing or the effectiveness of such
registration statement (if not then filed or effective, as applicable) and shall
not be required to maintain the effectiveness thereof or amend or supplement
such registration statement for a period (an "Information Delay Period")
expiring three business days after the earlier to occur of (A) the date on which
such material information is disclosed to the public or ceases to be material or
the Company is able to so comply with its disclosure obligations and Commission
requirements or (B) 45 days after the Company notifies the Holders of such good
faith determination. There shall not be more than four Information Delay Periods
during the Effectiveness Period, and there shall not be two Information Delay
Periods during any contiguous 135 day period.
(B) If, at any time prior to the expiration of the
Effectiveness Period, the Company is advised by a nationally recognized
investment banking firm selected by the Company that, in such firm's written
reasonable opinion addressed to the Company, sales of Common Stock pursuant to a
registration statement at such time would materially adversely affect any
immediately planned underwritten public equity financing by the Company of at
least $5 million, the Company shall not be required to maintain the
effectiveness of such registration statement or amend or supplement such
registration statement for a period (a "Transaction Delay Period") commencing on
the date of pricing of such equity financing and expiring three business days
after the earliest to occur of (i) the abandonment of such financing or (ii) 90
days after the completion of such financing. There shall not be more than two
Transaction Delay Periods during the Effectiveness Period.
A Transaction Delay Period and an Information Delay Period are
hereinafter collectively referred to as "Delay Periods" or a "Delay Period." The
Company will give prompt written notice, in the manner prescribed by Section 6
hereof, to each Holder of each Delay Period. Such notice shall be given (i) in
the case of a Transaction Delay Period, at least 20 days in advance of the
commencement of such Delay Period and (ii) in the case of an Information Delay
Period, as soon as practicable after the Board of Directors makes the
determination referenced in Section 3(e)(1)(A). Such notice shall state to the
extent, if any, as is practicable, an estimate of the duration of such Delay
Period. Each Holder agrees that (i) upon receipt of such notice of an
Information Delay Period it will forthwith discontinue disposition of any
restricted securities of the Company pursuant to the registration statement,
(ii) upon receipt of such notice of a Transaction Delay Period it will forthwith
discontinue disposition of the Common Stock pursuant to the registration
statement and (iii) in either such case, will not deliver any prospectus forming
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a part of the registration statement in connection with any sale of restricted
securities or Common Stock, as applicable until the expiration of such Delay
Period.
(2) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement; PROVIDED, HOWEVER, that in any event, the Company's
obligations under this Section 3(e)(2) shall terminate two years after the
effective date of this Agreement;
(3) furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as the
Holder from time to time may reasonably request;
(4) notify the Holder at any time when a prospectus relating thereto
is required to be delivered under the Securities Act of the happening of any
event which would cause the prospectus included in such registration statement,
as then in effect, to include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or otherwise necessary to
make the statements therein not misleading or incomplete in the light of the
circumstances then existing, and prepare and furnish to the Holder a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such shares,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing;
(5) provide a transfer agent and registrar for all Warrant Shares
registered pursuant to such registration statement and a CUSIP number for all
such Warrant Shares, in each case not later than the effective date of such
registration;
(6) use its reasonable efforts to register or qualify the Warrant
Shares covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as the Holders for whom such Warrant Shares
are registered or are to be registered shall reasonably request, and do any and
all other reasonable acts and things to so register or qualify which may be
necessary or advisable to enable such Holders to consummate the disposition in
such jurisdictions of such Warrant Shares, PROVIDED, HOWEVER, that the Company
shall not be required to provide a general consent to service of process or
qualify as a foreign corporation in any jurisdiction solely by reason of this
Section 3;
In connection with any underwritten offering effected pursuant to this Section
3, the Company will enter into an underwriting agreement reasonably necessary to
effect the offer and sale of Common Stock, provided such underwriting agreement
contains customary underwriting provisions and provided further that if the
underwriter so requests, the underwriting agreement will contain customary
indemnification and contribution provisions. To the extent reasonably necessary
to effect the offer and sale of Common Stock in connection with any underwritten
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<PAGE>
offering in which it is participating, the Holder will agree to consent to and
where applicable, be subject to the terms and conditions of such underwriting
agreement.
(f) PAYMENT OF REGISTRATION EXPENSES. The costs and expenses of all
registrations under the Securities Act and of all other actions which the
Company is required to take or effect pursuant Section 3(d) or 3(e) shall be
paid by the Company (including, without limitation, all registration,
qualification and filing fees, printing expenses, expenses of distributing
prospectuses and other documents, fees and disbursements of counsel and
accountants for the Company, and expenses of any special audits incident to or
required in connection with any such registration hereof, but excluding the fees
and disbursements of special counsel for the Holders, any consultants retained
by the Holders and underwriters' or brokers' discounts or commissions applicable
to the Warrant Shares).
(g) INFORMATION FROM HOLDERS. Notices and requests delivered by Holders to the
Company pursuant to this Section 3 shall contain such information regarding the
Warrant Shares and the intended method of disposition thereof as shall
reasonably be required in connection with the Securities Action to be taken. To
the extent that any Holder fails to provide such information to the Company with
respect to any of such Holder's Warrant Shares, the Company shall be relieved of
its obligation to maintain registration of such Warrant Shares until the such
Holder has provided the Company with the required information and the Company
has had a reasonable time thereafter (but in no event more than 10 calendar
days) in which to incorporate such information into its registration materials.
(h) COMPANY'S INDEMNIFICATION. In the event of any registration under the
Securities Act of any Warrant Shares pursuant to this Section 3, the Company
hereby agrees to indemnify and hold harmless each Holder disposing of such
Warrant Shares and each other person, if any, who controls such Holder within
the meaning of Section 15 of the Securities Act, as well as each other person
(including underwriters) who participates in the offering of such Warrant Shares
against any losses, claims, damages or liabilities, joint or several, to which
such Holder or controlling person or participating person may become subject
under the Securities Act or otherwise, in so far as such losses, claims, damages
or liabilities (or proceedings in respect thereof): (a) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof: (i) in any registration statement
under which such Warrant Shares were registered under the Securities Act, (ii)
in any preliminary prospectus or final prospectus contained therein, or (iii) in
any amendment or supplement thereto, or (b) arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse such Holder and each such controlling person or participating
person for any legal or any other expenses incurred by such Holder or such
controlling person or participating person in connection with investigating or
defending any such loss, claim, damage, liability or proceeding; PROVIDED,
HOWEVER, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon (a) an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, said preliminary or final prospectus or
said amendment or supplement in reliance upon and in conformity with written
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information furnished to the Company by an instrument duly executed by such
Holder or such controlling or participating person, as the case may be,
specifically for use in the preparation thereof or (b) an untrue statement or
alleged untrue statement, omission or alleged omission in a prospectus, if such
untrue statement or alleged untrue statement, omission or alleged omission is
corrected in an amendment or supplement to the prospectus which amendment or
supplement is delivered to such Holder and such Holder thereafter fails to
deliver such prospectus as so amended or supplemented prior to or concurrently
with such Holder's sale of Warrant Shares to the person asserting such loss,
claim, damage, liability or expense.
(i) HOLDER'S INDEMNIFICATION. It shall be a condition of the Company's
obligation under this Section 3 to effect any registration under the Securities
Act that there shall have been delivered to the Company an agreement or
agreements duly executed by each Holder for whom Warrant Shares are to be so
registered, whereby such Holder agrees to indemnify and hold harmless the
Company, each other person referred to in Section 11(a) or Section 15 of the
Securities Act in respect of such registration statement and each other person,
if any, which controls the Company within the meaning of the Securities Act
against any losses, claims, damages or liabilities, joint or several, to which
the Company or its controlling person may become subject under the Securities
Act or otherwise, in so far as such losses, claims, damages or liabilities (or
proceedings in respect thereof): (a) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained, on the
effective date thereof: (i) in any registration statement under which such
Warrant Shares were registered under the Securities Act, (ii) in any preliminary
prospectus or final prospectus contained therein, or (iii) in any amendment or
supplement thereto, or (b) arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; and will reimburse
the Company and each such controlling person for any legal or any other expenses
incurred by the Company or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
proceeding, PROVIDED, HOWEVER, that such Holder shall be liable to the Company
only to the extent that such losses, claims, damages or liabilities (or
proceeding in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained, on the
effective date thereof, in any registration statement under which such Warrant
Shares were registered under the Securities Act, in any preliminary prospectus
or final prospectus contained therein or in any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, which, in each such case, has been made in or
omitted from such registration statement, said preliminary or final prospectus
or said amendment or supplement in reliance upon, and in conformity with,
written information furnished to the Company by an instrument duly executed by
such Holder specifically for use in the preparation thereof. The Company shall
be entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above, with respect to information
with respect to such persons so furnished in writing by such persons
specifically for inclusion in any prospectus or registration statement.
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<PAGE>
(j) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person entitled to
indemnification hereunder will (a) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (b) unless, in such indemnified party's reasonable judgment, a conflict of
interest may exist between such indemnified and indemnifying parties with
respect to such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party;
PROVIDED, HOWEVER, that the failure of an indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under this Section 3(j) with respect to such indemnified party, except to the
extent that the indemnifying party is actually prejudiced by such failure.
Whether or not such defense is assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). No
indemnifying party will consent to the entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. An indemnifying party who is
not entitled to, or elects not to, assume the defense of the claim against the
indemnified party, will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and any
other such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
If for any reason the indemnification provided for in the preceding Sections
3(h) and 3(i) hereof is unavailable to an indemnified party as contemplated
thereby, the indemnifying party shall contribute to the amount paid or payable
by the indemnified party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect not only the relative benefits
received by the indemnified party and the indemnifying party, but also the
relative fault of the indemnified party and the indemnifying party, as well as
any other relevant equitable considerations. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of
fraudulent misrepresentation.
(k) UNDERWRITING AGREEMENT INDEMNIFICATION PROVISIONS. Notwithstanding the
provisions of Sections 3(h), 3(i) and 3(j) hereof, if an underwriting agreement
executed by the Company pursuant to Section 3(e) hereof shall contain
indemnification, contribution and related procedural provisions in a form
customary to the underwriter which are substantially to the same effect as the
provisions provided for in Sections 3(h), 3(i) and 3(j) hereof, such customary
indemnification provisions shall be incorporated in such underwriting agreement
in lieu of those provided for in Sections 3(h), 3(i) and 3(j) hereof.
(l) PUBLIC INFORMATION. The Company covenants and agrees that if and so long as
the Common Stock shall be registered under Section 12 of the Exchange Act, at
any time when any Holder so entitled desires to make sales of any Warrant Shares
in reliance on Rule 144 or Rule 144A under the Securities Act either (i) there
will be available adequate current public information with respect to the
Company as required by said Rules, or (ii) if such information is not available
11
<PAGE>
the Company will use its best efforts to make such information available without
delay. Without limiting the foregoing, after the time of any such registration
the Company will timely file with the Commission all reports required to be
filed under Sections 13 and 15(d) of the Exchange Act and will promptly furnish
to any Holder so requesting a written statement that the Company has complied
with all such reporting requirements.
(m) NO CONFLICTING REGISTRATION RIGHTS. The Company covenants and agrees that
if and so long as any Warrants or any Warrant Shares shall remain outstanding
and the holders thereof shall have any rights under this Section 3, it will not
enter into any agreement with any person creating any rights with respect to any
shares of Common Stock or any other security in conflict with or inconsistent
with any rights retained by any holder of Warrants or Warrant Shares pursuant to
this Section 3.
4. LOSS OF WARRANT.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnification satisfactory to the Company, and upon surrender
of this Warrant, if mutilated, the Company shall execute and deliver a new
Warrant of like tenor and date.
5. RESERVATION OF SHARES.
The Company hereby agrees that at all times there shall be reserved for issuance
and delivery upon exercise or exchange of this Warrant all shares of its Common
Stock or other shares of capital stock of the Company from time to time issuable
upon exercise or exchange of this Warrant. All such shares shall be duly
authorized and, when issued upon the exercise or exchange of the Warrant in
accordance with the terms hereof, shall be validly issued, fully paid and
nonassessable, free and clear of all liens, security interests, charges and
other encumbrances or restrictions on sale (other than as provided in the
Company's articles of incorporation and any restrictions on sale set forth
herein or pursuant to applicable federal and state securities laws) and free and
clear of all preemptive rights.
6. NOTICES TO WARRANT HOLDERS. NO SHAREHOLDER RIGHTS.
So long as this Warrant shall be outstanding, (i) if the Company shall pay any
dividend or make any distribution upon the Common Stock or (ii) if the Company
shall offer to the holders of Common Stock for subscription or purchase by them
any share of any class or any other rights or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the property
and assets of the Company to another corporation, or voluntary or involuntary
dissolution, liquidation or winding up of the Company shall be effected, then in
any such case, the Company shall cause to be mailed by certified mail to the
Holder, at least fifteen days prior the date, as the case may be, a notice
containing a brief description of the proposed action and stating the date on
which such action is to take place and the date, if any is to be fixed, as of
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<PAGE>
which the holders of Common Stock or other securities shall receive cash or
other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
Nothing in this Warrant shall be construed as conferring upon the Holder or its
transferees any rights as a stockholder in the Company, including the right to
vote, receive dividends, consent or receive notices as a stockholder in respect
to any meeting of stockholders.
7. ARBITRATION.
In the event that a dispute arises between the Corporation and the Holder of
this Warrant as to any matte relating to this Warrant, the matter shall be
settled by arbitration in New York, NY in accordance with the Rules of the
American Arbitration Association and the award rendered by such arbitrator(s)
shall not be subject to appeal and may be entered in any federal or state court
located in New York having jurisdiction thereof, and actions or proceedings
shall be brought in no other forum or venue.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed by
its duly authorized officers effective this ___ day of _______, 1999.
Netrix Corporation
By: __________________________________
By: __________________________________
Corporate Secretary
ACKNOWLEDGMENT OF REPRESENTATION:
_________________________________
Warrant Holder
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<PAGE>
EXHIBIT A
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
|_| herewith tenders payment for _______ of the Warrant
Shares to the order of Netrix Corporation in the
amount of $_________ in accordance with the terms of
Section 1(a) of this Warrant, or
|_| herewith tenders this Warrant for _______ Warrant
Shares pursuant to the Net Issue Exercise provisions
of Section 1(b) of this Warrant.
The undersigned requests that a certificate (or certificates) for such Warrant
Shares be registered in the name of the undersigned and that such certificate
(or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: ___________________.
Signature: ___________________________________
___________________________________
(Print Name)
___________________________________
(Street Address)
___________________________________
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
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<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ______________________ the rights represented by the foregoing Warrant of
Netrix Corporation and appoints _____________________________ attorney to
transfer said rights on the books of said corporation, with full power of
substitution in the premises.
______________________________________
Signature Guaranteed:
Dated:
15
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "AGREEMENT") dated as of September 30,
1999, by and between NETRIX CORPORATION, a Delaware corporation ("ACQUIROR"),
and OPENROUTE NETWORKS, INC., a Massachusetts corporation (the "COMPANY").
Acquiror and the Company are referred to collectively herein as the "PARTIES."
WITNESSETH:
WHEREAS, this Agreement contemplates a transaction in which Acquiror will
acquire all of the outstanding capital stock of the Company through a merger of
the Company with and into Acquiror (the "MERGER");
WHEREAS, the Board of Directors of each of Acquiror and the Company has
approved the acquisition of the Company by Acquiror, including the Merger, upon
the terms and subject to the conditions set forth herein;
WHEREAS, the Board of Directors of the Company has determined that the
Merger is advisable and is fair to and in the best interests of the holders of
the Company's common stock, par value $.01 per share (the "COMPANY Shares"), and
has resolved to recommend the approval of the Merger and the adoption of this
Agreement by the Company Stockholders (as defined in ss.1 below);
WHEREAS, the Board of Directors of Acquiror has determined that the Merger
is advisable and is fair to and in the best interests of the holders of
Acquiror's common stock, par value $0.01 per share (the "ACQUIROR Shares"), and
has resolved to recommend the approval of the Merger and the adoption of this
Agreement by the Acquiror Stockholders (as defined in ss.1 below);
WHEREAS, the Acquiror Shares are listed for trading on the Nasdaq National
Market ("NASDAQ") and the Board of Directors of Acquiror has resolved to
recommend the approval by the Acquiror Stockholders of (i) the issuance of
Acquiror Shares in connection with the Merger as provided in this Agreement as
required by the Rules of Nasdaq and (ii) an amendment to the certificate of
incorporation of Acquiror to increase the authorized number of Acquiror Shares;
and
WHEREAS, this Agreement contemplates that for U.S. Federal income tax
purposes the Merger will qualify as a reorganization within the meaning of Code
ss.368(a).
NOW, THEREFORE, in consideration of the premises and the mutual
promises set forth herein, and in consideration of the representations,
warranties and covenants set forth herein, the Parties agree as follows:
<PAGE>
1. DEFINITIONS.
"ACQUIROR" has the meaning set forth in the preambles.
"ACQUIROR 10-K" has the meaning set forth in ss.4(h) below.
"ACQUIROR 10-Q" has the meaning set forth in ss.4(h) below.
"ACQUIROR ACQUISITION PROPOSAL" means any proposal or offer
(including, without limitation, any proposal or offer to Acquiror Stockholders)
with respect to a merger, acquisition, consolidation, recapitalization,
reorganization, liquidation, tender offer or exchange offer or similar
transaction involving, or any purchase of 25% or more of the consolidated assets
of, or any equity interest representing 25% or more of the outstanding shares of
capital stock in, Acquiror.
"ACQUIROR BENEFIT PLAN" and "ACQUIROR BENEFIT PLANS" have the
respective meanings set forth in ss.4(o)(i) below.
"ACQUIROR BOARD" means the board of directors of Acquiror.
"ACQUIROR CONTRACTS" has the meaning set forth in ss.4(t) below.
"ACQUIROR DISCLOSURE LETTER" has the meaning set forth in ss.4(a)
below.
"ACQUIROR EMPLOYEES" has the meaning set forth in ss.4(o)(i) below.
"ACQUIROR ERISA AFFILIATE" has the meaning set forth in
ss.4(o)(iii) below.
"ACQUIROR FAIRNESS OPINION" means an opinion of Kaufman Brothers,
L.P., addressed to the Acquiror Board, as to the fairness of the Merger to
Acquiror from a financial point of view.
"ACQUIROR INTELLECTUAL PROPERTY" has the meaning set forth in
ss.4(r) below.
"ACQUIROR MATERIAL ADVERSE EFFECT" has the meaning set forth in
ss.4(a) below.
"ACQUIROR PENSION PLAN" has the meaning set forth in ss.4(o)(ii)
below.
"ACQUIROR REPORTS" has the meaning set forth in ss.4(g) below.
"ACQUIROR SHARES" has the meaning set forth in the preambles.
"ACQUIROR SPECIAL MEETING" has the meaning set forth in ss.5(c)(ii)
below.
"ACQUIROR STOCKHOLDER" means any Person who or which holds any
Acquiror Shares.
"ACQUIROR SUPERIOR PROPOSAL" has the meaning set forth in
ss.5(i)(ii) below.
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<PAGE>
"ACQUIROR THIRD PARTY" means any Person (or group of Persons) other
than the Company or its respective Affiliates.
"ACQUISITION PROPOSAL" means any proposal or offer (including,
without limitation, any proposal or offer to the Company Stockholders) with
respect to a merger, acquisition, consolidation, recapitalization,
reorganization, liquidation, tender offer or exchange offer or similar
transaction involving, or any purchase of 25% or more of the consolidated assets
of, or any equity interest representing 25% or more of the outstanding shares of
capital stock in, the Company.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"AGREEMENT" has the meaning set forth in the preambles.
"BLUE SKY FILINGS" has the meaning set forth in ss.5(c)(i) below.
"CERTIFICATE OF MERGER" has the meaning set forth in ss.2(c) below.
"CLOSING" has the meaning set forth in ss.2(b) below.
"CLOSING DATE" has the meaning set forth in ss.2(b) below.
"CLOSING SALES PRICE" means with respect to an Acquiror Share or
Company Share, as the case may be, on any day, the average of the last reported
sale price of one such share on the Nasdaq Stock Market for each of the ten
trading days immediately preceding such day.
"CODE" has the meaning set forth in ss.3(o)(ii) below.
"COMPANY" has the meaning set forth in the preambles.
"COMPANY 10-K" has the meaning set forth in ss.3(h) below.
"COMPANY 10-Q" has the meaning set forth in ss.3(h) below.
"COMPANY BENEFIT PLAN" and "COMPANY BENEFIT PLANS" have the meanings
set forth in ss.3(o)(i) below.
"COMPANY BOARD" means the board of directors of the Company.
"COMPANY CONTRACTS" has the meaning set forth in ss.3(u) below.
"COMPANY DISCLOSURE LETTER" has the meaning set forth in ss.3(a)
below.
"COMPANY EMPLOYEES" has the meaning set forth in ss.3(o)(i) below.
"COMPANY ERISA AFFILIATE" has the meaning set forth in ss.3(o)(iii)
below.
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<PAGE>
"COMPANY FAIRNESS OPINION" means an opinion of Tucker Anthony Cleary
Gull, addressed to the Company Board, as to the fairness of the Per Share Merger
Consideration to the Company Stockholders (other than Acquiror) from a financial
point of view.
"COMPANY INTELLECTUAL PROPERTY" has the meaning set forth in
ss.3(s) below.
"COMPANY MATERIAL ADVERSE EFFECT" has the meaning set forth in
ss.3(a) below.
"COMPANY PENSION PLAN" has the meaning set forth in ss.3(o)(ii)
below.
"COMPANY REPORTS" has the meaning set forth in ss.3(g) below.
"COMPANY SHARES" has the meaning set forth in the preambles.
"COMPANY SPECIAL MEETING" has the meaning set forth in ss.5(c)(ii)
below.
"COMPANY STOCKHOLDER" means any Person who or which holds any
Company Shares.
"CONFIDENTIALITY AGREEMENT" means the Mutual Non-Disclosure
Agreement dated August 11, 1999 between Acquiror and the Company, providing
that, among other things, each Party would maintain confidential certain
information of the other Party.
"CONFIDENTIAL INFORMATION" means Information, as defined in the
Confidentiality Agreement.
"DELAWARE GENERAL CORPORATION LAW" means Title 8, Chapter 1 of the
Delaware Code, as amended.
"DISSENTING HOLDER" has the meaning set forth in ss.2(d)(viii)
below.
"EFFECTIVE TIME" has the meaning set forth in ss.2(d)(i) below.
"ENVIRONMENTAL LAW" has the meaning set forth in ss.3(r) below.
"ERISA" has the meaning set forth in ss.3(o)(i) below.
"EXCHANGE AGENT" has the meaning set forth in ss.2(e)(i) below.
"EXCHANGE FUND" has the meaning set forth in ss.2(e)(i) below.
"FOREIGN COMPETITION LAWS" means foreign statutes, rules,
regulations, orders, decrees and administrative and judicial directives that are
designed or intended to prohibit, restrict or regulate actions having the
purpose or effect of monopolization, lessening of competition or restraint of
trade.
"GAAP" means United States generally accepted accounting principles
as in effect from time to time.
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<PAGE>
"GOVERNMENT ENTITY" has the meaning set forth in ss.3(f) below.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"HAZARDOUS SUBSTANCE" has the meaning set forth in ss.3(r) below.
"INDEMNIFIED PARTY" has the meaning set forth in ss.5(j)(ii) below.
"JOINT PROXY STATEMENT/PROSPECTUS" has the meaning set forth in
ss.5(c)(i) below.
"MASSACHUSETTS BUSINESS CORPORATION LAW" means Chapter 156B of the
General Laws of the Commonwealth of Massachusetts.
"MERGER" has the meaning set forth in the preambles.
"MERGER CONSIDERATION" has the meaning set forth in ss.5(d)(v)
below.
"NASDAQ" has the meaning set forth in the preambles.
"ORDER" has the meaning set forth in ss.6(a)(v) below.
"OUTSIDE DATE" has the meaning set forth in ss.7(a)(ii) below.
"PARTY" has the meaning set forth in the preambles.
"PERSON" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity (or any
department, agency or political subdivision thereof).
"PER SHARE MERGER CONSIDERATION" has the meaning set forth in
ss.2(d)(v) below.
"PRIOR CONSULTATION" means oral or written notice to the chief
executive officer of the Company at least two (2) business days prior to the
earlier of (x) taking the action or (y) committing to take the action with
respect to which Prior Consultation is necessary pursuant to ss.5(e) below and
subsequent to such notice making the chief executive officer of Acquiror
reasonably available to the chief executive officer of the Company to discuss
such action prior to taking such action.
"PROHIBITED ACQUIROR ACQUISITION PROPOSAL" has the meaning set
forth in ss.5(i)(i) below.
"REPRESENTATIVES" has the meaning set forth in ss.5(h)(i) below.
"REGISTRATION STATEMENT" has the meaning set forth in ss.5(c)(i)
below.
"REQUIRED ACQUIROR CONSENT" has the meaning set forth in ss.4(f)
below.
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<PAGE>
"REQUIRED COMPANY CONSENT" has the meaning set forth in ss.3(f)
below.
"REQUISITE STOCKHOLDER APPROVAL" means, with respect to the Company,
the affirmative vote of a majority of the holders of the outstanding Company
Shares in favor of the adoption of this Agreement in accordance with the
Massachusetts Business Corporation Law or, with respect to Acquiror, the
affirmative vote of a majority of the holders of the outstanding Acquiror Shares
in favor of (a) approval of the issuance of Acquiror Shares in connection with
the Merger as provided in this Agreement in accordance with the rules of Nasdaq
and (b) an amendment to Acquiror's certificate of incorporation to increase the
authorized capital stock of Acquiror in accordance with the Delaware General
Corporation Law.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge or other security interest, OTHER THAN (a) mechanic's, materialman's and
similar liens; (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings; (c)
purchase money liens and liens securing rental payments under capital lease
arrangements; and (d) other liens arising in the ordinary course of business and
not incurred in connection with the borrowing of money.
"STOCK RIGHTS" means each option, warrant, purchase right,
subscription right, conversion right, exchange right or other contract,
commitment or security providing for the issuance or sale of any capital stock,
or otherwise causing to become outstanding any capital stock.
"STOCKHOLDER" has the meaning set forth in the preambles.
"SUBSIDIARY" of a specified Person means any corporation, limited
liability company, partnership, joint venture or other legal entity of which the
specified Person (either alone or together with any other Subsidiary of the
specified Person) owns, directly or indirectly, more than 50% of the stock or
other equity, partnership, limited liability company or equivalent interests,
the holders of which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other legal
entity, or otherwise has the power to vote or direct the voting of sufficient
securities to elect a majority of such board of directors or other governing
body.
"SUPERIOR PROPOSAL" has the meaning set forth in ss.5(h)(ii)
below.
"SURVIVING CORPORATION" has the meaning set forth in ss.2(a) below.
"TAX RETURN" means any report, return, declaration or other
information required to be supplied to a taxing authority in connection with
Taxes.
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<PAGE>
"TAXES" means all taxes or other like assessments including, without
limitation, income, withholding, gross receipts, excise, ad valorem, real or
personal property, asset, sales, use, license, payroll, transaction, capital,
net worth and franchise taxes imposed by or payable to any federal, state,
county, local or foreign government, taxing authority, subdivision or agency
thereof, including interest, penalties, additions to tax or additional amounts
thereto.
"THIRD PARTY" means any Person (or group of Persons) other than
Acquiror or its respective Affiliates.
"YEAR 2000 COMPLIANT" has the meaning set forth in ss.3(q) below.
2. THE TRANSACTION.
(a) THE MERGER. On and subject to the terms and conditions of this
Agreement, the Company will merge with and into Acquiror at the Effective Time.
Acquiror shall be the corporation surviving the Merger (the "SURVIVING
CORPORATION").
(b) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Kelley Drye &
Warren LLP, 101 Park Avenue, New York, New York, commencing at 9:00 a.m. local
time on the third business day following the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (other than conditions with respect to actions the
respective Parties will take at the Closing itself) or such other date as the
Parties may mutually determine (the "Closing Date").
(c) ACTIONS AT THE CLOSING. At the Closing, (i) the Company will
deliver to Acquiror the various certificates, instruments and documents referred
to in ss.6(a) below; (ii) Acquiror will deliver to the Company the various
certificates, instruments and documents referred to in ss.6(b) below; (iii) the
Company and Acquiror will file with the Secretary of State of the State of
Delaware a Certificate of Merger in such form as required by and executed in
accordance with the relevant provisions of the Delaware General Corporation Law
(the "CERTIFICATE OF MERGER"); (iv) the Company and Acquiror will file with the
Secretary of State of the Commonwealth of Massachusetts Articles of Merger in
such form as required by and executed in accordance with the relevant provisions
of the Massachusetts Business Corporation (the "ARTICLES OF Merger") and (v)
Acquiror will deliver or cause to be delivered the Exchange Fund to the Exchange
Agent in the manner provided below in this ss.2.
(d) EFFECT OF MERGER.
(i) GENERAL. The Merger shall become effective at the time
(the "EFFECTIVE TIME") the Company and Acquiror file the Certificate
of Merger with the Secretary of State of the State of Delaware or at
such later time as the Parties may agree and specify in the
Certificate of Merger. The Merger shall have the effects set forth in
the Delaware General Corporation Law and the Massachusetts Business
Corporation Law. The Surviving Corporation may, at any time after the
Effective Time, take any action (including executing and delivering
any document) in the name and on behalf of either the Company or
Acquiror in order to carry out and effectuate the transactions
contemplated by this Agreement.
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<PAGE>
(ii) CERTIFICATE OF INCORPORATION. The certificate of
incorporation of Acquiror shall continue as the certificate of
incorporation of the Surviving Corporation until thereafter amended in
accordance with its terms and as provided by law, except that Article
Fourth thereof shall be amended to read in its entirety as follows:
FOURTH: I. The total number of shares of all classes of
stock which the Corporation shall have authority to issue is
56,000,000 shares, consisting of (i) 55,000,000 shares of
Common Stock, $.05 par value (the "Common Stock") and (ii)
1,000,000 shares of Preferred Stock, $.05 par value
("Preferred Stock").
II. The designations, powers, preferences and
relative, participating, optional or other special rights
of, and the qualifications, limitations or restrictions
upon, each class or series of the Corporation's capital
stock shall be as follows:
A. COMMON STOCK:
1. GENERAL. The voting, dividend and liquidation
rights of the holders of the Common Stock are subject to and
qualified by the rights of the holders of the Preferred
Stock of any series as may be designated by the Board of
Directors upon any issuance of the Preferred Stock of any
series.
2. VOTING. The holders of the Common Stock are
entitled to one vote for each share held at all meetings of
stockholders (and written actions in lieu of meetings).
There shall be no cumulative voting.
The number of authorized shares of Common Stock
may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section
242(b)(2) of the General Corporation Law of the State of
Delaware.
3. DIVIDENDS. Dividends may be declared and paid
on the Common Stock from funds lawfully available therefor
as and when determined by the Board of Directors and subject
to any preferential dividend rights of any then outstanding
Preferred Stock.
4. LIQUIDATION. Upon the dissolution or
liquidation of the Corporation, whether voluntary or
involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for
distribution to its stockholders, subject to any
preferential rights of any then outstanding Preferred Stock.
B. PREFERRED STOCK.
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Preferred Stock may be issued from time to time in
one or more series, each of such series to have such terms
as stated or expressed herein and in the resolution or
resolutions providing for the issue of such series adopted
by the Board of Directors of the Corporation as hereinafter
provided. Any shares of Preferred Stock which may be
redeemed, purchased or acquired by the Corporation may be
reissued except as otherwise provided by law. Different
series of Preferred Stock shall not be construed to
constitute different classes of shares for the purposes of
voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board
of Directors from time to time to issue the Preferred Stock
in one or more series, and in connection with the creation
of any such series, by resolution or resolutions providing
for the issue of the shares thereof, to determine and fix
such voting powers, full or limited, or no voting powers,
and such designations, preferences and relative
participating, optional or other special rights, and
qualifications, limitations or restrictions thereof,
including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation
preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter
permitted by the General Corporation Law of the State of
Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of
Preferred Stock may provide that such series shall be
superior or rank equally or be junior to the Preferred Stock
of any other series to the extent permitted by law. Except
as otherwise provided in this Restated Certificate of
Incorporation, no vote of the holders of the Preferred Stock
or Common Stock shall be a prerequisite to the designation
or issuance of any shares of any series of the Preferred
Stock authorized by and complying with the conditions of
this Restated Certificate of Incorporation, the right to
have such vote being expressly waived by all present and
future holders of the capital stock of the Corporation.
(iii) BY-LAWS. The by-laws of Acquiror in effect immediately
prior to the Effective Time shall be the By-laws of the Surviving
Corporation until thereafter amended in accordance with their terms
and as provided by law.
(iv) DIRECTORS AND OFFICERS. Except as provided in ss.6(m)
with respect to the directors of the Surviving Corporation, the
directors and officers of Acquiror immediately prior to the Effective
Time shall be the directors and officers of the Surviving Corporation
at and as of the Effective Time (retaining their respective positions
and terms of office), until the earlier of their respective
resignation, removal or otherwise ceasing to be a director or officer,
respectively, or until their respective successors are duly elected
and qualified, as the case may be.
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(v) CONVERSION OF COMPANY SHARES. At and as of the Effective
Time, (A) each issued and outstanding Company Share (other than any
Company Shares owned by Acquiror, the Company or any Dissenting
Holder) shall be converted into the right to receive one Acquiror
Share (the "PER SHARE MERGER CONSIDERATION"), and all such Company
Shares shall no longer be outstanding, shall be canceled and shall
cease to exist, and each holder of a certificate representing any such
Company Shares shall thereafter cease to have any rights with respect
to such Company Shares, except the right to receive the Per Share
Merger Consideration for each such Company Share and any unpaid
dividends and distributions, if any, to which the holder of such
Company Shares is entitled pursuant to ss.2(e) upon the surrender of
such certificate in accordance with ss.2(e) below (collectively, the
"MERGER CONSIDERATION"), PROVIDED, HOWEVER, that the Per Share Merger
Consideration shall be subject to proportionate adjustment in the
event of any stock split, stock dividend or reverse stock split, and
(B) each Company Share owned by Acquiror or the Company shall be
canceled without payment therefor. No Company Share shall be deemed to
be outstanding or to have any rights other than those set forth above
in this ss.2(d)(v) after the Effective Time. Notwithstanding anything
to the contrary in this ss.2(d)(v), no fractional Acquiror Shares
shall be issued to then former holders of Company Shares. In lieu
thereof, each then former holder of a Company Share who would
otherwise have been entitled to receive a fraction of a Acquiror Share
(after taking into account all certificates delivered by such then
former holder at any one time) shall receive an amount in cash equal
to such fraction of a Acquiror Share multiplied by the Closing Sales
Price per Acquiror Share on the date of the Effective Time.
(vi) CONVERSION OF STOCK RIGHTS. Each of the Parties shall
take all such action as may be necessary to cause, at the Effective
Time, each Stock Right granted by the Company to purchase Company
Shares which is outstanding and unexercised immediately prior thereto
(whether or not vested or exercisable), to be converted automatically
into an equivalent Stock Right to purchase Acquiror Shares in an
amount and at an exercise price determined as follows:
(x) The number of Acquiror Shares to be subject to the new
Stock Right shall be equal to the number of Company Shares
subject to the original Stock Right; and
(y) The exercise price per Acquiror Share under the new
Stock Right shall be equal to the exercise price per Company
Share under the original Stock Right.
The adjustments provided herein with respect to any original Stock
Rights which are "incentive stock options" (as defined in Section
422 of the Code) shall be and are intended to be effected in a
manner which is consistent with Section 424(a) of the Code. The
option plan of the Company under which the original Stock Rights
were issued shall be assumed by Acquiror, and the duration and other
terms of the new Stock Rights shall be the same as the original
Stock Rights, except that all references to the Company shall be
deemed to be references to Acquiror. At the Effective Time, Acquiror
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shall deliver to then former holders of original Stock Rights
appropriate agreements representing the right to acquire Acquiror
Shares on the terms and conditions set forth in this ss. 2(d)(vi).
Acquiror shall take all corporate action necessary to reserve for
issuance a sufficient number of Acquiror Shares for delivery upon
exercise of the new Stock Rights in accordance with this ss.
2(d)(vi). Acquiror shall file a registration statement on Form S-8
(or any successor form) or another appropriate form, and use its
reasonable best efforts to cause such Form S-8 to become effective
at or as soon as practicable after the Effective Time, with respect
to Acquiror Shares subject to new employee stock options included in
the Stock Rights and shall use reasonable efforts to maintain the
effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain
outstanding. Acquiror shall promptly take any action required to be
taken under state securities or Blue Sky laws in connection with the
issuance of Acquiror Shares in connection with new employee options
included in the Stock Rights. With respect to those individuals who
subsequent to the Merger will be subject to the reporting
requirements under Section 16(a) of the Securities Exchange Act,
Acquiror shall administer the option plans assumed pursuant to this
ss. 2(d)(vi) in a manner that complies with Rule 16b-3 promulgated
under the Securities Exchange Act to the extent the Company option
plan complied with such rule prior to the Merger.
(vii) NO EFFECT ON CAPITAL STOCK OF ACQUIROR. Each share of
the outstanding capital stock of Acquiror issued and outstanding
immediately prior to the Effective Time shall remain outstanding and
shall be unchanged after the Merger.
(viii) DISSENTER'S' RIGHTS.
(A) No conversion under ss.2(d)(v) hereof shall be made with
respect to the Company Shares held by a Dissenting Holder; PROVIDED,
HOWEVER, that each Company Share outstanding immediately prior to the
Effective Time and held by a Dissenting Holder who shall, after the
Effective Time, withdraw his demand for appraisal or lose his right of
appraisal, in either case pursuant to the applicable provisions of the
Massachusetts Business Corporation Law, shall be deemed to be
converted, as of the Effective Time, into the Merger Consideration as
set forth in ss.2(d)(v) hereof. The term "DISSENTING HOLDER" shall
mean a holder of Company Shares who has demanded appraisal rights in
compliance with the applicable provisions of the Massachusetts
Business Corporation Law concerning the right of such holder to
dissent from the Merger and demand appraisal of such holder's Company
Shares.
(B) Any Dissenting Holder (x) who files with the Company a
written objection to the Merger before the taking of the votes to
approve this Agreement by the Company Stockholders and who states in
such objection that he intends to demand payment for his Company
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Shares if the Merger is concluded and (y) whose Company Shares are not
voted in favor of the Merger shall be entitled to demand payment from
the Company for his Company Shares and an appraisal of the value
thereof, in accordance with the provisions of Sections 86 through 98
of the Massachusetts Business Corporation Law.
(e) PROCEDURE FOR EXCHANGE.
(i) At or prior to the Effective Time, (A) Acquiror will
furnish to Equiserve, its transfer agent, or such other bank or trust
company reasonably acceptable to the Company, to act as exchange agent
(the "EXCHANGE AGENT") a corpus (the "EXCHANGE FUND") consisting of
Acquiror Shares and cash sufficient to permit the Exchange Agent to
make full payment of the Merger Consideration to the holders of all of
the issued and outstanding Company Shares (other than any Company
Shares owned by Acquiror or the Company), and (B) Acquiror will cause
the Exchange Agent to mail a letter of transmittal (with instructions
for its use) in a form to be mutually agreed upon by the Company and
Acquiror prior to Closing to each holder of issued and outstanding
Company Shares (other than any Company Shares owned by Acquiror or the
Company) for the holder to use in surrendering the certificates which,
immediately prior to the Effective Time, represented his or its
Company Shares against payment of the Merger Consideration to which
such holder is entitled pursuant to ss.2(d)(v). Upon surrender to the
Exchange Agent of such certificates, together with such letter of
transmittal, duly executed and completed in accordance with the
instructions thereto, Acquiror shall promptly cause to be issued a
certificate representing that number of whole Acquiror Shares and a
check representing the amount of cash in lieu of any fractional shares
and unpaid dividends and distributions, if any, to which such Persons
are entitled, after giving effect to any required tax withholdings. No
interest will be paid or accrued on the cash in lieu of fractional
shares and unpaid dividends and distributions, if any, payable to
recipients of Acquiror Shares. If payment is to be made to a Person
other than the registered holder of the certificate surrendered, it
shall be a condition of such payment that the certificate so
surrendered shall be properly endorsed or otherwise in proper form for
transfer and that the Person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a Person
other than the registered holder of the certificate surrendered or
establish to the reasonable satisfaction of the Surviving Corporation
or the Exchange Agent that such tax has been paid or is not
applicable. In the event any certificate representing Company Shares
shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such certificate to be
lost, stolen or destroyed, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed certificate the Merger
Consideration deliverable in respect thereof; PROVIDED, HOWEVER, the
Person to whom such Merger Consideration is paid shall, as a condition
precedent to the payment thereof, give the Surviving Corporation a
bond in such sum as it may direct or otherwise indemnify the Surviving
Corporation in a manner reasonably satisfactory to it against any
claim that may be made against the Surviving Corporation with respect
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<PAGE>
to the certificate alleged to have been lost, stolen or destroyed. No
dividends or other distributions declared after the Effective Time
with respect to Acquiror Shares and payable to the holders of record
thereof shall be paid to the holder of any unsurrendered certificate
until the holder thereof shall surrender such certificate in
accordance with thisss.2(e). After the surrender of a certificate in
accordance with this ss.2(e), the record holder thereof shall be
entitled to receive any such dividends or other distributions, without
any interest thereon, which theretofore had become payable with
respect to the Acquiror Shares represented by such certificate. No
holder of an unsurrendered certificate shall be entitled, until the
surrender of such certificate, to vote the Acquiror Shares into which
his or its Company Shares shall have been converted into the right to
receive.
(ii) The Company will cause its transfer agent to furnish
promptly to Acquiror a list, as of a recent date, of the record
holders of Company Shares and their addresses, as well as mailing
labels containing the names and addresses of all record holders of
Company Shares and lists of security positions of Company Shares held
in stock depositories. The Company will furnish Acquiror with such
additional information (including, but not limited to, updated lists
of holders of Company Shares and their addresses, mailing labels and
lists of security positions) and such other assistance as Acquiror or
its agents may reasonably request.
(iii) Acquiror may cause the Exchange Agent to invest the
cash included in the Exchange Fund in one or more investments selected
by Acquiror; PROVIDED, HOWEVER, that the terms and conditions of the
investments shall be such as to permit the Exchange Agent to make
prompt payment of the Merger Consideration as necessary. Acquiror may
cause the Exchange Agent to pay over to the Surviving Corporation any
net earnings with respect to the investments, and Acquiror will
replace promptly any portion of the Exchange Fund which the Exchange
Agent loses through investments.
(iv) Acquiror may cause the Exchange Agent to pay over to
the Surviving Corporation any portion of the Exchange Fund (including
any earnings thereon) remaining 180 days after the Effective Time, and
thereafter all former stockholders of the Company shall be entitled to
look to the Surviving Corporation (subject to abandoned property,
escheat and other similar laws) as general creditors thereof with
respect to the Merger Consideration and any cash payable upon
surrender of their certificates.
(v) Acquiror shall pay, or shall cause the Surviving
Corporation to pay, all charges and expenses of the Exchange Agent.
(f) CLOSING OF TRANSFER RECORDS. After the Effective Time, no transfer
of Company Shares outstanding prior to the Effective Time shall be made on the
stock transfer books of the Surviving Corporation. If, after the Effective Time,
certificates representing such shares are presented for transfer to the Exchange
Agent, they shall be canceled and exchanged for certificates representing
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Acquiror Shares, cash in lieu of fractional shares, if any, and unpaid dividends
and distributions, if any, as provided in ss.2(e).
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Acquiror:
(a) ORGANIZATION, QUALIFICATION AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of Massachusetts. If applicable to such country, each of the Company's
Subsidiaries operating in such country has been duly incorporated or otherwise
organized and is validly existing. Each of the Company and its Subsidiaries is
duly authorized to conduct business and, if applicable to such country, is in
good standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification or failure to be in good
standing would not reasonably be expected to have a material adverse effect on
the business, financial condition or results of operations of the Company and
its Subsidiaries taken as a whole or on the ability of the Company to consummate
the transactions contemplated by this Agreement (a "COMPANY MATERIAL ADVERSE
EFFECT"). Each of the Company and its Subsidiaries has full corporate power and
corporate authority, and all foreign, federal, state and local governmental
permits, licenses and consents, required to carry on the businesses in which it
is engaged and to own and use the properties owned and used by it, except for
such permits, licenses and consents the failure of which to have would not
reasonably be expected to have a Company Material Adverse Effect. The Company
does not own any equity interest in any corporation, partnership, limited
liability company, joint venture or other legal entity other than the
Subsidiaries listed in ss.3(a) of the Company Disclosure Letter accompanying
this Agreement (the "COMPANY DISCLOSURE LETTER"). The Company has delivered to
the Acquiror a true, complete and correct copy of the articles of incorporation
(or comparable charter document) and by-laws, each as amended to date, of
Company and all of its Subsidiaries. Neither Company nor any of its Subsidiaries
is in violation of any provision of its articles of incorporation (or comparable
charter document) or by-laws.
(b) CAPITALIZATION. The entire authorized capital stock of the Company
consists of 7,500,000 shares of preferred stock, $.01 par value per share, none
of which are issued and outstanding as of September 25, 1999, 30,000,000 Shares,
of which 15,916,570 Shares were issued and outstanding as of September 25, 1999
and 390,769 Shares were held in treasury as of September 25, 1999. All of the
issued and outstanding Company Shares have been duly authorized and are validly
issued, fully paid and nonassessable, and none have been issued in violation of
any preemptive or similar right. As of September 25, 1999, no warrants of the
Company were outstanding. As of September 25, 1999, 2,185,776 Shares were
subject to issuance pursuant to employee stock options issued under Company
Benefit Plans. Except as set forth above or in ss.3(b) of the Company Disclosure
Letter, neither the Company nor any of its Subsidiaries has any outstanding or
authorized Stock Rights. Except for stock appreciation rights authorized under
Company Benefit Plans, of which none are outstanding, there are no outstanding
or authorized stock appreciation, phantom stock, profit participation or similar
rights with respect to the Company or any of its Subsidiaries. Except as set
forth in ss.3(b) of the Company Disclosure Letter, there are no rights,
contracts, commitments or arrangements obligating the Company to redeem,
purchase or acquire, or offer to purchase, redeem or acquire, any outstanding
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shares of, or any outstanding options, warrants or rights of any kind to acquire
any shares of, or any outstanding securities that are convertible into or
exchangeable for any shares of, capital stock of the Company.
(c) SUBSIDIARIES. Except as set forth in ss.3(c) of the Company
Disclosure Letter, the Company owns, directly or indirectly, 100% of the
outstanding shares of capital stock of each of its Subsidiaries free and clear
of any Security Interest and each such share of capital stock has been duly
authorized and is validly issued, fully paid and nonassessable, and none of such
shares of capital stock has been issued in violation of any preemptive or
similar right. No shares of capital stock of, or other equity interests in, any
Subsidiary of the Company are reserved for issuance, and there are no contracts,
agreements, commitments or arrangements obligating the Company or any of its
Subsidiaries (i) to offer, sell, issue, grant, pledge, dispose of or encumber
any shares of capital stock of, or other equity interests in, or any options,
warrants or rights of any kind to acquire any shares of capital stock of, or
other equity interests in, any of the Subsidiaries of the Company or (ii) to
redeem, purchase or acquire, or offer to purchase or acquire, any outstanding
shares of capital stock of, or other equity interests in, or any outstanding
options, warrants or rights of any kind to acquire any shares of capital stock
of, or other equity interest in, or any outstanding securities that are
convertible into or exchangeable for, any shares of capital stock of, or other
equity interests in, any of the Subsidiaries of the Company.
(d) VOTING ARRANGEMENTS. Except as set forth in ss.3(d) of the Company
Disclosure Letter or in Company Reports filed prior to the date hereof, there
are no voting trusts, proxies or other similar agreements or understandings to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound with respect to the voting of any shares of
capital stock of the Company or any of its Subsidiaries or with respect to the
registration of the offering, sale or delivery of any shares of capital stock of
the Company or any of its Subsidiaries under the Securities Act. There are no
issued or outstanding bonds, debentures, notes or other indebtedness of the
Company having the right to vote on any matters on which stockholders of the
Company may vote.
(e) AUTHORIZATION OF TRANSACTION. The Company has full power and
authority (including full corporate power and corporate authority), and has
taken all required action, necessary to properly execute and deliver this
Agreement and to perform its obligations hereunder, and this Agreement
constitutes the valid and legally binding obligation of the Company, enforceable
in accordance with its terms and conditions, except as limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii)
general principles of equity, regardless of whether asserted in a proceeding in
equity or at law; PROVIDED, HOWEVER, that the Company cannot consummate the
Merger unless and until it receives the Requisite Stockholder Approval of the
Company Stockholders.
(f) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree or other restriction of any government, governmental agency or
court of competent jurisdiction (a "GOVERNMENT ENTITY") to which the Company or
any of its Subsidiaries is subject or any provision of the charter or by-laws of
the Company or any of its Subsidiaries or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify or cancel or require any notice
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under any agreement, contract, lease, license, instrument or other arrangement
to which the Company or any of its Subsidiaries is a party or by which it is
bound or to which any of its assets is subject, except where the violation,
conflict, breach, default, acceleration, termination, modification,
cancellation, or failure to give notice would not reasonably be expected to have
a Company Material Adverse Effect or except as set forth in ss.3(f) of the
Company Disclosure Letter. Other than as required under the provisions of the
Hart-Scott-Rodino Act, Foreign Competition Laws, the Massachusetts Business
Corporation Law, the Delaware General Corporation Law, Nasdaq, the Securities
Exchange Act, the Securities Act and state securities laws, neither the Company
nor any of its Subsidiaries needs to give any notice to, make any filing with or
obtain any authorization, consent or approval of any Government Entity in order
for the Parties to consummate the transactions contemplated by this Agreement,
except where the failure to give notice, to file or to obtain any authorization,
consent or approval would not reasonably be expected to have a Company Material
Adverse Effect or except as set forth in ss.3(f) of the Company Disclosure
Letter. "REQUIRED COMPANY CONSENTS" means any authorization, consent or approval
of a Government Entity or other Third Party required to be obtained pursuant to
any Foreign Competition Laws or state securities laws or so that a matter set
forth in ss.3(f) of the Company Disclosure Letter would not be reasonably
expected to have a Company Material Adverse Effect for purposes of this ss.3(f).
(g) FILING. The Company has made all filings with the SEC that it has
been required to make under the Securities Act and the Securities Exchange Act
(collectively, the "COMPANY REPORTS"). Each of the Company Reports has complied
with the Securities Act and the Securities Exchange Act in all material
respects. None of the Company Reports, as of their respective dates, contained
any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(h) FINANCING STATEMENTS.
(i) The Company has filed an Annual Report on Form 10-K (the
"COMPANY 10-K") for the fiscal year ended December 31, 1998 and a
Quarterly Report on Form 10-Q (the "COMPANY 10-Q") for the fiscal
quarter ended June 26, 1999. The financial statements included in the
Company 10-K and the Company 10-Q (including the related notes and
schedules) have been prepared from the books and records of the
Company and its Subsidiaries in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, and present
fairly in all material respects the financial condition of the Company
and its Subsidiaries as of the indicated dates and the results of
operations and cash flows of the Company and its Subsidiaries for the
periods set forth therein (subject in the case of quarterly financial
statements to the absence of complete footnotes and subject to normal
year-end audit adjustments).
(ii) From January 1, 1999 until the date of this Agreement,
the Company and its Subsidiaries have not incurred any liabilities
that are of a nature that would be required to be disclosed on a
balance sheet of the Company and its Subsidiaries or the footnotes
thereto prepared in conformity with GAAP, other
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than (A) liabilities incurred in the ordinary course of business that
would not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect or (B) liabilities disclosed in
ss.3(h) of the Company Disclosure Letter or in Company Reports filed
prior to the date hereof.
(i) EVENTS SUBSEQUENT TO JANUARY 1, 1999. From January 1, 1999 to the
date of this Agreement, except as disclosed in the Company Reports filed prior
to the date hereof or except as set forth in ss.3(i) of the Company Disclosure
Letter, (i) the Company and its Subsidiaries have conducted their respective
businesses only in, and have not engaged in any transaction other than according
to, the ordinary and usual course of such businesses, and (ii) there has not
been (A) any change in the financial condition, business or results of
operations of the Company or any of its Subsidiaries, or any development or
combination of developments relating to the Company or any of its Subsidiaries
of which management of the Company has knowledge, and which would reasonably be
expected to have a Company Material Adverse Effect; (B) any declaration, setting
aside or payment of any dividend or other distribution with respect to the
capital stock of the Company, or any redemption, repurchase or other
reacquisition of any of the capital stock of the Company; (C) any change by the
Company in accounting principles, practices or methods materially affecting the
reported consolidated assets, liabilities or results of operations of the
Company; (D) any increase in the compensation of any officer of the Company or
any of its Subsidiaries or grant of any general salary or benefits increase to
the employees of the Company or any of its Subsidiaries other than in the
ordinary course of business consistent with past practices; (E) any issuance or
sale of any capital stock or other securities (including any Stock Rights) by
the Company or any of its Subsidiaries of any kind, other than upon exercise of
Stock Rights issued by or binding upon the Company; (F) any modification,
amendment or change to the terms or conditions of any Stock Right; or (G) any
split, combination, reclassification, redemption, repurchase or other
reacquisition of any capital stock or other securities of the Company or any of
its Subsidiaries.
(j) COMPLIANCE. Except as set forth in ss.3(j) of the Company
Disclosure Letter or in Company Reports filed prior to the date hereof, the
Company and its Subsidiaries are in compliance with all applicable foreign,
federal, state and local laws, rules and regulations and all court orders,
judgments and decrees to which any of them is a party, except where the failure
to be in compliance would not reasonably be expected to have a Company Material
Adverse Effect.
(k) BROKERS' AND OTHER FEES. Except as set forth in ss.3(k) of the
Company Disclosure Letter, none of the Company and its Subsidiaries has any
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement.
(l) LITIGATION AND LIABILITIES. Except as disclosed in ss.3(l) of the
Company Disclosure Letter or in Company Reports filed prior to the date hereof,
there are (i) no actions, suits or proceedings pending or, to the knowledge of
the Company, threatened against the Company or any of its Subsidiaries, or any
facts or circumstances known to the Company which may give rise to an action,
suit or proceeding against the Company or any of its Subsidiaries, which would
reasonably be expected to have a Company Material Adverse Effect, and (ii) no
obligations or liabilities of the Company or any of its Subsidiaries, whether
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accrued, contingent or otherwise, known to the Company which would reasonably be
expected to have a Company Material Adverse Effect.
(m) TAXES. Except as set forth in ss.3(m) of the Company Disclosure
Letter or in Company Reports filed prior to the date hereof, the Company and
each of its Subsidiaries have duly filed or caused to be duly filed on their
behalf all federal, state, local and foreign Tax Returns required to be filed by
them, and have duly paid, caused to be paid or made adequate provision for the
payment of all Taxes required to be paid in respect of the periods covered by
such Tax Returns, except where the failure to file such Tax Returns or to pay
such Taxes would not reasonably be expected to have a Company Material Adverse
Effect. Except as set forth in ss.3(m) of the Company Disclosure Letter, no
claims for Taxes have been asserted against the Company or any of its
Subsidiaries and no material deficiency for any Taxes has been proposed,
asserted or assessed which has not been resolved or paid in full. To the
knowledge of the Company, no Tax Return or taxable period of the Company or any
of its Subsidiaries is under examination by any taxing authority, and neither
the Company nor any of its Subsidiaries has received written notice of any
pending audit by any taxing authority. There are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any Tax
Return for any period of the Company or any or its Subsidiaries. Except as set
forth in ss.3(m) of the Company Disclosure Letter, there are no tax liens other
than liens for Taxes not yet due and payable relating to the Company or any of
its Subsidiaries. The Company has no reason to believe that any conditions exist
that could reasonably be expected to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code. Except as
provided in ss.3(m) of the Company Disclosure Letter, neither the Company nor
any of its Subsidiaries is a party to any agreement or contract which would
result in payment of any "excess parachute payment" within the meaning of
Section 280G of the Code as of the date of this Agreement. Neither the Company
nor any of its Subsidiaries has filed any consent pursuant to Section 341(f) of
the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset owned by the Company or any of its
Subsidiaries. The Company has not been and is not a United Stated real property
holding company (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code. None of the
Company or its Subsidiaries (x) has been a member of an "affiliated group,"
within the meaning of Section 1504(a) of the Code, other than a group the common
acquiror of which was the Company or (y) has any liability for the Taxes of any
person, other than any of the Company or its Subsidiaries under Treasury
Regulation ss.1.1502-6 (or any similar provision of state, local or foreign law)
as a transferee, successor, by contract or otherwise.
(n) FAIRNESS OPINION. Tucker Anthony Cleary Gull has delivered the
Company Fairness Opinion to the Company Board, and a true and complete copy
thereof has been furnished to Acquiror.
(o) EMPLOYEE BENEFITS.
(i) All material pension, profit-sharing, deferred
compensation, savings, stock bonus and stock option plans, and all
employee benefit plans, whether or not covered by the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), which
are sponsored by the Company, any Subsidiary of the Company or any
Company ERISA Affiliate (as defined below) of the Company or to which
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the Company, any Subsidiary of the Company or any Company ERISA
Affiliate of the Company makes contributions, and which cover
employees of the Company or any Subsidiary (the "COMPANY EMPLOYEES")
or former employees of the Company or any Subsidiary, all employment
or severance contracts with employees of the Company or its
Subsidiaries, and any applicable "change of control" or similar
provisions in any plan, contract or arrangement that cover Company
Employees (collectively, "COMPANY BENEFIT PLANS" and individually a
"COMPANY BENEFIT PLAN") are accurately and completely listed in
ss.3(o) of the Company Disclosure Letter. No Company Benefit Plan is a
multi-employer plan, money purchase plan, defined benefit plan,
multiple employer plan or multiple employer welfare arrangement and no
Company Benefit Plan is covered by Title IV of ERISA. True and
complete copies of all Company Benefit Plans have been provided to
Acquiror.
(ii) All Company Benefit Plans to the extent subject to
ERISA, are in compliance in all material respects with ERISA and the
rules and regulations promulgated thereunder. Each Company Benefit
Plan which is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("COMPANY PENSION PLAN") and which is intended
to be qualified under Section 401(a) of the Internal Revenue Code of
1986, as amended (the "CODE"), has received a favorable determination
letter from the Internal Revenue Service, which determination letter
is currently in effect, and there are no proceedings pending or, to
the knowledge of the Company, threatened, or any facts or
circumstances known to the Company, which are reasonably likely to
result in revocation of any such favorable determination letter. There
is no pending or, to the knowledge of the Company, threatened
litigation relating to the Company Benefit Plans. Neither the Company
nor any of its Subsidiaries has engaged in a transaction with respect
to any Company Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof, is reasonably likely to
subject the Company or any of its Subsidiaries to a tax or penalty
imposed by either Section 4975 of the Code or Section 502(i) of ERISA.
(iii) No liability under Title IV of ERISA has been or is
reasonably likely to be incurred by the Company or any of its
Subsidiaries with respect to any ongoing, frozen or terminated Company
Benefit Plan that is a "single-employer plan", within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any
of them, or the single-employer plan of any entity which is considered
a predecessor of the Company or one employer with the Company under
Section 4001 of ERISA (a "COMPANY ERISA AFFILIATE"). All contributions
required to be made under the terms of any Company Benefit Plan have
been timely made or reserves therefor on the balance sheet of the
Company have been established, which reserves are adequate. Except as
required by Part 6 of Title I of ERISA, the Company does not have any
unfunded obligations for retiree health and life benefits under any
Company Benefit Plan.
(p) MASSACHUSETTS BUSINESS CORPORATION LAW. The execution and delivery
of this Agreement and consummation of transactions contemplated hereby will not
be subject to Sections 110C-110F of the Massachusetts General Laws in the
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consummation of the Merger or this Agreement or the transactions contemplated by
either thereof.
(q) YEAR 2000. Except as disclosed in the previously filed Company
Reports, the Company's products and information systems are Year 2000 Compliant
except to the extent that their failure to be Year 2000 Compliant would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. For purposes of this Agreement, "YEAR 2000 Compliant"
shall mean that a Person's products and information systems accurately process
date/time data (including, but not limited to, calculating, comparing and
sequencing) from, into and between the twentieth and twenty-first centuries, and
the years 1999 and 2000 and leap year calculations.
(r) ENVIRONMENTAL MATTERS. Except for such matters that, individually
or in the aggregate, would not reasonably be expected to have a Company Material
Adverse Effect or would not otherwise require disclosure pursuant to the
Securities Exchange Act, or are listed in ss.3(r) of the Company Disclosure
Letter or described in Company Reports filed prior to the date hereof, (i) each
of the Company and its Subsidiaries has complied and is in compliance with all
applicable Environmental Laws (as defined below); (ii) the properties currently
owned or operated by the Company or any of its Subsidiaries (including soils,
groundwater, surface water, buildings or other structures) are not contaminated
with Hazardous Substances (as defined below); (iii) neither the Company nor any
of its Subsidiaries is subject to liability for any Hazardous Substance disposal
or contamination on any third party property; (iv) neither the Company nor any
or its Subsidiaries has had any release or threat of release of any Hazardous
Substance; (v) neither the Company nor any of its Subsidiaries has received any
notice, demand, threat, letter, claim or request for information alleging that
it or any of its Subsidiaries may be in violation of or liable under any
Environmental Law (including any claims relating to electromagnetic fields or
microwave transmissions); (vi) neither the Company nor any of its Subsidiaries
is subject to any orders, decrees, injunctions or other arrangements with any
governmental or regulatory authority of competent jurisdiction or is subject to
any indemnity or other agreement with any third party relating to liability
under any Environmental Law or relating to Hazardous Substances; and (vii) there
are no circumstances or conditions involving the Company or any of its
Subsidiaries that would reasonably be expected to result in any claims,
liabilities, investigations, costs or restrictions on the ownership, use or
transfer of any of its properties pursuant to any Environmental Law.
As used herein, the term "ENVIRONMENTAL LAW" means any federal,
state, local, foreign or other law (including common law), statutes, ordinances
or codes relating to: (i) the protection, investigation or restoration of the
environment, health, safety or natural resources, (ii) the handling, use,
presence, disposal, release or threatened release of any Hazardous Substance, or
(iii) noise, odor, wetlands, pollution, contamination or any injury or threat of
injury to person or property in connection with any Hazardous Substance.
As used herein, the term "HAZARDOUS SUBSTANCES" means any substance
that is listed, classified or regulated pursuant to any Environmental Law,
including any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon.
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(s) INTELLECTUAL PROPERTY. Except as disclosed in ss.3(s) of the
Company Disclosure Letter or in the Company Reports filed prior to the date
hereof, the Company and its Subsidiaries have all right, title and interest in,
or a valid and binding license to use, all Company Intellectual Property (as
defined below). Except as disclosed in ss.3(s) of the Company Disclosure Letter
or in the Company Reports filed prior to the date hereof, the Company and its
Subsidiaries (i) have not defaulted in any material respect under any license to
use any Company Intellectual Property, (ii) are not the subject of any
proceeding or litigation for infringement of any third party intellectual
property, (iii) have no knowledge of circumstances that would be reasonably
expected to give rise to any such proceeding or litigation and (iv) have no
knowledge of circumstances that are causing or would be reasonably expected to
cause the loss or impairment of any Company Intellectual Property, other than a
default, proceeding, litigation, loss or impairment that is not having or would
not be reasonably expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
For purposes of this Agreement, "COMPANY INTELLECTUAL PROPERTY"
means patents and patent rights, trademarks and trademark rights, trade names
and trade name rights, service marks and service mark rights, copyrights and
copyright rights, trade secret and trade secret rights, and other intellectual
property rights, and all pending applications for and registrations of any of
the foregoing that are individually or in the aggregate material to the conduct
of the business of the Company and its Subsidiaries taken as a whole.
(t) INSURANCE. Except as set forth in ss.3(t) of the Company
Disclosure Letter, each of the Company and its Subsidiaries is insured with
financially responsible insurers in such amounts and against such risks and
losses as are customary for companies conducting the business as conducted by
the Company and its Subsidiaries.
(u) CERTAIN CONTRACTS. Except as set forth in ss.3(u) of the Company
Disclosure Letter, all material contracts to which the Company or any of its
Subsidiaries is a party or may be bound that are required by Item 610(b)(10) of
Regulation S-K to be filed as exhibits to, or incorporated by reference in, the
Company 10-K or the Company 10-Q have been so filed or incorporated by
reference. All material contracts to which the Company or any of its
Subsidiaries is a party or may be bound that have been entered into as of the
date hereof and will be required by Item 610(b)(10) of Regulation S-K to be
filed or incorporated by reference into the Company's Quarterly Report on Form
10-Q for the period ending September 30, 1999, but which have not previously
been filed or incorporated by reference into any Company Report, are set forth
in ss.3(u) of the Company Disclosure Letter. All contracts, licenses, consents,
royalty or other agreements which are material to the Company and its
Subsidiaries, taken as a whole, to which the Company or any of its Subsidiaries
is a party (the "Company Contracts") are valid and in full force and effect on
the date hereof except to the extent they have previously expired in accordance
with their terms or, to the extent such invalidity would not reasonably be
expected to have a Company Material Adverse Effect and, to the Company's
knowledge, neither the Company nor any of its Subsidiaries has violated any
provision of, or committed or failed to perform any act which with or without
notice, lapse of time or both would constitute a default under the provisions
of, any Company Contract, except for defaults which individually and in the
aggregate would not reasonably be expected to result in a Company Material
Adverse Effect.
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(v) ACCOUNTING AND TAX MATTERS. To the Company's knowledge, neither
the Company nor any of its Affiliates has taken or agreed to take any action, or
knows of any circumstances, that (without regard to any action taken or agreed
to be taken or agreed to be taken by Acquiror or any of its Affiliates) would
prevent the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
4. REPRESENTATIONS AND WARRANTIES OF ACQUIROR. Acquiror represents and
warrants to the Company:
(a) ORGANIZATION, QUALIFICATION AND CORPORATE POWER. Acquiror has been
duly organized, validly existing and in good standing under the laws of the
State of Delaware. If applicable to such country, each of Acquiror's
Subsidiaries operating in such country has been duly incorporated or otherwise
organized and is validly existing. Each of Acquiror and its Subsidiaries is duly
authorized to conduct business and, if applicable to such country, is in good
standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification or failure to be in good
standing would not reasonably be expected to have a material adverse effect on
the business, financial condition or results of operations of Acquiror and its
Subsidiaries taken as a whole or on the ability of Acquiror to consummate the
transactions contemplated by this Agreement (an "Acquiror Material Adverse
Effect"). Each of Acquiror and its Subsidiaries has full corporate power and
corporate authority, and all foreign, federal, state and local governmental
permits, licenses and consents, required to carry on the businesses in which it
is engaged and to own and use the properties owned and used by it, except for
such permits, licenses and consents the failure of which to have would not
reasonably be expected to have a Acquiror Material Adverse Effect. Acquiror does
not own any equity interest in any corporation, partnership, limited liability
company, joint venture or other entity other than the Subsidiaries listed in
ss.4(a) of Acquiror's disclosure letter accompanying this Agreement (the
"ACQUIROR DISCLOSURE LETTER"). Acquiror has delivered to the Company a true,
complete and correct copy of its certificate of incorporation and by-laws, each
as amended to date. Neither Acquiror nor any of its Subsidiaries is in violation
of any provision of its certificate of incorporation (or comparable charter
document) or by-laws.
(b) CAPITALIZATION. The entire authorized capital stock of Acquiror
consists of 15,249,599 shares of preferred stock, $.01 par value per share, of
which 298,187 shares are issued and outstanding as of September 1, 1999 and no
shares of Acquiror preferred stock were held in Treasury as of September 1,
1999, and 29,000,000 Acquiror Shares, of which 11,562,906 Acquiror Shares were
issued and outstanding as of September 1, 1999 and no Acquiror Shares were held
in treasury on September 1, 1999. All of the issued and outstanding Acquiror
Shares have been duly authorized and are validly issued, fully paid and
nonassessable, and none have been issued in violation of any preemptive or
similar right. Except as set forth in ss.4(b) of the Acquiror Disclosure Letter,
neither Acquiror nor any of its Subsidiaries has any outstanding or authorized
Stock Rights. There are no outstanding or authorized stock appreciation, phantom
stock, profit participation or similar rights with respect to Acquiror or any of
its Subsidiaries. There are no rights, contracts, commitments or arrangements
obligating Acquiror or any of its Subsidiaries to redeem, purchase or acquire,
or offer to purchase, redeem or acquire, any outstanding shares of, or any
outstanding options, warrants or rights of any kind to acquire any shares of, or
any outstanding securities that are convertible into or exchangeable for any
shares of, capital stock of Acquiror. The Acquiror Shares to be issued in
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connection with the Merger (including the Acquiror Shares to be issued to the
holders of Company Shares and the Acquiror Shares to be issued to holders of
Stock Rights to purchase or otherwise acquire Company Shares upon the exercise
and according to the terms of such Stock Rights) have been duly authorized by
all necessary corporate action, and when issued in accordance with the terms of
this Agreement, will be validly issued, fully paid and nonassessable and not
subject to any preemptive rights, and will be issued in compliance with the
requirements of the Securities Act and applicable state securities or Blue Sky
laws.
(c) SUBSIDIARIES. Except as set forth in ss.4(a) of the Acquiror
Disclosure Letter, Acquiror, directly or indirectly, owns 100% of the
outstanding shares of capital stock of each of its Subsidiaries free and clear
of any Security Interest and each such share of capital stock has been duly
authorized and is validly issued, fully paid and nonassessable, and none of such
shares of capital stock has been issued in violation of any preemptive or
similar right. No shares of capital stock of, or other equity interests in, any
Subsidiary of Acquiror are reserved for issuance, and there are no contracts,
agreements, commitments or arrangements obligating Acquiror or any of its
Subsidiaries (i) to offer, sell, issue, grant, pledge, dispose of or encumber
any shares of capital stock of, or other equity interests in, or any options,
warrants or rights of any kind to acquire any shares of capital stock of, or
other equity interests in, any of the Subsidiaries of Acquiror or (ii) to
redeem, purchase or acquire, or offer to purchase or acquire, any outstanding
shares of capital stock of, or other equity interests in, or any outstanding
options, warrants or rights of any kind to acquire any shares of capital stock
of, or other equity interest in, or any outstanding securities that are
convertible into or exchangeable for, any shares of capital stock of, or other
equity interests in, any of the Subsidiaries of Acquiror.
(d) VOTING ARRANGEMENTS. There are no voting trusts, proxies or other
similar agreements or understandings to which Acquiror or any of its
Subsidiaries is a party or by which Acquiror or any of its Subsidiaries is bound
with respect to the voting of any shares of capital stock of Acquiror or any of
its Subsidiaries. There are no issued or outstanding bonds, debentures, notes or
other indebtedness of Acquiror having the right to vote on any matters on which
stockholders of Acquiror may vote.
(e) AUTHORIZATION OF TRANSACTION. Acquiror has full power and
authority (including full corporate power and corporate authority), and has
taken all required action, necessary to properly execute and deliver this
Agreement and to perform its obligations hereunder, and this Agreement
constitutes the valid and legally binding obligation of Acquiror, enforceable in
accordance with its terms and conditions, except as limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii)
general principles of equity, regardless of whether asserted in a proceeding in
equity or at law; PROVIDED, HOWEVER, that Acquiror cannot consummate the Merger
unless and until it receives the Requisite Stockholder Approval of the Acquiror
Stockholders.
(f) NONCONTRAVENTION. Except as disclosed in ss.4(h) of the Acquiror
Disclosure Letter, neither the execution and the delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree or
other restriction of any Government Entity to which Acquiror or any of its
Subsidiaries is subject or any provision of the charter or by-laws of Acquiror
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or any of its Subsidiaries or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel or require any notice under
any agreement, contract, lease, license, instrument or other arrangement to
which either Acquiror or any of its Subsidiaries is a party or by which it is
bound or to which any of its assets is subject, except in the case of clause
(ii) where the violation, conflict, breach, default, acceleration, termination,
modification, cancellation or failure to give notice would not reasonably be
expected to have a Acquiror Material Adverse Effect. Other than as required
under the provisions of the Hart-Scott-Rodino Act, Foreign Competition Laws,
Nasdaq, the Securities Exchange Act, the Securities Act and state securities
laws neither Acquiror nor any of its Subsidiaries needs to give any notice to,
make any filing with or obtain any authorization, consent or approval of any
Government Entity in order for the Parties to consummate the transactions
contemplated by this Agreement, except where the failure to give notice, to file
or to obtain any authorization, consent or approval would not reasonably be
expected to have a Acquiror Material Adverse Effect or except as set forth in
ss.4(f) of the Acquiror Disclosure Letter. "Required Acquiror Consents" means
any authorization, consent or approval of a Government Entity or other Third
Party required to be obtained pursuant to any Foreign Competition Laws or state
securities laws or so that a matter set forth in ss. 4(f) of the Acquiror
Disclosure Letter would not be reasonably expected to have a Acquiror Material
Adverse Effect for purposes of this ss.4(f).
(g) FILINGS WITH THE SEC. Acquiror has made all filings with the SEC
that it has been required to make under the Securities Act and the Securities
Exchange Act (collectively, the "Acquiror Reports"). Each of the Acquiror
Reports has complied with the Securities Act and the Securities Exchange Act in
all material respects. None of the Acquiror Reports, as of their respective
dates, contained any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
(h) FINANCIAL STATEMENTS.
(i) Acquiror has filed an Annual Report on Form 10-K (the
"ACQUIROR 10-K") for the fiscal year ended December 31, 1998 and a
Quarterly Report on Form 10-Q (the "ACQUIROR 10-Q") for the fiscal
quarter ended June 30, 1999. The financial statements included in the
Acquiror 10-K and the Acquiror 10-Q (including the related notes and
schedules) have been prepared from the books and records of Acquiror
and its Subsidiaries in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, and present fairly in
all material respects the financial condition of Acquiror and its
Subsidiaries as of the indicated dates and the results of operations
and cash flows of Acquiror and its Subsidiaries for the periods set
forth therein (subject in the case of quarterly financial statements
to the absence of complete footnotes and subject to normal year-end
audit adjustments).
(ii) From January 1, 1999 until the date of this Agreement,
Acquiror and its Subsidiaries have not incurred any liabilities that
are of a nature that would be required to be disclosed on a balance
sheet of Acquiror and its Subsidiaries or the footnotes thereto
prepared in conformity with GAAP, other than (A) liabilities incurred
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in the ordinary course of business that would not, individually or in
the aggregate, reasonably be expected to have a Acquiror Material
Adverse Effect or (B) liabilities disclosed in ss.4(h) of the Acquiror
Disclosure Letter or in Acquiror Reports filed prior to the date
hereof.
(i) EVENTS SUBSEQUENT TO JANUARY 1, 1999. From January 1, 1999 to the
date of this Agreement, except as disclosed in the Acquiror Reports filed prior
to the date hereof or except as set forth in ss. 4(i) of the Acquiror Disclosure
Letter, (i) Acquiror and its Subsidiaries have conducted their respective
businesses only in, and have not engaged in any transaction other than according
to, the ordinary and usual course of such businesses, and (ii) there has not
been (A) any change in the financial condition, business or results of
operations of Acquiror or any of its Subsidiaries, or any development or
combination of developments relating to Acquiror or any of its Subsidiaries of
which management of Acquiror has knowledge, and which would reasonably be
expected to have an Acquiror Material Adverse Effect; (B) any declaration,
setting aside or payment of any dividend or other distribution with respect to
the capital stock of Acquiror, or any redemption, repurchase or other
reacquisition of any of the capital stock of Acquiror; (C) any change by
Acquiror in accounting principles, practices or methods; (D) any increase in the
compensation of any officer of Acquiror or any of its Subsidiaries or grant of
any general salary or benefits increase to the employees of Acquiror or any of
its Subsidiaries other than in the ordinary course of business consistent with
past practices; (E) any issuance or sale of any capital stock or other
securities (including any Stock Rights) by Acquiror or any of its Subsidiaries
of any kind, other than upon exercise of Stock Rights issued by or binding upon
Acquiror; (F) any modification, amendment or change to the terms or conditions
of any Stock Right; or (G) any split, combination, reclassification, redemption,
repurchase or other reacquisition of any capital stock or other securities of
Acquiror or any of its Subsidiaries.
(j) COMPLIANCE. Except as set forth in ss.4(j) of the Acquiror
Disclosure Letter or in Acquiror Reports filed prior to the date hereof,
Acquiror and its Subsidiaries are in compliance with all applicable foreign,
federal, state and local laws, rules and regulations and all court orders,
judgments and decrees to which any of them is a party except where the failure
to be in compliance would not reasonably be expected to have a Acquiror Material
Adverse Effect.
(k) BROKERS' AND OTHER FEES. Except as set forth in ss.4(k) of the
Acquiror Disclosure Letter, none of Acquiror and its Subsidiaries has any
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement.
(l) LITIGATION AND LIABILITIES. Except as disclosed in ss.4(l) of the
Acquiror Disclosure Letter or in Acquiror Reports filed prior to the date
hereof, there are (i) no actions, suits or proceedings pending or, to the
knowledge of Acquiror, threatened against Acquiror or any of its Subsidiaries,
or any facts or circumstances known to Acquiror which may give rise to an
action, suit or proceeding against Acquiror or any of its Subsidiaries, which
would reasonably be expected to have a Acquiror Material Adverse Effect and (ii)
no obligations or liabilities of Acquiror or any of its Subsidiaries, whether
accrued, contingent or otherwise, to Acquiror which would reasonably be expected
to have an Acquiror Material Adverse Effect.
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(m) TAXES. Except as set forth in ss.4(m) of the Acquiror Disclosure
Letter or in Acquiror Reports filed prior to the date hereof, Acquiror and each
of its Subsidiaries have duly filed or caused to be duly filed on their behalf
all federal, state, local and foreign Tax Returns required to be filed by them,
and have duly paid, caused to be paid or made adequate provision for the payment
of all Taxes required to be paid in respect of the periods covered by such Tax
Returns, except where the failure to file such Tax Returns or pay such Taxes
would not reasonably be expected to have an Acquiror Material Adverse Effect.
Except as set forth in ss.4(m) of the Acquiror Disclosure Letter, no claims for
Taxes have been asserted against Acquiror or any of its Subsidiaries and no
material deficiency for any Taxes has been proposed, asserted or assessed which
has not been resolved or paid in full. To the knowledge of Acquiror, no Tax
Return or taxable period of Acquiror or any of its Subsidiaries is under
examination by any taxing authority, and neither Acquiror nor any of its
Subsidiaries has received written notice of any pending audit by any taxing
authority. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Return for any period of
Acquiror or any or its Subsidiaries. Except as set forth in ss.4(m) of the
Acquiror Disclosure Letter, there are no tax liens other than liens for Taxes
not yet due and payable relating to Acquiror or any of its Subsidiaries.
Acquiror has no reason to believe that any conditions exist that could
reasonably be expected to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code. Neither Acquiror nor any of
its Subsidiaries is a party to any agreement or contract which would result in
payment of any "excess parachute payment" within the meaning of Section 280G of
the Code as a result of the transactions contemplated hereby. Neither Acquiror
nor any of its Subsidiaries has filed any consent pursuant to Section 341(f) of
the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset owned by Acquiror or any of its
Subsidiaries. Acquiror has not been and is not a United States real property
holding company (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code. None of
Acquiror or its Subsidiaries (x) has been a member of an "affiliated group,"
within the meaning of Section 1504(a) of the Code, other than a group the common
acquiror of which was the Acquiror or (y) has any liability for the Taxes of any
person, other than any of Acquiror or its Subsidiaries under Treasury Regulation
ss.1.1502-6 (or any similar provision of state, local or foreign law) as a
transferee, successor, by contract or otherwise.
(n) FAIRNESS OPINION. Kaufman Brothers, L.P. has delivered the
Acquiror Fairness Opinion to the Acquiror Board, and a true and complete copy
thereof has been furnished to the Company.
(o) EMPLOYEE BENEFITS.
(i) All pension, profit-sharing, deferred compensation,
savings, stock bonus and stock option plans, and all employee benefit
plans, whether or not covered by ERISA which are sponsored by
Acquiror, any Subsidiary of Acquiror or any Acquiror ERISA Affiliate
(as defined below) of Acquiror or to which Acquiror, any Subsidiary of
Acquiror or any Acquiror ERISA Affiliate of Acquiror makes
contributions, and which cover employees of Acquiror or any Subsidiary
of Acquiror (the "ACQUIROR EMPLOYEES") or former employees of Acquiror
or any Subsidiary of Acquiror, all employment or severance contracts
with employees of Acquiror or any Subsidiary of Acquiror, and any
applicable "change of control" or similar provisions in any plan,
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contract or arrangement that cover Acquiror Employees (collectively,
"ACQUIROR BENEFIT PLANS" and individually a "ACQUIROR BENEFIT PLAN")
are accurately and completely listed in ss.4(o) of the Acquiror
Disclosure Letter. No Acquiror Benefit Plan is a multi-employer plan,
money purchase plan, defined benefit plan, multiple employer plan or
multiple employer welfare arrangement and no Acquiror Benefit Plan is
covered by Title IV of ERISA. True and complete copies of all Acquiror
Benefit Plans (other than medical and other similar welfare plans made
generally available to all Acquiror Employees) have been made
available to the Company.
(ii) All Acquiror Benefit Plans to the extent subject to
ERISA, are in compliance in all material respects with ERISA and the
rules and regulations promulgated thereunder. Each Acquiror Benefit
Plan which is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("ACQUIROR PENSION PLAN") and which is intended
to be qualified under Section 401(a) of the Code, has received a
favorable determination letter from the Internal Revenue Service,
which determination letter is currently in effect, and there are no
proceedings pending or, to the knowledge of Acquiror, threatened, or
any facts or circumstances known to Acquiror, which are reasonably
likely to result in revocation of any such favorable determination
letter. There is no pending or, to the knowledge of Acquiror,
threatened litigation relating to the Acquiror Benefit Plans. Neither
Acquiror nor any of its Subsidiaries has engaged in a transaction with
respect to any Acquiror Benefit Plan that, assuming the taxable period
of such transaction expired as of the date hereof, is reasonably
likely to subject Acquiror or any of its Subsidiaries to a tax or
penalty imposed by either Section 4975 of the Code or Section 502(i)
of ERISA.
(iii) No liability under Title IV of ERISA has been or is
reasonably likely to be incurred by Acquiror or any of its
Subsidiaries with respect to any ongoing, frozen or terminated
Acquiror Benefit Plan that is a "single-employer plan", within the
meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any entity
which is considered a predecessor of Acquiror or one employer with
Acquiror under Section 4001 of ERISA (a "ACQUIROR ERISA AFFILIATE").
All contributions required to be made under the terms of any Acquiror
Benefit Plan have been timely made or reserves therefor on the balance
sheet of Acquiror have been established, which reserves are adequate.
Except as required by Part 6 of Title I of ERISA, Acquiror does not
have any unfunded obligations for retiree health and life benefits
under any Acquiror Benefit Plan.
(iv) Acquiror and its Subsidiaries have not incurred any
liability under, and have complied in all material respects with, the
WARN Act, and no fact or event exists that could give rise to
liability under such act.
(p) YEAR 2000. Except as disclosed in the previously filed Acquiror
Reports, Acquiror's products and information systems are Year 2000 Compliant
except to the extent that their failure to be Year 2000 Compliant would not,
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individually or in the aggregate, reasonably be expected to have an Acquiror
Material Adverse Effect.
(q) ENVIRONMENTAL MATTERS. Except for such matters that, individually
or in the aggregate, would not reasonably be expected to have an Acquiror
Material Adverse Effect or would not otherwise require disclosure pursuant to
the Securities Exchange Act, or are listed in ss.4(q) of the Acquiror Disclosure
Letter or described in Acquiror Reports filed prior to the date hereof, (i) each
of Acquiror and its Subsidiaries has complied and is in compliance with all
applicable Environmental Laws; (ii) the properties currently owned or operated
by Acquiror or any of its Subsidiaries (including soils, groundwater, surface
water, buildings or other structures) are not contaminated with Hazardous
Substances (as defined below); (iii) neither Acquiror nor any of its
Subsidiaries is subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (iv) neither Acquiror nor any or its
Subsidiaries has had any release or threat of release of any Hazardous
Substance; (v) neither Acquiror nor any of its Subsidiaries has received any
notice, demand, threat, letter, claim or request for information alleging that
it or any of its Subsidiaries may be in violation of or liable under any
Environmental Law (including any claims relating to electromagnetic fields or
microwave transmissions); (vi) neither Acquiror nor any of its Subsidiaries is
subject to any orders, decrees, injunctions or other arrangements with any
governmental or regulatory authority of competent jurisdiction or is subject to
any indemnity or other agreement with any third party relating to liability
under any Environmental Law or relating to Hazardous Substances; and (vii) there
are no circumstances or conditions involving Acquiror or any of its Subsidiaries
that would reasonably be expected to result in any claims, liabilities,
investigations, costs or restrictions on the ownership, use or transfer of any
of its properties pursuant to any Environmental Law.
(r) INTELLECTUAL PROPERTY. Except as disclosed in ss.4(r) of the
Acquiror Disclosure Letter or in the Acquiror Reports filed prior to the date
hereof, Acquiror and its Subsidiaries have all right, title and interest in, or
a valid and binding license to use, all Acquiror Intellectual Property (as
defined below). Except as disclosed in ss.4(r) of the Acquiror Disclosure Letter
or in the Acquiror Reports filed prior to the date hereof, Acquiror and its
Subsidiaries (i) have not defaulted in any material respect under any license to
use any Acquiror Intellectual Property, (ii) are not the subject of any
proceeding or litigation for infringement of any third party intellectual
property, (iii) have no knowledge of circumstances that would be reasonably
expected to give rise to any such proceeding or litigation and (iv) have no
knowledge of circumstances that are causing or would be reasonably expected to
cause the loss or impairment of any Acquiror Intellectual Property, other than a
default, proceeding, litigation, loss or impairment that is not having or would
not be reasonably expected to have, individually or in the aggregate, an
Acquiror Material Adverse Effect.
For purposes of this Agreement, "ACQUIROR INTELLECTUAL PROPERTY"
means patents and patent rights, trademarks and trademark rights, trade names
and trade name rights, service marks and service mark rights, copyrights and
copyright rights, trade secret and trade secret rights, and other intellectual
property rights, and all pending applications for and registrations of any of
the foregoing that are individually or in the aggregate material to the conduct
of the business of Acquiror and its Subsidiaries taken as a whole.
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(s) INSURANCE. Except as set forth in ss.4(s) of the Acquiror
Disclosure Letter, each of Acquiror and its Subsidiaries is insured with
financially responsible insurers in such amounts and against such risks and
losses as are customary for companies conducting the business as conducted by
Acquiror and its Subsidiaries.
(t) CERTAIN CONTRACTS. Except as set forth in ss.4(t) of the Acquiror
Disclosure Letter, all material to which Acquiror or any of its Subsidiaries is
a party or may be bound that are required by Item 610(b)(10) of Regulation S-K
to be filed as exhibits to, or incorporated by reference in, the Acquiror 10-K
or the Acquiror 10-Q have been so filed or incorporated by reference. All
material contracts to which Acquiror or any of its Subsidiaries is a party or
may be bound that have been entered into as of the date hereof and will be
required by Item 610(b)(10) of Regulation S-K to be filed or incorporated by
reference into Acquiror's Quarterly Report on Form 10-Q for the period ending
September 30, 1999, but which have not previously been filed or incorporated by
reference into any Acquiror Reports, are set forth in ss.4(t) of the Acquiror
Disclosure Letter. All contracts, licenses, consents, royalty or other
agreements which are material to Acquiror and its Subsidiaries, taken as a
whole, to which Acquiror or any of its Subsidiaries is a party (the "ACQUIROR
CONTRACTS") are valid and in full force and effect on the date hereof except to
the extent they have previously expired in accordance with their terms or, to
the extent such invalidity would not reasonably be expected to have an Acquiror
Material Adverse Effect and, to Acquiror's knowledge, neither Acquiror nor any
of its Subsidiaries has violated any provision of, or committed or failed to
perform any act which with or without notice, lapse of time or both would
constitute a default under the provisions of, any Acquiror Contract, except for
defaults which individually and in the aggregate would not reasonably be
expected to result in an Acquiror Material Adverse Effect.
(u) ACCOUNTING AND TAX MATTERS. To Acquiror's knowledge, neither
Acquiror nor any of its Affiliates has taken or agreed to take any action, or
knows of any circumstances, that (without regard to any action taken or agreed
to be taken or agreed to be taken by the Company or any of its Affiliates) would
prevent the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
5. COVENANTS. The Parties agree as follows with respect to the period
from and after the execution of this Agreement through and including the
Effective Time (except for ss.5(j), ss.5(l) and ss.5(q), which will apply from
and after the Effective Time in accordance with their respective terms and
ss.5(p) which will apply from the date hereof and shall survive after the
Closing).
(a) GENERAL. Each of the Parties will use all reasonable efforts to
take all actions and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in ss.6
below).
(b) NOTICES AND CONSENTS. The Company and Acquiror will give any
notices (and will cause each of their respective Subsidiaries to give any
notices) to third parties, and will use all reasonable efforts to obtain (and
will cause each of their respective Subsidiaries to use all reasonable efforts
to obtain) any third-party consents, that may be required in connection with the
matters referred to in ss.3(f) and ss.4(f) above (regardless of whether the
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failure to give such notice or obtain such consent would result in a Company
Material Adverse Effect or a Acquiror Material Adverse Effect).
(c) REGULATORY MATTERS AND APPROVALS. Each of the Parties, promptly
after the date hereof, will (and the Company, promptly after the date hereof,
will cause each of its Subsidiaries to) give any notices to, make any filings
with and use all reasonable efforts to obtain any authorizations, consents and
approvals of Government Entities in connection with the matters referred to in
ss.3(f) and ss.4(f) above. Without limiting the generality of the foregoing:
(i) FEDERAL SECURITIES LAWS. As promptly as practicable
following the date hereof, Acquiror shall, in cooperation with the
Company, prepare and file with the SEC preliminary proxy materials
which shall constitute the Joint Proxy Statement/Prospectus (such
proxy statement/prospectus, and any amendments or supplements thereto,
the "JOINT PROXY STATEMENT/PROSPECTUS") and a registration statement
on Form S-4 with respect to the issuance of Acquiror Shares in
connection with the Merger (such registration statement, and any
amendments or supplements thereto, the "REGISTRATION STATEMENT"), and
file with state securities administrators such registration statements
or other documents as may be required under applicable blue sky laws
to qualify or register such Acquiror Shares in such states as are
designated by the Company (the "BLUE SKY FILINGS"). The Joint Proxy
Statement/Prospectus will be included in the Registration Statement as
Acquiror's prospectus. The Registration Statement and the Joint Proxy
Statement/Prospectus shall comply as to form in all material respects
with the applicable provisions of the Securities Act and the Exchange
Act and the rules and regulations thereunder. Acquiror shall use all
reasonable efforts to have the Registration Statement declared
effective by the SEC as promptly as practicable after filing with the
SEC and to keep the Registration Statement effective as long as is
necessary to consummate the Merger. Acquiror agrees that none of the
information supplied or to be supplied by Acquiror for inclusion or
incorporation by reference in the Registration Statement and/or the
Joint Proxy Statement/Prospectus and each amendment or supplement
thereto, at the time of mailing thereof and at the time of the Company
Special Meeting or the Acquiror Special Meeting, will contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Company agrees that none of the information supplied
or to be supplied by the Company for inclusion or incorporation by
reference in the Joint Proxy Statement/Prospectus and each amendment
or supplement thereto, at the time of mailing thereof and at the time
of the Company Special Meeting or the Acquiror Special Meeting, will
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading. For purposes of the foregoing, it is
understood and agreed that information concerning or related to
Acquiror and the Acquiror Special Meeting will be deemed to have been
supplied by Acquiror, and information concerning or related to the
Company and the Company Special Meeting shall be deemed to have been
supplied by the Company. Acquiror will provide the Company with a
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reasonable opportunity to review and comment on the Joint Proxy
Statement/Prospectus and any amendment or supplement thereto prior to
filing such with the SEC, will provide the Company with a copy of all
such filings concurrent with their filing with the SEC and will notify
the Company as promptly as practicable after the receipt of any
comments from the SEC or its staff or from any state securities
administrators and of any request by the SEC or its staff or by any
state securities administrators for amendments or supplements to the
Registration Statement or any Blue Sky Filings or for additional
information, and will supply the Company and its legal counsel with
copies of all correspondence between Acquiror or any of its
representatives, on the one hand, and the SEC, its staff or any state
securities administrators, on the other hand, with respect to the
Registration Statement. No change, amendment or supplement to the
information supplied by the Company for inclusion in the Joint Proxy
Statement/Prospectus shall be made without the approval of the
Company, which approval shall not be unreasonably withheld or delayed.
If, at any time prior to the Effective Time, any event relating to the
Company or Acquiror or any of their respective Affiliates, officers or
directors is discovered by the Company or Acquiror, as the case may
be, that is required by the Securities Act or the Securities Exchange
Act to be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement/Prospectus, the Company or
Acquiror, as the case may be, will as promptly as practicable inform
the other, and such amendment or supplement will be promptly filed
with the SEC and disseminated to the stockholders of the Company and
Acquiror, to the extent required by applicable securities laws. All
documents which the Company or Acquiror files or is responsible for
filing with the SEC and any other regulatory agency in connection with
the Merger (including, without limitation, the Registration Statement
and the Joint Proxy Statement/Prospectus) will comply as to form and
content in all material respects with the provisions of applicable
law. Notwithstanding the foregoing, the Company, on the one hand, and
Acquiror, on the other hand, make no representations or warranties
with respect to any information that has been supplied in writing by
the other, or the other's auditors, attorneys or financial advisors,
specifically for use in the Registration Statement or the Joint Proxy
Statement/Prospectus, or in any other documents to be filed with the
SEC or any other regulatory agency expressly for use in connection
with the transactions contemplated hereby.
(ii) STATE CORPORATION LAW. The Company will take all
action, to the extent necessary in accordance with applicable law, its
certificate of incorporation and by-laws to convene a special meeting
of its stockholders (the "COMPANY SPECIAL MEETING"), as soon as
reasonably practicable in order that its stockholders may consider and
vote upon the adoption of this Agreement and the approval of the
Merger in accordance with the Massachusetts Business Corporation Law.
Acquiror will take all action, to the extent necessary in accordance
with applicable law, its certificate of incorporation and by-laws to
convene a special meeting of its stockholders (the "ACQUIROR SPECIAL
MEETING"), as soon as reasonably practicable in order that its
stockholders may consider and vote upon the adoption of this Agreement
and the approval of the Merger in accordance with the Delaware
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Business Corporation Law, the issuance of Acquiror Shares in
connection with the Merger as provided in this Agreement as required
by the rules of Nasdaq and an amendment to the certificate of
incorporation of Acquiror to increase the number of authorized
Acquiror Shares. The Company and Acquiror shall mail the Joint Proxy
Statement/Prospectus to their respective stockholders simultaneously
and as soon as reasonably practicable. Subject to ss.5(h)(iv) and
ss.5(i)(iv) below, the Joint Proxy Statement/Prospectus shall contain
the affirmative unanimous recommendations of the Company Board in
favor of the adoption of this Agreement and the approval of the Merger
and of the Acquiror Board in favor of issuance of Acquiror Shares in
connection with the Merger as provided in the Agreement as required by
the rules of Nasdaq and the increase in the number of authorized
Acquiror Shares in accordance with the Delaware General Corporation
Law.
(iii) PERIODIC REPORTS. Each of the Parties and its counsel
shall be given an opportunity to review each Form 10-K and Form 10-Q
(and any amendments thereto) to be filed by the other Party under the
Securities Exchange Act prior to their being filed with the SEC and
Nasdaq, and shall be provided with final copies thereof concurrently
with their filing with the SEC.
(d) OPERATION OF THE COMPANY'S BUSINESS. Except as set forth in
ss.5(d) of the Company Disclosure Letter or as otherwise expressly contemplated
by this Agreement, the Company will not (and will not cause or permit any of its
Subsidiaries to), without the written consent of Acquiror, take any action or
enter into any transaction other than in the ordinary course of business
consistent with past practice. Without limiting the generality of the foregoing,
except as expressly provided in this Agreement or ss.5(d) of the Company
Disclosure Letter, without the written consent of Acquiror:
(i) none of the Company and its Subsidiaries will authorize
or effect any change in its charter or by-laws or comparable
organizational document;
(ii) none of the Company and its Subsidiaries will grant any
Stock Rights or issue, sell, authorize or otherwise dispose of any of
its capital stock, (x) except upon the conversion or exercise of Stock
Rights outstanding as of the date of this Agreement and (y) except for
stock options issued to employees of the Company and its Subsidiaries
in a manner consistent with past practice which (I) do not provide for
the issuance of more than 200,000 Company Shares in any calendar
quarter, (II) are issued only to new employees and employees promoted
after the date hereof, (III) are issued at not less than the market
price of the Company Stock on the date of grant, (IV) are not issued
to any executive officer or director of the Company and (V) do not
provide for accelerated vesting as a result of the Merger;
(iii) none of the Company and its Subsidiaries will sell,
lease, encumber or otherwise dispose of, or otherwise agree to sell,
lease, encumber or otherwise dispose of, any of its assets which are
material, individually or in the aggregate, to the Company and its
Subsidiaries taken as a whole, other than equipment sales from
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inventory arising in the ordinary course of business consistent with
past practice;
(iv) none of the Company and its Subsidiaries (other than
wholly-owned Subsidiaries) will declare, set aside or pay any dividend
or distribution with respect to its capital stock (whether in cash or
in kind);
(v) none of the Company and its Subsidiaries will split,
combine or reclassify any of its capital stock or redeem, repurchase
or otherwise acquire any of its capital stock;
(vi) none of the Company and its Subsidiaries will acquire
or agree to acquire by merger or consolidation with, or by purchasing
a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business of any Person or
division thereof or otherwise acquire or agree to acquire any assets
(other than assets used in the operation of the business of the
Company and its Subsidiaries in the ordinary course consistent with
past practice);
(vii) none of Company or its Subsidiaries will incur or
commit to any capital expenditures other than capital expenditures
incurred or committed to in the ordinary course of business consistent
with past practice and which, together with all such expenditures
incurred or committed since January 1, 1999, are not in excess of the
respective amounts by category or in the aggregate set forth in the
Company's capital expenditure budget, as previously disclosed to
Acquiror or, if the Closing Date has not occurred prior to December
31, 1999, such additional amounts for any subsequent period as may be
consented to by Acquiror, such consent not to be unreasonably
withheld, or, if Acquiror shall not have so consented, an amount not
greater than an amount equal to a pro rata portion of the Company's
1999 capital expenditure budget;
(viii) none of the Company or its Subsidiaries will (x)
other than in connection with actions permitted by ss.5(d)(vi), make
any loans, advances or capital contributions to, or investments in,
any other Person, other than by the Company or a Subsidiary of the
Company to or in the Company or any Subsidiary of the Company, (y)
pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise),
other than payments, discharges or satisfactions incurred or committed
to in the ordinary course of business consistent with past practice or
(z) other than in connection with actions permitted by ss.5(d)(vi),
create, incur, assume or suffer to exist any indebtedness, issuances
of debt securities, guarantees, Security Interests, loans or advances
not in existence as of the date of this Agreement except pursuant to
the credit facilities, indentures and other arrangements in existence
on the date of this Agreement and incurred in the ordinary course of
business consistent with past practice, and any other indebtedness
existing on the date of this Agreement, in each case as such credit
facilities, indentures, other arrangements and other existing
indebtedness may be amended, extended, modified, refunded, renewed or
refinanced after the date of this Agreement, but only if the aggregate
principal amount thereof is not increased thereby, the term thereof is
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not extended thereby and the other terms and conditions thereof, taken
as a whole, are not less advantageous to the Company and its
Subsidiaries than those in existence as of the date of this Agreement;
(ix) none of the Company and its Subsidiaries will make any
change in employment terms for any of its directors, officers and
employees other than (A) customary increases to employees whose total
annual cash compensation is less than $120,000 awarded in the ordinary
course of business consistent with past practices, and (B) customary
employee bonuses (including to employees who are officers) approved by
the Company Board and paid in the ordinary course of business
consistent with past practices and (C) immaterial changes to Company
Benefit Plans;
(x) except as disclosed in the Company Reports filed prior
to the date of this Agreement, the Company will not change its methods
of accounting in effect at December 31, 1998 in a manner materially
affecting the consolidated assets, liabilities or results of
operations of the Company, except as required by changes in GAAP as
concurred in by the Company's independent auditors, and the Company
will not (i) change its fiscal year or (ii) make any material tax
election, other than in the ordinary course of business consistent
with past practice;
and (xi) none of the Company and its Subsidiaries will
resolve or commit to any of the foregoing.
In the event the Company shall request Acquiror to consent in writing
to an action otherwise prohibited by this ss.5(d), Acquiror shall use reasonable
efforts to respond in a prompt and timely fashion (but in no event later than
ten (10) business days following such request), but may otherwise respond
affirmatively or negatively in its sole discretion.
(e) OPERATION OF ACQUIROR'S BUSINESS. Except as set forth in ss.5(e)
of the Acquiror Disclosure Letter or as otherwise contemplated by this
Agreement:
(i) none of Acquiror and its Subsidiaries will authorize or
effect any change in its charter or by-laws or comparable
organizational document except for such amendments to its charter,
by-laws or other comparable charter or organizational documents that
do not have an adverse affect on the Merger and the other transactions
contemplated hereby;
(ii) none of Acquiror and its Subsidiaries will grant any
Stock Rights or issue, sell, authorize or otherwise dispose of any of
its capital stock, except (x) upon the conversion or exercise of Stock
Rights outstanding as of the date of this Agreement or issued pursuant
to the following clauses (y) and (z); (y) stock options issued to
employees of the Acquiror and its Subsidiaries in a manner consistent
with past practice which (I) do not provide for the issuance of more
than 200,000 Acquiror Shares in any calendar quarter, (II) are issued
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only to new employees and employees promoted after the date hereof,
(III) are issued at not less than the market price of the Acquiror
Stock on the date of grant, (IV) are not issued to any executive
officer or director of the Acquiror and (V) do not provide for
accelerated vesting as a result of the Merger; and (z) Stock Rights
and capital stock issued as consideration for acquisitions as
permitted by ss.5(e)(vi);
(iii) none of Acquiror and its Subsidiaries will sell,
lease, encumber or otherwise dispose of, or otherwise agree to sell or
otherwise dispose of, any of its assets which are material,
individually or in the aggregate, to Acquiror and its Subsidiaries
taken as a whole, other than equipment sales from inventory arising in
the ordinary course of business consistent with past practice;
(iv) none of Acquiror and its Subsidiaries (other than
wholly owned Subsidiaries) will declare, set aside or pay any dividend
or distribution with respect to its capital stock (whether in cash or
in kind);
(v) none of Acquiror and its Subsidiaries will split,
combine or reclassify any of its capital stock or redeem, repurchase
or otherwise acquire any of its capital stock;
(vi) without Prior Consultation, none of Acquiror and its
Subsidiaries will acquire or agree to acquire by merger or
consolidation with, or by purchasing a substantial equity interest in
or a substantial portion of the assets of, or by any other manner, any
business of any Person or division thereof or otherwise acquire or
agree to acquire any substantial assets in a single transaction or
series of related transactions;
(vii) without Prior Consultation, none of Acquiror or its
Subsidiaries will incur or commit to any capital expenditures other
than capital expenditures incurred or committed to in the ordinary
course of business consistent with past practice; (viii) without Prior
Consultation, none of Acquiror or its Subsidiaries will (A) other than
in connection with actions permitted by ss.5(e)(vii), make any loans,
advances or capital contributions to, or investments in, any other
Person, other than by Acquiror or a Subsidiary of Acquiror to or in
Acquiror or any Subsidiary of Acquiror, (B) pay, discharge or satisfy
any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than loans, advances,
capital contributions, investments, payments, discharges or
satisfactions incurred or committed to in the ordinary course of
business consistent with past practice or (C) other than in connection
with actions permitted by ss.5(e)(vii), create, incur, assume or
suffer to exist any indebtedness, issuances of debt securities,
guarantees, Security Interests, loans or advances not in existence as
of the date of this Agreement except pursuant to the credit
facilities, indentures and other arrangements in existence on the date
of this Agreement and incurred in the ordinary course of business
consistent with past practice, and any other indebtedness existing on
the date of this Agreement, in each case as such credit facilities,
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indentures, other arrangements and other existing indebtedness may be
amended, extended, exchanged, modified, refunded, renewed or
refinanced after the date of this Agreement, but only if the aggregate
principal amount thereof is not increased thereby, the term thereof is
not extended thereby and the other terms and conditions thereof, taken
as a whole, are not less advantageous to Acquiror and its Subsidiaries
than those in existence as of the date of this Agreement;
(ix) none of the Acquiror and its Subsidiaries will make any
change in employment terms for any of its directors, officers and
employees other than (A) customary increases to employees whose total
annual cash compensation is less than $120,000 awarded in the ordinary
course of business consistent with past practices, and (B) customary
employee bonuses (including to employees who are officers) approved by
the Acquiror Board and paid in the ordinary course of business
consistent with past practices and (C) immaterial changes to Acquiror
Benefit Plans;
(x) Acquiror will not change its methods of accounting in
effect at December 31, 1998 in a manner materially affecting the
consolidated assets, liabilities or operating results of Acquiror,
except as required by changes in GAAP as concurred in by Acquiror's
independent auditors, and Acquiror will not (i) change its fiscal year
or (ii) make any material tax election, other than in the ordinary
course of business consistent with past practice; and
(xi) none of Acquiror and its Subsidiaries will resolve or
commit to any of the foregoing (A) which requires the Company's
consent unless it has obtained such consent or (B) which requires
Prior Consultation unless it has afforded Prior Consultation.
In the event Acquiror shall request the Company to consent in writing
to an action otherwise prohibited by this ss. 5(e), the Company shall use
reasonable efforts to respond in a prompt and timely fashion (but in no event
later than ten (10) business days following such request), but may otherwise
respond affirmatively or negatively in its sole discretion.
(f) ACCESS. Each Party will (and will cause each of its Subsidiaries
to) permit representatives of the other Party to have access at all reasonable
times and in a manner so as not to materially interfere with the normal business
operations of the Company and its Subsidiaries, or Acquiror and its
Subsidiaries, as applicable, to all premises, properties, personnel, books,
records (including without limitation tax and financial records), contracts and
documents of or pertaining to such Party. Each Party and all of its respective
representatives will treat and hold as such any Confidential Information it
receives from the other Party or any of its representatives in accordance with
the Confidentiality Agreement.
(g) NOTICE OF DEVELOPMENTS. Each Party will give prompt written notice
to the others of any material adverse development causing a breach of any of its
own representations and warranties in ss.3 and ss.4 above. No disclosure by any
Party pursuant to this ss.5(g), however, shall be deemed to amend or supplement
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the Company Disclosure Letter or Acquiror Disclosure Letter or to prevent or
cure any misrepresentation, breach of warranty or breach of covenant.
(h) COMPANY EXCLUSIVITY.
(i) The Company shall, and shall cause its Subsidiaries and
Representatives to, immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or
negotiation with any Persons conducted heretofore by the Company, its
Subsidiaries or any of their respective Affiliates, officers,
directors, employees, financial advisors, agents or representatives
(each a "REPRESENTATIVE") with respect to any proposed, potential or
contemplated Acquisition Proposal.
(ii) From and after the date hereof, without the prior
written consent of Acquiror, the Company will not authorize or permit
any of its Subsidiaries to, and shall cause any and all of its
Representatives not to, directly or indirectly, (A) solicit, initiate,
or encourage any inquiries or proposals that constitute, or could
reasonably be expected to lead to, an Acquisition Proposal, or (B)
engage in negotiations or discussions with any Third Party concerning,
or provide any non-public information to any person or entity relating
to, an Acquisition Proposal, or (C) enter into any letter of intent,
agreement in principle or any acquisition agreement or other similar
agreement with respect to any Acquisition Proposal; PROVIDED, HOWEVER,
that nothing contained in this ss.5(h)(ii) shall prevent the Company
or the Company Board prior to receipt of the Requisite Stockholder
Approval of the Company Stockholders, from furnishing non-public
information to, or entering into discussions or negotiations with, any
Third Party in connection with an unsolicited, bona fide written
proposal for an Acquisition Proposal by such Third Party, if and only
to the extent that (1) such Third Party has made a written proposal to
the Company Board to consummate an Acquisition Proposal, (2) the
Company Board determines in good faith, based upon the advice of a
financial advisor of nationally recognized reputation, that such
Acquisition Proposal is reasonably capable of being completed on
substantially the terms proposed, and would, if consummated, result in
a transaction that would provide greater value to the holders of the
Company Shares than the transaction contemplated by this Agreement (a
"SUPERIOR PROPOSAL"), (3) the failure to take such action would, in
the reasonable good faith judgment of the Company Board, based upon a
written opinion of Company outside legal counsel, be a violation of
its fiduciary duties to the Company's stockholders under applicable
law, and (4) prior to furnishing such non-public information to, or
entering into discussions or negotiations with, such Person, the
Company Board receives from such Person an executed confidentiality
agreement with material terms no less favorable to the Company than
those contained in the Confidentiality Agreement and provides prior
notice of its decision to take such action to Acquiror. The Company
agrees not to release any Third Party from, or waive any provision of,
any standstill agreement to which it is a party or any confidentiality
agreement between it and another Person who has made, or who may
reasonably be considered likely to make, an Acquisition Proposal,
unless the failure to take such action would, in the reasonable good
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faith judgment of the Company Board, based upon written opinion of
Company outside legal counsel, be a violation of its fiduciary duties
to the Company Stockholders under applicable law and such action is
taken prior to receipt of the Requisite Stockholder Approval of the
Company Stockholders. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in the preceding
sentence by any Representative of the Company or any of its
Subsidiaries shall be deemed to be a breach of this ss.5(h) by the
Company.
(iii) The Company shall notify Acquiror promptly after
receipt by the Company or the Company's knowledge of the receipt by
any of its Representatives of any Acquisition Proposal or any request
for non-public information in connection with an Acquisition Proposal
or for access to the properties, books or records of the Company by
any Person that informs such party that it is considering making or
has made an Acquisition Proposal. Such notice shall be made orally and
in writing and shall indicate the identity of the offeror and the
terms and conditions of such proposal, inquiry or contact. The Company
shall keep Acquiror informed of the status (including any change to
the material terms) of any such Acquisition Proposal or request for
non-public information.
(iv) The Company Board may not withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Acquiror, the
approval or recommendation by the Company Board of this Agreement or
the Merger unless, following the receipt of a Superior Proposal but
prior to receipt of the Requisite Stockholder Approval of the Company
Stockholders, in the reasonable good faith judgment of the Company
Board, based upon the written opinion of Company's outside legal
counsel, the failure to do so would be a violation of the Company
Board's fiduciary duties to the Company's stockholders under
applicable law; PROVIDED, HOWEVER, that, the Company Board shall
submit this Agreement and the Merger to the Company's stockholders for
adoption and approval, whether or not the Company Board at any time
subsequent to the date hereof determines that this Agreement is no
longer advisable or recommends that the stockholders of the Company
reject it or otherwise modifies or withdraws its recommendation.
Unless the Company Board has withdrawn its recommendation of this
Agreement in compliance herewith, the Company shall use its best
efforts to solicit from the Company's stockholders proxies in favor of
the adoption and approval of this Agreement and the Merger and to
secure the vote or consent of the Company's stockholders required by
the Massachusetts Business Corporation Law and its articles of
incorporation and by-laws to adopt and approve this Agreement and the
Merger.
(i) ACQUIROR EXCLUSIVITY.
(i) Acquiror shall, and shall cause its Subsidiaries and
Representatives to, immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or
negotiation with any Persons conducted heretofore by Acquiror, its
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Subsidiaries or any of its Representatives with respect to any
proposed, potential or contemplated Acquiror Acquisition Proposal the
consummation of which would be reasonably expected to (x) result in a
material delay in the Effective Time or (y) materially and adversely
impact the likelihood of obtaining any Required Company Consent or
Required Acquiror Consent other than those the failures to obtain
would not result in either a Company Material Adverse Effect or a
Acquiror Material Adverse Effect (a "PROHIBITED ACQUIROR ACQUISITION
PROPOSAL").
(ii) From and after the date hereof, Acquiror will notify
the Company of any Acquiror Acquisition Proposal of which notice is
given to the Acquiror Board. Such notice to the Company will be made
promptly after such notice to the Acquiror Board, but will be
conditional upon an appropriate confidentiality Agreement. Without the
prior written consent of the Company, Acquiror will not authorize or
permit any of its Subsidiaries to, and shall cause any and all of its
Representatives not to, directly or indirectly, (A) solicit, initiate,
or encourage any inquiries or proposals that constitute, or could
reasonably be expected to lead to, a Prohibited Acquiror Acquisition
Proposal, or (B) engage in negotiations or discussions with any
Acquiror Third Party concerning, or provide any nonpublic information
to any person or entity relating to, a Prohibited Acquiror Acquisition
Proposal, or (C) enter into any letter of intent, agreement in
principle or any acquisition agreement or other similar agreement with
respect to any Prohibited Acquiror Acquisition Proposal; PROVIDED,
HOWEVER, that nothing contained in this ss.5(i)(ii) shall prevent
Acquiror or the Acquiror Board from, prior to receipt of the Requisite
Stockholder Approval of the Acquiror Stockholders, furnishing
nonpublic information to, or entering into discussions or negotiations
with, any Acquiror Third Party in connection with an unsolicited, bona
fide written proposal for a Prohibited Acquiror Acquisition Proposal
by such Acquiror Third Party, if and only to the extent that (1) such
Acquiror Third Party has made a written proposal to the Acquiror Board
to consummate a Prohibited Acquiror Acquisition Proposal, (2) the
Acquiror Board determines in good faith, based upon the advice of a
financial advisor of nationally recognized reputation, that such
Prohibited Acquiror Acquisition Proposal is reasonably capable of
being completed on substantially the terms proposed, and would, if
consummated, result in a transaction that would provide greater value
to the holders of the Acquiror Shares than the transaction
contemplated by this Agreement (an "ACQUIROR SUPERIOR PROPOSAL"), (3)
the failure to take such action would, in the reasonable good faith
judgment of the Acquiror Board, based upon a written opinion of
Acquiror's outside legal counsel, be a violation of its fiduciary
duties to the Acquiror's stockholders under applicable law, and (4)
prior to furnishing such nonpublic information to, or entering into
discussions or negotiations with, such Person, the Acquiror Board
receives from such Person an executed confidentiality agreement with
material terms no less favorable to Acquiror than those contained in
the Confidentiality Agreement. Acquiror agrees not to release any
Acquiror Third Party from, or waive any provision of, any standstill
agreement to which it is a party or any confidentiality agreement
between it and another Person who has made, or who may reasonably be
considered likely to make, a Prohibited Acquiror Acquisition Proposal,
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unless the failure to take such action would, in the reasonable good
faith judgment of the Acquiror Board, based upon the written opinion
of Acquiror's outside legal counsel, be a violation of its fiduciary
duties to the Acquiror's stockholders under applicable law and such
action is taken prior to receipt of the Requisite Stockholder Approval
of the Acquiror Stockholders. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the
preceding sentence by any director or officer of Acquiror or any of
its Subsidiaries or any investment bank, financial advisor, attorney,
accountant or other representative of Acquiror or any of its
Subsidiaries shall be deemed to be a breach of this ss.5(i)(ii) by
Acquiror. A Acquiror Acquisition Proposal shall be deemed a Prohibited
Acquiror Acquisition Proposal at the time (and not before) the
Acquiror Board is first notified of such Acquiror Acquisition
Proposal, and at any time that the Acquiror Board is notified of a
significant development with respect to such Acquiror Acquisition
Proposal, unless the Acquiror Board in good faith determines that such
Acquiror Acquisition Proposal is not, and is not reasonably likely to
become, a Prohibited Parent Acquisition Proposal.
(iii) Acquiror shall notify the Company promptly after
receipt by Acquiror or Acquiror's knowledge of the receipt by any of
its Representatives of any Prohibited Acquiror Acquisition Proposal or
any request for non-public information in connection with a Prohibited
Acquiror Acquisition Proposal or for access to the properties, books
or records of Acquiror by any Person that informs such party that it
is considering making or has made a Prohibited Acquiror Acquisition
Proposal. Such notice shall be made orally and in writing and shall
indicate the identity of the offeror and the terms and conditions of
such proposal, inquiry or contact. Acquiror shall keep the Company
informed of the status (including any change to the material terms) of
any such Prohibited Acquiror Acquisition Proposal or request for
nonpublic information.
(iv) The Acquiror Board may not withdraw or modify, or
propose to withdraw or modify, in a manner adverse to the Company, the
approval or recommendation by the Acquiror Board of this Agreement or
the Merger unless, following the receipt of a Acquiror Superior
Proposal but prior to receipt of the Requisite Stockholder Approval of
the Acquiror stockholders, in the reasonable good faith judgment of
the Acquiror Board, based upon the written opinion of Acquiror's
outside legal counsel, the failure to do so would be a violation of
the Acquiror Board's fiduciary duties to the Acquiror's stockholders
under applicable law; PROVIDED, HOWEVER, that the Acquiror Board shall
submit the Merger to the Acquiror stockholders for adoption and
approval, whether or not the Acquiror Board at any time subsequent to
the date hereof determines that this Agreement is no longer advisable
or recommends that the stockholders of the Acquiror reject the Merger
or otherwise modifies or withdraws its recommendation. Unless the
Acquiror Board has withdrawn its recommendation of the Merger in
compliance herewith, Acquiror shall use its best efforts to solicit
from the Acquiror stockholders proxies in favor of the adoption and
approval of the Merger and to secure the vote or consent of the
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Acquiror's stockholders required by Nasdaq and the Delaware General
Corporation Law.
(v) Prior to taking any action with respect to a Acquiror
Acquisition Proposal which is not a Prohibited Acquiror Acquisition
Proposal equivalent to those permitted by clauses (A), (B) or (C) of
ss.5(i)(ii), Acquiror shall notify each Acquiror Third Party which is
the object of or a party to such action of the limitation on
Prohibited Acquiror Acquisition Proposals set forth in this ss.5(i),
and Acquiror shall not enter into any letter of intent, agreement in
principle or any acquisition agreement or other similar agreement with
respect to any Acquiror Acquisition Proposal unless such letter or
agreement includes a covenant of the applicable Acquiror Third Party
not to take any action which would cause such Acquiror Acquisition
Proposal to become a Prohibited Acquiror Acquisition Proposal.
(j) INSURANCE AND INDEMNIFICATION.
(i) Surviving Corporation will provide each individual who
served as a director or officer of the Company at any time prior to
the Effective Time with liability insurance for a period of six years
after the Effective Time no less favorable in coverage and amount than
any applicable insurance of the Company in effect immediately prior to
the Effective Time; PROVIDED, HOWEVER, that if the existing liability
insurance expires, or is terminated or canceled by the insurance
carrier during such six-year period, the Surviving Corporation will
use its reasonable best efforts to obtain comparable insurance for the
remainder of such period on a commercially reasonable basis; PROVIDED
FURTHER, HOWEVER, that in the event any claim or claims are asserted
within such period, all rights to indemnification in respect of such
claim or claims shall continue until the final disposition thereof;
(ii) After the Effective Time, Surviving Corporation (A)
will not take or permit to be taken any action to alter or impair any
exculpatory or indemnification provisions now existing in the
certificate of incorporation, by-laws or indemnification and
employment agreements of the Company or any of its Subsidiaries for
the benefit of any individual who served as a director or officer of
the Company or any of its Subsidiaries (an "INDEMNIFIED PARTY") at any
time prior to the Effective Time (except as may be required by
applicable law), and (B) shall cause the Surviving Corporation to
honor and fulfill such provisions until the date which is six years
from the Effective Time (except as may be required by applicable law);
PROVIDED, HOWEVER, that in the event any claim or claims are asserted
within such period, all rights to indemnification in respect of such
claim or claims shall continue until the final disposition thereof.
(iii) To the extent clauses (i) and (ii) above shall not
serve to indemnify and hold harmless an Indemnified Party, Surviving
Corporation, subject to the terms and conditions of this clause (iii),
will indemnify, for a period of six years from the Effective Time, to
the fullest extent permitted under applicable law, each Indemnified
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Party from and against any and all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, liabilities,
obligations, taxes, liens, losses, expenses and fees, including all
court costs and reasonable attorneys' fees and expenses, resulting
from, arising out of, relating to or caused by this Agreement or any
of the transactions contemplated herein; PROVIDED, HOWEVER, that in
the event any claim or claims are asserted or threatened within such
six-year period, all rights to indemnification in respect of any such
claim or claims shall continue until final disposition of any and all
such claims. Any Indemnified Party wishing to claim indemnification
under this clause (iii), notwithstanding anything to the contrary in
the provisions set forth in the Company's or the Surviving
Corporation's certificate of incorporation, by-laws or other
agreements respecting indemnification of directors or officers, upon
learning of any such claim, action, suit, proceeding or investigation,
shall promptly notify Surviving Corporation thereof, but the failure
to so notify shall not relieve Surviving Corporation of any liability
it may have to such Indemnified Party if such failure does not
materially prejudice Surviving Corporation. In the event of any such
claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (A) Acquiror or the Surviving
Corporation shall have the right following the Effective Time to
assume the defense thereof and Surviving Corporation shall not be
liable to such Indemnified Parties for any legal expenses of other
counsel or any other expenses subsequently incurred by such
Indemnified Parties in connection with the defense thereof, except
that if Acquiror or the Surviving Corporation fails to assume such
defense or counsel for the Indemnified Party advises that there are
issues which raise conflicts of interest between Acquiror or the
Surviving Corporation, on the one hand, and the Indemnified Parties,
on the other hand, the Indemnified Parties may retain counsel
satisfactory to them, and the Company, Surviving Corporation shall pay
all reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received; PROVIDED,
HOWEVER, that Surviving Corporation shall be obligated to pay for only
one firm of counsel for all Indemnified Parties in any jurisdiction
unless the use of one counsel for such Indemnified Parties would
present such counsel with a conflict of interest, in which case
Surviving Corporation need only pay for separate counsel to the extent
necessary to resolve such conflict; (B) the Indemnified Parties will
reasonably cooperate in the defense of any such matter; and (C)
Surviving Corporation shall not be liable for any settlement
effectuated without its prior written consent, which consent shall not
be unreasonably withheld or delayed. Surviving Corporation shall not
settle any action or claim identified in this ss.5(j)(iii) in any
manner that would impose any liability or penalty on an Indemnified
Party not paid by Acquiror or the Surviving Corporation without such
Indemnified Party's prior written consent, which consent shall not be
unreasonably withheld or delayed.
(iv) Notwithstanding anything contained in clause (iii)
above, Surviving Corporation shall not have any obligation hereunder
to any Indemnified Party (A) if the indemnification of such
Indemnified Party by Surviving Corporation in the manner contemplated
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hereby is prohibited by applicable law, (B) the conduct of the
Indemnified Party relating to the matter for which indemnification is
sought involved bad faith or willful misconduct of such Indemnified
Party, or (C) with respect to actions taken by any such Indemnified
Party in his or its individual capacity, including, without
limitations, with respect to any matters relating, directly or
indirectly, to the purchase, sale or trading of securities issued by
the Company other than a tender or sale pursuant to a stock tender
agreement or (D) if such Indemnified Party shall have breached its
obligation to cooperate with Surviving Corporation in the defense of
any claim in respect of which indemnification is sought and such
breach (x) materially and adversely affects Surviving Corporation's
defense of such claim or (y) will materially and adversely affect
Surviving Corporation's defense of such claim if such breach is not
cured within ten days after notice of such breach is delivered to the
Indemnified Party and such breach is not cured during such period.
(k) FINANCIAL STATEMENTS.
(i) As soon as they are made available to and reviewed by
senior management of the Company, the Company shall make available to
Acquiror the internally generated monthly, quarterly (including
quarterly statements for the three-month period ended September 25,
1999) and annual financial statements of the Company, consisting of
consolidated balance sheets, and consolidated statements of income and
of cash flows.
(ii) As soon as they are made available to and reviewed by
senior management of Acquiror, Acquiror shall make available to the
Company the internally generated monthly, quarterly (including,
quarterly statements for the three-month period ended September 30,
1999) and annual financial statements, consisting of consolidated
balance sheets, and consolidated statements of income and of cash
flows.
(l) CONTINUITY OF BUSINESS ENTERPRISE. Acquiror, Surviving Corporation
or any other member of the qualified group (as defined in Treasury Regulation
ss.1.368-1(d)) shall, for the foreseeable future, continue at least one
significant historic business line of the Company or use at least a significant
portion of the Company's historic business assets in a business, in each case
within the meaning of Treasury Regulation ss.1.368-1(d).
(m) ACQUIROR BOARD OF DIRECTORS. At or before the Effective Time, the
Board of Directors of Acquiror will take all action necessary to cause the
number of directors constituting the Acquiror Board of Directors to be fixed at
nine directors and to elect the Chief Executive Officer of the Company and three
independent directors (as defined in National Association of Securities Dealers
Rule 4200(a)(13)) designated by the Company Board to the Acquiror Board. In
addition, at the next annual meeting of Acquiror's stockholders held after the
Effective Time, Acquiror shall cause to be nominated, and Acquiror shall
undertake its commercially reasonable efforts to cause to be elected:
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(i) the Chief Executive Officer of the Company as a Class II
director, to serve until the annual meeting of the Acquiror
Stockholders in 2003;
(ii) two of such independent directors designated by the
Company Board, as Class I directors, to serve until the annual meeting
of the Acquiror's Stockholders in 2002; and
(iii) the other such independent director designated by the
Company Board as a Class III director, to serve until the annual
meeting of the Acquiror Stockholders in 2001.
(n) RULE 145 AFFILIATES. Prior to the Closing Date, the Company shall
deliver to Acquiror a letter identifying all persons who were, at the date of
the Company Special Meeting, "affiliates" of the Company for purposes of Rule
145 under the Securities Act. The Company shall use its reasonable efforts to
cause each such person to deliver to Acquiror on or prior to the Closing Date a
written agreement substantially in the form attached as Exhibit A.
(o) NASDAQ LISTING. Acquiror shall use all reasonable efforts to cause
the Acquiror Shares to be issued in connection with the Merger and under the
Company Benefit Plans to be approved for listing on Nasdaq, subject to official
notice of issuance, prior to the Closing Date.
(p) TAX FREE TREATMENT. The Parties intend the Merger to qualify as a
reorganization under Section 368(a) of the Code. Each Party shall use reasonable
efforts, and shall undertake reasonable efforts to cause its Affiliates to use
reasonable efforts, to cause the Merger to so qualify and to obtain the opinions
referred to in ss. 6(a)(ix) and ss. 6(b)(vii). For purposes of the tax opinions
described in ss. 6(a)(ix) and ss. 6(b)(vii), counsel may receive and rely upon
representations, including those contained in this Agreement or in separate
certificates, of the parties hereto and others. Acquiror and the Company and
each of their respective Affiliates shall not take any action and shall not fail
to take any action or suffer to exist any condition which action or failure to
act or condition would prevent, or would be reasonably likely to prevent, the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code.
(q) COMPANY EMPLOYEE PLANS. After the Effective Time, Surviving
Corporation shall arrange for each employee participating in any of the Company
Benefits Plans to participate in any counterpart benefit plans of Acquiror or
its Subsidiaries (as appropriate) in accordance with the eligibility criteria
thereof, provided that (i) such participants shall receive full credit for years
of service with the Company or any of its Subsidiaries prior to the Effective
Time for all purposes for which such service was recognized under the Company
Benefit Plans and (ii) such participants shall participate in the Acquiror
Benefit Plans on terms no less favorable than those offered by Acquiror to
similarly situated employees of Acquiror or its Subsidiaries. Surviving
Corporation shall give credit under its applicable employee welfare benefit
plans for all copayments, deductibles and out-of-pocket maximums satisfied by
employees (and their eligible dependents) of the Company (and its Subsidiaries),
in respect of the calendar year in which the Closing Date occurs. Surviving
Corporation shall waive all pre-existing conditions (to the extent waived under
the applicable employee welfare benefit plans of the Company and its
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Subsidiaries) otherwise applicable to employees of the Company and its
Subsidiaries under Acquiror's employee welfare benefit plans in which employees
of the Company (and its Subsidiaries) become eligible to participate on or
following the Closing. Notwithstanding the foregoing, Surviving Corporation may
continue (or cause the Surviving Corporation to continue) one or more of the
Company Benefit Plans, in which case Surviving Corporation shall have satisfied
its obligations hereunder with respect to the benefits so provided if the terms
of the Company Benefit Plans which are continued are no less favorable, as a
whole, than the terms of the counterpart plans of Acquiror and its Subsidiaries
(as applicable).
(r) LETTER OF THE COMPANY'S ACCOUNTANTS. The Company shall use all
reasonable efforts to cause to be delivered to Acquiror a letter of BDO Seidman
LLP, the Company's independent auditors, dated a date within two business days
before the date on which the Registration Statement shall become effective and
addressed to Acquiror, in form reasonably satisfactory to Acquiror and customary
in scope and substance for letters delivered by independent public accountants
in connection with registration statements similar to the Registration
Statement.
(s) LETTER OF ACQUIROR'S ACCOUNTANTS. Acquiror shall use all
reasonable efforts to cause to be delivered to the Company a letter of Arthur
Andersen LLP, Acquiror's independent auditors, dated a date within two business
days before the date on which the Registration Statement shall become effective
and addressed to the Company, in form reasonably satisfactory to the Company and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement.
6. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF ACQUIROR. The obligation of Acquiror
to consummate the Merger is subject to satisfaction or waiver by Acquiror of the
following conditions at or prior to the Closing Date:
(i) this Agreement and the Merger shall have received the
Requisite Stockholder Approvals;
(ii) the Company and its Subsidiaries shall have obtained
the Required Company Consents, other than those Required Company
Consents the failure of which to obtain would not reasonably be
expected to have a Company Material Adverse Effect and Acquiror shall
have obtained the Required Acquiror Consents, other than those
Required Acquiror Consents the failure of which to obtain would not
reasonably be expected to have an Acquiror Material Adverse Effect;
(iii) the representations and warranties set forth in ss.3
above shall be true and correct in all material respects at and as of
the Closing Date, except for those representations and warranties
which address matters only as of a particular date (which shall have
been true and correct as of such date);
(iv) the Company shall have performed and complied with all
of its covenants hereunder in all material respects through the
Closing;
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(v) neither any statute, rule, regulation, order,
stipulation or injunction (each an "ORDER") shall be enacted,
promulgated, entered, enforced or deemed applicable to the Merger nor
any other action shall have been taken by any Government Entity (A)
which prohibits the consummation of the transactions contemplated by
the Merger; (B) which prohibits Acquiror's ownership or operation of
all or any material portion of their or the Company's business or
assets, or which compels Acquiror to dispose of or hold separate all
or any material portion of Acquiror's or the Company's business or
assets as a result of the transactions contemplated by the Merger; (C)
which makes the Merger illegal; (D) which imposes material limitations
on the ability of Acquiror to consummate the Merger; or (E) which
imposes any limitations on the ability of Acquiror or any of its
Subsidiaries effectively to control in any material respect the
business or operations of the Company or any of its Subsidiaries;
(vi) the Company shall have delivered to Acquiror a
certificate to the effect that each of the conditions specified above
in ss.6(a)(i)-ss.6(a)(iv) is satisfied in all respects; PROVIDED,
HOWEVER, with respect to ss.6(a)(i), the Company shall only be
required to certify that this Agreement and the Merger received the
Requisite Stockholder Approval of the Company Stockholders;
(vii) the Acquiror Shares to be issued in connection with
the Merger shall have been approved upon official notice of issuance
for quotation on Nasdaq, subject to official notice of issuance;
(viii) the Registration Statement shall have been declared effective
by the SEC under the Securities Act, and no stop order suspending the
effectiveness of the Registration Statement shall have been issued by
the SEC and no proceedings for that purpose shall have been initiated
or threatened by the SEC;
(ix) Acquiror shall have received a written opinion, dated
as of the Closing Date, from Kelley, Drye & Warren LLP, counsel to
Acquiror, to the effect that the Merger will be treated for U.S.
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code, and that Acquiror and the Company will
each be a party to that reorganization within the meaning of Section
368(b) of the Code; such counsel shall be entitled to rely upon
customary representations provided by the Parties; and
(x) holders of not more than $2,500,000 in value of Company
Shares (calculated based upon the Closing Price per Company Share as
of the date preceding the scheduled Closing Date) shall have exercised
and not withdrawn dissenters' rights with respect to their shares.
Subject to the provisions of applicable law, Acquiror may waive, in
whole or in part, any condition specified in this ss.6(a) if they execute a
writing so stating at or prior to the Closing.
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<PAGE>
(b) CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the
Company to consummate the Merger is subject to satisfaction or waiver by the
Company of the following conditions at or prior to the Closing Date:
(i) this Agreement and the Merger shall have received the
Requisite Stockholder Approvals;
(ii) Acquiror and its Subsidiaries shall have obtained the
Required Acquiror Consents, other than those Required Acquiror
Consents the failure of which to obtain would not reasonably be
expected to have a Acquiror Material Adverse Effect, and the Company
and its Subsidiaries shall have obtained the Required Company Consents
other than those Required Company Consents the failure of which to
obtain would not reasonably be expected to have a material adverse
effect on the business, financial condition or results of operations
of Acquiror, the Surviving Corporation and their Affiliates taken as a
whole;
(iii) the representations and warranties set forth in ss.4
above shall be true and correct in all material respects at and as of
the Closing Date, except for those representations and warranties
which address matters only as of a particular date (which shall have
been true and correct as of such date);
(iv) Acquiror shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(v) neither any Order shall be enacted, promulgated,
entered, enforced or deemed applicable to the Merger nor any other
action shall have been taken by any Government Entity (A) which
prohibits the consummation of the transactions contemplated by the
Merger; (B) which prohibits Acquiror's ownership or operation of all
or any material portion of their or the Company's business or assets,
or which compels Acquiror to dispose of or hold separate all or any
material portion of Acquiror's or the Company's business or assets as
a result of the transactions contemplated by the Merger; or (C) which
makes the Merger illegal;
(vi) Acquiror shall have delivered to the Company a
certificate to the effect that each of the conditions specified above
in ss.6(b)(i)-(iv) is satisfied in all respects; PROVIDED, HOWEVER,
with respect to ss.6(b)(i), Acquiror shall only be required to certify
that this Agreement and the Merger received the Requisite Stockholder
Approval of the Acquiror Stockholders;
(vii) the Company shall have received a written opinion,
dated as of the Closing Date, from Swidler Berlin Shereff Friedman
LLP, counsel to the Company, to the effect that the Merger will be
treated for U.S. Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and as to such other
matters as are customary for transactions such as the Merger, and that
Acquiror and the Company will each be a party to that reorganization
within the meaning of Section 368(b) of the Code; it being understood
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<PAGE>
that in rendering such opinion, such tax counsel shall be entitled to
rely upon customary representations provided by the Parties;
(viii) the Acquiror Shares to be issued in connection with
the Merger shall have been approved upon official notice of issuance
for quotation on Nasdaq, subject to official notice of issuance;
(ix) the Registration Statement shall have been declared
effective by the SEC under the Securities Act, no stop order
suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and no proceedings for that purpose shall have
been initiated or threatened by the SEC; and
(x) holders of not more than $2,500,000 in value of Company
Shares (calculated based upon the Closing Price per Company Share as
of the date preceding the scheduled Closing Date) shall have exercised
and not withdrawn dissenters' rights with respect to their shares.
Subject to the provisions of applicable law, the Company may waive, in
whole or in part, any condition specified in this ss.6(b) if it executes a
writing so stating at or prior to the Closing.
7. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this Agreement
with the prior authorization of their respective board of directors as provided
below:
(i) The Parties may terminate this Agreement, and the Merger
may be abandoned, by mutual written consent at any time prior to the
Effective Time before or after the approval by the Company
Stockholders or the Acquiror Stockholders;
(ii) This Agreement may be terminated and the Merger may be
abandoned by action of the Board of Directors of either Acquiror or
the Company, before or after the approval by the Company Stockholders
or the Acquiror Stockholders, (A) if the Effective Time shall not have
occurred by February 29, 2000 (the "OUTSIDE DATE") (unless the failure
to consummate the Merger by such date is due to the action or failure
to act of the Party seeking to terminate) or (B) if any condition to
the obligation of the terminating Party to consummate the Merger shall
have become incapable of being satisfied prior to the Outside Date as
of a result of an Order that is final and non-appealable;
(iii) This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, before or after the
approval by the Company Stockholders or the Acquiror Stockholders, by
action of the Company Board, in the event that Acquiror shall have
breached any of its representations, warranties or covenants under
this Agreement which breach (A) would give rise to the failure of a
condition set forth in ss.6(b) above, and (B) cannot be or has not
been cured within 30 days after the giving of written notice by the
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<PAGE>
Company to Acquiror of such breach (provided that the Company is not
then in material breach of any representation, warranty or covenant
contained in this Agreement);
(iv) This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, before or after the
approval by the Company Stockholders or the Acquiror Stockholders, by
action of the Acquiror Board, in the event that the Company shall have
breached any of its representations, warranties or covenants under
this Agreement which breach (A) would give rise to the failure of a
condition set forth in ss.6(a) above, and (B) cannot be or has not
been cured within 30 days after the giving of written notice by
Acquiror to the Company of such breach (provided that Acquiror is not
then in material breach of any representation, warranty or covenant
contained in this Agreement);
(v) This Agreement may be terminated by Acquiror, and the
Merger may be abandoned, (A) if the Company Board (i) enters into or
publicly announces its intention to enter into an agreement or
agreement in principle with respect to an Acquisition Proposal, (ii)
withdraws its recommendation to the Company Stockholders of this
Agreement or the Merger or (iii) after the receipt of an Acquisition
Proposal, fails to confirm publicly, within ten days after the request
of Acquiror, its recommendation to the Company Stockholders that the
Company Stockholders adopt and approve this Agreement and the Merger
or (B) if the Company or any of its Representatives takes any of the
actions that would be proscribed by ss.5(h) above, but for the
exceptions therein allowing certain actions to be taken pursuant to
the proviso in the first sentence of ss.5(h)(ii) above;
(vi) This Agreement may be terminated by the Company, and
the Merger may be abandoned, (A) if the Acquiror Board (i) enters into
or publicly announces its intention to enter into an agreement or
agreement in principle with respect to a Prohibited Acquiror
Acquisition Proposal, (ii) withdraws its recommendation to the
Acquiror Stockholders that the Acquiror Stockholders approve the
issuance of Acquiror Shares in connection with the Merger as provided
by the Agreement or, if necessary, that the Acquiror Stockholders
approve an amendment to the certificate of incorporation of Acquiror
to increase the authorized number of Acquiror Shares or (iii) after
receipt of a Acquiror Acquisition Proposal, fails to publicly confirm,
within ten days after the request of the Company, its recommendation
to the Acquiror Stockholders described in the foregoing clause (ii) or
(B) if Acquiror or any of its Representatives takes any of the actions
that would be proscribed by ss.5(i) but for the exceptions therein
allowing certain actions to be taken pursuant to the proviso in the
first sentence of ss.5(i)(ii);
(vii) Either Party may terminate this Agreement, and the
Merger may be abandoned, by giving written notice to the other Party
at any time after the Company Special Meeting in the event that (1)
this Agreement and the Merger fail to receive the Requisite
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<PAGE>
Stockholder Approval by the Company Stockholders or (2) or dissenters
rights are exercised by the holders of Company Shares having an
aggregate value (based upon the Closing Sales Price per Company Share
on the date immediately prior to the scheduled Closing Date) in excess
of $2,500,000; and
(viii) Either Party may terminate this Agreement, and the
Merger may be abandoned, by giving written notice to the other Party
at any time after the Acquiror Special Meeting in the event that this
Agreement and the Merger fail to receive the Requisite Stockholder
Approval by the Acquiror Stockholders.
(b) EFFECT OF TERMINATION.
(i) Except as provided in clauses (ii) or (iii) of
thisss.7(b), if any Party terminates this Agreement pursuant toss.7(a)
above, all rights and obligations of the Parties hereunder shall
terminate without any liability of either Party to the other Party
(except for any liability of any Party then in breach); PROVIDED,
HOWEVER, that the provisions of the Confidentiality Agreement,
thisss.7(b) andss.8 below, shall survive any such termination.
(ii) If this Agreement is terminated (A) by the Company
pursuant to ss.7(a)(vii)(1) or (B) by Acquiror pursuant to ss.7(a)(v)
or ss.7(a)(vii)(1), or (C) any Person makes an Acquisition Proposal
that remains in effect on the date 60 days prior to the Outside Date
and the Requisite Stockholder Approval of the Company Stockholders is
not obtained prior to termination of this Agreement pursuant to
ss.7(a)(ii), then, within 60 days after such termination, the Company
shall pay Acquiror the sum of $1,000,000 in immediately available
funds.
(iii) If this Agreement is terminated (A) by Acquiror
pursuant to ss.7(a)(viii) or (B) by the Company pursuant to
ss.7(a)(vi) or ss.7(a)(viii) or (C) any person makes a Prohibited
Acquiror Acquisition Proposal that remains in effect on the date 60
days prior to the Outside Date and the Requisite Stockholder Approval
of the Acquiror Stockholders is not obtained prior to termination of
this Agreement pursuant to ss.7(a)(ii), then, within 60 days after
such termination, Acquiror shall pay the Company the sum of $1,000,000
in immediately available funds.
8. MISCELLANEOUS.
(a) SURVIVAL. None of the representations, warranties and covenants of
the Parties (other than the provisions in ss.2 concerning payment of the Merger
Consideration, the provisions in ss.5(j), ss.5(l), ss.5(m), ss.5(p) and ss.5(q)
shall survive the Effective Time.
(b) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Parties;
PROVIDED, HOWEVER, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
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<PAGE>
concerning its publicly-traded securities (in which case the disclosing Party
will use all reasonable efforts to advise the other Parties prior to making the
disclosure).
(c) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; PROVIDED, HOWEVER, that (i) the provisions in
ss.2 above (A) concerning payment of the Merger Consideration are intended for
the benefit of the Company Stockholders and (B) concerning the conversion of the
stock options are intended for the benefit of the holders of such stock options,
(ii) the provisions in ss.5(j) above concerning insurance and indemnification
are intended for the benefit of the individuals specified therein and their
respective legal representatives and (iii) the provisions of ss.5(l), ss.5(m)
and ss.5(p) are intended for the benefit of the Company Stockholders.
(d) ENTIRE AGREEMENT. This Agreement (including the Confidentiality
Agreement and the other documents referred to herein) constitutes the entire
agreement among the Parties and supersedes any prior understandings, agreements
or representations by or among the Parties, written or oral, to the extent they
related in any way to the subject matter hereof.
(e) BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties and their respective successors and
permitted assigns. No Party may assign or delegate either this Agreement or any
of its rights, interests or obligations hereunder, by operation of law or
otherwise, without the prior written approval of the other Parties. Any
purported assignment or delegation without such approval shall be void and of no
effect.
(f) COUNTERPARTS. This Agreement may be executed (including by
facsimile) in one or more counterparts, each of which shall be deemed an
original but all of which together will constitute one and the same instrument.
(g) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid and addressed to the intended recipient as set forth
below:
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<PAGE>
IF TO THE COMPANY:
----------------- OpenROUTE Networks, Inc.
Nine Technology Drive
Westborough, Massachusetts 01581
Attention: President
Telephone: (508) 898-2121
Facsimile: (508) 836-5396
WITH A COPY TO:
-------------- Swidler Berlin Shereff Friedman, LLP
3000 K. Street, N.W., Suite 300
Washington, D.C. 20007
Attention: Sean P. McGuinness, Esq.
Telephone: (202) 945-6979
Facsimile: (202) 424-7643
IF TO ACQUIROR:
-------------- Netrix Corporation
13595 Dulles Technology Drive
Herndon, Virginia 20171
Attention: Chairman
Telephone: (703) 742-6000
Facsimile: (703) 793-2060
WITH A COPY TO:
-------------- Kelley Drye & Warren LLP
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901
Attention: Jay R. Schifferli
Telephone: (203) 351-8023
Facsimile: (203) 327-2669
Either Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using
personal delivery, expedited courier, messenger service, telecopy or ordinary
mail, but no such notice, request, demand, claim or other communication shall be
deemed to have been duly given unless and until it actually is received by the
intended recipient. Either Party may change the address to which notices,
requests, demands, claims and other communications hereunder are to be delivered
by giving the other Party notice in the manner set forth in this ss.8(h),
provided that no such change of address shall be effective until it actually is
received by the intended recipient.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE
OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE
LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
(j) AMENDMENTS AND WAIVERS. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; PROVIDED, HOWEVER,
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that any amendment effected subsequent to Requisite Stockholder Approval will be
subject to the restrictions contained in the Massachusetts Business Corporation
Law and the Delaware General Corporation Law, to the extent applicable. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by all of the Parties. No waiver by any Party of
any default, misrepresentation or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) EXPENSES. Except as expressly set forth elsewhere in this
Agreement, each of the Parties will bear its own costs and expenses (including
legal fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby.
(m) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation. The phrase "business
day" shall mean any day other than a day on which banks in the State of New York
are required or authorized to be closed. Disclosure of any matter in the Company
Disclosure Letter or the Acquiror Disclosure Letter shall not be deemed an
admission that such matter is material.
(n) INCORPORATION OF EXHIBITS. The Exhibits identified in this
Agreement are incorporated herein by reference and made a part hereof.
(o) DEFINITION OF KNOWLEDGE. As used herein, the words "knowledge" or
"known" shall, (i) with respect to the Company, mean the actual knowledge of the
corporate executive officers of the Company, in each case after such individuals
have made due and diligent inquiry as to the matters which are the subject of
the statements which are "known" by the Company or made to the "knowledge" of
the Company, and (ii) with respect to Acquiror, mean the actual knowledge of the
corporate executive officers of Acquiror, in each case after such individuals
have made due and diligent inquiry as to the matters which are the subject of
the statements which are "known" by Acquiror or made to the "knowledge" of
Acquiror.
(p) WAIVER OF JURY TRIAL. EACH OF ACQUIROR AND THE COMPANY, AND EACH
INDEMNIFIED PARTY, HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
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<PAGE>
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
OPENROUTE NETWORKS, INC.
By:-----------------------------------------
Name: Bryan R. Holley
Title: Chief Executive Officer and President
By:-----------------------------------------
Name: Henry Barber
Title: Vice President-Finance and
Administration, Chief Financial
Officer, Treasurer and Clerk
NETRIX CORPORATION
By:-----------------------------------------
Name:
Title:
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<PAGE>
AGREEMENT AND PLAN OF MERGER
BETWEEN
OPENROUTE NETWORKS, INC.,
AND
NETRIX CORPORATION
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS............................................................2
2. THE TRANSACTION........................................................7
(a) The Merger.......................................................7
(b) The Closing......................................................7
(c) Actions at the Closing...........................................7
(d) Effect of Merger.................................................7
(e) Procedure for Exchange..........................................12
(f) Closing of Transfer Records.....................................13
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................14
(a) Organization, Qualification and Corporate Power.................14
(b) Capitalization..................................................14
(c) Subsidiaries....................................................15
(d) Voting Arrangements.............................................15
(e) Authorization of Transaction....................................15
(f) Noncontravention................................................15
(g) Filings with the SEC............................................16
(h) Financial Statements............................................16
(i) Events Subsequent to January 1, 1999............................17
(j) Compliance......................................................17
(k) Brokers' and Other Fees.........................................17
(l) Litigation and Liabilities......................................17
(m) Taxes...........................................................18
(n) Fairness Opinion................................................18
(o) Employee Benefits...............................................18
(p) Massachusetts Business Corporation Law..........................19
(q) Year 2000.......................................................20
(r) Environmental Matters...........................................20
(s) Intellectual Property...........................................21
(t) Insurance.......................................................21
(u) Certain Contracts...............................................21
(v) Accounting and Tax Matters......................................22
4. REPRESENTATIONS AND WARRANTIES OF ACQUIROR............................22
(a) Organization, Qualification and Corporate Power.................22
(b) Capitalization..................................................22
(c) Subsidiaries....................................................23
(d) Voting Arrangements.............................................23
(e) Authorization of Transaction....................................23
(f) Noncontravention................................................23
(g) Filings with the SEC............................................24
(h) Financial Statements............................................24
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
(i) Events Subsequent to January 1, 1999............................25
(j) Compliance......................................................25
(k) Brokers' and Other Fees.........................................25
(l) Litigation and Liabilities......................................25
(m) Taxes...........................................................26
(n) Fairness Opinion................................................26
(o) Employee Benefits...............................................26
(p) Year 2000.......................................................27
(q) Environmental Matters...........................................28
(r) Intellectual Property...........................................28
(s) Insurance.......................................................29
(t) Certain Contracts...............................................29
(u) Accounting and Tax Matters......................................29
5. COVENANTS.............................................................29
(a) General.........................................................29
(b) Notices and Consents............................................29
(c) Regulatory Matters and Approvals................................30
(d) Operation of the Company's Business.............................32
(e) Operation of Acquiror's Business................................34
(f) Access..........................................................36
(g) Notice of Developments..........................................36
(h) Company Exclusivity.............................................37
(i) Acquiror Exclusivity............................................38
(j) Insurance and Indemnification...................................41
(k) Financial Statements............................................43
(l) Continuity of Business Enterprise...............................43
(m) Acquiror Board of Directors.....................................43
(n) Rule 145 Affiliates.............................................44
(o) Nasdaq Listing..................................................44
(p) Tax Free Treatment..............................................44
(q) Company Employee Plans..........................................44
(r) Letter of the Company's Accountants.............................45
(s) Letter of Acquiror's Accountants................................45
6. CONDITIONS TO OBLIGATION TO CLOSE.....................................45
(a) Conditions to Obligation of Acquiror............................45
(b) Conditions to Obligation of the Company.........................47
7. TERMINATION...........................................................48
(a) Termination of Agreement........................................48
(b) Effect of Termination...........................................50
8. MISCELLANEOUS.........................................................51
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
(a) Survival........................................................51
(b) Press Releases and Public Announcements.........................51
(c) No Third-Party Beneficiaries....................................51
(d) Entire Agreement................................................51
(e) Binding Effect; Assignment......................................51
(f) Counterparts....................................................51
(g) Headings........................................................51
(h) Notices.........................................................51
(i) Governing Law...................................................52
(j) Amendments and Waivers..........................................52
(k) Severability....................................................53
(l) Expenses........................................................53
(m) Construction....................................................53
(n) Incorporation of Exhibits.......................................53
(o) Definition of Knowledge.........................................53
(p) Waiver of Jury Trial............................................53
Exhibit A - Form of Affiliate Letter
-iii-
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), effective as of March 22,
1999, is made and entered by and between Steven T. Francesco (the "Executive")
and Netrix Corporation, a Delaware corporation (the "Company").
AGREEMENT
WHEREAS, the Company desires to engage the Executive to provide
services pursuant to the terms of this Agreement; and
WHEREAS, the Executive desires to provide such services to the Company
pursuant to the terms of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties hereto agree as follows:
1. TERM OF EMPLOYMENT. The term of the Executive's employment under
this Agreement shall commence immediately upon the execution of this Agreement
and end on the third anniversary of such date (the "Term of Employment"). If the
Company or the Executive does not deliver to the other party at least 60 days
prior written notice that the Term of Employment shall end on the third
anniversary of the date hereof, the Term of employment shall automatically
continue for an additional one-year period. At the end of such one year period,
the Term of employment shall automatically continue for successive one year
terms unless either party delivers at least 60 days prior written notice that
the Term or employment shall end at the end of such one-year renewal period.
2. DUTIES.
(a) During the Term of Employment, the Executive shall serve as the
Chief Executive Officer and Chairman of the Board of the Company with such
authority and duties as are generally associated with such positions and as may
be assigned to him from time to time by the Board of Directors of the Company
that are consistent with such authority and duties. The Executive shall report
only to the Board of Directors of the Company.
(b) During the Term of Employment and except as provided in Section
2(d), the Executive shall devote his full business time and best efforts to the
business and affairs of the Company. The Executive agrees to continue to serve
during the Term as a Director and a member of any committee of the Boards of
Directors of the Company, provided that the Executive is indemnified for serving
in any and all such capacities on a basis no less favorable than is provided to
any other Director of the Company. The Company agrees to use its best efforts to
cause the Executive to be elected and continued in office throughout the Term of
Employment as a member of the Board of Directors of the Company and as Chairman
of the Board of Directors and shall include him in the management slate for
election as a Director of the Company at every stockholders' meeting of the
Company at which his term as a Director would otherwise expire.
<PAGE>
(c) The Company hereby acknowledges and agrees that the Executive need
not maintain a permanent residence in the Commonwealth of Virginia in order to
fulfill his duties hereunder. The Executive agrees to devote such time as he
determines, in his sole discretion, is necessary at the headquarters of the
Company in order to perform his duties hereunder.
(d) Anything herein to the contrary notwithstanding, nothing in this
Agreement shall preclude the Executive from (i) serving on the boards of
directors of a reasonable number of other corporations or the boards of a
reasonable number of trade associations and/or charitable organizations, (ii)
engaging in charitable activities and community affairs and (iii) managing his
personal investments and affairs, provided that such activities do not
materially interfere with the proper performance of his duties and
responsibilities under this Agreement.
3. COMPENSATION AND RELATED MATTERS.
(a) Salary. During the Term, the Executive shall receive a base salary
(the "Base Salary") at the rate of $160,000 per annum. Such Base Salary shall be
payable in accordance with the Company's policies in effect from time to time,
but in any event no less frequently than monthly. The Board of Directors from
time to time may increase, but not decrease, the Base Salary.
(b) Bonus. The Executive shall be eligible for an annual bonus in such
amount as the Board of Directors may designate. Payment of any annual bonus
shall be made at the same time that other senior-level executives receive their
bonus but in no event later than April 1 of the year following the year to which
such bonus relates.
(c) Stock Options. To induce the Executive to enter into this
Agreement, the Executive is hereby granted an option (the "Stock Option") by the
Company to purchase 1,600,000 shares of common stock, par value $0.05 per share,
of the Company (the "Common Stock"). The Stock Option shall be memorialized in a
separate stock option agreement, dated the date hereof, between the Company and
the Executive. The exercise price of the Stock Options will be $1.50 per share
of Common Stock for the first 400,000 shares and $3.50 per share of Common Stock
for the remaining 1,200,000 shares. The Stock Options shall vest over time as
follows and be subject to earlier vesting as described below:
Time vesting:
400,000 on the date hereof,
400,000 on the first anniversary of the date hereof, 400,000
on the second anniversary of the date hereof, and 400,000
vested on the third anniversary of the date hereof.
Accelerated vesting:
No. of Shares Vesting Event
------------- -------------
400,000 Common Stock trades at $4/share for 10
consecutive trading days
400,000 Common Stock trades at $6/share for 10
consecutive trading days
400,000 Common Stock trades at $8/share for 10
consecutive trading days
<PAGE>
The Company shall use its best efforts to register the underlying shares on
Securities and Exchange Commission Form S-8, including the registration of any
shares underlying Stock Options vested prior to the date of filing such Form
S-8. The Stock Options will be granted under the Company's 1999 stock option
plan, which will be subject to shareholder approval. The Company shall use its
best efforts to cause such new stock option plan to be approved by the
stockholders at the next stockholders' meeting. Failure to obtain such approval
will constitute a breach of this Agreement by the Company.
(d) EXPENSES. The Executive is authorized to incur reasonable expenses
in carrying out his duties and responsibilities under this Agreement and the
Company shall promptly reimburse him for all business expenses incurred in
connection therewith, subject to documentation in accordance with the Company's
policy. Without limiting the generality of the foregoing, the Company shall
promptly reimburse the Executive for the expenses incurred by the Executive in
connection with any and all travel between the Company's headquarters and the
Executive's permanent residence.
(e) EMPLOYEE BENEFITS. During the Term of Employment, the Executive
shall be entitled to participate in or receive benefits under any and all
employee benefit plans, programs and arrangements on terms no less favorable
than those generally applicable to senior executives of the Company, subject to
and on a basis consistent with the terms, conditions and overall administration
of such employee benefit plans, programs and arrangements. The Executive shall
also be eligible to participate in the Company's executive perquisites in
accordance with the terms and provisions of the arrangements as in effect from
time to time for the Company's senior executives.
(f) VACATION. The Executive shall be entitled to four weeks of paid
vacation for each 12-month period during the Term of Employment, which shall be
taken at such times and intervals as shall be determined by the Executive,
subject to the reasonable business needs of the Company. The Executive shall
also be entitled to the paid holidays and other paid leave set forth in the
Company's policies. Vacation days and holidays during any year that are not used
by the Executive during such year may be used in any subsequent year.
(g) PAYMENT UPON CHANGE OF CONTROL. In the event of a Change in
Control of the Company, the Company shall issue to the Executive 1,000,000
shares of Common Stock (or, if the Common Stock was modified, exchanged or
converted in connection with such Change of Control, the cash, securities or
other property that such 1,000,000 shares would represent at the time of
termination if they had been modified, exchanged or converted in connection with
such Change of Control). Such Common Stock will be registered by the Company at
the time of, or as soon as possible after, such issuance. For purposes of this
Section 3(g), a Change of Control will be deemed to occur if:
(i) Any person, other than the Company or an employee benefit
plan of the Company, acquires directly or indirectly the
Beneficial Ownership (as defined in Section 13(d) of the
Securities Exchange Act of 1934 as in effect on the date of this
Agreement) of any voting security of the Company and immediately
after such acquisition such person is, directly or indirectly,
the Beneficial Owner of voting securities representing 50% or
more of the total voting power of all then outstanding voting
securities of the Company;
<PAGE>
(ii) The stockholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the Company,
a reverse stock-split of outstanding voting securities, or
consummation of any such transaction if stockholder approval is
not sought or obtained, other than any such transaction which
would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity
outstanding immediately after such transaction being Beneficially
Owned by at least 75% of the holder of outstanding, voting
securities of the Company immediately prior to such transaction,
with the voting power of each such continuing holder relative to
other such continuing holders not substantially altered in the
transaction;
(iii) The stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., 50% or more of the total assets of the
Company); or
(iv) Continuing Directors cease for any reason to constitute a
majority of the Board of Director of the Company. For this
purpose, "Continuing Directors" means any member of the Board of
Directors of the Company who is (I) a member of the Board of
Directors on the date of this Agreement or (II) is nominated for
election or elected to the Board of Directors of the Company with
the affirmative vote of a majority of the Continuing Directors
who were members of the Board of Directors of the Company at the
time of such nomination or election.
(h) DEDUCTIONS AND WITHHOLDINGS; TAX GROSS-UP IN CERTAIN
CIRCUMSTANCES. All amounts payable or which become payable hereunder shall be
subject to all deductions and withholding required by law. Notwithstanding the
foregoing, if as a result of the termination of the Executive's employment under
this Agreement or a Change of Control the Executive becomes subject to Section
280G of the Internal Revenue Code (or any successor provision) which imposes an
excise tax in respect of the issuance of any payment to the Executive under this
Agreement, then the Company shall pay to the Executive, in cash at the time of
such termination or Change of Control, a "tax gross-up" equal to the amount of
the Executive's tax liability resulting from such excise tax (including any tax
on the amount so paid to cover this obligation calculated at the highest
marginal federal and state income tax rates).
4. Termination of Employment.
(a) Termination Due to Death. In the event the Executive's employment
is terminated due to his death, his estate or his beneficiaries, as the case may
be, shall be entitled to and their sole remedies under this Agreement shall be:
(i) Base Salary through the date of death which shall be paid in a
single lump sum not later than 45 days following the Executive's
death;
<PAGE>
(ii) the balance of any bonus awarded and earned but not paid at the
time of termination, which shall be paid in a single lump sum not
later than 45 days following the Executive's death; and
(iii) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
(b) TERMINATION DUE TO DISABILITY. In the event the Executive becomes
Disabled (as defined below), the Company may terminate his employment upon
notice to that effect. Upon such a termination, the Executive or is
representative, as the case may be, shall be entitled to, and their sole
remedies under this Agreement shall be:
(i) Base Salary through the date of termination, which shall be
paid in a single lump sum not later than 45 days following such
termination;
(ii) the balance of any bonus awarded and earned but not paid at
the time of termination, which shall be paid in a single lump sum
not later than 45 days following the date of termination; and
(iii) other or additional benefits then due or earned in
accordance with applicable plans and programs of the Company.
For the purpose of this subsection, the Executive shall have a "Disability" at
such time as he becomes entitled to benefits under the Company's long-term
disability insurance plan as in effect from time to time.
(c) TERMINATION BY THE COMPANY FOR CAUSE.
(i) "Cause shall mean:
(A) willful and material breach by Executive of Section 5 or
6 of this Agreement;
(B) conviction of the Executive for a felony or misdemeanor
involving moral turpitude;
(C) breach by the Executive of any alcohol, drug, sexual
harassment or other policy of the Company which provides for
termination of employment for violation; or
(D) engagement by the Executive in conduct that constitutes
gross neglect or willful gross misconduct in carrying out
his duties under this Agreement
For purposes of this Agreement, an act or failure to act on Executive's part
shall be considered "willful" if it was done or omitted to be done by him not in
good faith, and shall not include any act or failure to act resulting from any
incapacity of Executive.
<PAGE>
(ii) In the event the Company terminates the Executive's
employment for Cause, he shall be entitled to and his sole
remedies under this Agreement shall be:
(A) Base Salary through the date of the termination of his
employment for Cause, which shall be paid in a single lump
sum not later than 45 days following the Executive's
termination of employment;
(B) the balance of any bonus awarded and earned but not paid
at the time of termination, which shall be paid in a single
lump sum not later than 45 days following the date of
termination; and
<PAGE>
(C) other or additional benefits then due or earned in
accordance with applicable plans or programs of the Company.
(d) Termination Without Cause or Constructive Termination Without
Cause. In the event the Executive's employment with the Company is terminated
without Cause (which termination shall be effective as of the date specified by
the Company in a written notice to the Executive), other than due to death or
Disability, or in the event there is a Constructive Termination Without Cause
(as defined below), the Executive shall be entitled to and his sole remedies
under this Agreement shall be:
(i) Base Salary through the date of termination of the
Executive's employment, which shall be paid in a single lump sum
not later than 15 days following the Executive's termination of
employment;
(ii) Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment for a period of three
years after the termination of employment (the "Severance
Period") payable in accordance with the Company's standard
payroll practices;
(iii) the balance of any bonus awarded and earned but not paid at
the time of termination, which shall be paid in a single lump sum
not later than 45 days following the date of termination;
(iv) immediate vesting of all stock options which are unvested
but scheduled to vest during the Severance Period, all of which
will be exercisable during the Severance Period or for the
remainder of the exercise period, if less;
(v) continued participation in all medical, health and life
insurance plans at the same benefit level at which he was
participating on the date of the termination of his employment
until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he receives equivalent coverage and
benefits under the plans and programs of a subsequent
employer (such coverage and benefits to be determined on a
coverage-by-coverage, or benefit-by-benefit, basis);
provided that (1) if the Executive is precluded from
<PAGE>
continuing his participation in any employee benefit plan or
program as provided in this clause (vi), he shall receive
cash payments equal on an after-tax basis to the cost to him
of obtaining the benefits provided under the plan or program
in which he is unable to participate for the period
specified in this clause (vi), (2) such cost shall be deemed
to be the lowest reasonable cost that would be incurred by
the Executive in obtaining such benefit himself on an
individual basis, and (3) payment of such amounts shall be
made quarterly in advance; and
(vi) other or additional benefits then due or earned in
accordance with applicable plans and programs of the Company.
"Termination Without Cause" shall mean the Executive's
employment is terminated by the Company for any reason other than Cause (as
defined in Section 4(c)) or due to death.
"Constructive Termination Without Cause" shall mean a
termination of the Executive's employment at his initiative as provided in this
Section 4(d) following the occurrence, without the Executive's written consent,
of one or more of the following events (except as a result of a prior
termination):
(A) a material diminution or change, adverse to Executive,
in Executive's positions, titles, or offices as set forth in
Section 2;
(B) an assignment of any duties to Executive which are
inconsistent with his status as Chief Executive Officer and
Chairman of the Board of the Company;
(C) any other failure by the Company to perform any material
obligation under, or breach by the Company of any material
provision of, this Agreement that is not cured within 30
days; or
(D) any failure to secure the agreement of any successor
corporation or other entity to the Company to fully assume
the Company's obligations under this Agreement.
(e) TERMINATION FOLLOWING NON-RENEWAL. In the event that the Company
notifies the Executive in writing at least 60 days prior to the expiration of
the then current Term of Employment that it is electing to terminate this
Agreement at the expiration of the then current Term of Employment and the
Executive's employment terminates upon such expiration, whether at the Company's
initiative or the Executive's initiative, the Executive shall be entitled to:
(i) Base Salary through the date of termination of the Executive's
employment, which shall be paid in a single lump sum not later than 45
days following such termination;
<PAGE>
(ii) the balance of any bonus awarded and earned but not paid at the
time of termination, which shall be paid in a single lump sum not
later than 45 days following the date of termination;
(iii) continued participation in all medical and dental plans at the
same benefit level at which he was participating on the date of the
termination of his employment until the earlier of:
(A) the end of the Non-renewal Severance Period; or
(B) the date, or dates, he received equivalent coverage and
benefits under the plans and programs of a subsequent employer
(such coverage and benefits to be determined on a
coverage-by-coverage, or benefit-by-benefit, basis);
provided that (x) if the Executive is precluded from continuing his
participation in any employee benefit plan or program as provided in
this clause (iii) of this Section 4(e), he shall receive cash payments
equal on an after-tax basis to the cost to him of obtaining the
benefits provided under the plan or program in which he is unable to
participate for the period specified in this clause (iii) of this
Section 4(e), (y) such cost shall be deemed to be the lowest cost that
would be incurred by the Executive in obtaining such benefit himself
on an individual basis, and (z) payment of such amounts shall be made
quarterly in advance; and
(iv) other or additional benefits then due or earned in
accordance with applicable plans and programs of the Company.
(f) VOLUNTARY TERMINATION. In the event of a termination of employment by
the Executive on his own initiative, other than a termination due to death,
Disability or a Constructive Termination Without Cause, the Executive shall have
the same entitlements as provided in Section 4(c)(ii) above for a Termination
for Cause. A voluntary termination under this Section 4(f) shall be effective
upon 30 days prior written notice to the Company or such shorter period as may
be determined by the Company and shall not be deemed a breach of this Agreement.
(g) NO MITIGATION, NO OFFSET. In the event of any termination of employment
under this Section 4, the Executive shall be under no obligation to seek other
employment; amounts due the Executive under this Agreement shall not be offset
by any remuneration attributable to any subsequent employment that he may
obtain.
(h) NATURE OF PAYMENTS. Any amounts due under this Section 4 are in the
nature of severance payments considered to be reasonable by the Company and are
not in the nature of a penalty.
5. CONFIDENTIALITY.
(a) During the Term of Employment and thereafter, the Executive shall not,
without the prior written consent of the Company, disclose to anyone (except in
good faith in the ordinary course of business to a person who will be advised by
<PAGE>
the Executive to keep such information confidential) or make use of any
Confidential Information (as defined below) except in the performance of his
duties hereunder or when required to do so by legal process, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) that requires
him to divulge, disclose or make accessible such information. In the event that
the Executive is so ordered, he shall give prompt written notice to the Company
in order to allow the Company the opportunity to object to or otherwise resist
such order.
(b) "Confidential Information" shall mean all information concerning the
business of the Company or any subsidiary relating to any of their products,
product development, trade secrets, customers, suppliers, finances, and business
plans and strategies. Excluded from the definition of Confidential Information
is information (i) that is or becomes part of the public domain, other than
through the breach of this Agreement by the Executive, (ii) regarding the
Company's business or industry properly acquired by the Executive in the course
of his career as an executive in the Company's industry and independent of the
Executive's employment by the Company, (iii) that becomes available to the
Executive on a non-confidential basis from a source other than the Company,
provided that such source is not known by the Executive to be subject to a
confidentiality agreement or other obligation of secrecy or confidentiality
(whether pursuant to a contract, legal or fiduciary obligation or duty or
otherwise) to the Company or any other person or entity or (iv) approved for
release by the Company or which the Company makes generally available to third
parties without an obligation of confidentiality. For this purpose, information
known or available generally within the trade or industry of the Company or any
subsidiary shall be deemed to be known or available to the public.
6. NON-COMPETITION; NON-SOLICITATION. The Executive acknowledges that his
employment with the Company will, of necessity, provide him with specialized,
unique knowledge and confidential information and that, in light of the
competitive nature of the Company's business, the Company could be harmed if
such knowledge and information were used in competition with the Company. The
Executive further acknowledges that the Company would not enter into this
Agreement and undertake the substantial obligations under this Agreement without
the Executive's agreement to the following provisions of this Section 6:
(a) During the Restricted Period (as defined below) he will not, directly
or indirectly, as an officer, director, stockholder, partner, associate,
employee, consultant, owner, agent, co-venturer or otherwise, become or be
interested in or be associated with any other corporation, firm or business
engaged in the manufacture, marketing or sale of products which compete with
products of the Company. The Executive's ownership, directly or indirectly, of
not more than three percent (3%) of the issued and outstanding stock of any
corporation or other entity, the shares of which are traded on a national
securities exchange or the Nasdaq Stock Market, shall not in any event be deemed
to be a violation of the provisions of this Section 6(a).
(b) During the Restricted Period, the Executive shall not call upon,
solicit, divert or take away, or attempt to call upon, solicit, divert or take
away, business of a type the same or similar to the business as conducted by the
Company prior to the date of termination of the Executive's employment with the
Company from any of the Customers of the Company upon whom he called or whom he
solicited or to whom he catered or with whom he became acquainted after entering
the employ of the Company.
(c) The Executive acknowledges and agrees that during the time of his
employment
with the Company, he will gain valuable information about the identity,
qualifications and on-going performance of the employees of the Company. During
the Restricted Period, the Executive shall not (i) hire, employ, offer
employment to, or seek to hire, employ or offer employment to, any of the
Company's senior level employees with whom he had contact prior to such
termination of employment or (ii) solicit or encourage any such senior level
employee to seek or accept employment with any other person or entity.
<PAGE>
(d) The Executive represents and warrants that the knowledge, skills and
abilities he currently possesses are sufficient to permit him, in the event of
his termination of employment hereunder for any reason, to earn a livelihood
satisfactory to himself without violating any provision of this Agreement.
(e) For the purposes of this Section 6, "Restriction Period" shall mean the
period beginning on the date hereof and ending with:
(i) in the case of a termination of the Executive's employment without
Cause or a Constructive Termination Without Cause, the end of the
Severance Period;
(ii) in the case of a termination of the Executive's employment for
Cause, the first anniversary of such termination;
(iii) in the case of a termination of the Executive's employment upon
the expiration of the Term of Employment that results in the
commencement of the Non-renewal Severance Period pursuant to Section
4(e) above, the end of the Non-renewal Severance Period; or
(iv) in the case of a voluntary termination of the Executive's
employment pursuant to Section 4(f) above, the date of such
termination; provided, however, that within 10 days after the
Executive announces his resignation from the Company the Company may
notify the Executive that it will cause the Restriction Period to be
12 months and, in consideration for such period, the Company will pay
to the Executive, within 30 days after his employment terminates, an
amount in cash equal to the annual Base Salary in effect at the time
the Executive gives his notice of termination. Failure by the Company
to timely make such payment will release the Executive from this
obligation.
7. Remedies. In addition to whatever other rights and remedies the
Company may have at equity or in law, if the Executive breaches any of the
provisions contain in Sections 5 or 6 above, the Company (a) shall have the
right to immediately terminate all payments and benefits due under this
Agreement and (b) shall have the right to seek injunctive relief. The Executive
acknowledges that such a breach would cause irreparable injury and that money
damages would not provide an adequate remedy for the Company.
<PAGE>
8. RESOLUTION OF DISPUTES. Any disputes arising under or in connection
with this Agreement shall be resolved by binding arbitration, to be held in
Washington, D.C. in accordance with the rules and procedures of the American
Arbitration Association, except that disputes arising under or in connection
with Sections 5 and 6 above shall be submitted to a court of appropriate
jurisdiction. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Each party shall bear his or
its own costs of the arbitration or litigation, including, without limitation,
attorneys' fees. Pending the resolution of any arbitration or court proceeding,
the Company shall continue payment of all amounts and benefits due the Executive
under this Agreement.
9. INDEMNIFICATION.
(a) The Company agrees that if the Executive is made a party, or is
threatened to be made a party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that he is or was a director, officer or employee of the Company or any
subsidiary or is or was serving at the request of the Company or any subsidiary
as a director, officer, member, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether or not the basis of such Proceeding
is the Executive's alleged action in an official capacity while serving as a
director, officer, member, employee or agent, the Executive shall be indemnified
and held harmless by the Company to the fullest extent legally permitted or
authorized by the Company's certificate of incorporation or bylaws or
resolutions of the Company's certificate of incorporation or by laws or
resolutions of the Company's Board of Directors or, if greater, by the laws of
the State of Delaware, against all cost, expense, liability and loss (including,
without limitation, attorney's fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by the Executive in connection therewith, and such indemnification
shall continue as to the Executive even if he has ceased to be a director,
member, officer, employee or agent of the Company or other entity and shall
inure to the benefit of the Executive's heirs, executors and administrators. The
Company shall advance to the Executive all reasonable costs and expenses
incurred by him in connection with a Proceeding within 20 days after receipt by
the Company of a written request for such advance. Such request shall include an
undertaking by the Executive to repay the amount of such advance if it shall
ultimately be determined that he is not entitled to be indemnified against such
costs and expenses.
(b) Neither the failure of the Company (including its board of
directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of any proceeding concerning payment of
amounts claimed by the Executive under Section 9(a) above that indemnification
of the Executive is proper because he has met the applicable standard of
conduct, nor a determination by the Company (including its board of directors,
independent legal counsel or stockholders) that the Executive has not met such
applicable standard of conduct, shall create a presumption that the Executive
has not met the applicable standard of conduct.
(c) The Company agrees to continue and maintain a directors and
officers' liability insurance policy covering the Executive to the extent the
Company provides such coverage for its other executive officers.
<PAGE>
10. EFFECT OF AGREEMENT ON OTHER BENEFITS. Except as specifically provided
in this Agreement, the existence of this Agreement shall not be interpreted to
preclude, prohibit or restrict the Executive's participation in any other
employee benefit or other plans or programs in which he currently participates.
11. ASSIGNABILITY; BINDING NATURE. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors, heirs (in
the case of the Executive) and permitted assigns. No rights or obligations of
the Company under this Agreement may be assigned or transferred by the Company
except that such rights or obligations may be assigned or transferred in
connection with the sale or transfer of all or substantially all of the assets
of the Company, provided that the assignee or transferee is the successor to all
or substantially all of the assets of the Company and such assignee or
transferee assumes the liabilities, obligations and duties of the Company, as
contained in this Agreement, either contractually or as a matter of law. The
Company further agrees that, in the event of a sale or transfer of assets as
described in the preceding sentence, it shall take whatever action it legally
can in order to cause such assignee or transferee to expressly assume the
liabilities, obligations and duties of the Company hereunder. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than his rights to compensation and benefits, which may
be transferred only by will or operation of law, except as provided in Section
17 below.
12. WARRANTY OF EXECUTIVE. As an inducement to the Company to enter into
this Agreement, the Executive represents and warrants that he is not a party to
any other agreement or obligation for personal services, and that there exists
no impediment or restraint, contractual or otherwise, on his power, right or
ability to enter into this Agreement and to perform his duties and obligations
hereunder.
13. COMPANY REPRESENTATIONS. The Company represents to the Executive that
this Agreement has been duly authorized, executed and delivered by the Company
and is a legal, valid and binding obligation of the Company and that the
execution, delivery and performance of this Agreement by the Company will not
breach or be in conflict with any agreements to which the Company is a party or
by which it is bound.
14. ENTIRE AGREEMENT. This Agreement contains the entire understanding and
agreement between the parties concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the parties with respect thereto.
15. AMENDMENTS; WAIVERS. No provision in this Agreement may be amended
unless such amendment is agreed to in writing and signed by the Executive and an
authorized officer of the Company. No waiver by either Party of any breach by
the other Party of any condition or provision contained in this Agreement to be
performed by such other Party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same or any prior or subsequent time.
Any waiver must be in writing and signed by the Executive or an authorized
officer of the Company, as the case may be. No failure to exercise and no delay
in exercising any right, remedy or power hereunder shall preclude any other or
further exercise of any other right, remedy or power provided herein or by law
or in equity.
<PAGE>
16. SEVERABILITY OF PROVISIONS. In the event that any provision or any
portion thereof should ever be adjudicated by a court of competent jurisdiction
to exceed the time or other limitations permitted by applicable law, as
determined by such court in such action, then such provisions shall be deemed
reformed to the maximum time or other limitations permitted by applicable law,
the parties hereby acknowledging their desire that in such event such action be
taken. In addition to the above, the provisions of this Agreement are severable,
and the invalidity or unenforceability of any provision or provisions of this
Agreement or portions thereof shall not affect the validity or enforceability of
any other provision, or portion of this Agreement, which shall remain in full
force and effect as if executed with the unenforceable or invalid provision or
portion thereof eliminated. Notwithstanding the foregoing, the parties hereto
affirmatively represent, acknowledge and agree that it is their intention that
this Agreement and each of its provisions are enforceable in accordance with
their terms and expressly agree not to challenge the validity or enforceability
of this Agreement or any of its provisions, or portions or aspects thereof, in
the future. The parties hereto are expressly relying upon this representation,
acknowledgment and agreement in determining to enter into this Agreement.
17. BENEFICIARIES/REFERENCES. The Executive shall be entitled, to the
extent permitted under any applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
the Executive's death by giving the Company written notice thereof. In the event
of the Executive's death or a judicial determination of his incompetence,
reference in this Agreement to the Executive shall be deemed, where appropriate,
to refer to his beneficiary, estate or other legal representative.
18. GOVERNING LAW. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the Commonwealth of Virginia without
reference to principles of conflict of laws. The parties hereby irrevocably
consent to the service of any and all process in any action or proceeding
arising out of or relating to this Agreement by the mailing of copies of such
process to the parties at the address specified in Section 19 hereof.
19. NOTICES. All notices, requests, demands and other communications which
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given when received if personally delivered; when
transmitted if transmitted by telecopy, electronic or digital transmission
method upon receipt of telephonic or electronic confirmation; the day after it
is sent, if sent for next day delivery to a domestic address by a recognized
overnight delivery service (e.g., Federal Express); and upon receipt, if sent by
certified or registered mail, return receipt requested. In each case notice
shall be sent to the Company c/o the Board of Directors at the Company's
principal executive offices and to the Executive at his last known permanent
address, or to such other place as either party may designate as to itself or
himself by written notice to the other.
20. HEADINGS. The headings of the sections contained in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
NETRIX CORPORATION
By:_______________________
Title:________________________
______________________________
Steven T. Francesco
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), effective as of August 2,
1999, is made and entered by and between Peter J. Kendrick (the "Executive") and
Netrix Corporation, a Delaware corporation (the "Company").
AGREEMENT
WHEREAS, the Company desires to engage the Executive to provide
services pursuant to the terms of this Agreement; and
WHEREAS, the Executive desires to provide such services to the Company
pursuant to the terms of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties hereto agree as follows:
1. TERM OF EMPLOYMENT. The term of the Executive's employment under
this Agreement shall commence immediately upon the execution of this Agreement
and end on the second anniversary of such date (the "Term of Employment"). If
the Company or the Executive does not deliver to the other party at least 60
days prior written notice that the Term of Employment shall end on the third
anniversary of the date hereof, the Term of Employment shall automatically
continue for an additional one-year period. At the end of such one year period,
the Term of Employment shall automatically continue for successive one year
terms unless either party delivers at least 60 days prior written notice that
the Term of Employment shall end at the end of such one-year renewal period
2. DUTIES.
(a) During the Term of Employment, the Executive shall serve as Chief
Financial Officer of the Company with such authority and duties as are generally
associated with such position and as may be assigned to him from time to time by
the Board of Directors or Chief Executive Officer of the Company. The Executive
shall report to the Chief Executive Officer of the Company. In the event that
the Company completes a merger with another company and the Executive is not
named as the Chief Financial Officer of the merged companies, the Executive
agrees to be re-assigned as Vice President-Finance/Business Development of the
Company. In the role of Vice President-Finance/Business Development the
Executive will be responsible for, including, but not limited to, merger and
acquisition activity, financing activities, interaction with the investment
banking community and analysts, banking relations and other activities as may be
assigned to him from time to time by the Board of Directors or Chief Executive
Officer of the Company with such authority and duties as are generally
associated with such positions. The Executive will continue to report to the
Chief Executive Officer of the Company.
(b) During the Term of Employment the Executive shall devote his full
business time and best efforts to the business and affairs of the Company.
Nothing in this Agreement shall preclude the Executive from engaging in
charitable and community affairs so long as such activities, in the reasonable
determination of the Chief Executive Officer of the Company, do not interfere
with the execution of his duties and responsibilities hereunder or from serving,
<PAGE>
subject to the prior approval of the Board of Directors (not to be unreasonably
withheld), as a director or trustee of any other corporation, association or
entity.
3. COMPENSATION AND RELATED MATTERS.
(a) SALARY. During the Term, the Executive shall receive a base
salary (the "Base Salary") at the rate of $100,000 per annum. Such Base Salary
shall be payable in accordance with the Company's policies in effect from time
to time, but in any event no less frequently than monthly. The Board of
Directors from time to time may increase, but not decrease, the Base Salary.
(b) BONUS. The Executive shall be eligible for an annual bonus in such
amount as the Board of Directors may designate. Payment of any annual bonus
shall be made at the same time that other senior-level executives receive their
bonus but in no event later than April 1 of the year following the year to which
such bonus relates.
(c) STOCK OPTIONS. The Executive will be granted options (the "Stock
Options") by the Company to purchase 100,000 shares of common stock, par value
$0.05 per share, of the Company (the "Common Stock") at an exercise price of
$2.50 representing the last reported sales price of the Common Stock on the
Nasdaq Stock Market on September 29, 1999. The shares underlying the Stock
Options will be covered by a Registration Statement on Form S-8. The Stock
Options shall be memorialized in a separate stock option agreement, dated the
date hereof, between the Company and the Executive. 50,000 of the Stock Options
will vest on December 31, 1999 and 50,000 of the Stock Options will vest on
August 3, 2000.
(d) EXPENSES. The Executive is authorized to incur reasonable expenses
in carrying out his duties and responsibilities under this Agreement and the
Company shall promptly reimburse him for all business expenses incurred in
connection therewith, subject to documentation in accordance with the Company's
policy.
(e) CAR ALLOWANCE. The Company shall reimburse the Executive for car
expense up to a maximum of $4,200 per year, prorated for partial years.
(f) EMPLOYEE BENEFITS. During the Term of Employment, the Executive
shall be entitled to participate in or receive benefits under any and all
employee benefit plans, programs and arrangements on terms no less favorable
than those generally applicable to senior executives of the Company, subject to
and on a basis consistent with the terms, conditions and overall administration
of such employee benefit plans, programs and arrangements. The Executive shall
also be eligible to participate in the Company's executive perquisites in
accordance with the terms and provisions of the arrangements as in effect from
time to time for the Company's senior executives.
(g) VACATION. The Executive shall be entitled to three weeks of paid
vacation for each 12-month period during the Term of Employment, which shall be
taken at such times and intervals as shall be determined by the Executive,
subject to the reasonable business needs of the Company. The Executive shall
also be entitled to the paid holidays and other paid leave set forth in the
Company's policies.
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(h) DEDUCTIONS AND WITHHOLDINGS; TAX GROSS-UP IN CERTAIN
CIRCUMSTANCES. All amounts payable or which become payable hereunder shall be
subject to all deductions and withholding required by law. Notwithstanding the
foregoing, if as a result of the termination of the Executive's employment under
this Agreement or a Change of Control the Executive becomes subject to Section
280G of the Internal Revenue Code (or any successor provision) which imposes an
excise tax in respect of the issuance of any payment to the Executive under this
Agreement, then the Company shall pay to the Executive, in cash at the time of
such termination or Change of Control, a "tax gross-up" equal to the amount of
the Executive's tax liability resulting from such excise tax (including any tax
on the amount so paid to cover this obligation calculated at the highest
marginal federal and state income tax rates).
4. TERMINATION OF EMPLOYMENT.
(a) TERMINATION DUE TO DEATH. In the event the Executive's employment
is terminated due to his death, his estate or his beneficiaries, as the case may
be, shall be entitled to and their sole remedies under this Agreement shall be:
(i) Base Salary through the date of death which shall be paid
in a single lump sum not later than 45 days following the
Executive's death;
(ii) the balance of any bonus awarded and earned but not paid at
the time of termination, which shall be paid in a single lump
sum not later than 45 days following the Executive's death; and
(iii) other or additional benefits then due or earned in
accordance with applicable plans and programs of the Company.
(b) TERMINATION DUE TO DISABILITY. In the event the Executive becomes
Disabled (as defined below), the Company may terminate his employment upon
notice to that effect. Upon such a termination, the Executive or is
representative, as the case may be, shall be entitled to, and their sole
remedies under this Agreement shall be:
(i) Base Salary through the date of termination, which shall be
paid in a single lump sum not later than 45 days following such
termination;
(ii) the balance of any bonus awarded and earned but not paid at
the time of termination, which shall be paid in a single lump sum
not later than 45 days following the date of termination; and
(iii) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
For the purpose of this subsection, the Executive shall have a "Disability" at
such time as he becomes entitled to benefits under the Company's long-term
disability insurance plan as in effect from time to time.
(c) TERMINATION BY THE COMPANY FOR CAUSE.
(i) "Cause" shall mean:
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(A) breach by Executive of Section 5 or 6 of this Agreement;
(B) conviction of the Executive for a felony or misdemeanor
involving moral turpitude;
(C) breach by the Executive of any alcohol, drug, sexual
harassment or other policy of the Company which provides for
termination of employment for violation;
(D) repeated conscious disregard by the Executive of his
obligations under this Agreement or failure to perform his
functions hereunder at a level deemed acceptable to the Board
of Directors after written notice by the Board of specific
examples of unacceptable performance requiring improvement; or
(E) engagement by the Executive in conduct that constitutes
gross neglect or willful gross misconduct in carrying out his
duties under this Agreement.
(ii) In the event the Company terminates the Executive's employment
for Cause, he shall be entitled to and his sole remedies under this
Agreement shall be:
(A) Base Salary through the date of the termination of his
employment for Cause, which shall be paid in a single lump sum
not later than 45 days following the Executive's termination
of employment;
(B) the balance of any bonus awarded and earned but not paid
at the time of termination, which shall be paid in a single
lump sum not later than 45 days following the date of
termination; and
(C) other or additional benefits then due or earned in
accordance with applicable plans or programs of the Company.
(d) TERMINATION WITHOUT CAUSE OR CONSTRUCTIVE TERMINATION WITHOUT CAUSE.
In the event the Executive's employment with the Company is terminated without
Cause (which termination shall be effective as of the date specified by the
Company in a written notice to the Executive), other than due to death or
Disability, or in the event there is a Constructive Termination Without Cause
(as defined below), the Executive shall be entitled to and his sole remedies
under this Agreement shall be:
(i) Base Salary through the date of termination of the Executive's
employment, which shall be paid in a single lump sum not later than
15 days following the Executive's termination of employment;
(ii) Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment for a period of 12 months
after the termination of employment (the "Severance Period") payable
in accordance with the Company's standard payroll practices;
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<PAGE>
(iii) the balance of any bonus awarded and earned but not paid at the
time of termination, which shall be paid in a single lump sum not
later than 45 days following the date of termination;
(iv) continued participation in all medical and dental plans at the
same benefit level at which he was participating on the date of the
termination of his employment until the earlier of:
(A) the end of the Severance Period; or
(B) the date, or dates, he received equivalent coverage and
benefits under the plans and programs of a subsequent employer
(such coverage and benefits to be determined on a coverage-by-
coverage, or benefit-by-benefit, basis);
provided that (x) if the Executive is precluded from continuing his
participation in any employee benefit plan or program as provided in
this clause (iv) of this Section 4(d), he shall receive cash payments
equal on an after-tax basis to the cost to him of obtaining the
benefits provided under the plan or program in which he is unable to
participate for the period specified in this clause (iv) of this
Section 4(d), (y) such cost shall be deemed to be the lowest cost that
would be incurred by the Executive in obtaining such benefit himself
on an individual basis, and (z) payment of such amounts shall be made
quarterly in advance;
(v) All Stock Options which are scheduled to vest during the
Severance Period will immediately vest; and
(vi) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
"Termination Without Cause" shall mean the Executive's employment is
terminated by the Company for any reason other than Cause (as defined in Section
4(c)) or due to death or Disability.
"Constructive Termination Without Cause" shall mean a termination of
the Executive's employment at his initiative as provided in this Section 4(d)
following the occurrence, without the Executive's written consent, of one or
more of the following events (except as a result of a prior termination):
(A) a material diminution or change, adverse to Executive, in
Executive's positions, titles, or offices as set forth in
Section 2;
(B) any other failure by the Company to perform any material
obligation under, or breach by the Company of any material
provision of, this Agreement that is not cured within 30 days;
(C) relocation without the Executive's prior consent of the
Company's principal executive office from its present location to
a location outside of the Washington, D.C. metropolitan area; or
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<PAGE>
(D) any failure to secure the agreement of any successor
corporation or other entity to the Company to fully assume the
Company's obligations under this Agreement.
(e) TERMINATION FOLLOWING NON-RENEWAL. In the event that either party
notifies the other in writing at least 60 days prior to the expiration of the
then current Term of Employment that such party is electing to terminate this
Agreement at the expiration of the then current Term of Employment and the
Executive's employment terminates upon such expiration, whether at the Company's
initiative or the Executive's initiative, the Executive shall be entitled to:
(i) Base Salary through the date of termination of the Executive's
employment, which shall be paid in a single lump sum not later than 45
days following such termination;
(ii) the balance of any bonus awarded and earned but not paid at the
time of termination, which shall be paid in a single lump sum not
later than 45 days following the date of termination; and
(iii) other or additional benefits then due or earned in accordance
with applicable plans and programs of the Company.
(f) VOLUNTARY TERMINATION. In the event of a termination of employment by
the Executive on his own initiative, other than a termination due to death,
Disability or a Constructive Termination Without Cause, the Executive shall have
the same entitlements as provided in Section 4(c)(ii) above for a Termination
for Cause. A voluntary termination under this Section 4(f) shall be effective
upon 30 days prior written notice to the Company or such shorter period as may
be determined by the Company.
(g) NO MITIGATION, NO OFFSET. In the event of any termination of
employment under this Section 4, the Executive shall be under no obligation to
seek other employment; amounts due the Executive under this Agreement shall not
be offset by any remuneration attributable to any subsequent employment that he
may obtain.
(h) NATURE OF PAYMENTS. Any amounts due under this Section 4 are in the
nature of severance payments considered to be reasonable by the Company and are
not in the nature of a penalty.
5. CONFIDENTIALITY.
(a) During the Term of Employment and thereafter, the Executive shall not,
without the prior written consent of the Company, disclose to anyone (except in
good faith in the ordinary course of business to a person who will be advised by
the Executive to keep such information confidential) or make use of any
Confidential Information (as defined below) except in the performance of his
duties hereunder or when required to do so by legal process, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) that requires
him to divulge, disclose or make accessible such information. In the event that
the Executive is so ordered, he shall give prompt written notice to the Company
in order to allow the Company the opportunity to object to or otherwise resist
such order.
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(b) "Confidential Information" shall mean all information concerning
the business of the Company or any subsidiary relating to any of their products,
product development, trade secrets, customers, suppliers, finances, and business
plans and strategies. Excluded from the definition of Confidential Information
is information (i) that is or becomes part of the public domain, other than
through the breach of this Agreement by the Executive, (ii) regarding the
Company's business or industry properly acquired by the Executive in the course
of his career as an executive in the Company's industry and independent of the
Executive's employment by the Company, (iii) that becomes available to the
Executive on a non-confidential basis from a source other than the Company,
provided that such source is not known by the Executive to be subject to a
confidentiality agreement or other obligation of secrecy or confidentiality
(whether pursuant to a contract, legal or fiduciary obligation or duty or
otherwise) to the Company or any other person or entity or (iv) approved for
release by the Company or which the Company makes generally available to third
parties without an obligation of confidentiality. For this purpose, information
known or available generally within the trade or industry of the Company or any
subsidiary shall be deemed to be known or available to the public.
6. NON-COMPETITION; NON-SOLICITATION. The Executive acknowledges that his
employment with the Company will, of necessity, provide him with specialized,
unique knowledge and confidential information and that, in light of the
competitive nature of the Company's business, the Company could be harmed if
such knowledge and information were used in competition with the Company. The
Executive further acknowledges that the Company would not enter into this
Agreement and undertake the substantial obligations under this Agreement without
the Executive's agreement to the following provisions of this Section 6:
(a) During the Restricted Period (as defined below) he will not, directly
or indirectly, as an officer, director, stockholder, partner, associate,
employee, consultant, owner, agent, co-venturer or otherwise, become or be
interested in or be associated with any other corporation, firm or business
engaged in the manufacture, marketing or sale of products which compete with
products of the Company. The Executive's ownership, directly or indirectly, of
not more than three percent (3%) of the issued and outstanding stock of any
corporation or other entity, the shares of which are traded on a national
securities exchange or the Nasdaq Stock Market, shall not in any event be deemed
to be a violation of the provisions of this Section 6(a).
(b) During the Restricted Period, the Executive shall not call upon,
solicit, divert or take away, or attempt to call upon, solicit, divert or take
away, business of a type the same or similar to the business as conducted by the
Company prior to the date of termination of the Executive's employment with the
Company from any of the Customers of the Company upon whom he called or whom he
solicited or to whom he catered or with whom he became acquainted after entering
the employ of the Company.
(c) The Executive acknowledges and agrees that during the time of his
employment with the Company, he will gain valuable information about the
identity, qualifications and on-going performance of the employees of the
Company. During the Restricted Period, the Executive shall not (i) hire, employ,
offer employment to, or seek to hire, employ or offer employment to, any of the
Company's senior level employees with whom he had contact prior to such
termination of employment or (ii) solicit or encourage any such senior level
employee to seek or accept employment with any other person or entity.
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(d) The Executive represents and warrants that the knowledge, skills and
abilities he currently possesses are sufficient to permit him, in the event of
his termination of employment hereunder for any reason, to earn a livelihood
satisfactory to himself without violating any provision of this Agreement.
(e) For the purposes of this Section 6, "Restriction Period" shall mean
the period beginning on the date hereof and ending with:
(i) in the case of a termination of the Executive's employment
pursuant to Section 4(c), 4(d) or 4(f) above, the first anniversary of
the date of such termination; or
(ii) in the case of a termination of the Executive's employment
pursuant to Section 4(e) above, the date of such termination;
PROVIDED, HOWEVER, that within 10 days after the Executive announces
that he will not renew his employment hereunder at the end of the then
current Term of Employment the Company may notify the Executive that
it will cause the Restriction Period to be 12 months and, in
consideration for such period, the Company will pay to the Executive
the amounts specified in Section 4(e) above plus the following:
(A) continued participation in all medical and dental plans
at the same benefit level at which he was participating on the
date of the termination of his employment until the earlier of:
a. the end of the Restriction Period; or
b. the date, or dates, he received equivalent coverage and
benefits under the plans and programs of a subsequent
employer (such coverage and benefits to be determined on a
coverage-by-coverage, or benefit-by-benefit, basis);
provided that (x) if the Executive is precluded from continuing
his participation in any employee benefit plan or program as
provided in this clause (iii) of this Section 4(e), he shall
receive cash payments equal on an after-tax basis to the cost to
him of obtaining the benefits provided under the plan or program
in which he is unable to participate for the period specified in
this clause (iii) of this Section 4(e), (y) such cost shall be
deemed to be the lowest cost that would be incurred by the
Executive in obtaining such benefit himself on an individual
basis, and (z) payment of such amounts shall be made quarterly in
advance; and
(B) Base Salary, at the annualized rate in effect on the date of
the Company's notice, through the end of the Restriction Period,
payable in accordance with the Company's standard payroll
practices.
7. REMEDIES. In addition to whatever other rights and remedies the Company
may have at equity or in law, if the Executive breaches any of the provisions
contain in Sections 5 or 6 above, the Company (a) shall have the right to
immediately terminate all payments and benefits due under this Agreement and (b)
shall have the right to seek injunctive relief. The Executive acknowledges that
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such a breach would cause irreparable injury and that money damages would not
provide an adequate remedy for the Company.
8. RESOLUTION OF DISPUTES. Any disputes arising under or in connection
with this Agreement shall be resolved by binding arbitration, to be held in
Washington, D.C. in accordance with the rules and procedures of the American
Arbitration Association, except that disputes arising under or in connection
with Sections 5 and 6 above shall be submitted to a court of appropriate
jurisdiction. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Each party shall bear his or
its own costs of the arbitration or litigation, including, without limitation,
attorneys' fees. Pending the resolution of any arbitration or court proceeding,
the Company shall continue payment of all amounts and benefits due the Executive
under this Agreement.
9. INDEMNIFICATION.
(a) The Company agrees that if the Executive is made a party, or is
threatened to be made a party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that he is or was a director, officer or employee of the Company or any
subsidiary or is or was serving at the request of the Company or any subsidiary
as a director, officer, member, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether or not the basis of such Proceeding
is the Executive's alleged action in an official capacity while serving as a
director, officer, member, employee or agent, the Executive shall be indemnified
and held harmless by the Company to the fullest extent legally permitted or
authorized by the Company's certificate of incorporation or bylaws or
resolutions of the Company's certificate of incorporation or by laws or
resolutions of the Company's Board of Directors or, if greater, by the laws of
the State of Delaware, against all cost, expense, liability and loss (including,
without limitation, attorney's fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by the Executive in connection therewith, and such indemnification
shall continue as to the Executive even if he has ceased to be a director,
member, officer, employee or agent of the Company or other entity and shall
inure to the benefit of the Executive's heirs, executors and administrators. The
Company shall advance to the Executive all reasonable costs and expenses
incurred by him in connection with a Proceeding within 20 days after receipt by
the Company of a written request for such advance. Such request shall include an
undertaking by the Executive to repay the amount of such advance if it shall
ultimately be determined that he is not entitled to be indemnified against such
costs and expenses.
(b) Neither the failure of the Company (including its board of directors,
independent legal counsel or stockholders) to have made a determination prior to
the commencement of any proceeding concerning payment of amounts claimed by the
Executive under Section 9(a) above that indemnification of the Executive is
proper because he has met the applicable standard of conduct, nor a
determination by the Company (including its board of directors, independent
legal counsel or stockholders) that the Executive has not met such applicable
standard of conduct, shall create a presumption that the Executive has not met
the applicable standard of conduct.
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(c) The Company agrees to continue and maintain a directors and officers'
liability insurance policy covering the Executive to the extent the Company
provides such coverage for its other executive officers.
10. EFFECT OF AGREEMENT ON OTHER BENEFITS. Except as specifically
provided in this Agreement, the existence of this Agreement shall not be
interpreted to preclude, prohibit or restrict the Executive's participation in
any other employee benefit or other plans or programs in which he currently
participates.
11. ASSIGNABILITY; BINDING NATURE. This Agreement shall be binding upon
and inure to the benefit of the Parties and their respective successors, heirs
(in the case of the Executive) and permitted assigns. No rights or obligations
of the Company under this Agreement may be assigned or transferred by the
Company except that such rights or obligations may be assigned or transferred in
connection with the sale or transfer of all or substantially all of the assets
of the Company, provided that the assignee or transferee is the successor to all
or substantially all of the assets of the Company and such assignee or
transferee assumes the liabilities, obligations and duties of the Company, as
contained in this Agreement, either contractually or as a matter of law. The
Company further agrees that, in the event of a sale or transfer of assets as
described in the preceding sentence, it shall take whatever action it legally
can in order to cause such assignee or transferee to expressly assume the
liabilities, obligations and duties of the Company hereunder. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than his rights to compensation and benefits, which may
be transferred only by will or operation of law, except as provided in Section
17 below.
12. WARRANTY OF EXECUTIVE. As an inducement to the Company to enter into
this Agreement, the Executive represents and warrants that he is not a party to
any other agreement or obligation for personal services, and that there exists
no impediment or restraint, contractual or otherwise, on his power, right or
ability to enter into this Agreement and to perform his duties and obligations
hereunder.
13. COMPANY REPRESENTATIONS. The Company represents to the Executive that
this Agreement has been duly authorized, executed and delivered by the Company
and is a legal, valid and binding obligation of the Company and that the
execution, delivery and performance of this Agreement by the Company will not
breach or be in conflict with any agreements to which the Company is a party or
by which it is bound.
14. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement between the parties concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the parties with respect thereto.
15. AMENDMENTS; WAIVERS. No provision in this Agreement may be amended
unless such amendment is agreed to in writing and signed by the Executive and an
authorized officer of the Company. No waiver by either Party of any breach by
the other Party of any condition or provision contained in this Agreement to be
performed by such other Party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same or any prior or subsequent time.
Any waiver must be in writing and signed by the Executive or an authorized
officer of the Company, as the case may be. No failure to exercise and no delay
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in exercising any right, remedy or power hereunder shall preclude any other or
further exercise of any other right, remedy or power provided herein or by law
or in equity.
16. SEVERABILITY OF PROVISIONS. In the event that any provision or any
portion thereof should ever be adjudicated by a court of competent jurisdiction
to exceed the time or other limitations permitted by applicable law, as
determined by such court in such action, then such provisions shall be deemed
reformed to the maximum time or other limitations permitted by applicable law,
the parties hereby acknowledging their desire that in such event such action be
taken. In addition to the above, the provisions of this Agreement are severable,
and the invalidity or unenforceability of any provision or provisions of this
Agreement or portions thereof shall not affect the validity or enforceability of
any other provision, or portion of this Agreement, which shall remain in full
force and effect as if executed with the unenforceable or invalid provision or
portion thereof eliminated. Notwithstanding the foregoing, the parties hereto
affirmatively represent, acknowledge and agree that it is their intention that
this Agreement and each of its provisions are enforceable in accordance with
their terms and expressly agree not to challenge the validity or enforceability
of this Agreement or any of its provisions, or portions or aspects thereof, in
the future. The parties hereto are expressly relying upon this representation,
acknowledgment and agreement in determining to enter into this Agreement.
17. BENEFICIARIES/REFERENCES. The Executive shall be entitled, to the
extent permitted under any applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
the Executive's death by giving the Company written notice thereof. In the event
of the Executive's death or a judicial determination of his incompetence,
reference in this Agreement to the Executive shall be deemed, where appropriate,
to refer to his beneficiary, estate or other legal representative. 18. GOVERNING
LAW. This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the Commonwealth of Virginia without reference to
principles of conflict of laws. The parties hereby irrevocably consent to the
service of any and all process in any action or proceeding arising out of or
relating to this Agreement by the mailing of copies of such process to the
parties at the address specified in Section 19 hereof.
19. NOTICES. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital transmission
method upon receipt of telephonic or electronic confirmation; the day after it
is sent, if sent for next day delivery to a domestic address by a recognized
overnight delivery service (E.G., Federal Express); and upon receipt, if sent by
certified or registered mail, return receipt requested. In each case notice
shall be sent to the Company c/o the Board of Directors at the Company's
principal executive offices and to the Executive at his last known permanent
address, or to such other place as either party may designate as to itself or
himself by written notice to the other.
20. HEADINGS. The headings of the sections contained in this Agreement
are for convenience only and shall not be deemed to control or affect the
meaning or construction of any provision of this Agreement.
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21. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
NETRIX CORPORATION
By:___________________________________
Title: _______________________________
______________________________________
Peter J. Kendrick
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NETRIX CORPORATION
EXECUTIVE RETENTION AGREEMENT
THIS EXECUTIVE RETENTION AGREEMENT by and between Netrix Corporation, a
Delaware corporation (the "COMPANY"), and Lynn Chapman (the "EXECUTIVE") is made
as of February 1, 1999 (the "EFFECTIVE DATE").
WHEREAS, the Board of Directors of the Company (the "BOARD") has
determined that appropriate steps should be taken to reinforce and encourage the
continued employment and dedication of the Company's key personnel;
NOW, THEREFORE, as an inducement for and in consideration of the Executive
remaining in its employ, the Company agrees that the Executive shall receive the
severance benefits set forth in this Agreement in the event the Executive's
employment with the Company is terminated under the circumstances described
below.
1. KEY DEFINITIONS.
As used herein, the following terms shall have the following respective
meanings:
1.1 "CAUSE" means:
(a) the Executive's willful and continued failure to
substantially perform [his/her] reasonable assigned duties [AS AN OFFICER OF THE
COMPANY] (other than any such failure resulting from incapacity due to physical
or mental illness), which failure is not cured within 30 days after a written
demand for substantial performance is received by the Executive from the Board
of Directors of the Company which specifically identifies the manner in which
the Board of Directors believes the Executive has not substantially performed
the Executive's duties; or
(b) the Executive's willful engagement in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the Company.
For purposes of this Section 1.1, no act or failure to act by the
Executive shall be considered "willful" unless it is done, or omitted to be
done, in bad faith and without reasonable belief that the Executive's action or
omission was in the best interests of the Company.
1.2 "DISABILITY" means the Executive's absence from the full-time
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performance of the Executive's duties with the Company for 180 consecutive
calendar days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative.
1.3 "TERM" means the period commencing as of the Effective Date and
continuing in effect through December 31, 2000; PROVIDED, however, that
commencing on January 1, 2001 and each January 1 thereafter, the Term shall be
automatically extended for one additional year unless, not later than 90 days
prior to the scheduled expiration of the Term (or any extension thereof), the
Company shall have given the Executive written notice that the Term will not be
extended.
1.4 "Good Reason" shall mean the occurrence of any of the following
circumstances without the Executive's written consent, unless such circumstances
are fully corrected prior to the Date of Termination (as defined in Article
4.1(a)(i) of this Agreement):
(A) any reduction in the Executive's annual compensation
(including salary and bonuses and commissions based on agreed upon targets then
in effect) as in effect on the date hereof or as the same may be increased
during the term; or
(B) any requirement by the Company or of any person in control
of the Company that the location at which the Executive performs his or her
principal duties for the Company be outside a radius of 50 miles from the
location at which such duties were performed immediately prior to the Effective
Date of this Agreement.
2. TERM OF AGREEMENT. This Agreement, and all rights and obligations of
the parties hereunder, shall take effect upon the Effective Date and shall
expire upon the first to occur of (a) the expiration of the Term or (b) the
fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if
the Executive's employment with the Company terminates during the Term.
3. EMPLOYMENT STATUS.
3.1 NOT AN EMPLOYMENT CONTRACT. The Executive acknowledges that this
Agreement does not constitute a contract of employment or impose on the Company
any obligation to retain the Executive as an employee and that this Agreement
does not prevent the Executive from terminating employment at any time.
4. BENEFITS TO EXECUTIVE.
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4.1 COMPENSATION. If the Executive's employment with the Company
terminates during the Term, the Executive shall be entitled to the following
benefits:
(a) TERMINATION WITHOUT CAUSE; RESIGNATION WITH GOOD REASON.
If the Executive's employment with the Company is terminated by the Company
(other than for Cause, Disability or Death) or if the Executive terminates
employment for Good Reason during the Term, then the Executive shall be entitled
to the following benefits:
(i) the Company shall pay to the Executive in equal
semi-monthly installments in cash beginning within 30 days after the effective
date of an employment termination (the "DATE OF TERMINATION") the aggregate of
the following amounts:
(1) the sum of (A) the Executive's base
salary through the Date of Termination, (B) the product of (x) the annual bonus
paid or payable (including any bonus or portion thereof which has been earned
but deferred) for the most recently completed fiscal year or the annual bonus
amount contained in an offer of employment if the Executive was not employed by
the Company in the most recently completed fiscal year and (y) a fraction, the
numerator of which is the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365 and (C) the amount of
any compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued vacation pay, in each case to the
extent not previously paid (the sum of the amounts described in clauses (A),
(B), and (C) shall be hereinafter referred to as the "ACCRUED OBLIGATIONS"); and
(2) an amount equal to the greater of (a) the
Executive's annual base salary during the twelve month period prior to the Date
of Termination, or (b) the product of twelve (12) times the Executive's monthly
salary in effect immediately before the Date of Termination.
(ii) for 12 months after the Date of Termination, or
such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue to provide benefits to
the Executive and the Executive's family at least equal to those which would
have been provided to them if the Executive's employment had not been
terminated, in accordance with the applicable benefit plan or program
(including, without limitation, any insurance, medical, health and accident or
disability plan and any vacation program or policy) (a "BENEFIT PLAN") in effect
on the Date of Termination, or, if more favorable to the Executive and [his/her]
family, in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies; PROVIDED, however, that
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if the Executive becomes reemployed with another employer and is eligible to
receive a particular type of benefits (e.g., health insurance benefits) from
such employer on terms at least as favorable to the Executive and [his/her]
family as those being provided by the Company, then the Company shall no longer
be required to provide those particular benefits to the Executive and [his/her]
family;
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(iii) to the extent not previously paid or provided,
the Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive following the Executive's termination of employment under any plan,
program, policy, practice, contract or agreement of the Company and its
affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "OTHER BENEFITS"); and
(iv) for purposes of (i) determining eligibility
(but not the time of commencement of benefits) of the Executive for retiree
benefits to which the Executive is entitled and (ii) determining vesting OR
EXERCISING under stock options or awards granted to the Executive prior to the
Date of Termination under the Company's employee stock option plans, the
Executive shall be considered to have remained employed by the Company until 12
months after the Date of Termination.
(b) RESIGNATION WITHOUT GOOD REASON; TERMINATION FOR DEATH OR
DISABILITY. If the Executive voluntarily terminates WITHOUT GOOD REASON
[his/her] employment with the Company during the Term or if the Executive's
employment with the Company is terminated by reason of the Executive's death or
Disability during the Term, then the Company shall (i) pay the Executive (or
[his/her] estate, if applicable), in a lump sum in cash within 30 days after the
Date of Termination, the Accrued Obligations and (ii) timely pay or provide to
the Executive the Other Benefits.
(c) TERMINATION FOR CAUSE. If the Company terminates the
Executive's employment with the Company for Cause during the Term, then the
Company shall (i) pay the Executive, in a lump sum in cash within [30 days]
after the Date of Termination, the sum of (A) the Executive's annual base salary
through the Date of Termination and (B) the amount of any compensation
previously deferred by the Executive, in each case to the extent not previously
paid, and (ii) timely pay or provide to the Executive the Other Benefits.
4.2 MITIGATION. The Executive shall not be required to mitigate the
amount of any payment or benefits provided for in this Section 4 by seeking
other employment or otherwise. Further, except as provided in Section
4.1(a)(ii), the amount of any payment or benefits provided for in this Section 4
shall not be reduced by any compensation earned by the Executive as a result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company or otherwise.
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5. DISPUTES.
5.1 SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the Executive
for benefits under this Agreement shall be directed to and determined by the
Board of Directors of the Company and shall be in writing. Any denial by the
Board of Directors of a claim for benefits under this Agreement shall be
delivered to the Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The
Board of Directors shall afford a reasonable opportunity to the Executive for a
review of the decision denying a claim. Any further dispute or controversy
arising under or in connection with this Agreement shall be settled exclusively
by arbitration in Washington, D.C., in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
5.2 EXPENSES. The Company agrees to pay as incurred, to the full
extent permitted by law, all legal, accounting and other fees and expenses which
the Executive may reasonably incur as a result of any claim or contest
(regardless of the outcome thereof) by the Company, the Executive or others
regarding the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive regarding the amount of any payment or benefits
pursuant to this Agreement), plus in each case interest on any delayed payment
at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Code.
6. SUCCESSORS; NON-COMPETE.
6.1 SUCCESSOR TO COMPANY. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company expressly to
assume and agree to perform this Agreement to the same extent that the Company
would be required to perform it if no such succession had taken place. Failure
of the Company to obtain an assumption of this Agreement at or prior to the
effectiveness of any succession shall be a breach of this Agreement and shall
constitute a termination without cause in accordance with Section 4.1(a) if the
Executive elects to terminate employment, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this Agreement,
"Company" shall mean the Company as defined above and any successor to its
business or assets as aforesaid which assumes and agrees to perform this
Agreement, by operation of law or otherwise.
6.2 SUCCESSOR TO EXECUTIVE. This Agreement shall inure to the
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benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to the Executive or [his/her] family hereunder if the Executive had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
6.3 NON-COMPETE.
(a) During the Term the Executive will not directly or
indirectly:
(i) as an individual proprietor, partner
stockholder, officer, employee, director, joint venturer, investor, lender, or
in any other capacity whatsoever (other than as the holder of not more than one
percent (1%) of the total outstanding stock of a publicly held company), engage
in the business of developing, producing, marketing or selling products of the
kind or type developed or being developed, produced, marketed or sold by the
Company while the Executive was employed by the Company; or
(ii) recruit, solicit or induce, or attempt to
induce, any employee or employees of the Company to terminate their employment
with, or otherwise cease their relationship with, the Company; or
(iii) solicit, divert or take away, or attempt to
divert or to take away, the business or patronage of any of the clients,
customers or accounts, or prospective clients, customers or accounts, of the
Company which were contacted, solicited or served by the Executive while
employed by the Company.
(b) If any restrictions set forth in this Section 6.3 is found
by any court of competent jurisdiction to be unenforceable because it extends
for too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
(c) The restrictions contained in this Section 6.3 are
necessary for the protection of the business and goodwill of the Company and are
considered by the Executive to be reasonable for such purpose. The Executive
agrees that any breach of this Section 6.3 will cause the Company substantial
and irrevocable damage and therefore, in the event of any such breach, in
addition to such other remedies which may be available, the Company shall have
the right to seek specific performance and injunctive relief.
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7. NOTICE. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable
nationwide overnight courier service, in each case addressed to the Company, at
13595 Dulles Technology Drive, Herndon, Virginia 20171, and to the Executive at
43454 Thistlewood Court, Ashburn, Virginia 22011 (or to such other address as
either the Company or the Executive may have furnished to the other in writing
in accordance herewith). Any such notice, instruction or communication shall be
deemed to have been delivered five business days after it is sent by registered
or certified mail, return receipt requested, postage prepaid, or one business
day after it is sent via a reputable nationwide overnight courier service.
Either party may give any notice, instruction or other communication hereunder
using any other means, but no such notice, instruction or other communication
shall be deemed to have been duly delivered unless and until it actually is
received by the party for whom it is intended.
8. MISCELLANEOUS.
8.1 EMPLOYMENT BY SUBSIDIARY. For purposes of this Agreement, the
Executive's employment with the Company shall not be deemed to have terminated
solely as a result of the Executive continuing to be employed by a wholly-owned
subsidiary of the Company.
8.2 SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
8.3 INJUNCTIVE RELIEF. The Company and the Executive agree that any
breach of this Agreement by the Company is likely to cause the Executive
substantial and irrevocable damage and therefore, in the event of any such
breach, in addition to such other remedies which may be available, the Executive
shall have the right to specific performance and injunctive relief.
8.4 GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the internal laws of
the Commonwealth of Virginia, without regard to conflicts of law principles.
8.5 WAIVERS. No waiver by the Executive at any time of any breach
of, or compliance with, any provision of this Agreement to be performed by the
Company shall be deemed a waiver of that or any other provision at any
subsequent time.
8.6 COUNTERPARTS. This Agreement may be executed in counterparts,
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each of which shall be deemed to be an original but both of which together shall
constitute one and the same instrument.
8.7 TAX WITHHOLDING. Any payments provided for hereunder shall
be paid net of any applicable tax withholding required under federal, state
or local law.
8.8 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled.
8.9 AMENDMENTS. This Agreement may be amended or modified only
by a written instrument executed by both the Company and the Executive.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first set forth above.
NETRIX CORPORATION
By:-----------------------------------------
Title:--------------------------------------
--------------------------------------------
[SIGNATURE]
9
ASSET PURCHASE
AND
MANUFACTURING
AGREEMENT
BETWEEN
Netrix Corporation
1395 Dulles Technology Drive
Herndon, VA 20171
And
THE SMT CENTRE S.E. INC.
5601 Wilkinson Boulevard
Charlotte,NC 28208
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THIS MANUFACTURING AGREEMENT ("Agreement") dated as of this _____
day of September 1999,
("Effective Date") is made and entered into by and between
Netrix Corporation
a Delaware Corporation,
("NETRIX")
with a principal place of business at
13595 Dulles Technology Drive
Herndon, Virginia 20171
And
THE SMT CENTRE S.E. INC.
a North Carolina corporation
("SMTC"),
with a principal place of business located at
5601 Wilkinson Boulevard
Charlotte, NC 28208
and sets forth the terms and conditions under which SMTC will purchase certain
inventory and will manufacture certain products for NETRIX.
RECITALS
WHEREAS, SMTC is in the business of manufacturing electronic printed
circuit boards ("PCB") and other electronic components and devices; and
WHEREAS, NETRIX is in the business of manufacturing telecommunications
equipment; and
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WHEREAS, NETRIX desires to utilize the services of SMTC to manufacture
certain components; and
WHEREAS, SMTC, understanding the importance of the timely delivery and the
quality performance associated with the manufacture of PCBs and SYSTEMS for
NETRIX's operations, is willing to undertake the manufacture of PCBs and SYSTEMS
on behalf of NETRIX in accordance with the terms and conditions set forth
herein; and
WHEREAS, NETRIX desires to utilize the services of SMTC to repair certain
components; and
WHEREAS, SMTC, understanding the importance of the timely delivery and the
quality performance associated with the repair of PCBs and SYSTEMS to NETRIX's
operations, is willing to undertake the repair of PCBs and SYSTEMS on behalf of
NETRIX in accordance with the terms and conditions set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises and assurances
contained in this Agreement and other good and valuable consideration, the
sufficiency of which the parties hereby acknowledge, the parties, intending to
be legally bound, agree as follows:
1. DEFINITIONS
1.1 "Product" or "Unit" means one or more of the assemblies
manufactured by SMTC or acquired by SMTC on NETRIX's behalf
that are normally used to fulfill Orders.
1.2 "Order" means a request by NETRIX for SMTC to build, test and
ship Product to a specific customer
location.
1.3 "Agreement" means this document.
1.4 "P.O." shall mean Purchase Order.
1.5 "Material Uplift" or "Uplift" means the mark-up applied to material costs.
1.6 "Material Cost" means SMTC's standard cost for components used in the
manufacturing of Product.
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2. INVENTORY PURCHASE
2.1 SMTC agrees to purchase all NETRIX active system level inventory
("baseline inventory") presently located at the SMTC facility. SMTC shall pay
NETRIX for baseline inventory within 45 days of the date materials are consumed.
Notwithstanding the foregoing, SMTC shall cancel the purchase of any baseline
inventory not consumed within 6 months of the date of this Agreement and NETRIX
agrees to accept cancellation of the purchase of any such inventory. At that
time, all unconsumed baseline inventory will be placed in a NETRIX owned stock
location so that it may be utilized for repair/rework requirements, or in the
event that there is future demand for the inventory. NETRIX shall have the risk
of loss of any such unconsumed inventory.
2.2 SMTC will convert NETRIX P.O.'s for components with suppliers to
SMTC P.O.'s, provided, however, that the quantity of components in NETRIX P.O.'s
to be converted shall not exceed the quantity required for fulfilling NETRIX
orders to SMTC for assemblies over a six month period beginning Oct. 1, 1999, or
shall not exceed the suppliers minimum purchase quantities for a particular
component whichever is more.
2.3 NETRIX agrees to pay for all Non-cancelable P.O. balances for any
purchase order converted by SMTC in the event the ordered components are no
longer needed by SMTC for any reason.
2.4 SMTC will accurately determine baseline inventory consumed and
will provide monthly usage and forecasted usage reports. In addition, SMTC will
provide NETRIX with reasonable access to audit baseline inventory.
2.5 SMTC will not apply Uplift to baseline inventory
3. PERSONNEL:
3.1 SMTC agrees to hire up to six (6) existing employees of NETRIX's Charlotte
operations. These employees will be employed at the same level of compensation
they were receiving from NETRIX as of September 1, 1999, for a period of 6
months from the date their employment with SMTC begins. SMTC reserves the right
to terminate the employment of these employees for cause within the six month
period. At the end of the six-month period, employees will be evaluated as to
the appropriate compensation relative to their contribution and equivalent SMTC
position. After the six month period, SMTC reserves the right to make
compensation adjustments to the former NETRIX employees and may terminate their
employment at that time. The seniority of these employees, including time
employed by NETRIX, will be recognized as it relates to vacation benefits.
Benefits for NETRIX employees will be equivalent to those received by SMTC
employees with equivalent seniority.
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3.2 Upon successful completion of 6 months employment with SMTC, SMTC
shall pay to former NETRIX employees lump-sum compensation as a continuation
incentive equal to one (1) month's salary for salaried employees, or 174 hours
for hourly employees, based upon their level of compensation as of September 1,
1999. Payment of the continuation incentive shall be made only upon receipt of
payment from NETRIX of that amount due to former NETRIX Employees under this
provision.
3.3 SMTC agrees to make space available to one (1) NETRIX employee for
a period of up to 1 year in order to facilitate their assistance to the SMTC
team in establishing priorities, performing quality audits, source inspections,
etc. Former NETRIX employees will be part of the SMTC team supporting NETRIX and
will report to SMTC supervision as assigned. NETRIX employees will have no
direct responsibility for any SMTC employees
4 MANUFACTURING.
4.1 NETRIX shall provide to SMTC all applicable assembly drawings,
routings, bills of material, process sheets and fixtures required for use in the
manufacture of Products.
4.2 All special tools and equipment furnished to SMTC or paid for by
NETRIX for use by SMTC in connection with this Agreement shall remain NETRIX
property, including all special tools and equipment identified as a reimbursable
item in the Agreement. All of NETRIX's property in the possession or control of
SMTC shall be (i) used only in filling orders for NETRIX, (ii) kept segregated
and clearly marked as NETRIX's property, (iii) maintained in good condition,
normal wear and tear being excepted, and (iv) surrendered immediately to NETRIX
upon demand.
4.3 SMTC agrees to manufacture product according to NETRIX
specifications. Any deviation from the standard must be with prior written
approval from NETRIX.
4.4 SMTC shall package Orders according to standard Electro-static
Discharge prevention practices, and ship them to a NETRIX specified address in
SMTC supplied shipping containers in accordance with NETRIX packaging
specifications.
4.5 NETRIX agrees to provide SMTC with a rolling projection of Product
requirements to be placed by NETRIX over the twelve (12) month period following
the date of the projection (hereafter the "Forecast"). NETRIX agrees to update
this Forecast at least quarterly in order for SMTC to have an accurate
projection of NETRIX product requirements for the next nine (9) months.
4.6 Provided NETRIX projected the Product requirement in its Forecast
at least three (3) months prior to the date of the Order, SMTC will ship Orders
for Product , within seven (7) working days of receiving notice from NETRIX.
SMTC, at its sole discretion, may accept Orders for Product not included in the
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NETRIX Forecast at least three (3) months prior to the date of the Order. SMTC
shall not, however, be liable for any penalty due to late shipment of any such
Order.
4.7 Occasionally NETRIX systems must be staged prior to shipment. SMTC
will provide space with adequate power drops for system staging at no charge.
5. QUALITY
5.1 SMTC agrees to build and/or repair Products to NETRIX
specifications.
5.2 SMTC agrees to utilize all reasonable effort to comply with
generally accepted manufacturing quality standards.
5.3 In manufacturing Products, printed circuit assemblies will be
manufactured in accordance with the most recent IPC-A-610 Class 2 workmanship
standards. All Products will be tested as specified by NETRIX. SMTC shall
maintain appropriate logs to record test results.
5.4 Both parties as part of an ongoing zero defect activity will share
quality data. Such data will be considered NETRIX's confidential information and
will be reviewed at quarterly meetings held at alternating sites. A defined test
procedure for each Product will be established prior to initiation of production
shipments. NETRIX is responsible for costs associated with modification of
fixtures and software to achieve quality goals.
5.5 Upon reasonable notice by NETRIX, SMTC agrees to provide access to
NETRIX during normal business hours to that part (and only that part) of SMTC's
facility devoted to the performance of NETRIX's work in order for NETRIX to
determine whether SMTC is conforming to the quality provisions of this
Agreement.
5.6 SMTC is required to advise NETRIX of test, configuration or other
issues which are determined to have a negative impact on delivery schedule,
within 1 business day of discovery of any such issue.
5.7 SMTC shall provide adequate space to allow for supervised source
inspection of the Products by NETRIX. NETRIX shall provide SMTC with reasonable
notice prior to source inspection at SMTC. Source inspections will be conducted
during SMTC's normal business hours and on a non-interference basis with SMTC's
other operations, which non-interference shall be determined at SMTC's
reasonable discretion.
5.8 SMTC will maintain ISO9002 & BABT 340 facility certifications. SMTC
will manage Product certification compliance and coordinate with agencies for
safety audits for any additional certification requested and paid for by NETRIX.
SMTC will notify NETRIX of any change in certification status. SMTC will
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reasonably cooperate with NETRIX on obtaining any necessary future
certifications at NETRIX's expense.
5.9 SMTC represents that all SMTC facilities and any major assembly
sub-contractors used by SMTC in the manufacture of Products presently have ISO
9002 certification. Should either SMTC or SMTC's major assembly sub-contractors
lose ISO 9002 certification, SMTC will notify NETRIX immediately. SMTC and it's
major assembly sub-contractors will then have sixty (60) days to be re-certified
5.10 NETRIX or a NETRIX OEM customer shall have the right, at its sole
cost and expense, to perform vendor qualifications, on-site source inspections,
or materials inspections at any time at SMTC's manufacturing facilities and SMTC
shall reasonably cooperate in that regard. If an inspection or test is made on
SMTC's premises, SMTC shall provide the inspectors with reasonable facilities
and assistance at no additional charge. Further, SMTC will notify NETRIX of the
anticipated ship date of any Order and if NETRIX notifies SMTC of its intention
to inspect materials, such inspection shall be made within three (3) days prior
to Product shipment. Failure to inspect materials at this time shall constitute
a waiver of NETRIX's right of inspection at SMTC's plant but not a waiver of
SMTC's obligations under Section 5.12. If vendor processes, procedures or
practices or source materials are found to be nonconforming, substandard or
defective as a result of such inspection, SMTC and NETRIX agree to immediately
address such problem and work with all expedience to rectify the situation.
5.11 SMTC shall provide to NETRIX Quality Information Reports that
allow monitoring of Product quality. Such reports include, but are not limited
to a "Rolling Yield Summary" for printed circuit assembly and test and for
system assembly and test and "Field Return Analysis."
5.12 SMTC will be responsible for performing all factory inspection and
acceptance testing of Products prior to shipment of such Products. Such
acceptance testing will be performed by SMTC in accordance with NETRIX's
standard testing and acceptance criteria. All Products which successfully pass
such acceptance testing will have documented test results available to NETRIX
upon its request, and will be deemed accepted by NETRIX. If such acceptance
testing is (i) not fully performed, (ii) not documented, or if (iii) the
Products fail to pass such acceptance testing, the affected Products will be
deemed not acceptable by NETRIX and cannot be used to complete Orders.
6. ENGINEERING CHANGES.
6.1 Engineering Change Orders ("ECO") are the method of changing the
bill of materials or specifications of NETRIX Products that may be made from
time to time during the term of this Agreement.
6.2 If an ECO is identified as critical by NETRIX, upon notification,
SMTC will suspend all shipments until the ECO is implemented and implement the
ECO within three (3) working days of receipt of such notice. Implementation of
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an ECO within three (3) working days, however, is contingent upon material
availability. All other ECO implementation schedules will be by mutual agreement
between NETRIX and SMTC.
6.3 Within thirty (30) days of the implementation of an ECO by SMTC,
NETRIX agrees to reimburse SMTC for the cost of any parts and/or material,
including long lead components and minimum buy components that cannot be used by
SMTC to produce Products due to the ECO implementations. In the case of parts
and materials not yet delivered by the suppliers, NETRIX also agrees to pay to
SMTC the cancellation charges or other liabilities incurred by SMTC in canceling
such parts and materials . SMTC shall use reasonable efforts to minimize the
costs of such cancellations. SMTC agrees to give NETRIX notice prior to any such
cancellation. Failure of NETRIX to approve any such cancellation, however, shall
not relieve NETRIX of its obligation to reimburse SMTC.
6.4 SMTC Proposed Changes. SMTC shall notify NETRIX of any
Product-related engineering change ("Engineering Change") proposed by SMTC. SMTC
shall supply NETRIX with a written description of the expected effect of the
Engineering Change, including the effect on price, performance, reliability, and
serviceability and the amount of any non-recurring engineering charges. NETRIX,
at its discretion, may elect to incorporate or not to incorporate any
SMTC-proposed Engineering Change into the Product design. If any SMTC-proposed
Engineering Change, accepted by NETRIX and incorporated into the Product design,
results in a reduced Product price, the cost savings to NETRIX will be shared by
NETRIX and SMTC for a period of 12 months in accordance with the following
formula: O - R = CS
Where:
O = Original Product Price
R = New Projected Product Price After Change
CS = Cost Savings
The New Product Price (NPP) will be established as follows:
(CS x 50%) + R = NPP
If a SMTC-proposed Engineering Change is accepted by NETRIX, the parties agree
to amend any outstanding Purchase Order accordingly, and the NPP shall apply to
all Products which include the SMTC-proposed Engineering Change delivered
hereunder. SMTC shall not change or modify the Product without NETRIX's prior
written consent. SMTC agrees that any and all SMTC-proposed Engineering Changes
shall be the property of NETRIX and SMTC hereby assigns any rights it might have
in such Engineering Changes to NETRIX. Notwithstanding the foregoing, however,
SMTC will retain all rights to proprietary process changes, manufacturing
inventions, and tooling regardless of its impact on price.
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6.5 NETRIX Proposed Changes. Provided the parties agree upon any
resulting unit price change, as provided below, SMTC shall incorporate
non-critical Engineering Changes proposed by NETRIX into the Product(s) on a
schedule to be agreed to by the parties.. Within seven (7) days of NETRIX's
notification of an Engineering Change, SMTC will provide NETRIX a written
quotation that includes any proposed increase or decrease in the unit price of
the Product. SMTC's quotation will include a comprehensive cost breakdown of the
added or reduced work scope resulting from the Engineering Change. The parties
shall agree upon any change which may apply to the unit price of the Product
within ten (10) days from the date of NETRIX's notification of an Engineering
Change, and this Agreement, as well as any applicable NETRIX P.O.(s), will be
amended accordingly.
6.6 NETRIX understands that P.O. delivery dates may be affected by any
Engineering Change due to material availability and P.O. dates may be amended by
mutual agreement.
7. PRICE
7.1 MATERIAL UPLIFT AND PROFIT RATES. For the first twelve months
after the date of first Order placement following the effective date of this
Agreement, "Material Uplift Rate" and "Pre-Tax Profit Rate" shall each be fixed
at Eight Point Zero Percent (8.0%). At the expiration of this initial
twelve-month period, "Material Uplift Rate" and "Pre-Tax Profit Rate" for the
subsequent quarter shall be the rate specified in the following grid
corresponding to the "Sales Level." "Sales Level" shall equal the total net
amount billed to NETRIX for Product over the previous twelve-month period and
shall be determined at the beginning of each quarter after the initial
twelve-month period.
Sales Level <$6M >$6M-$10M>$10M-$20M >$20M-$30M >$30M
Material Uplift Rate 13.0% 10.0% 8.0% 8.0% 8.0%
Pre-Tax Profit Rate 10.0% 9.0% 8.0% 7.5% 7.0%
7.2 PRICE. NETRIX Price equals Material Cost plus Material Uplift plus
Labor plus Pre-Tax Profit. "Material Uplift" equals the "Material Uplift Rate"
multiplied by "Material Cost." "Pre-Tax Profit" equals the "Pre-Tax Profit Rate"
multiplied by the sum of "Material Cost" and "Material Uplift" and Labor.
7.3 Shipments of Products are to be FOB manufacturing point. Payment
terms are net 30 days.
7.4 The labor rate for system level assembly and system level testing
shall be $27.85 per hour for the Initial Term of the Agreement as defined in
paragraph 14.1 below.
7.5 The labor rate for debug and repair activities associated with
repair of out of warranty Products shall be $55.00 per hour for the Initial Term
of the Agreement as defined in paragraph 14.1 below.
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7.6 SMTC shall provide raw material/component purchasing support to
NETRIX for engineering and repair operations at the price determined by the
Price grid of Section 7.1.
7.7 Exhibit A describes the part numbers and NETRIX prices for items
that will be included in the NETRIX Forecast.
7.8 Although selling prices for the Products set forth in Exhibit A are
firm, fixed prices, NETRIX will reasonably entertain price adjustments prior to
the conclusion of the 12 month period set forth in Section 7.2 which are the
results of component/material cost variances, or result from sole source or
industry wide conditions which are outside the reasonable control of SMTC.
NETRIX and SMTC shall recalculate pricing once the audited material price
variance is greater that +/- 3% of costed Bill of Material ("BOM") for a period
greater than 60 days. Extraordinary market conditions will be evaluated on a
case by case basis. SMTC will make reasonable efforts to document any and all
price variances.
7.9 Any non-recurring engineering costs associated with the fulfillment
of Order(s) under this Agreement shall be SMTC's actual direct cost plus 5%.
7.10 Title to the Products and the risk of loss shall be that of NETRIX
upon delivery of the Order to the common carrier by SMTC at the SMTC
manufacturing facility.
8. MATERIALS MANAGEMENT
8.1. NETRIX will provide SMTC a Forecast of Product requirements as
specified in paragraph 4.5 above. Regardless of whether Products or other
materials are actually Ordered by NETRIX, however, NETRIX agrees to pay for any
materials, labor and overhead costs incurred or legally obligated by SMTC in
connection with the manufacture of any Product Forecast by NETRIX as provided in
paragraph 8.3 below.
8.2 NETRIX may cancel Purchase Order(s) or any portions thereof for any
reason by written notice prior to the date of delivery. Cancellation shall be
effective upon SMTC's receipt of written notice to that effect from NETRIX, or
thereafter upon the date specified in such cancellation notice. In the event of
NETRIX cancels any Purchase Order effective within 90 days of the scheduled
delivery date, NETRIX agrees to pay SMTC for the reasonable and allocable
materials, labor, and overhead costs incurred or legally obligated prior to the
effective date of the cancellation. NETRIX agrees to purchase from SMTC, at
SMTC's cost plus negotiated material handling expenses, such materials that
remain in SMTC's inventory as well as actual labor expended and reasonable
out-of-pocket expenses. SMTC will deliver to NETRIX all completed Product(s) and
assemblies in process; procured on account of subject Purchase Order(s) and any
tooling, test and burn-in equipment owned by NETRIX and furnished to SMTC under
this Agreement. SMTC agrees that any cancellation charge may be subject to audit
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by NETRIX. To minimize cancellation charges, whenever practicable, procured
components will be used by SMTC, sold back to suppliers or canceled prior to
delivery. NETRIX agrees to pay actual cancellation or re-stocking charges
incurred by SMTC, not to exceed the value of material on order for Forecast
NETRIX orders. SMTC shall invoice NETRIX for any applicable cancellation charges
which shall be payable by NETRIX within 30 days of the date of invoice. NETRIX
and SMTC shall complete any audit activity as requested by NETRIX to verify such
charges within that 30 day period.
8.3 If NETRIX has not requested shipment of any Forecast Product within
sixty (60) days of its forecasted shipment date, NETRIX will, at its sole
discretion, either pay for the Products or pay a one percent (1%) per month
carrying charge for a maximum of four (4) months. At the end of that four (4)
month period, NETRIX agrees to immediately pay for the Product. SMTC will advise
NETRIX of any Products that were Forecasted but did not ship within sixty (60)
days of the Forecasted date.
8.4 Provided they have been Forecasted by NETRIX at least nine (9)
months prior to the date of the Order, SMTC will schedule the build and test of
Orders, within 2 working days of receiving written notice from NETRIX which
provides configuration information and "Ship To" information. Completed Orders
will be shipped within five (5) working days of Orders being scheduled.
8.5 It is the responsibility of SMTC to provide a list of long lead
materials and request from NETRIX authorization to purchase such materials to
insure scheduled delivery. NETRIX agrees to provide a written response to such
request within five (5) working days of a request by SMTC.
8.6 NETRIX, agrees to be liable to pay for
non-returnable/non-cancelable ("NR/NC") material once NETRIX approves its
acquisition by SMTC.
8.7 NETRIX may place "Emergency Orders" (i.e., for accelerated
delivery, increased quantities or a combination of both), and SMTC agrees to
review all potential alternative approaches with NETRIX and make reasonable
efforts to fulfill such emergency orders.
8.8 SMTC shall order components as specified by NETRIX's Authorized
Vendor List ("AVL"). Before ordering or purchasing from a third party, SMTC
shall first utilize any available NETRIX inventory. SMTC shall conduct receiving
inspection on all purchases.
9. REPAIR SERVICES
9.1 SMTC shall provide a stockroom with system support for NETRIX owned
spares, sub-assemblies and finished Products with the equivalent level of
inventory control processes as an SMTC stockroom.
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9.2 SMTC shall ship directly to NETRIX customers items from NETRIX's
spares inventory as needed to support NETRIX's Return-Material-Authorization
("RMA") process within the timeframes specified to be mutually agreed upon.
9.3 SMTC shall accept receipt of all NETRIX RMA Product and route them
correctly for repair or scrap according to NETRIX guidelines.
9.4 SMTC will use its best efforts to debug and repair returned
Products but will not charge NETRIX more than a percentage of board cost as
specified on Exhibit A. If, within twenty-eight (28) days after receipt of the
returned Product, SMTC is unable to repair the returned Product, SMTC will, at
NETRIX's option and at NETRIX's expense, ship such Product to NETRIX and sell to
NETRIX a replacement at the SMTC price listed in Exhibit A minus the current
pre-tax profit from the price grid in Section 7.1.
9.5 SMTC will upgrade any returned Products to the current revision at
NETRIX's expense.
9.6 SMTC will re-assemble any systems returned for repair and route
them to system test after the sub-assemblies have been repaired and upgraded.
10. WARRANTY
10.1 SMTC warrants that Products delivered by SMTC will be free from
defects in workmanship under normal use and operation for a period of one (1)
year from the date of shipment.
10.2 SMTC warrants that Repairs delivered by SMTC will be free from
defects in workmanship under normal use and operation for a period of ninety
(90) days from the date of shipment.
10.3 SMTC further warrants that all Products will conform in every
respect to IPC-A-610-2 standards.
10.4 SMTC'S ENTIRE OBLIGATION UNDER THIS WARRANTY SHALL BE LIMITED TO
REPAIR OR REPLACEMENT OF ANY PARTS OR PRODUCTS, WHICH PROVE TO BE DEFECTIVE
WITHIN THE WARRANTY PERIOD.
10.5 EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN SECTIONS 10.1, 10.2
AND 10.3 ABOVE, SMTC HEREBY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. IN NO EVENT WILL SMTC BE LIABLE FOR ANY INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO
DAMAGES FOR LOSS OF PROFITS OR LOSS OF GOOD WILL EVEN IF ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES IN ADVANCE. SMTC SHALL NOT BE LIABLE FOR ANY CLAIM
OR DEMAND AGAINST NETRIX BY ANY OTHER PARTY.
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10.6 SMTC shall not have any warranty obligation whatsoever where
SMTC's Product has been subjected to attempted repair, disassembly, physical
abuse or other misuse after shipment.
10.7 NETRIX shall notify SMTC of any alleged defect within the time
prescribed above and, promptly upon SMTC's written request, shall send Products
believed to be defective to SMTC for inspection. SMTC will use its best efforts
to return any repaired or replaced Products within ten (10) days from date SMTC
receives the same but no later than thirty (30) days.
10.8 All Products delivered hereunder shall have the date of
manufacture marked on the Product, and all repaired Products shall have the date
of repair marked on the Product. Replacement and warranty repair of defective
Products, including return transportation charges only, shall be at SMTC's
expense.
11. PENALTIES
11.1 NETRIX Penalties. NETRIX shall pay an interest charge equal to 1%
per month for invoices not paid within thirty (30) calendar days of invoice date
to the address specified in paragraph 16.8 together with all costs and
reasonable attorneys fees.
11.2 SMTC Penalties. With respect to any Orders for Forecasted Product
placed with sufficient manufacturing and material lead times and accepted by
SMTC, which are shipped more than five (5) business days after the agreed
shipment date as a result of SMTC's failure to perform adequately in the
planning, scheduling, or manufacturing of PRODUCT for NETRIX, SMTC agrees to pay
a penalty equal to Zero Point Three Three Percent (0.33%) Per Day of the total
charge for the late Product to NETRIX, with a total amount of the penalty not to
exceed the sum of the agreed upon Pre-Tax Profit as specified in Section 7.1
above for any late Product plus one percent (1%) of the sum of (Material Cost
plus Material Uplift plus Labor) for any late Product, on an item-by-item basis.
Notwithstanding the foregoing, SMTC will pay no penalty for any delay resulting
from industry-wide shortages, parts allocations, force majeure and component
obsolescence.
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12. INSURANCE
With the exception of baseline inventory repurchased by NETRIX as
provided in paragraph 2.1 above, while NETRIX-owned property of whatever kind is
in SMTC 's possession or control, SMTC shall be responsible for all loss or
damage and shall, at its expense, secure or maintain extended insurance coverage
in an amount to cover replacement cost. Such insurance shall name NETRIX as
additional insured and loss payee and provide NETRIX with 10 days prior notice
of cancellation, as evidenced by certificates of insurance delivered to NETRIX.
13. INDEMNIFICATION
13.1 NETRIX shall settle or defend, at NETRIX's expense, and pay all
costs, fines, judgments, reasonable attorney fees, reasonable attorneys fees of
counsel for SMTC and damages ("Costs") resulting from all proceedings or claims
against SMTC and its subsidiaries for infringement or alleged infringement by
the Units furnished under this Agreement, or any part or use thereof, of
copyrights, patents, or other intellectual property rights now or hereafter
existing in the United States. This indemnification will not apply to any matter
arising out of a claim for which NETRIX is entitled to indemnification from SMTC
as provided in Section 13.2. NETRIX shall notify SMTC if it is or becomes aware
of any right of, or protection afforded to, a third party as set forth above
that might affect SMTC's ability to provide Units under this Agreement. SMTC
shall provide written notice to NETRIX of any such proceeding or claim of which
it becomes aware as soon as practicable after it becomes aware of the proceeding
or claim.
13.2 SMTC shall settle or defend, at SMTC's expense, and pay all Costs
resulting from all proceedings or claims against NETRIX and its subsidiaries for
infringement or alleged infringement of copyrights, patents, or other
intellectual property rights now or hereafter existing in the United States
arising from or relating to the process or procedures by which the Units
furnished under this Agreement, or any part or use thereof, are manufactured by
SMTC or any modification to the Units proposed by SMTC which it knew or had
reason to believe violated any such intellectual property right. SMTC shall
notify NETRIX if it is or becomes aware of any right of, or protection afforded
to, a third party as set forth above that might affect NETRIX's ability to
receive Units under this Agreement. NETRIX shall provide written notice to SMTC
of any such proceeding or claim of which it becomes aware as soon as practicable
after it becomes aware of the proceeding or claim.
13.3 Reasonably promptly after obtaining knowledge of a matter which
will give rise to a Claim covered by Section 13.1 or 13.2, the party who may be
entitled to indemnification (the "Indemnitee") shall give the party who may be
obligated to provide indemnification (the "Indemnitor") written notice of the
Claim (a "Notice of Claim"); provided, however, that no failure or delay in
giving any such Notice of Claim shall relieve the Indemnitor of its obligations
except, and only to the extent, that it is prejudiced thereby. A Notice of Claim
shall specify in reasonable detail the nature and all known particulars related
to an indemnified Claim. The Indemnitor shall (i) promptly inform the Indemnitee
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of all material developments with respect to a Claim which is the subject of a
Notice of Claim and (ii) inform the Indemnitee promptly after the Indemnitor has
made a good faith determination, based on the facts alleged in such Notice of
Claim or which have otherwise become known to the Indemnitor, either that the
Indemnitor acknowledges that it has an indemnification obligation hereunder in
respect of such Claim or that the Indemnitor has made a good faith determination
that it has no indemnification obligation hereunder in respect of such Claim.
The Indemnitee shall have the right, but not the obligation, to participate, at
its own expense, in the defense of any third party Claim through legal counsel
selected by it and shall have the right, but not the obligation, to assert any
and all cross-claims or counterclaims which it may have. So long as the
Indemnitor is in good faith performing its obligations under this Section 13.3,
the Indemnitee shall (i) at Indemnitor's cost and expense, cooperate in all
reasonable ways with the Indemnitor and (ii) not settle any such Claim without
the prior written consent of the Indemnitor. If the Indemnitor fails to perform
its obligations under this Section 13.3, or if the Indemnitor shall have
informed the Indemnitee in writing that the Indemnitor does not have an
indemnification obligation in respect of such Claim, then the Indemnitee shall
have the right, but not the obligation, to take the actions which the Indemnitor
would have had the right to take in connection with the performance of such
obligations and, if, as determined by a court of competent jurisdiction, the
Indemnitee is entitled to indemnification hereunder in respect of the event or
circumstance as to which the Indemnitee takes such actions, then the Indemnitor
shall, in addition to indemnifying Indemnitee for the Claim, indemnify the
Indemnitee for all of the Costs incurred in connection therewith. If the
Indemnitor proposes to settle or compromise any third party Claim, the
Indemnitor shall give written notice to that effect (together with a statement
in reasonable detail of the terms and conditions of the settlement) to the
Indemnitee a reasonable time prior to effecting the settlement. Notwithstanding
anything contained herein to the contrary, the Indemnitee shall have the right
to object to the settlement of any third party Claim, whereupon (A) the
Indemnitee will assume the defense of such Claim for its own account and as if
it were the Indemnitor and (B) the Indemnitor shall be released from any and all
liability with respect to such Claim to the extent that such liability exceeds
the liability which the Indemnitor would have had in respect of such a
settlement.
13.4 This Section 13 states the entire rights and obligations of NETRIX
and SMTC regarding infringement of copyrights, patents, or intellectual property
rights now or hereafter existing in the United States and shall survive
expiration or termination of this Agreement.
14. TERM AND TERMINATION
14.1 This Agreement shall commence as of the Effective Date and
continue for a minimum period of three (3) years ("Initial Term"). This
Agreement shall be extended thereafter for one (1) year periods unless either
party shall give written notice of termination at least ninety (90) days prior
to the end of the then current Term.
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14.2 Either party may immediately terminate this Agreement, in whole or
in part, in the event that the other party shall become insolvent, file or have
filed against it (and not dismissed within thirty (30) days) a petition in
bankruptcy, undergo a reorganization pursuant to a petition in bankruptcy filed
with respect to it, or makes an assignment of their assets for the benefit of
creditors.
14.3 In addition to the rights set forth above, NETRIX shall have an
immediate right of termination in the event that SMTC does not attain the
delivery or quality criteria set forth in Paragraph 6. SMTC shall be given a
written 30 day notice to cure any such problem.
14.4 Upon termination by NETRIX as provided in this Agreement, SMTC
agrees to transfer to NETRIX: (1) any outstanding orders it has placed for raw
materials/component parts; (2) inventory on hand related to the Products; (3)
dedicated fixtures or equipment pertaining to the manufacture or assembly of the
Product paid for by NETRIX; and (4) all manufacturing/assembly know-how related
to SMTC's manufacture of the Product, including but not limited to,
assembly/test documentation and test programs. All applicable cancellation
charges will apply in regard to this termination.
14.5 In the event that this Agreement is terminated, SMTC will use its
best efforts to assist NETRIX in securing and establishing an alternate source
of supply by transfer of NETRIX documents, and provided such support shall be
limited to a three (3) month period and shall take place only within the
Continental United States and further provided that NETRIX pays all charges
described in Paragraph 8.2 in the event of termination.
14.6 SMTC may terminate this Agreement thirty (30) days or more after
making written demand for payment to NETRIX in the event that NETRIX fails to
pay an invoice submitted to it within the net forty-five (45) days from date of
invoice as required. In the event SMTC terminates this Agreement pursuant to
this paragraph, NETRIX shall be liable for all applicable cancellation charges.
15. CONFIDENTIAL INFORMATION.
15.1 Protection of Confidential and/or Proprietary Information. Each
party hereby agrees that all information which is disclosed to it by the other
party or its representatives (a) in writing or some other physical form or
electronically and designated to be proprietary and confidential or (b) is
disclosed to it initially orally or visually and identified at the time of
initial disclosure as proprietary or designated in writing as proprietary, will
be safeguarded by the receiving party in the same manner the receiving party
safeguards its own proprietary and confidential information of like character.
No such information will be divulged to third parties without the prior written
consent of the disclosing party. Notwithstanding the foregoing, SMTC
acknowledges that (a) all NETRIX engineering drawings, schematics and software,
customer lists, and customer information, and pricing under this Agreement are
considered proprietary even if they are not so designated; (b) all information
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with regard to order volumes, pricing, quality performance data and rate of
repair for any NETRIX Product are confidential; (c) SMTC will not contact any
NETRIX customer without NETRIX's prior written consent; and (d) SMTC will not
compile a customer list or divulge any of the names, contact persons or
purchasing history of NETRIX customers except in furtherance of its performance
of this Agreement.
15.2 Notwithstanding anything above to the contrary, this Agreement
shall not impose any obligation upon the receiving party with respect to any
portion of the received information which (i) is now, or which hereafter,
through no act or failure to act on the part of the receiving party, becomes
generally known or available, (ii) is known to the receiving party at the time
of receiving such information as established by written records, (iii) is
furnished by the disclosing party to others without restriction on disclosure,
(iv) is hereafter furnished to the receiving party by a third party, as a matter
or right and without restriction on disclosure, (v) is independently developed
by the receiving party, or (vi) is authorized in writing for release by the
disclosing party.
15.3 This section 15 shall survive the termination of this Agreement.
16. GENERAL
16.1 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable by any court of competent jurisdiction, such invalidity
or unenforceability shall not affect the enforceability of any other provisions
of this Agreement not held to be invalid. The remaining provisions of this
Agreement shall continue in effect as though any such invalid or unenforceable
provisions were deleted.
16.2 AMENDMENTS. This Agreement can only be modified in writing, signed
by a duly authorized Corporate Officer of each party to the Agreement. No
Amendment shall be deemed effective, notwithstanding proper execution, until a
duplicate original of such Amendment is received by each party in accordance
with provisions of Section 16.7 of this Agreement.
16.3 COMPLIANCE WITH LAWS. Each party agrees to comply with all
applicable laws, rules and regulations with regard to the performance of its
obligations under this Agreement and indemnify and hold the other party harmless
from any loss resulting from its failure to obey all such laws, rules and
regulations.
16.4 Export Control Compliance. Both parties acknowledge that the
products, software, and documentation covered by this Agreement may be subject
to the rules and regulations of United States Department of Commerce Office of
Export Administration and other import or export restrictions from or to
applicable countries. When required, both parties will cooperate to provide such
documentation as may be required under any such laws, rules, or regulations, and
neither party will make any shipments nor take any actions in violation of such
requirements.
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16.5 RELATIONSHIP BETWEEN PARTIES. The parties acknowledge and agree
that they are now and will continue at all times during the term of this
Agreement to be independent parties. In no event will either party engage in
conduct or hold itself out to be a joint venture partner, employee,
representative, franchisee, servant or agent of the other.
Neither party will have any right to bind or obligate the other in any manner.
16.6 WAIVER. Either party's failure to exercise, in whole or in part,
or delay in exercising any right under this Agreement will not preclude any
future exercise of the same right or the exercise of any other right hereunder.
16.7 NOTICES. All notices required or permitted under this Agreement
shall be in writing, delivered to the party at the address set forth below, or
such other address as either party may specify by notice in accordance with this
paragraph by express delivery service or by facsimile or telefax. Notices shall
be delivered to the following addresses:
To: Netrix Corporation
13595 Dulles Technology Drive
Herndon, Virginia 20171
Attn.: President
cc: Vice President Operations
Fax Number: 704-394-1722
To: The SMT Centre S.E. Inc.
5601 Wilkinson Boulevard
Charlotte, NC 28208
Attn.: Vice-President & General Manager
Fax Number: 703-793-2060
Address information, facsimile numbers and contact information may be changed
unilaterally by each party as needed without regard to any other provisions of
this agreement.
16.8 Title and Headings. The headings to the sections of this Agreement
are inserted for convenience of reference only and will not be considered a part
of this Agreement.
16.9 Force Majeure. Neither party will be liable nor deemed to be in
default for delay or failure in performance or interruption of service hereunder
resulting directly or indirectly from acts of God, wars, floods, riots, labor
strikes, worldwide parts shortages, or transportation shortages (a "force
majeure"), provided, however, the provisions of this section shall not apply to
obligations to make payments when due. The party claiming excuse for failure to
perform due to force majeure shall notify the other party in writing within 2
days of the existence of the force majeure cause and its expected duration.
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With no regard to cause of the force majeure, if the notifying party is not able
within fifteen (15) days after the occurrence to commit to resume substantial
performance of its obligations within seventy-five (75) days after such
commitment, the other party may declare such party to be in default without
regard to any applicable cure period.
16.10 DISCLOSURES. Nothing contained in this Agreement shall be deemed
to be an assignment or transfer of any intellectual property rights by either
party to the other, except for any disclosure by NETRIX which is required to be
used by SMTC to perform its obligations hereunder and all such disclosures shall
constitute a non-exclusive royalty free license to SMTC to use all such
disclosures but only to the extent required by SMTC to fulfill its obligations
hereunder.
16.11 AUTHORITY. Each party warrants that it has the unqualified right
to enter this Agreement, that it is the owner of or has the right to transfer
all rights and licenses to all technology, intellectual property and other
deliverables under the terms of this Agreement, and that each has the right to
perform all obligations under this Agreement.
16.12 ASSIGNMENT. Neither party may assign or otherwise transfer its
rights and obligations under this Agreement without the written consent of the
other party, which consent shall not be unreasonably withheld. Notwithstanding
the foregoing, NETRIX may assign this Agreement in connection with the sale of
substantially all of the assets of the company. Notwithstanding the foregoing,
SMTC may also assign this Agreement to an affiliated company of equal or greater
capitalization.
16.13 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the United States of America and the Commonwealth
of Virginia.
16.14 TRADEMARKS. Notwithstanding any other provisions of this
Agreement, neither party shall have the right to use trademarks, service marks
or trade names of the other party (including those of any subsidiaries) directly
nor indirectly for any reason without prior written approval of the other party.
16.15 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding between the parties with respect to the subject matter hereof
and merges all prior discussions and negotiations between them. There are no
oral representations or inducements pertaining thereto which are not contained
herein; and neither of the parties hereto shall be bound by any conditions,
definitions, warranties, understandings or representations with respect to such
subject matter other than as expressly provided herein or as duly set forth on
or subsequent to the date hereof in writing and signed by a proper and duly
authorized officer or representative of the party hereto to be bound thereby.
16.16 EFFECTIVE DATE. This Agreement is not effective and shall have no
force whatever until fully executed by all of the parties hereto.
Page 19
<PAGE>
16.17 JOINT EFFORTS. This Agreement has been drafted by the mutual
efforts of the parties after consultation with counsel and shall not be
construed against any party as a result thereof.
16.18 EXECUTION IN COUNTERPARTS. The Agreement may be executed in any
number of counterparts with the same effect as if all parties had signed the
same document. All counterparts shall be construed together and shall constitute
one Agreement.
16.19 WARRANTY OF NON-INFRINGEMENT. NETRIX warrants that it is not
aware of any claim for infringement or alleged infringement by the Units to be
manufactured under this Agreement, or any part or use thereof, of copyrights,
patents, or other intellectual property rights now or hereafter existing in the
United States.
16.20 PUBLICITY. The existence and terms of this Agreement shall remain
confidential. Neither party shall make any public announcement relating to this
Agreement without the prior written consent of the other party, which consent
shall not be unreasonably withheld, conditioned or delayed.
17. SIGNATURES
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by its duly authorized representative, intending to be legally bound
thereby.
Date: Date:
NETRIX CORPORATION. THE SMT CENTRE S.E. INC.
By:________________________________ By:_____________________________
Page 20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
- ---------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Netrix Part Number Netrix Purchase Price Repair Percentage Maximum Repair Charge
Allowed Change
- ---------------------------- -------------------------- -------------------------- --------------------------
- ---------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
NETRIX CORPORATION
1999 LONG-TERM INCENTIVE PLAN
(As Amended September 29, 1999)
1. PURPOSE. The purpose of this 1999 Long-Term Incentive Plan (the "Plan")
of Netrix Corporation, a Delaware corporation (the "Company"), is to advance the
interests of the Company and its stockholders by providing a means to attract,
retain, and reward directors, officers and other key employees and consultants
of the Company and its subsidiaries (including consultants providing services of
substantial value) and to enable such persons to acquire or increase a
proprietary interest in the Company, thereby promoting a closer identity of
interests between such persons and the Company's stockholders.
2. DEFINITIONS. The definitions of awards under the Plan, including
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, Dividend Equivalents, and Other
Stock-Based Awards, are set forth in Section 6 of the Plan. Such awards,
together with any other right or interest granted to a Participant under the
Plan, are termed "Awards." For purposes of the Plan, the following additional
terms shall be defined as set forth below:
(a) "AWARD AGREEMENT" means any written agreement, contract, or other
instrument or document evidencing an Award.
(b) "BENEFICIARY" shall mean the person, persons, trust, or trusts
which have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under this Plan upon such Participant's death or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust, or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(c) "BOARD" means the Board of Directors of the Company.
(d) A "CHANGE IN CONTROL" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit
plan of the Company, acquires directly or indirectly the Beneficial Ownership
(as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended)
of any voting security of the Company and immediately after such acquisition
such Person is, directly or indirectly, the Beneficial Owner of voting
securities representing 50% or more of the total voting power of all of the
then-outstanding voting securities of the Company;
(ii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not sought or obtained, other than any
such transaction which would result in at least 75% of the total voting power
<PAGE>
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least 75% of
the holders of outstanding voting securities of the Company immediately prior to
the transaction, with the voting power of each such continuing holder relative
to other such continuing holders not substantially altered in the transaction;
or
(iii) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or a substantial portion of the Company's assets (i.e.,
50% or more of the total assets of the Company).
(e) "CODE" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
(f) "COMMITTEE" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan;
PROVIDED, HOWEVER, that to the extent necessary to comply with Rule 16b-3, the
Committee shall consist of two or more directors, each of whom is a
"disinterested person" within the meaning of Rule 16b-3.
(g) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act shall
be deemed to include rules thereunder and successor provisions and rules
thereto.
(h) "FAIR MARKET VALUE" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee, provided, however, that (i) if the Stock is listed on a
national securities exchange or quoted in an interdealer quotation system, the
Fair Market Value of such Stock on a given date shall be based upon the last
sales price or, if unavailable, the average of the closing bid and asked prices
per share of the Stock on such date (or, if there was no trading or quotation in
the Stock on such date, on the next preceding date on which there was trading or
quotation) as provided by one of such organizations, (ii) the "fair market
value" of Stock on the date on which shares of Stock are first issued and sold
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission shall be the Initial Public Offering price of
the shares so issued and sold, as set forth in the first final prospectus used
in such offering and (iii) the "fair market value" of Stock prior to the date of
the Initial Public Offering shall be as determined by the Board of Directors.
(i) "INITIAL PUBLIC OFFERING" shall mean an initial public offering of
shares of Stock in a firm commitment underwriting registered with the Securities
and Exchange Commission in compliance with the provisions of the 1933 Act.
(j) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
<PAGE>
(k) "NON-EMPLOYEE DIRECTOR" shall mean a member of the Board who is not
otherwise an employee of the Company or any subsidiary.
(l) "PARTICIPANT" means a person who, at a time when eligible under
Section 5 hereof, has been granted an Award under the Plan.
(m) "RULE 16B-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(n) "STOCK" means the Common Stock, $.01 par value, of the Company and
such other securities as may be substituted for Stock or such other securities
pursuant to Section 4.
3. ADMINISTRATION.
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select Participants to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted
to each Participant;
(iii) to determine the number of Awards to be granted, the
number of shares of Stock to which an Award will relate, the terms and
conditions of any Award granted under the Plan (including, but not limited to,
any exercise price, grant price, or purchase price, any restriction or
condition, any schedule for lapse of restrictions or conditions relating to
transferability or forfeiture, exercisability, or settlement of an Award, and
waivers or accelerations thereof, and waivers of or modifications to performance
conditions relating to an Award, based in each case on such considerations as
the Committee shall determine), and all other matters to be determined in
connection with an Award;
(iv) to determine whether, to what extent, and under what
circumstances an Award may be settled, or the exercise price of an Award may be
paid, in cash, Stock, other Awards, or other property, or an Award may be
cancelled, forfeited, or surrendered;
(v) to determine whether, to what extent, and under what
circumstances cash, Stock, other Awards, or other property payable with respect
to an Award will be deferred either automatically, at the election of the
Committee, or at the election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need
not be identical for each Participant;
(vii) to adopt, amend, suspend, waive, and rescind such rules
and regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
<PAGE>
(viii) to correct any defect or supply any omission or reconcile
any inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement, or other instrument hereunder;
and
(ix) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. Unless authority is
specifically reserved to the Board under the terms of the Plan, the Company's
Certificate of Incorporation or Bylaws, or applicable law, the Committee shall
have sole discretion in exercising authority under the Plan. Any action of the
Committee with respect to the Plan shall be final, conclusive, and binding on
all persons, including the Company, subsidiaries of the Company, Participants,
any person claiming any rights under the Plan from or through any Participant,
and stockholders. The express grant of any specific power to the Committee, and
the taking of any action by the Committee, shall not be construed as limiting
any power or authority of the Committee. The Committee may delegate to officers
or managers of the Company or any subsidiary of the Company the authority,
subject to such terms as the Committee shall determine, to perform
administrative functions and, with respect to Participants not subject to
Section 16 of the Exchange Act, to perform such other functions as the Committee
may determine, to the extent permitted under Rule 16b-3, if applicable, and
other applicable law.
(c) LIMITATION OF LIABILITY. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants, or any
executive compensation consultant, legal counsel, or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination, or
interpretation.
4. STOCK SUBJECT TO PLAN.
(a) AMOUNT OF STOCK RESERVED. The total amount of Stock that may be
subject to outstanding Awards, determined immediately after the grant of any
Award, shall not exceed 4,800,000 shares of the total number of shares of Stock
outstanding. Shares subject to ISOs, Restricted Stock or Deferred Stock Awards
shall not be deemed delivered if such Awards are forfeited, expire or otherwise
terminate without delivery of shares to the Participant. If an Award valued by
reference to Stock may only be settled in cash, the number of shares to which
such Award relates shall be deemed to be Stock subject to such Award for
purposes of this Section 4(a). Any shares of Stock delivered pursuant to an
Award may consist, in whole or in part, of authorized and unissued shares or
treasury shares.
<PAGE>
(b) ADJUSTMENTS. In the event of any dividend or other distribution
(whether in the form of cash, Stock, or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, or share exchange, or other similar corporate
transaction or event, affects the Stock such that an adjustment is appropriate
in order to prevent dilution or enlargement of the rights of Participants under
the Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of (i) the number and kind of shares of Stock deemed to be
available thereafter for grants of Awards under Section 4(a) (including with
respect to the limitations relating to ISOs and to Restricted and Deferred
Stock), (ii) the number and kind of shares of Stock that may be delivered or
deliverable in respect of outstanding Awards, and (iii) the exercise price,
grant price, or purchase price relating to any Award (or, if deemed appropriate,
the Committee may make provision for a cash payment with respect to any
outstanding Award). In addition, the Committee is authorized to make adjustments
in the terms and conditions of, and the criteria included in, Awards (including,
without limitation, cash payments in exchange for an Award or substitution of
Awards using stock of a successor or other entity) in recognition of unusual or
nonrecurring events (including, without limitation, events described in the
preceding sentence) affecting the Company or any subsidiary or the financial
statements of the Company or any subsidiary, or in response to changes in
applicable laws, regulations, or accounting principles. The foregoing
notwithstanding, no adjustments shall be authorized under this Section 4(c) with
respect to ISOs or SARs in tandem therewith to the extent that such authority
would cause the Plan to violate Section 422(b)(1) of the Code, and no such
adjustment shall be authorized with respect to Options or other Awards granted
in accordance with Section 7(f) hereof to the extent that such authority would
cause such Options or other Awards to fail to qualify as "performance-based
compensation" under Section 162(m)(4)(C) of the Code and regulations thereunder
(including Regulation 1.162-27(e)(2)).
5. ELIGIBILITY. Executive officers and other key employees of the Company
and its subsidiaries, including any director and persons who provide consulting
or other services the Company deemed by the Committee to be of substantial value
to the Company, are eligible to be granted Awards under the Plan. In addition, a
person who has been offered employment by the Company or its subsidiaries is
eligible to be granted an Award under the Plan, provided that such Award shall
be cancelled if such person fails to commence such employment, and no payment of
value may be made in connection with such Award until such person has commenced
such employment.
6. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Award or
the exercise thereof, at the date of grant or thereafter (subject to Section
8(e)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service of the Participant. Except as provided in Sections 6(f), 6(h), or 7(a),
or to the extent required to comply with requirements of the Delaware General
Corporation Law that lawful consideration be paid for Stock, only services may
be required as consideration for the grant (but not the exercise) of any Award.
<PAGE>
(b) OPTIONS. The Committee is authorized to grant Options to
Participants (including "reload" options automatically granted to offset
specified exercises of options) on the following terms and conditions:
(i) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall be determined by the
Committee.
(ii) TIME AND METHOD OF EXERCISE. The Committee shall determine
the time or times at which an Option may be exercised in whole or in part, the
methods by which such exercise price may be paid or deemed to be paid, the form
of such payment, including, without limitation, cash, Stock, other Awards or
awards granted under other Company plans, or other property (including notes or
other contractual obligations of Participants to make payment on a deferred
basis, such as through "cashless exercise" arrangements, to the extent permitted
by applicable law), and the methods by which Stock will be delivered or deemed
to be delivered to Participants.
(iii) ISOS. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Section 422 of the Code, including
but not limited to the requirement that no ISO shall be granted more than ten
years after the effective date of the Plan. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to ISOs shall not be interpreted,
amended, or altered, nor shall any discretion or authority granted under the
Plan be exercised, so as to disqualify either the Plan or any ISO under Section
422 of the Code.
(iv) TERMINATION OF EMPLOYMENT. Unless otherwise determined by
the Committee, upon termination of a Participant's employment with the Company
and its subsidiaries, such Participant may exercise any Options during the three
month period following such termination of employment, but only to the extent
such Option was exercisable immediately prior to such termination of employment.
Notwithstanding the foregoing, if the Committee determines that such termination
is for cause, all Options held by the Participant shall immediately terminate.
(c) STOCK APPRECIATION RIGHTS. The Committee is authorized to grant
SARs to Participants on the following terms and conditions:
(i) RIGHT TO PAYMENT. An SAR shall confer on the Participant to
whom it is granted a right to receive, upon exercise thereof, the excess of (A)
the Fair Market Value of one share of Stock on the date of exercise (or, if the
Committee shall so determine in the case of any such right other than one
related to an ISO, the Fair Market Value of one share at any time during a
specified period before or after the date of exercise), over (B) the grant price
of the SAR as determined by the Committee as of the date of grant of the SAR,
which, except as provided in Section 7(a), shall be not less than the Fair
Market Value of one share of Stock on the date of grant.
(ii) OTHER TERMS. The Committee shall determine the time or
times at which an SAR may be exercised in whole or in part, the method of
exercise, method of settlement, form of consideration payable in settlement,
<PAGE>
method by which Stock will be delivered or deemed to be delivered to
Participants, whether or not an SAR shall be in tandem with any other Award, and
any other terms and conditions of any SAR. Limited SARs that may only be
exercised upon the occurrence of a Change in Control may be granted on such
terms, not inconsistent with this Section 6(c), as the Committee may determine.
Limited SARs may be either freestanding or in tandem with other Awards.
(d) RESTRICTED STOCK. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(i) GRANT AND RESTRICTIONS. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions, if any, as the
Committee may impose, which restrictions may lapse separately or in combination
at such times, under such circumstances, in such installments, or otherwise, as
the Committee may determine. Except to the extent restricted under the terms of
the Plan and any Award Agreement relating to the Restricted Stock, a Participant
granted Restricted Stock shall have all of the rights of a stockholder
including, without limitation, the right to vote Restricted Stock or the right
to receive dividends thereon.
(ii) FORFEITURE. Except as otherwise determined by the
Committee, upon termination of employment or service (as determined under
criteria established by the Committee) during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be forfeited
and reacquired by the Company; PROVIDED, HOWEVER, that the Committee may
provide, by rule or regulation or in any Award Agreement, or may determine in
any individual case, that restrictions or forfeiture conditions relating to
Restricted Stock will be waived in whole or in part in the event of termination
resulting from specified causes. Notwithstanding anything contained herein to
the contrary (other than Section 7(g)), all Restricted Stock Awards, other than
an Award granted pursuant to Section 7(f), shall be forfeited upon a
Participant's termination of employment or other service with the Company and
its subsidiaries within three years of the date the award is granted, provided,
however, that the Committee may make exceptions in the event such termination is
by reason of the Participant's death or disability.
(iii) CERTIFICATES FOR STOCK. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, such certificates shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Restricted Stock, the
Company shall retain physical possession of the certificate, and the Participant
shall have delivered a stock power to the Company, endorsed in blank, relating
to the Restricted Stock.
(iv) DIVIDENDS. Dividends paid on Restricted Stock shall be
either paid at the dividend payment date in cash or in shares of unrestricted
Stock having a Fair Market Value equal to the amount of such dividends, or the
payment of such dividends shall be deferred and/or the amount or value thereof
automatically reinvested in additional Restricted Stock, other Awards, or other
investment vehicles, as the Committee shall determine or permit the Participant
to elect. Stock distributed in connection with a Stock split or Stock dividend,
and other property distributed as a dividend, shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted Stock with respect
to which such Stock or other property has been distributed.
<PAGE>
(e) DEFERRED STOCK. The Committee is authorized to grant Deferred Stock
to Participants, subject to the following terms and conditions:
(i) AWARD AND RESTRICTIONS. Delivery of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred Stock by
the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, Deferred Stock shall be subject to such restrictions
as the Committee may impose, if any, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times, separately or
in combination, in installments, or otherwise, as the Committee may determine.
(ii) FORFEITURE. Except as otherwise determined by the
Committee, upon termination of employment or service (as determined under
criteria established by the Committee) during the applicable deferral period or
portion thereof to which forfeiture conditions apply (as provided in the Award
Agreement evidencing the Deferred Stock), all Deferred Stock that is at that
time subject to deferral (other than a deferral at the election of the
Participant) shall be forfeited; PROVIDED, HOWEVER, that the Committee may
provide, by rule or regulation or in any Award Agreement, or may determine in
any individual case, that restrictions or forfeiture conditions relating to
Deferred Stock will be waived in whole or in part in the event of termination
resulting from specified causes. Notwithstanding anything contained herein to
the contrary (other than Section 7(g)), all Deferred Stock Awards, other than an
Award granted pursuant to Section 7(f), shall be forfeited upon a Participant's
termination of employment or other service with the Company and its subsidiaries
within three years of the date the award is granted, provided, however, that the
Committee may make exceptions in the event such termination is by reason of the
Participant's death or disability.
(f) BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS. The Committee
is authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of Company obligations to pay cash under other plans or compensatory
arrangements, provided that, in the case of Participants subject to Section 16
of the Exchange Act, such cash amounts are determined under such other plans in
a manner that complies with applicable requirements of Rule 16b-3 so that the
acquisition of Stock or Awards hereunder shall be exempt from Section 16(b)
liability. Stock or Awards granted hereunder shall be subject to such other
terms as shall be determined by the Committee.
(g) DIVIDEND EQUIVALENTS. The Committee is authorized to grant Dividend
Equivalents to a Participant, entitling the Participant to receive cash, Stock,
other Awards, or other property equal in value to dividends paid with respect to
a specified number of shares of Stock, or other periodic payments. Dividend
Equivalents may be awarded on a free-standing basis or in connection with
another Award. The Committee may provide that Dividend Equivalents shall be paid
or distributed when accrued or shall be deemed to have been reinvested in
additional Stock, Awards, or other investment vehicles as the Committee may
specify.
<PAGE>
(h) OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock, as deemed by the Committee to
be consistent with the purposes of the Plan, including, without limitation,
convertible or exchangeable debt securities, other rights convertible or
exchangeable into Stock, purchase rights for Stock, Awards with value and
payment contingent upon performance of the Company or any other factors
designated by the Committee, and Awards valued by reference to the book value of
Stock or the value of securities of or the performance of specified
subsidiaries. The Committee shall determine the terms and conditions of such
Awards. Stock delivered pursuant to an Award in the nature of a purchase right
granted under this Section 6(h) shall be purchased for such consideration, paid
for at such times, by such methods, and in such forms, including, without
limitation, cash, Stock, other Awards, or other property, as the Committee shall
determine. Cash awards, as an element of or supplement to any other Award under
the Plan, shall also be authorized pursuant to this Section 6(h).
7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution for, any
other Award granted under the Plan or any award granted under any other plan of
the Company, any subsidiary, or any business entity to be acquired by the
Company or a subsidiary, or any other right of a Participant to receive payment
from the Company or any subsidiary. Awards granted in addition to or in tandem
with other Awards or awards may be granted either as of the same time as or a
different time from the grant of such other Awards or awards.
(b) TERM OF AWARDS. The term of each Award shall be for such period as
may be determined by the Committee; PROVIDED, HOWEVER, that in no event shall
the term of any ISO or an SAR granted in tandem therewith exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code).
(c) FORM OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and
any applicable Award Agreement, payments to be made by the Company or a
subsidiary upon the grant or exercise of an Award may be made in such forms as
the Committee shall determine, including, without limitation, cash, Stock, other
Awards, or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. Such payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents in respect of installment or deferred payments denominated in Stock.
(d) RULE 16B-3 COMPLIANCE.
(i) SIX-MONTH HOLDING PERIOD. Unless a Participant could
otherwise exercise a derivative security or dispose of Stock delivered upon
exercise of a derivative security granted under the Plan without incurring
liability under Section 16(b) of the Exchange Act, (i) Stock delivered under the
<PAGE>
Plan other than upon exercise or conversion of a derivative security granted
under the Plan shall be held for at least six months from the date of
acquisition, and (ii), with respect to a derivative security granted under the
Plan, at least six months shall elapse from the date of acquisition of the
derivative security to the date of disposition of the derivative security (other
than upon exercise or conversion) or its underlying equity security.
(ii) TRANSFERABILITY. Except as otherwise provided by the
Committee, Awards under the Plan are not transferable except as designated by
the Participant by will or by the laws of descent and distribution (or pursuant
to a Beneficiary designation).
(iii) REFORMATION TO COMPLY WITH EXCHANGE ACT RULES. It is the
intent of the Company that this Plan comply in all respects with applicable
provisions of Rule 16b-3 or Rule 16a-1(c)(3) under the Exchange Act in
connection with any grant of Awards to or other transaction by a Participant who
is subject to Section 16 of the Exchange Act (except for transactions exempted
under alternative Exchange Act Rules or acknowledged in writing to be non-exempt
by such Participant). Accordingly, if any provision of this Plan or any Award
Agreement relating to an Award does not comply with the requirements of Rule
16b-3 or Rule 16a-1(c)(3) as then applicable to any such transaction, such
provision will be construed or deemed amended to the extent necessary to conform
to the applicable requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such
Participant shall avoid liability under Section 16(b). In addition, other
provisions of the Plan notwithstanding, the exercise price of any Award carrying
a right to exercise granted to a Participant subject to Section 16 of the
Exchange Act shall be not less than 50% of the Fair Market Value of Stock as of
the date such Award is granted if such pricing limitation is required under Rule
16b-3 at the time of such grant.
(e) LOAN PROVISIONS. With the consent of the Committee, and subject at
all times to, and only to the extent, if any, and in accordance with, laws and
regulations and other binding obligations or provisions applicable to the
Company, the Company may make, guarantee, or arrange for a loan or loans to a
Participant with respect to the exercise of any Option or other payment in
connection with any Award, including the payment by a Participant of any or all
federal, state, or local income or other taxes due in connection with any Award.
Subject to such limitations, the Committee shall have full authority to decide
whether to make a loan or loans hereunder and to determine the amount, terms,
and provisions of any such loan or loans, including the interest rate to be
charged in respect of any such loan or loans, whether the loan or loans are to
be with or without recourse against the borrower, the terms on which the loan is
to be repaid and conditions, if any, under which the loan or loans may be
forgiven.
(f) PERFORMANCE-BASED AWARDS TO "COVERED EMPLOYEES". Other provisions
of the Plan notwithstanding, the provisions of this Section 7(f) shall apply to
any Award the exercisability or settlement of which is subject to the
achievement of performance conditions (other than an Option or SAR granted with
an exercise or base price at least equal to 100% of Fair Market Value of Stock
on the date of grant) if such Award is granted to a person who, at the time of
grant, is a "covered employee." The definition of "covered employee," and other
terms used in this Section 7(f), shall be interpreted in a manner consistent
with Section 162(m) of the Code and regulations thereunder (including Regulation
1.162-27). The performance objectives for an Award subject to this Section 7(f)
<PAGE>
shall consist of one or more business criteria and a targeted level or levels of
performance with respect to such criteria, as specified by the Committee but
subject to this Section 7(f). Performance objectives shall be objective and
shall otherwise meet the requirements (including the shareholder approval
requirements) of Section 162(m)(4)(C) of the Code and regulations thereunder
(including Regulation 1.162-27(e)(2)). The following business criteria shall be
used by the Committee in connection with a performance objective:
(1) Annual earnings before payment of taxes and interest;
(2) Annual earnings per share; and/or
(3) Annual return on common equity.
Achievement of performance objectives shall be measured over a period of one,
two, three, or four years, as specified by the Committee. No business criteria
other than those named above may be used in establishing the performance
objective for an Award to a covered employee. For each such Award relating to a
covered employee, the Committee shall establish the targeted level or levels of
performance for each business criteria. Performance objectives may differ for
Awards under this Section 7(f) to different covered employees. The Committee may
determine that an Award under this Section 7(f) shall be payable upon
achievement of any one of the performance objectives or may require that two or
more of the performance objectives must be achieved in order for an Award to be
payable. The Committee may, in its discretion, reduce the amount of a payout
otherwise to be made in connection with an Award under this Section 7(f), but
may not exercise discretion to increase such amount, and the Committee may
consider other performance criteria in exercising such discretion. All
determinations by the Committee as to the achievement of performance objectives
shall be made in writing. The Committee may not delegate any responsibility
under this Section 7(f).
(g) ACCELERATION UPON A CHANGE OF CONTROL. Notwithstanding anything
contained herein to the contrary, unless otherwise provided by the Committee in
an Award Agreement, all conditions and/or restrictions relating to the continued
performance of services and/or the achievement of performance objectives with
respect to the exercisability or full enjoyment of an Award shall immediately
lapse upon a Change in Control.
8. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LEGAL AND EXCHANGE REQUIREMENTS. The Company shall
not be obligated to deliver Stock upon the exercise or settlement of any Award
or take other actions under the Plan until the Company shall have determined
that applicable federal and state laws, rules, and regulations have been
complied with and such approvals of any regulatory or governmental agency have
been obtained and contractual obligations to which the Award may be subject have
been satisfied. The Company, in its discretion, may postpone the issuance or
delivery of Stock under any Award until completion of such stock exchange
listing or registration or qualification of such Stock or other required action
under any federal or state law, rule, or regulation as the Company may consider
appropriate, and may require any Participant to make such representations and
furnish such information as it may consider appropriate in connection with the
issuance or delivery of Stock under the Plan.
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(b) TRANSFERABILITY. Except as otherwise set forth in Section 7(d)(ii),
Awards and other rights of Participants under the Plan may not be transferred to
third parties, pledged, mortgaged, hypothecated, or otherwise encumbered, and
shall not be subject to claims of creditors.
(c) NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Neither the Plan nor
any action taken hereunder shall be construed as giving any employee or person
providing consulting or other services the right to be retained in the employ or
service of the Company or any of its subsidiaries, nor shall it interfere in any
way with the right of the Company or any of its subsidiaries to terminate any
employee's employment or terminate any contract with a person providing
consulting or other services at any time.
(d) TAXES. The Company or any subsidiary is authorized to withhold from
any Award granted or to be settled, any payment relating to an Award under the
Plan, including from a distribution of Stock, or any payroll or other payment to
a Participant, amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations.
(e) CHANGES TO THE PLAN AND AWARDS. The Board may amend, alter,
suspend, discontinue, or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of stockholders or Participants,
except that any such action shall be subject to the approval of the Company's
stockholders at or before the next annual meeting of stockholders for which the
record date is after such Board action if such stockholder approval is required
by any federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to stockholders for approval; PROVIDED, HOWEVER, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant under any Award theretofore granted to
him. The Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue, or terminate, any Award theretofore granted and any Award
Agreement relating thereto; PROVIDED, HOWEVER, that, without the consent of an
affected Participant, no such action may materially impair the rights of such
Participant under such Award.
(f) NO RIGHTS TO AWARDS; NO STOCKHOLDER RIGHTS. No Participant,
employee, or other person shall have any claim to be granted any Award under the
Plan, and there is no obligation for uniformity of treatment of Participants,
employees, and other persons. No Award shall confer on any Participant any of
the rights of a stockholder of the Company unless and until Stock is duly issued
or transferred and delivered to the Participant in accordance with the terms of
the Award.
<PAGE>
(g) UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is intended
to constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company;
PROVIDED, HOWEVER, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Stock, other Awards, or other property pursuant to any Award,
which trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines with the consent of
each affected Participant.
(h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.
(i) NO FRACTIONAL SHARES. No fractional shares of Stock shall be issued
or delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) COMPLIANCE WITH CODE SECTION 162(M). It is the intent of the
Company that Options and other Awards subject to the performance objectives
specified under Section 7(f) granted under the Plan to persons who are "covered
employees" within the meaning of Code Section 162(m) and regulations thereunder
(including Regulation 1.162-27(c)(2)) shall constitute "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder (including Regulation 1.162-27(e), and subject to the
transition rules under Regulation 1.162-27(h)(2)) thereunder. Accordingly, if
any provision of the Plan or any Award Agreement relating to such an Award
granted to a "covered employee" does not comply or is inconsistent with the
requirements of Code Section 162(m) or regulations thereunder, such provision
shall be construed or deemed amended to the extent necessary to conform to such
requirements, and no provision shall be deemed to confer upon the Committee or
any other person discretion to increase the amount of compensation otherwise
payable to a "covered employee" in connection with any such Award upon
attainment of the performance objectives.
(k) GOVERNING LAW. The validity, construction, and effect of the Plan,
any rules and regulations relating to the Plan, and any Award Agreement shall be
determined in accordance with the Delaware General Corporation Law, without
giving effect to principles of conflicts of laws, and applicable federal law.
(l) EFFECTIVE DATE; PLAN TERMINATION. The Plan shall become effective
as of the date of its adoption by the Board and shall continue in effect until
terminated by the Board.
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (this "SUBLEASE") dated the 30th day of September
1999, between NETRIX CORPORATION ("SUBLANDLORD"), a Delaware corporation with an
office at 13595 Dulles Technology Drive, Herndon, Virginia 20171; and
SCOREBOARD, INC. ("SUBTENANT"), a Delaware corporation with offices at 1035
Sterling Road, Suite 103, Herndon, Virginia 20170.
RECITALS:
A. By Office Lease Agreement dated as of March 25, 1999 (the "PRIME
LEASE"), Sublandlord, as tenant, leased from Bedminster Capital Funding LLC, as
landlord ("LANDLORD"), certain premises (the "PRIME PREMISES") which consists of
an entire two story building, containing approximately 55,880 rentable square
feet and commonly known as 13595 Dulles Technology Drive, Herndon, Virginia.
Sublandlord has initialed a copy of the Prime Lease for identification and has
delivered same to Subtenant and Subtenant has reviewed all of the terms of the
Prime Lease.
B. Subtenant desires to sublease from Sublandlord approximately 12,082
square feet on the first floor of the Prime Premises ("FIRST FLOOR PREMISES")
and approximately 11,751 square feet on the second floor of the Prime Premises
("SECOND FLOOR PREMISES") for a total of approximately 23,833 square feet of
space (according to BOMA 96 standard measurements) at the Prime Premises, as
shown on EXHIBIT A hereto (the First Floor Premises and the Second Floor
Premises, collectively, the "PREMISES"). The Premises comprise 43% ("SUBTENANT'S
SHARE") of the Prime Premises. Sublandlord desires to sublease the Premises to
Subtenant on the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the mutual covenants
hereinafter contained, the parties hereby agree as follows:
1. DEMISE.
Sublandlord hereby subleases the Premises to Subtenant. Sublandlord
represents that the Prime Lease is in full force and effect; that Sublandlord is
not in default under the Prime Lease; and that, to its best knowledge, Landlord
is not in default under the Prime Lease.
2. TERM; AS-IS CONDITION; USE.
(a) The term (the "TERM") of this Sublease shall commence on October 1,
1999 (the "COMMENCEMENT DATE") and shall terminate on September 30, 2004, unless
sooner terminated or extended pursuant to the provisions of this Sublease,
provided however, that Subtenant shall have the right of occupancy and
possession only as to the Second Floor Premises effective on the Commencement
Date, and provided further that Subtenant shall have the right of occupancy and
possession of the First Floor Premises commencing on January 1, 2000.
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(b) Prior to the Commencement Date, Subtenant shall have access to the
Second Floor Premises to perform any and all wiring and construction required to
install a certain T-1 line. Subtenant shall take possession of the Premises in
its present "as is" condition. No representations have been made to Subtenant
concerning the condition of the Premises, nor have any promises to alter or
improve the Premises been made by Sublandlord or any party on behalf of
Sublandlord.
(c) Subtenant's use of the Premises shall be for general (non-medical and
non-governmental) office use only and only for such other uses as are expressly
permitted pursuant to Section 6.1 of the Prime Lease.
3. INCORPORATION BY REFERENCE.
To the extent not inconsistent with the provisions of this Sublease, the
terms, provisions, covenants, and conditions of the Prime Lease are hereby
incorporated by reference on the following basis: Subtenant hereby assumes all
of the obligations, accruing or payable during the Term, of Sublandlord under
the Prime Lease with respect to the Premises as if Subtenant had executed the
Prime Lease. The term "LANDLORD" therein shall refer to Sublandlord hereunder,
its successors and assigns; and the term "TENANT" therein shall refer to
Subtenant hereunder, its permitted successors and assigns. The obligations
assumed by Subtenant hereunder which accrue during the Term shall survive and
extend beyond the termination of this Sublease.
4. SUBTENANT'S ACCEPTANCE OF PRIME LEASE.
Subtenant shall abide by all restrictions and obligations of the Prime
Lease. Subtenant represents that it has reviewed and accepted all the terms of
the Prime Lease. Pursuant to Section 7.6 of the Prime Lease, Subtenant agrees
that if Landlord succeeds to Sublandlord's interest in the Prime Lease then
Landlord at its option may continue the terms of this Sublease and upon such
occurrence, Subtenant agrees to recognize Landlord and be bound to Landlord
under the terms of this Sublease. Subtenant shall execute a written document
certifying the term, the rent and other relevant information concerning the
Premises or the Prime Premises upon five (5) days' prior written request of
Landlord or Sublandlord pursuant to Section 25.4 of the Prime Lease.
5. RENT.
(a) Subtenant shall pay to Sublandlord at its office referred to above, or
to such other address as Sublandlord shall notify Subtenant in writing pursuant
to SECTION 25(H) below, a base rent ("BASE RENT") which shall be due and payable
in advance in monthly installments on the first (1st) day of each month,
commencing on the Commencement Date as follows:
October 1, 1999 and November 1, 1999 $14,000.00
December 1, 1999 $20,564.00
January 1, 2000 through March 1, 2000 $32,328.00
April 1, 2000 through September 1, 2000 $41,707.75
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October 1, 2000 through September 1, 2001 $42,958.98
October 1, 2001 through September 1, 2002 $44,247.75
October 1, 2002 through September 1, 2003 $45,575.18
October 1, 2003 through September 1, 2004 $46,942.44
All other payments owed by Subtenant hereunder shall be paid as Additional Rent.
Base Rent and Additional Rent are herein collectively called "RENT".
(b) Rent shall be paid without deduction or setoff, and Base Rent shall be
paid without notice or demand. If any Rent shall not be paid on or before the
fifth (5th) day after the due date thereof, Subtenant shall, in addition
thereto, pay a late charge of 5% of the overdue installment.
6. SECURITY DEPOSIT.
(a) Subtenant herewith deposits the sum of $125,123.25 (the "DEPOSIT") with
Sublandlord as a security deposit to assure the faithful performance by
Subtenant of all of the obligations assumed by it hereunder. Should part or all
of the Deposit be applied by Sublandlord for the payment of overdue Rent or
other obligations of Subtenant hereunder, then Subtenant shall, within 15 days
after the written demand of Sublandlord, remit to Sublandlord a sufficient
amount in cash to restore the Deposit to the then current sum taking into
consideration any application of the Deposit to installments of Base Rent
pursuant to subsection (b) below, and Subtenant's failure to do so shall
constitute a default hereunder. Upon the termination of this Sublease,
Sublandlord shall promptly inspect the Premises and return any unapplied balance
of the Deposit to Subtenant.
(b) Provided that Subtenant shall not then be in default hereunder, the
Deposit shall be reduced effective October 1, 2000, to $83,415.50 and the amount
of said reduction shall be applied by Sublandlord as part of the Base Rent
installment which is due October 1, 2000. Provided that Subtenant shall not then
be in default hereunder, the Deposit shall be further reduced effective October
1, 2001, to $41,707.75 and the amount of said reduction shall be applied by
Sublandlord as part of the Base Rent installment which is due October 1, 2001.
(c) Subtenant acknowledges that the security deposit paid by Sublandlord to
Landlord pursuant to the terms of the Prime Lease is the property of Sublandlord
and that Subtenant has no claim or right to any portion of such security
deposit.
7. ESCALATIONS AND ELECTRICAL CHARGES.
(a) Pursuant to Section 5 of the Prime Lease, Sublandlord is obligated to
pay amounts to cover increases in certain taxes imposed upon Landlord. Subtenant
shall pay to Sublandlord Subtenant's Share of tax increases payable to Landlord
during or with respect to the Term and in accordance with the Prime Lease, over
and above tax charges of Landlord, provided however, that the Real Estate Taxes
Base Year (as defined in the Prime Lease) shall be deemed to mean the calendar
year 2000 for purposes of this Sublease.
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(b) Pursuant to Section 5 of the Prime Lease, Sublandlord is obligated to
pay amounts to cover increases in operating expenses of Landlord. Subtenant
shall pay to Sublandlord Subtenant's Share of operating expense increases
imposed by Landlord during or with respect to the Term and in accordance with
the Prime Lease, over and above operating expense charges of Landlord, provided
however, that the Operating Charges Base Year (as defined in the Prime Lease)
shall be deemed to mean the calendar year 2000 for the purposes of this
Sublease.
(c) The minimum electrical power provided to the Premises shall be seven
watts per rentable square foot. In the event that Subtenant's use of electricity
at the Premises is in excess of the amount reasonably required for general
office use, as reasonably determined by Sublandlord, then Subtenant shall
reimburse Sublandlord for the cost of such excess use.
(d) Subtenant shall pay to Sublandlord the cost of any excess water or
sewage usage at the Premises, as determined pursuant to Section 14.3 of the
Prime Lease.
(e) The amounts required to be paid by Subtenant to Sublandlord under this
Section shall constitute Additional Rent and shall be paid within thirty (30)
days after Sublandlord shall render a statement therefor. Subtenant shall
reimburse Sublandlord for any costs payable to Landlord in connection with this
Sublease. Sublandlord's statement shall be accompanied by copies of any relevant
statements or bills received from Landlord.
8. SUBLETTING AND ASSIGNMENT.
(a) Subtenant shall not, without the prior written consent of Sublandlord
(a) further sublet all or any part of the Premises; (b) transfer, hypothecate,
assign, convey, or mortgage this Sublease or any interest under it or allow any
lien upon Subtenant's interest hereunder by operation of law; or (c) suffer,
tolerate, permit, or allow the use or occupancy of the Premises by anyone other
than Subtenant, its agents and employees. Sublandlord shall not unreasonably
withhold or delay its consent to a further subletting of the Premises or an
assignment of this Sublease by Subtenant. Sublandlord's consent to any such
subletting or assignment shall be conditional upon and subject to Subtenant
obtaining the written consent of Landlord thereto when required under the Prime
Lease. No such transaction shall release Subtenant from liability hereunder.
Notwithstanding the provisions in this Section 8, subject only to the Landlord's
consent if required under the Prime Lease, Subtenant shall have the right to
sublet or assign the Premises to a Permitted Assignee. A Permitted Assignee
shall be an assignment or transfer to any of the following: (a) to a corporation
or other business entity (herein sometimes referred to as a "successor
corporation") into or with which Subtenant shall be merged or consolidated, or
to which substantially all of the assets of Subtenant may be transferred or
sold, provided that (1) such successor corporation shall have a net worth and
liquidity at least equal to the net worth and liquidity of Subtenant immediately
prior to such transfer, (2) the successor corporation shall assume in writing
all of the obligations and liabilities of Subtenant under this Sublease, and (3)
the use of the Premises pursuant to such assignment or sublease is in compliance
with the Prime Lease; or (b) to a corporation or other business entity (herein
sometimes referred to as a "related corporation") that shall control, be
controlled by or be under common control with Subtenant or, if unrelated to
Subtenant, that shall purchase all of the assets of Subtenant, provided that (1)
such corporation shall have a net worth and liquidity at least equal to the net
worth and liquidity of Subtenant immediately prior to such transfer, (2) the
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corporation shall assume in writing all of the obligations and liabilities of
Subtenant under this Sublease and (3) the use of the Premises pursuant to such
assignment or sublease is in compliance with Prime Lease. In the event of any
such assignment, transfer or subletting, Subtenant shall remain fully liable as
a primary obligor for the payment of rent and other charges required hereunder
and for the performance of obligations to be performed hereunder. For purposes
subparagraph (b) above, "control" shall be deemed to be the ownership of fifty
percent (50%) or more of the stock or other voting interest of the controlled
corporation or other business entity. A successor corporation described in
subparagraph (a) above or a related or other corporation described in
subparagraph (b) above shall be referred to sometimes in this Sublease as a
"Permitted Assignee."
(b) If any sublease or assignment (whether by operation of law or
otherwise, including without limitation an assignment pursuant to the provisions
of the Bankruptcy Code or any other Insolvency Law) provides that the subtenant
or assignee thereunder is to pay any amount in excess of the sum of (a) the
rental and other charges due under this Sublease, plus (b) the reasonable,
out-of-pocket expenses (including (i) the gross rent paid to Sublandlord by
Subtenant with respect to the subject portion of the Premises during any period
in which alterations are being performed for the assignee or subtenant prior to
its occupancy; (ii) improvement allowances or other economic concessions granted
by Subtenant to the assignee or sublessee; (iii) alterations to the subject
portion of the Premises performed solely for such assignee's or subtenant's
occupancy and paid for by Subtenant; (iv) costs incurred by Subtenant to buy out
or take over the previous lease of the assignee or sublessee; (v) all costs
incurred by Subtenant to advertise the subject portion of the Premises for
assignment or sublease; and (vi) brokerage commissions and/or legal fees paid by
Subtenant in connection with the assignment or sublease; but excluding any costs
attributable to vacancy periods or "downtime" other than those explicitly
included in clause (i) above) which Subtenant reasonably incurred in connection
with the procurement of such sublease or assignment, then whether such excess be
in the form of an increased monthly or annual rental, a lump sum payment,
payment for the sale, transfer or lease of Subtenant's fixtures, leasehold
improvements, furniture and other personal property (in excess of the market
rates there for), or any other form (and if the subleased or assigned space does
not constitute the entire Premises, the existence of such excess shall be
determined on a pro-rata basis), Subtenant shall pay to Sublandlord fifty
percent (50%) of any such excess or other premium applicable to the sublease or
assignment, which amount shall be paid by Subtenant to Sublandlord as additional
rent as the same is received by Subtenant.
9. INSURANCE COMPLIANCE.
(a) Subtenant shall maintain, at its sole cost and expense, for the Term,
general public liability insurance (naming Sublandlord, Landlord and designees
of Landlord as additional insureds) against claims for personal injury, death,
or property damage occurring upon, in, about, or adjacent to the Premises, such
insurance to afford protection with combined coverage of at least $4,000,000
with respect to personal injury, death and property damage. Subtenant shall also
maintain, at its sole expense, for the Term, any and all insurance in the
amounts and form required of Sublandlord by and pursuant to the provisions of
the Prime Lease with respect to the Premises. All such policies shall be issued
by reputable insurance companies approved by Landlord and shall be endorsed to
provide that they shall not be modified or cancelled without 30 days' prior
written notice to Sublandlord and Landlord. Prior to the Commencement Date,
Subtenant shall furnish said policies to Sublandlord evidencing that the
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required coverage is being maintained, together with such evidence as
Sublandlord shall deem satisfactory of the payment of premiums thereon.
(b) Notwithstanding anything to the contrary contained herein, Sublandord
and Subtenant each hereby waive any and all right to recover against the other
(or against their respective officers, directors, trustees, partners, joint
venturers, employees or agents) for any loss or damage to such waiving party
arising from any cause covered by any property damage insurance required to be
carried by such party pursuant to this Sublease or, if greater, actually carried
by such party. Sublandlord and Subtenant shall secure appropriate waivers of
subrogation from their respective insurance carriers; and each party will, upon
request, deliver to the other a certificate evidencing such waiver of
subrogation by the insurer.
10. INDEMNIFICATION.
(a) Except as explicitly hereinafter set forth, Sublandlord, its employees
and agents shall not be liable to Subtenant, any invitee or any other person or
entity for any damage (including indirect and consequential damage), injury,
loss, or claim (including claims for the interruption of or loss to business)
based on or arising out of any cause whatsoever (except as otherwise provided in
this Section), including without limitation the following: repair to any portion
of the Premises or the building; interruption in the use of the Premises or any
equipment therein; any accident or damage resulting from any use or operation
(by Sublandlord, Subtenant or any other person or entity) to elevators or
heating, cooling, electrical, sewerage or plumbing equipment or apparatus;
termination of this Sublease by reason of damage to the Premises or the
building; any fire, robbery, theft, vandalism, mysterious disappearance or any
other casualty; actions of any other subtenant of the building or of any other
person or entity; failure or inability to furnish any service specified in this
Sublease; and leakage in any part of the Premises or the building from water,
rain, ice or snow that may leak into, or flow from, any part of the Premises or
the building, or from drains, pipes or plumbing fixtures in the Premises or the
building. If any condition exists which may be the basis of a claim of
constructive eviction, then Subtenant shall give Sublandlord written notice
thereof and a reasonable opportunity to correct such condition, and in the
interim Subtenant shall not claim that it has been constructively evicted or is
entitled to a rent abatement. Any property placed by Subtenant or any invitee in
or about the Premises or the building shall be at the sole risk of Subtenant,
and Sublandlord shall not in any manner be held responsible therefor. Any person
receiving an article delivered for Subtenant shall be acting as Subtenant's
agent for such purpose and not as Sublandlord's agent. For purposes of this
Section, the term "building" shall be deemed to include the Land.
Notwithstanding the foregoing provisions of this Section, but subject to Section
9(b), Sublandlord shall not be released from liability to Subtenant for any
physical injury to any natural person (including death) or damage to Subtenant's
property caused solely and directly by Sublandlord's negligence or willful
misconduct to the extent such injury is not covered by insurance (a) carried by
Subtenant or such person, or (b) required by this Sublease to be carried by
Subtenant; provided, however, that Sublandlord shall not under any circumstances
be liable for any consequential or indirect damages.
(b) Except to the extent caused by Sublandlord's negligence or willful
misconduct, and subject to Section 9(b) above, Subtenant shall reimburse
Sublandlord, its employees and agents for (as additional rent), and shall
indemnify, defend upon request and hold them harmless from and against all
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costs, damages (but not consequential damages), claims, liabilities, expenses
(including reasonable attorneys' fees), losses, penalties and court costs
suffered by or claimed against them, to the extent resulting solely and directly
from (i) use and occupancy of the Premises by Subtenant or any invitee or the
business conducted therein by Subtenant or any invitee, or (ii) any negligence
or willful misconduct by Subtenant or any invitee.
(c) Except to the extent caused by Subtenant's negligence or willful
misconduct, and subject to Section 9(b) above, Sublandlord shall reimburse
Subtenant, its employees and agents for, and shall indemnify, defend upon
request and hold them harmless from and against all costs, damages (but not
consequential damages), claims, liabilities, expenses (including reasonable
attorneys' fees), losses, penalties and court costs suffered by or claimed
against them, to the extent resulting solely and directly from Sublandlord's
negligence or willful misconduct in connection with the management, operation or
repair of the building.
(d) If Subtenant or any invitee is awarded a money judgment against
Sublandlord, then recourse for satisfaction of such judgment shall be limited to
execution against Sublandlord's leasehold interest in the building, including
Sublandlord's interest in all rents, income, profits, insurance proceeds,
condemnation proceeds and sales proceeds arising therefrom. No other asset of
Sublandlord, any partner, director, member, officer or trustee of Sublandlord
(each, an "officer") or any other person or entity shall be available to satisfy
or be subject to such judgment, nor shall any officer or other person or entity
be held to have personal liability for satisfaction of any claim or judgment
against Sublandlord or any officer.
11. CASUALTY.
If the Prime Premises or the Premises are damaged by fire or other
casualty, and Landlord or Sublandlord shall, pursuant to the terms of the Prime
Lease, elect to terminate the Prime Lease, this Sublease shall cease and
terminate on the date of termination of the Prime Lease, and Rent shall be
apportioned from the time of the damage. Otherwise, this Sublease shall remain
in full force and effect, subject to the terms of the Prime Lease. Sublandlord
shall have no obligation hereunder to repair any portion of the Premises,
whether or not this Sublease shall be terminated. If Sublandlord receives any
rent abatement under the Prime Lease, then Subtenant shall accordingly receive
rent abatement. In the event that the Premises are damaged or destroyed,
Subtenant shall have the right to terminate this Sublease if the Restoration
Estimate, as defined in the Prime Lease and as delivered to Sublandlord, has a
repair and restoration date that is more than two hundred seventy (270) days
from the date of the damage or destruction.
12. RIGHTS OF LANDLORD.
(a) Subtenant acknowledges any and all rights specifically reserved by
Landlord under the Prime Lease and Subtenant further acknowledges that its
possession and use of the Premises shall at all times be subject to such rights.
Subtenant hereby releases Sublandlord from all liability in connection with
Landlord's exercise of such rights, except for Sublandlord's gross negligence
and willful misconduct.
(b) After reasonable notice, if Subtenant fails to perform any act required
of it hereunder or under the Prime Lease, Sublandlord may perform same, and
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Subtenant shall pay the cost thereof as Additional Rent within thirty (30) days
after receiving Sublandlord's statement therefor.
13. DEFAULT BY LANDLORD.
Sublandlord shall not be liable to Subtenant for Landlord's failure to
perform any of Landlord's obligations under the Prime Lease, nor shall
Sublandlord have any obligation to perform same or to bring legal proceedings or
take any other action against Landlord to assure performance of Landlord's
obligations under the Prime Lease. Except as otherwise provided herein, whenever
Sublandlord shall have the right to enforce any rights against Landlord or any
other party under the Prime Lease because of the default or breach of Landlord
or such other party with respect to the Premises, and if, within a reasonable
period after Subtenant's request, Sublandlord fails to enforce such rights, then
Subtenant shall have the right, in the name of Subtenant or, if necessary, in
the name of Sublandlord, to enforce any such rights of Sublandlord with respect
to the Premises. Such enforcement shall be at the sole expense of Subtenant, and
Subtenant shall indemnify Sublandlord against all costs and expenses, including
but not limited to reasonable attorneys' fees, which may be incurred by
Sublandlord in connection with any claim, action, or proceeding so undertaken by
Subtenant. Any amount of recovery obtained by Subtenant shall be the property of
Subtenant.
14. BROKER.
The parties acknowledge that this Sublease was procured through the
efforts of Trammell Crow Real Estate Services (Sublandlord's Broker) and Hinders
Realty, Inc. (Subtenant's Broker), and Sublandlord's Broker shall compensate
Subtenant's Broker pursuant to separate agreements. Subtenant and Sublandlord
represent and warrant that they dealt with no other broker in connection with
this Sublease and shall hold each other harmless from any liability or loss,
including reasonable attorneys' fees, to any broker or salesman (other than as
aforesaid) claiming a commission as a result of having an interested Subtenant
in the Premises.
15. TAXES.
Subtenant shall pay any taxes or fees imposed by any governmental
authority upon or as the result of this Sublease or the transfer of any property
or interests in property hereunder, except that Subtenant shall not be liable
for any federal, state, or municipal income tax imposed upon Sublandlord as a
result of this Sublease or any profits derived hereunder.
16. REMEDIES.
The taking of any action by Subtenant, the occurrence of any event in
regard to Subtenant, or the failure to act by Subtenant which would be a default
under the Prime Lease if taken by Sublandlord or if occurring or failing to
occur in regard to Sublandlord, shall entitle Sublandlord to take all action
with regard to Subtenant under this Sublease which Landlord is permitted to take
against Sublandlord under the terms of the Prime Lease. Subtenant hereby
indemnifies and holds Sublandlord harmless from and against all loss, cost,
injury, liability, or expense (including reasonable attorneys' fees and court
costs) caused by or arising out of Subtenant's default, breach, or violation of
the terms of this Sublease.
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17. GRACE PERIODS; INTEREST.
(a) All provisions of Article 19 of the Prime Lease have been incorporated
herein by reference, except that the grace period provided for in Section
19.1(a) shall be deemed to be seven (7) days and the grace period provided for
in Section 19.1(b) of the Prime Lease shall be deemed to be thirty (30) days.
(b) Any Rent not paid on the due date thereof shall thereafter be payable
with interest at the rate of three percentage points per annum plus the prime
rate published in the Wall Street Journal and in effect on the due date of such
rent, which interest shall be payable for the period from the due date to the
date of the receipt of such payment by Sublandlord.
18. SUBTENANT'S WORK.
(a) Subtenant shall not perform or cause to be performed any work at the
Premises without Sublandlord's and Landlord's prior written consent, which
consent shall not be unreasonably withheld. All of Subtenant's work shall be
performed in accordance with the terms of the Prime Lease, including without
limitation, Section 9 thereof, and all of Subtenant's work shall be completed in
a good, workmanlike and first-class manner. Sublandlord shall assist Subtenant
in securing Landlord's consent for any such work. Provided Subtenant gives
Landlord prior written notice, Subtenant may perform in the Premises, without
obtaining Landlord's prior written consent, minor, non-structural alterations of
a decorative nature which are reasonably comparable to the colors and finishes
in the Premises as of the date of this Sublease and which do not require a
building permit.
(b) Subtenant shall have the right to install a key card security system to
the perimeter doors and entrances of the Premises at Subtenant's sole expense,
provided however that such right shall be subject to Landlord's consent pursuant
to Section 10 of Exhibit B ("Rules and Regulations") of the Prime Lease.
(c) Sublandlord shall make available to Subtenant for purposes of
identifying the Premises a portion of a monument sign, so called, at the
Premises and an interior lobby sign in the second floor lobby, provided however,
that all costs associated with this provision shall be paid by Subtenant. Such
signage shall be of comparable size and location as Sublandlord's subject to
Subtenant's approval, Landlord's approval and applicable municipal regulations.
(d) Subtenant and Sublandlord shall cooperate so that both parties have
access to and efficient use of all telephone, data, network, fiber optic and T-1
line access at the Premises, provided however, Sublandlord and Subtenant shall
each secure their own systems at their respective locations and at their own
cost.
19. SERVICES AND OTHER PRIVILEGES.
(a) Sublandlord shall provide or cause to be provided janitorial services
for the Premises on a daily basis but not on weekends and federal holidays.
(b) Subtenant shall have the right to park 95 vehicles, of which four (4)
spaces shall be reserved parking spaces at the front of the building at the
Premises. The parking provided for herein is furnished solely for the
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accommodation of Subtenant, and Sublandlord assumes no responsibility or
liability of any kind whatsoever from whatever cause with respect to the
automobile parking areas, including adjoining streets, sidewalks, driveways,
property and passageways, or the use thereof by Subtenant or Subtenant's
representatives. Sublandlord shall have no obligation to enforce or to protect
the sole use of said reserved parking spaces by Subtenant.
(c) Subtenant shall have non-exclusive access to and use of the first floor
cafeteria at the Premises 24 hours a day, seven days a week, subject to the
terms of the Prime Lease. Such access shall be at no cost to Subtenant, provided
however, that Subtenant shall pay the cost of drinks, coffee and similar items
supplied to Subtenant's employees.
(d) Subtenant may utilize Sublandlord's training rooms for client and
employee training at no cost to Subtenant, provided however, that such use is
subject to the availability of said rooms at Sublandlord's sole discretion. Upon
reasonable notice to Subtenant, Sublandlord reserves the right to modify the
Premises to remove all or part of said training rooms.
(e) Subject to Section 1.19 of the Prime Lease, Subtenant shall have access
to the Premises twenty four hours a day, seven days a week, 365 days a year.
(f) Subtenant shall have the right to utilize certain furniture at the
Premises as set forth in EXHIBIT B and shall pay to Sublandlord a fee for such
use pursuant to EXHIBIT B. Any provision herein requiring the removal of
furniture from the Premises shall be contingent upon Sublandlord's consent and
Landlord's consent pursuant to Section 19.7 of the Prime Lease.
(g) Sublandlord does not warrant that any of the services or utilities
referred to in this Sublease, or any other services or utilities which Landlord
may supply, will be free from interruption, and Subtenant acknowledges that any
one or more such services may be suspended by reason of accident, repairs,
inspections, alterations, improvements or other reasons. Any such interruption
or discontinuance of service shall not be deemed an eviction or disturbance of
Subtenant's use and possession of the Premises, or any part thereof, nor render
Sublandlord liable to Subtenant for damages by abatement of the Rent or
otherwise, nor relieve Subtenant from performance of Subtenant's obligations
under this Sublease.
20. RIGHT TO RENEW.
(a) Subtenant shall have one option to extend the Term of this Sublease
until the last day of the term of the Prime Lease, which is scheduled to
terminate on April 30, 2009 (the "Renewal Option"). The terms of the Renewal
Option shall be in accordance with all of the terms and conditions of this
Sublease, except that Base Rent shall be based on the then current market rental
value.
(b) The Renewal Option may only be exercised by Subtenant by written notice
of exercise given by Subtenant to Sublandlord and received by Sublandlord not
earlier than March 30, 2004, and not later than May 30, 2004. Failure to so
exercise within such period shall render any subsequent attempted exercise void
and of no effect, any principles of law to the contrary notwithstanding.
Subtenant shall have no right to exercise the Renewal Option, and any attempted
exercise shall be void and of no effect, if: (i) the named Subtenant has
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assigned this Lease or has at any time subleased, in the aggregate, more than
50% of the Premises; or (ii) Subtenant shall be in default hereunder and such
default shall not have been cured at the time of the attempted exercise or, if
such default occurs after Subtenant's attempted exercise of the option, at the
time of the proposed commencement of the extension Term.
(c) In the event that the parties have not agreed upon the current market
rental value of the Premises prior to the date two months before the
commencement of the extension Term, such value shall be determined by
arbitration in the City of Washington, D.C., before a single arbitrator as
follows:
(i) Sublandlord and Subtenant shall have ten days within which to
select one mutually agreeable arbitrator who shall have a minimum of ten (10)
years' experience in Northern Virginia commercial real estate. If Sublandlord
and Subtenant fail to agree on one arbitrator within the ten day period, either
party may promptly request the president of the local Board of Realtors to
appoint an arbitrator for the matter, and said president's selection shall be
binding upon Sublandlord and Subtenant.
(ii) Sublandlord and Subtenant shall each submit to the arbitrator, in
writing, a good faith determination of the current market rental value of the
Premises.
(iii) The appraiser selected must choose either Sublandlord's or
Subtenant's good faith determination of the rental value of the Premises and the
appraiser's choice shall be final and binding upon the parties. From the date of
appointment, the arbitrator shall have 30 days within which to render a decision
as to the rental value of the Premises. Judgment upon the award rendered by the
arbitrator shall be binding upon the parties and may be entered in any court of
competent jurisdiction. The arbitrator shall determine the liability of the
parties for the costs of the arbitration and may allocate counsel fees, witness
fees and other costs between the parties.
21. RIGHT OF FIRST REFUSAL.
(a) If, at any time during the Initial Term any rentable space in the
portion of the Prime Premises occupied by Sublandlord either is vacant or
becomes available and Sublandlord does not desire to occupy such space itself,
then before entering into a lease for such space with another Subtenant,
provided Subtenant is not in default hereunder, Sublandlord shall send Subtenant
a notice describing the premises (the "INTENT TO LEASE Notice") and shall offer
to lease such space to Subtenant upon the same terms set forth in this Sublease.
Provided that Subtenant is not in default hereunder, Subtenant shall have
fifteen (15) business days after receipt of the Intent to Lease Notice to accept
such offer by notice to Sublandlord, time being of the essence. After accepting
such offer, Subtenant shall promptly, at Sublandlord's option, execute an
amendment to this Sublease prepared by Sublandlord.
(b) If Subtenant does not accept such offer within the fifteen (15)
business day period provided above, then Sublandlord shall be free to lease such
space to any party upon any terms or conditions Sublandlord shall determine,
from time to time during the Term, without any further obligation to Subtenant
under this Sublease so long as such terms of rent are not less favorable to
Sublandlord. If Subtenant does not accept such offer within such period, then
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Subtenant shall, within ten days after demand by Sublandlord, confirm in writing
to Sublandlord that Subtenant has declined to exercise or has waived its rights
under this Section.
(c) Sublandlord shall have no obligation to make such offer, and any
attempted acceptance shall be void and of no effect, if (i) the named Subtenant
has assigned this Lease to an entity other than a Permitted Assignee or shall
have subleased, in the aggregate, 50% or more of the Premises to an entity other
than a Permitted Assignee at any time prior to the Intent to Lease Notice; or
(ii) Subtenant or any Permitted Assignee shall have committed an event of
default hereunder which has not been cured at the time of the proposed
commencement of the lease of such additional space.
(d) This Section shall not preclude preliminary discussions, whether oral
or in writing, between Sublandlord and any prospective Subtenant concerning
terms and conditions for the leasing of any space in the Prime Premises.
22. EXPANSION OF SPACE.
(a) At any time prior to the third anniversary of the Commencement Date,
Subtenant shall have the right to sublease approximately five thousand (5,000)
square feet of additional space which is immediately adjacent to the Second
Floor Premises and currently occupied by Sublandlord's training room and which
is shown on EXHIBIT C attached hereto (the "EXPANSION SPACE") upon the same
terms of this Sublease and upon not more than nine (9) months' and not less than
six (6) months' prior written notice to Sublandlord (the "EXPANSION NOTICE").
Upon receipt of the Expansion Notice, Sublandlord shall send Subtenant an
amendment to this Sublease incorporating the Expansion Space. The execution of
an amendment for the Expansion Space shall give Landlord the right to recapture
the Premises pursuant to Section 7.4 of the Prime Lease. Sublandlord and
Subtenant shall proceed with said amendment pursuant to SECTION 23 of this
Sublease.
(b) Sublandlord shall have no obligation to lease the Expansion Space, if
(i) the named Subtenant has assigned this Lease to an entity other than a
Permitted Assignee or shall have subleased, in the aggregate, 50% or more of the
Premises to an entity other than a Permitted Assignee at any time prior to the
Expansion Proposal; or (ii) Subtenant or any Permitted Assignee shall have
committed an event of default hereunder which has not been cured at the time of
the proposed commencement of the lease of such additional space.
23. RIGHT TO RECAPTURE.
Both parties acknowledge that pursuant to Section 7.4 of the Prime Lease,
Landlord has the right to recapture the Premises if Sublandlord subleases more
than 50% of the Prime Premises. The parties acknowledge that if Subtenant,
pursuant to SECTION 21 or SECTION 22 of this Sublease, subleases from
Sublandlord additional space, then Landlord may exercise said recapture rights.
In such event, Sublandlord shall endeavor to negotiate with and otherwise
encourage Landlord to use Landlord's best efforts to negotiate first with
Subtenant prior to leasing the Premises to any other tenant.
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24. SURRENDER AND HOLDOVER.
(a) Upon any termination of this Sublease, by expiration of the Term or
otherwise:
(i) Subtenant shall immediately vacate the Premises and surrender
possession thereof to Sublandlord in the condition required under the Prime
Lease as of the expiration date of the Prime Lease;
(ii) Subtenant shall surrender the Premises free and clear of all
liens and encumbrances; and
(iii) Sublandlord shall have full authority and license to enter the
Premises and take possession of same.
(b) Subtenant shall pay to Sublandlord 150% of the Base Rent hereunder plus
all other costs for each month or portion thereof that Subtenant shall retain
possession of the Premises or any part thereof after the termination of this
Sublease, whether by lapse of time or otherwise, and shall also pay all damages
sustained by Sublandlord to Landlord or otherwise on account thereof.
Furthermore, Subtenant shall be subject to eviction proceedings and any other
remedy or right accorded to Sublandlord in law or at equity. Any holding over by
Subtenant upon termination of this Sublease shall not be evidence of an
extension or renewal of the Term hereof, nor shall acceptance of Rent or other
payments by Sublandlord from Subtenant be evidence of the same, but shall be on
a month to month basis, terminable by either party on 30 days' notice.
25. MISCELLANEOUS.
(a) Each provision of this Sublease shall extend to and shall bind and
inure to the benefit of Sublandlord and Subtenant and their respective permitted
successors and assigns.
(b) Subtenant acknowledges that this Sublease is subordinate to the Prime
Lease. In the event of any conflict between the terms and conditions of this
Sublease and the terms and conditions of the Prime Lease, the terms and
conditions of this Sublease shall control.
(c) In the event that any provision of this Sublease is deemed to be
invalid or unenforceable for any reason (except for Section 2 of this Sublease
as it pertains to the right of possession and use of the Premises) then this
Sublease shall be construed as not containing such provision, and the invalidity
or unenforceability thereof shall not render any other provision of this
Sublease invalid or unenforceable.
(d) Any provision of this Sublease or the Prime Lease which requires
Sublandlord not to unreasonably withhold its consent shall never be the basis
for an award of loss of business damages or give rise to a right of setoff to
Subtenant, but may be the basis for a declaratory judgment or specific
injunction with respect to the matter in question.
(e) Whenever Subtenant must obtain the consent of Landlord, Sublandlord
shall cooperate with Subtenant (at Subtenant's sole cost and expense) in
obtaining Landlord's consent. Sublandlord shall promptly forward to Subtenant
copies of all notices, requests, demands and communications received by
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Sublandlord from Landlord (or its agent) with respect to the Premises. If
Subtenant shall not give timely directions to Sublandlord, Sublandlord may give
such notice to Landlord as Sublandlord desires, or no notice or direction with
respect to the matter in question. If Sublandlord's consent is required under
this Sublease or the Prime Lease and Subtenant has requested in writing
Sublandlord's consent, Sublandlord's failure to respond to Subtenant within
thirty (30) days from the date of Subtenant's request shall be deemed to be the
consent of Sublandlord. Landlord's failure to respond to a request for consent
shall not be deemed to be the consent of Landlord.
(f) Subtenant shall receive notice of any default by Sublandlord under the
Prime Lease and shall have the right to cure said default if Sublandlord fails
to do so in a reasonable time. Any costs incurred by Subtenant to remedy
Sublandlord's default may be setoff against the Rent.
(g) Subtenant shall indemnify and hold Sublandlord harmless from the costs
of any special services which Subtenant may order directly from Landlord with
respect to the Premises.
(h) All notices shall be in writing, mailed certified mail, return receipt
requested, postage prepaid, or sent by recognized overnight courier such as
United Parcel Service, addressed to the parties at the addresses first above
written, except that after the Commencement Date, Subtenant's address shall be
the Premises. Either party may, by such notice, change the address to which
notices are to be sent. A copy of any notice to Sublandlord alleging a breach by
it of its obligations hereunder shall be simultaneously sent to Kelley Drye &
Warren LLP, 281 Tresser Boulevard, Stamford, Connecticut 06901, Attn: Jay R.
Schifferli, Esq. . A copy of any notice to Subtenant alleging a breach by it of
its obligations hereunder shall be simultaneously sent to Whiteford, Taylor &
Preston L.L.P., 1025 Connecticut Avenue, N.W., Washington, D.C. 20036-5405,
Attn: Glenn T. Bonard, Esq.
(i) Each provision of this Sublease has been mutually negotiated, prepared
and drafted; each party has been represented by legal counsel; and, in
connection with the construction of any provision hereof or deletion herefrom,
no consideration shall be given to the issue of which party actually prepared,
drafted, requested or negotiated any such provision or deletion.
(j) Neither party shall record this Sublease or the Prime Lease or a
memorandum of this Sublease or the Prime Lease, pursuant to Section 25.16 of the
Prime Lease.
(k) Subtenant shall not cause or permit any Hazardous Materials to be
generated, used, released, stored or disposed of in or about the Premises
provided that Subtenant may use and store reasonable quantities of standard
cleaning materials as may be reasonably necessary for Subtenant to conduct
normal general office use operations in the Premises and reasonable quantities
of Hazardous Materials commonly used in light electronic assembly and testing of
computers in connection with the operations in the Premises of which Subtenant
has provided Landlord and Sublandlord prior written notice, provided the same
are handled, stored and disposed of in accordance with all Laws. At the
expiration or earlier termination of this Sublease, Subtenant shall surrender
the Premises to Sublandlord free of Hazardous Materials generated, used,
released, stored, or disposed of by Subtenant or its invitees not in violation
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of any Environmental Laws as a result of the acts or omissions of Subtenant or
its invitees. "Hazardous Materials" means (a) asbestos and any asbestos
containing material and any substance that is then defined or listed in, or
otherwise classified pursuant to, any Environmental Law or any other applicable
Law as a "hazardous substance," "hazardous material," "hazardous waste,"
"infectious waste," "toxic substance," "toxic pollutant" or any other
formulation intended to define, list, or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, reproductive toxicity, or Toxicity Characteristic
Leaching Procedure (TCLP) toxicity, (b) any petroleum and drilling fluids,
produced waters, and other wastes associated with the exploration, development
or production of crude oil, natural gas, or geothermal resources, and (c) any
petroleum product, polychlorinated biphenyls, urea formaldehyde, radon gas,
radioactive material (including any source, special nuclear, or by-product
material), medical waste, chlorofluorocarbon, lead or lead-based product, and
any other substance whose presence could be detrimental or hazardous to health
or the environment. "Environmental Law" means any present and future Law and any
amendments (whether common law, statute, rule, order, regulation or otherwise),
permits and other requirements or guidelines of governmental authorities
applicable to the and relating to the environment and environmental conditions
or to any Hazardous Material (including, without limitation, CERCLA, 42 U.S.C.
ss. 9601 et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C.
ss. 6901 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. ss. 1801
et seq., the Federal Water Pollution Control Act, 33 U.S.C. ss. 1251 et seq.,
the Clean Air Act, 33 U.S.C. ss.7401 et seq., the Toxic Substances Control Act,
15 U.S.C. ss. 2601 et seq., the Safe Drinking Water Act, 42 U.S.C. ss. 300fet
seq., the Emergency Planning and Community Right-To-Know Act, 42 U.S.C. ss. 1101
et seq., the Occupational Safety and Health Act, 29 U.S.C. ss. 651 et seq., and
any so-called "Super Fund" or "Super Lien" law, any Law requiring the filing of
reports and notices relating to hazardous substances, environmental laws
administered by the Environmental Protection Agency, and any similar state and
local Laws, all amendments thereto and all regulations, orders, decisions, and
decrees now or hereafter promulgated thereunder concerning the environment,
industrial hygiene or public health or safety).
(i) Notwithstanding any termination of this Sublease, Subtenant shall
indemnify and hold Sublandlord, its employees and agents harmless from and
against any damage, injury, loss, liability, charge, demand or claim based on or
arising out of the presence or removal of, or failure to remove, Hazardous
Materials generated, used, released, stored or disposed of by Subtenant or any
invitee in or about the Premises, whether before or after Sublease Commencement
Date. In addition, Subtenant shall give Sublandlord immediate verbal and
follow-up written notice of any actual or threatened Environmental Default,
which Environmental Default Subtenant shall cure in accordance with all
Environmental Laws and only after Subtenant has obtained Sublandlord's and
Landlord's prior written consent, which shall not be unreasonably withheld,
conditioned, or delayed. An "Environmental Default" means any of the following
by Subtenant or any invitee: a violation of any applicable Environmental Law; a
release, spill or discharge of a Hazardous Material on or from the Premises, the
land or the building in violation of any applicable Environmental Law; an
environmental condition. Upon any Environmental Default, in addition to all
other rights available to Sublandlord under the Sublease and to Landlord under
the Prime Lease, at law or in equity, Sublandlord and Landlord shall have the
right but not the obligation to immediately enter the Premises, to supervise and
approve any actions taken by Subtenant to address the Environmental Default,
and, if Subtenant fails to immediately address same to Sublandlord's and
Landlord's reasonable satisfaction, to perform, at Subtenant's sole cost and
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expense, any lawful action necessary to address same. If any governmental agency
shall require testing to ascertain whether an Environmental Default is pending
or threatened, then Subtenant shall pay the reasonable costs therefor as
additional rent. If any lender shall require testing to ascertain whether an
Environmental Default is pending or threatened, and such testing reveals an
Environmental Default, then Subtenant shall pay the reasonable costs therefor as
additional rent. Promptly upon request, Subtenant shall execute from time to
time affidavits, representations and similar documents concerning Subtenant's
best knowledge and belief regarding the presence of Hazardous Materials at or in
the building, the Land or the Premises.
(ii) As of the date of Sublandlord's execution of this Sublease,
Sublandlord represents and warrants that it has no actual knowledge of the
violation of any Environmental Law applicable to the building or the land which
remains uncured, and that, to its knowledge based solely on the Landlord's
representation in Section 6.5 of the Prime Lease relying on that certain Phase I
Environmental Report prepared by Dames & Moore, Inc., dated June 10, 1997,
except as otherwise set forth therein no Hazardous Materials are present in the
building or the land that are in violation of any Environmental Law as of the
date of Sublandlord's execution of this Sublease. Unless caused by Subtenant's
or an invitee's negligence or willful misconduct, and subject to Section 9(b)
above, Sublandlord shall indemnify, defend upon request and hold harmless
Subtenant, its employees and agents from and against any and all costs, damages
(but not consequential damages), claims, liabilities, expenses (including
reasonable attorneys' fees) and court costs suffered by or claimed against
Subtenant as the sole and direct result of the generation, storage or release of
Hazardous Materials by Sublandlord, its invitees, agents, employees,
contractors, family members of employees, licensees, or guests (except to the
extent the same also constitute Subtenant or its invitees) in or about the
building, to the extent such generation, storage, or release violates
Environmental Laws. Subtenant shall notify Sublandlord promptly in the event a
claim is made against Subtenant as aforesaid.
26. LANDLORD'S APPROVAL.
Upon execution of this Sublease, Sublandlord shall submit this Sublease to
Landlord for Landlord's approval. In the event that Landlord fails to approve
this Sublease within fifteen (15) business days of the date hereof, either
party, upon notice to the other within five (5) business days after the
expiration of such fifteen (15) business day period, may elect to terminate this
Sublease, whereupon Sublandlord shall promptly refund any amounts deposited
hereunder, and this Sublease shall be of no further force and effect. The
parties hereto shall not bring any claim against each other for any loss, cost,
expense, damage, or injury caused by or arising out of the failure of Landlord
to consent to this Sublease.
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IN WITNESS WHEREOF, the parties have executed this Sublease the day and
year first above written.
SUBLANDLORD:
NETRIX CORPORATION
By:___________________________________
Name:
Title:
SUBTENANT:
SCOREBOARD, INC.
By:___________________________________
Name:
Title:
CONSENT OF LANDLORD
Bedminster Capital Funding LLC hereby executes this Sublease solely for
the purpose of consenting to same. Landlord consents to this Sublease without
approving any terms or conditions in such Sublease as the ______ day of
_____________________ 1999.
LANDLORD:
BEDMINSTER CAPITAL FUNDING LLC
By:__________________________
Name:
Title:
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STATE OF )
) ss:
COUNTY OF )
The foregoing instrument was acknowledged before me this ___ day of
______________ 1999, by _______________________, ____________________________ of
Netrix Corporation, a Delaware corporation, on behalf of the corporation.
----------------------------------------
Notary Public
My Commission Expires
STATE OF )
) ss:
COUNTY OF )
The foregoing instrument was acknowledged before me this ___ day of
______________ 1999, by _______________________, ____________________________ of
ScoreBoard, Inc., a Delaware corporation, on behalf of the corporation.
----------------------------------------
Notary Public
My Commission Expires
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<PAGE>
STATE OF )
) ss:
COUNTY OF )
The foregoing instrument was acknowledged before me this ___ day of
______________ 1999, by _______________________, ____________________________ of
Bedminster Capital Funding LLC, a New Jersey limited liability company, on
behalf of said limited liability company.
----------------------------------------
Notary Public
My Commission Expires
19
<PAGE>
EXHIBIT A
Description of Premises
20
<PAGE>
EXHIBIT B
Terms of Furniture Use
21
<PAGE>
EXHIBIT C
Description of Expansion Space
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF NETRIX CORPORATION FOR THE PERIOD ENDED
SEPTEMBER 30, 1999. THIS SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,697,542
<SECURITIES> 0
<RECEIVABLES> 6,957,168
<ALLOWANCES> 788,000
<INVENTORY> 4,761,005
<CURRENT-ASSETS> 16,774,354
<PP&E> 24,770,426
<DEPRECIATION> (21,726,863)
<TOTAL-ASSETS> 20,269,011
<CURRENT-LIABILITIES> 8,099,104
<BONDS> 0
0
4,423,603
<COMMON> 580,645
<OTHER-SE> 7,164,658
<TOTAL-LIABILITY-AND-EQUITY> 20,269,011
<SALES> 21,387,864
<TOTAL-REVENUES> 21,387,864
<CGS> 11,150,124
<TOTAL-COSTS> 11,150,124
<OTHER-EXPENSES> 15,303,179
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (218,135)
<INCOME-PRETAX> (5,283,573)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,283,573)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,283,573)
<EPS-BASIC> (0.51)
<EPS-DILUTED> (0.51)
</TABLE>
