<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): SEPTEMBER 11, 1998
FORE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-24156 25-1628117
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1000 FORE DRIVE, WARRENDALE, PA 15086-7502
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (724) 742-4444
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On September 11, 1998, FORE Systems, Inc. ("FORE") acquired Berkeley
Networks Inc., a California corporation ("Berkeley"), by means of a merger (the
"Merger") of a wholly owned subsidiary of FORE, Fastwire Acquisition
Corporation, a Delaware corporation ("Fastwire"), with and into Berkeley. The
Merger was accomplished pursuant to the Agreement and Plan of Reorganization,
dated as of August 25, 1998, among FORE, Fastwire and Berkeley (the
"Reorganization Agreement"). As a result of the Merger, each outstanding share
of Berkeley Common Stock was converted into 0.552148 of a share of FORE's Common
Stock. The terms of the Reorganization Agreement were the result of arm's-length
negotiations among the parties.
As a result of the Merger, a total of approximately 8.648 million
shares of FORE's Common Stock (the "FORE Shares") have been issued to former
Berkeley shareholders. The issuance of the FORE Shares to Berkeley shareholders
is intended to be exempt from registration pursuant to the exemption provided by
Regulation D under the Securities Act of 1933, as amended. FORE will also grant
to former holders of options to purchase Berkeley Common Stock a total of
approximately 0.6 million substitute stock options to purchase FORE Common
Stock.
FORE will pay the equity holders of Berkeley up to an aggregate of an
additional $30 million in cash if certain technological advances are
demonstrated and certain revenue goals are attained.
FORE has agreed to file a shelf registration statement on Form S-3
covering the FORE Shares within five business days following September 11, 1998
and to use its reasonable commercial efforts to cause such registration
statement to become effective.
Berkeley designs and develops multi-gigabit routing switch platforms
based on Windows NT and advanced stateful inspection switching ASICs. FORE
intends to continue such business.
The Merger is subject to certain risks. Certain of these risks are set
forth below. For other risks affecting FORE and the combined company, please
refer to the risk factors contained in FORE's Annual Report on Form 10-K for the
year ended March 31, 1998 and its Form 10-Q for the fiscal quarter ended June
30, 1998.
PRODUCT DEVELOPMENT AND NEW TECHNOLOGIES. The development of new
products and technologies is a complex process involving substantial risks and
uncertainties. Berkeley is a start-up stage development company with a limited
operating history. To date, Berkeley has generated no significant revenue and
has not shipped a completed product. The products currently under development by
Berkeley will need to be further developed by FORE prior to shipment to
customers. The successful combination of FORE and Berkeley is substantially
dependent on the timely introduction of new products under development by
Berkeley and the integration of Berkeley's product offerings into FORE's
distribution and marketing channels. There can be no assurance that development
of Berkeley's products will be completed in a timely manner or at all, and if
the development of such products is completed, that they will be accepted in the
marketplace. If Berkeley's products are not developed successfully or in a
timely way, or if they do not achieve commercial acceptance, FORE's business,
financial position and results of operations could be materially adversely
affected.
DIFFICULTY OF INTEGRATING TWO COMPANIES. The successful combination of
companies in the high technology industry may be more difficult to accomplish
than in other industries. The possible business and financial advantages of the
Merger will not be achieved unless the operations of Berkeley are successfully
combined with those of FORE in a timely manner. The transition will require
substantial attention from management of both companies. The diversion of the
attention of management and any difficulties encountered in the transition
process could have a material adverse effect on the revenues and operating
results of FORE
2
<PAGE> 3
following the Merger. The combination of the two companies will also require
integration of the companies' product offerings and the coordination of their
research and development and sales and marketing efforts. In-process
technologies of Berkeley may require substantial adaptation, including
integration of technical personnel to support such products and services. The
difficulties of assimilation may be increased by the necessity of coordinating
geographically separated organizations, integrating personnel with disparate
business backgrounds and combining two different corporate cultures. There can
be no assurance that FORE will not encounter difficulties in integrating these
disparate operations. In addition, the process of integrating the two
organizations could cause interruptions of, or a loss of momentum in, the
activities of either or both of the companies' businesses, which could have a
material adverse effect on their operations. There can be no assurance that FORE
will realize any technological or sales benefits or any other possible business
and financial advantages of the Merger.
POTENTIAL DILUTIVE EFFECT TO SHAREHOLDERS. There can be no assurance
that the combination of FORE's and Berkeley's businesses and products, even if
achieved in an efficient, effective and timely manner, will result in combined
results of operations and financial condition superior to what would have been
achieved by FORE operating independently. The issuance of FORE Shares in
connection with the Merger will have the immediate effect of reducing FORE's net
income per share and could reduce the market price of FORE Common Stock unless
and until revenue and income growth and business synergies sufficient to offset
the effect of such issuance can be achieved. There can be no assurance that such
synergies will ever be achieved.
POTENTIAL VOLATILITY OF STOCK PRICE. The market price of FORE's Common
stock has been, and may continue to be, volatile. Such volatility results from
many factors, including fluctuations in FORE's operating results, both
sequentially and in year-over-year comparisons, changes in financial estimates
by, or expectations or recommendations of, securities analysts, sales of
substantial amounts of FORE's Common stock in the public market or the prospect
of such sales and market conditions. Volatility in the price of FORE's Common
stock could have a material adverse effect on FORE's business, financial
position and results of operations by making it more difficult to attract and
retain qualified personnel and to complete business acquisitions. In addition,
it is not uncommon for class action securities litigation to be instituted
against a company following a significant drop in the market price of such
company's securities, and such litigation, even if it is without merit, may
result in substantial costs and a diversion of management's attention and
resources.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) The following financial statements of Berkeley Networks, Inc. are filed
as a part of this Current Report on Form 8-K:
<TABLE>
<CAPTION>
<S> <C>
Page No.
Report of Independent Accountants 7
Balance Sheets at March 31, 1998 and 1997 8
Statements of Operations for the year ended March 31, 1998 and the
periods from inception (June 24, 1996) through March 31, 1997 and March
31, 1998 9
Statements of Shareholders' Deficit for the period from inception
(June 24, 1996) through March 31, 1998 10
Statements of Cash Flows for the year ended March 31, 1998 and the
periods from inception (June 24, 1996) through March 31, 1997 and March
31, 1998 11
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
Notes to Financial Statements 12
(b) The following unaudited pro forma combined financial statements are
filed as a part of this Current Report on Form 8-K:
Page No.
Unaudited Pro Forma Combined Financial Statements 20
Unaudited Pro Forma Combined Balance Sheet at June 30, 1998 21
Unaudited Pro Forma Combined Statement of Operations
for the year ended March 31, 1998 22
Unaudited Pro Forma Combined Statement of Operations
for the three months ended June 30, 1998 23
Notes to Unaudited Pro Forma Combined Financial Statements 24
</TABLE>
4
<PAGE> 5
BERKELEY NETWORKS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
5
<PAGE> 6
BERKELEY NETWORKS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants........................................... 7
Balance Sheets.............................................................. 8
Statements of Operations.................................................... 9
Statements of Shareholders' Deficit......................................... 10
Statements of Cash Flows.................................................... 11
Notes to Financial Statements............................................... 12
6
<PAGE> 7
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Berkeley Networks, Inc.
In our opinion, the accompanying balance sheets and the related
statements of operations, of shareholders' deficit and of cash flows present
fairly, in all material respects, the financial position of Berkeley Networks,
Inc. (a company in the development stage) at March 31, 1998 and 1997, and the
results of its operations and its cash flows for the year ended March 31, 1998,
the period from inception (June 24, 1996) through March 31, 1997, and the period
from inception (June 24, 1996) through March 31, 1998 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has an accumulated deficit of approximately $8.7 million that raise
substantial doubt as to its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ PricewaterhouseCoopers, LLP
June 5, 1998, except as to Note 9,
which is as of August 10, 1998
7
<PAGE> 8
BERKELEY NETWORKS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,573,000 $ 1,732,000
Short-term investments 1,851,000
Other current assets 42,000 12,000
---------- ----------
Total current assets 5,615,000 3,595,000
Property and equipment, net 1,810,000 690,000
Other assets 126,000 10,000
---------- ----------
$ 7,551,000 $ 4,295,000
=========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 584,000 $ 65,000
Accrued liabilities 289,000 54,000
Current portion of long-term debt 135,000 --
---------- ----------
Total current liabilities 1,008,000 119,000
---------- ----------
Long-term debt 482,000 --
---------- ----------
Commitments (Note 8)
Redeemable Preferred Stock 14,595,000 5,770,000
---------- ----------
Shareholders' deficit:
Common stock, $0.01 par value; 20,000,000
shares authorized; 7,990,000 (1998) and 6,665,000 (1997) shares
issued and outstanding 52,000 39,000
Additional paid-in capital 158,000 3,000
Notes receivable from shareholders (20,000) (20,000)
Deficit accumulated during the development stage (8,724,000) (1,616,000)
---------- ----------
Total shareholders' deficit (8,534,000) (1,594,000)
---------- ----------
$ 7,551,000 $ 4,295,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 9
BERKELEY NETWORKS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(JUNE 24, 1996) (JUNE 24, 1996)
YEAR ENDED THROUGH THROUGH
MARCH 31, MARCH 31, MARCH 31,
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Operating expenses:
Research and development $ 5,067,000 $ 1,311,000 $ 6,378,000
Selling, general and administrative 2,293,000 438,000 2,731,000
----------- ----------- -----------
Total operating expenses 7,360,000 1,749,000 9,109,000
----------- ----------- -----------
Loss from operations (7,360,000) (1,749,000) (9,109,000)
Interest income, net 252,000 133,000 385,000
----------- ----------- -----------
Net loss $(7,108,000) $(1,616,000) $(8,724,000)
=========== =========== ===========
Basic and diluted net loss per share $ (3.49) $ (1.84)
=========== ===========
Shares used to compute basic and diluted net loss per share 2,035,000 879,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 10
BERKELEY NETWORKS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (JUNE 24, 1996) THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
DEFICIT
NOTES ACCUMULATED
COMMON STOCK ADDITIONAL RECEIVABLE DURING THE
--------------------- PAID-IN FROM DEVELOPMENT
SHARES AMOUNT CAPITAL SHAREHOLDERS STAGE TOTAL
--------- ------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock to founder
at $0.001 per share in June 1996 3,000,000 $ 3,000 $ -- $ -- $ -- $ 3,000
Issuance of Common Stock at $0.01
per share in August 1996 3,640,000 36,000 -- -- -- 36,000
Issuance of Common Stock at $0.10
per share in September 1996 25,000 -- 3,000 -- -- 3,000
Issuance of Series A Convertible
Preferred Stock for notes in
February 1997 -- -- -- (20,000) -- (20,000)
Net loss -- -- -- -- (1,616,000) (1,616,000)
--------- ------- -------- ----------- ----------- -----------
Balance at March 31, 1997 6,665,000 39,000 3,000 (20,000) (1,616,000) (1,594,000)
Exercise of stock options 1,325,000 13,000 155,000 -- -- 168,000
Net loss -- -- -- -- (7,108,000) (7,108,000)
--------- ------- -------- ----------- ----------- -----------
Balance at March 31, 1998 7,990,000 $52,000 $158,000 $ (20,000) $(8,724,000) $(8,534,000)
========= ======= ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 11
BERKELEY NETWORKS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(JUNE 24, 1996) (JUNE 24, 1996)
YEAR ENDED THROUGH THROUGH
MARCH 31, MARCH 31, MARCH 31,
1998 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(7,108,000) $(1,616,000) $ (8,724,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 490,000 68,000 558,000
Changes in assets and liabilities:
Other assets (55,000) (22,000) (77,000)
Accounts payable 519,000 65,000 584,000
Accrued compensation 235,000 54,000 289,000
----------- ----------- ------------
Net cash used in operating activities (5,919,000) (1,451,000) (7,370,000)
----------- ----------- ------------
Cash flows used in investing activities:
Sale (purchase) of short-term investments 1,851,000 (1,851,000) --
Acquisition of property and equipment (1,610,000) (758,000) (2,368,000)
Other assets (91,000) -- (91,000)
----------- ----------- ------------
Net cash provided by (used in) investing activities 150,000 (2,609,000) (2,459,000)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of Preferred Stock 8,825,000 5,750,000 14,575,000
Proceeds from issuance of Common Stock 168,000 42,000 210,000
Payment of bank borrowings (133,000) -- (133,000)
Proceeds from bank borrowings 750,000 -- 750,000
----------- ----------- ------------
Net cash provided by financing activities 9,610,000 5,792,000 15,402,000
----------- ----------- ------------
Net increase in cash and cash equivalents 3,841,000 1,732,000 5,573,000
Cash and cash equivalents at beginning of period 1,732,000 -- --
----------- ----------- ------------
Cash and cash equivalents at end of period $ 5,573,000 $ 1,732,000 $ 5,573,000
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Issuance of Mandatorily Redeemable Convertible
Preferred Stock for note receivable $ -- $ 20,000 $ 20,000
=========== =========== ============
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest $ 49,000 $ -- $ 49,000
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 12
BERKELEY NETWORKS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Berkeley Networks, Inc. (the "Company") was incorporated in California
on June 24, 1996 and is engaged in the development of products to provide high
performance cost effective internetworking equipment.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has been in the development stage and
has been engaged primarily in raising capital and performing research and
development, marketing and initial manufacturing activities. As of March 31,
1998, no revenues have been generated from the sale of its planned principal
product. The Company had its initial product shipment in May 1998.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. Since inception, the Company incurred
losses from operations and at March 31, 1998, the Company had an accumulated
deficit of $8,724,000. The Company expects to incur further losses related to
the development of its products. The Company's operations are currently funded
through financing provided by proceeds from the sale of preferred stock. In
order to fund continuing operations, the Company will need to raise additional
financing. Management has implemented a plan to raise additional debt or equity
financing, however, there can be no assurances that such financing will be
available to the Company (see Note 9).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents at
March 31, 1998 and 1997 consist of certificates of deposits totaling $530,000
and $1,646,000, respectively, with the remaining amount being invested primarily
in money market accounts. The carrying amount of the investments approximates
fair value.
Short-term investments consist of certificates of deposit with
maturities greater than three months when purchased. The Company has classified
its short-term investments as available for sale. At March 31, 1997, the
carrying value of the short-term investments approximated cost, and the amounts
of gross unrealized gains and losses were not significant. At March 31, 1998,
the Company has a certificate of deposit in the amount of $91,000 included in
other assets which is required as collateral by its facility lease agreement.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method based upon the useful lives of the assets, which
is generally three years.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
INCOME TAXES
Income taxes are computed using the liability method. A deferred income
tax asset or liability is established for the expected future consequences
resulting from the differences between the financial reporting and income tax
bases of assets and liabilities and for net operating loss and tax credit
carryforwards. A valuation allowance is established on deferred tax assets when
it is more likely than not that they will not be realized.
12
<PAGE> 13
BERKELEY NETWORKS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of cash, cash
equivalents and short-term investments. Cash equivalents and short-term
investments are money market accounts and certificates of deposit with high
quality financial institutions.
NET LOSS PER SHARE
The Company computes net income (loss) per share in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128"). SFAS 128 requires the Company to report both net income
(loss) per share, which is based on the weighted-average number of common shares
outstanding excluding contingently issuable or returnable shares such as shares
of restricted Common Stock, and diluted net income (loss) per share, which is
based on the weighted-average number of common shares outstanding and dilutive
potential common shares outstanding. As a result of the losses incurred by the
Company during the periods ended March 31, 1998 and 1997, all potential common
shares were anti-dilutive and are excluded from the diluted net loss per share
calculations.
The following table summarizes the securities outstanding as of each
period end which were not included in the calculation of diluted net loss per
share since their inclusion would be antidilutive:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
Restricted Common Stock 4,563,659 5,608,750
Mandatorily Redeemable Convertible Preferred Stock 7,535,000 5,770,000
Stock options 943,419 1,443,075
</TABLE>
Restricted Common Stock represents stock that has been issued but which
is subject to repurchase based on a vesting schedule which is generally over
four years. Each share of Mandatorily Redeemable Convertible Preferred Stock is
convertible into one share of Common Stock. The stock options outstanding at
March 31, 1998 and 1997 had a weighted average exercise price of $0.26 and $0.10
per share, respectively.
STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations, and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123").
13
<PAGE> 14
BERKELEY NETWORKS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2 - BALANCE SHEET COMPONENTS:
MARCH 31,
------------------------
1998 1997
---------- --------
Property and equipment:
Computers and equipment $1,253,000 $383,000
Purchased software 947,000 315,000
Furniture and fixtures 168,000 60,000
---------- --------
2,368,000 758,000
Less: accumulated depreciation and amortization (558,000) (68,000)
---------- --------
$1,810,000 $690,000
========== ========
Accrued liabilities:
Accrued compensation 189,000 54,000
Other 100,000 --
---------- --------
$ 289,000 $ 54,000
========== ========
NOTE 3 - BORROWING ARRANGEMENTS:
The Company had a $500,000 line of credit which expired on April 15,
1998. Borrowings under the line bore interest at the bank's prime rate plus 1%.
At March 31, 1998, no amounts were outstanding.
The Company has a $300,000 standby letter of credit facility with a
bank which expires on November 12, 1998.
The Company entered into loan agreements in June 1997 for borrowings of
$600,000 and $150,000 which mature on June 4, 2000 and December 31, 2000,
respectively. The loans are secured by the Company's assets and bear interest at
the bank's rate plus 1%. The agreements require the Company to comply with
certain financial covenants, including the maintenance of specified minimum
ratios. The Company was in compliance with all covenants at March 31, 1998.
On March 16, 1998, the Company signed a $1.6 million equipment
line-of-credit agreement with a financial institution. Borrowings under the line
are secured by the Company's equipment and bear interest at the prime rate plus
.5%. The line of credit permits borrowings on equipment purchases through June
16, 1998 and requires the Company to comply with certain financial covenants,
including the maintenance of specified minimum ratios. In April 1998, the
Company borrowed approximately $1,267,000 under the line and utilized a portion
of the proceeds to repay the $617,000 of outstanding debt as of March 31, 1998.
The current portion of long-term debt at March 31, 1998 reflects this
refinancing.
14
<PAGE> 15
BERKELEY NETWORKS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Future principal payments reflecting the April 1998 refinancing are as
follows:
YEAR ENDING MARCH 31,
1999 $ 135,000
2000 288,000
2001 315,000
2002 345,000
2003 184,000
----------
$1,267,000
==========
NOTE 4 - RETIREMENT SAVINGS PLAN:
Effective September 1, 1996, the Company implemented a retirement
savings plan which qualifies as a deferred salary plan under section 401(k) of
the Internal Revenue Code (the "Savings Plan"). All employees that are
twenty-one years of age or older on or before the quarterly entry periods are
eligible to participate in the Savings Plan. The Savings Plan allows
participants to contribute up to 15% of the total compensation that would
otherwise be paid to the participant, not to exceed the amount allowed by
applicable Internal Revenue Service guidelines. The Company may make a
discretionary matching contribution equal to a percentage of the participant's
contributions subject to a maximum of 6%. The Company made no contributions to
the Savings Plan during fiscal 1998 and 1997.
NOTE 5 - INCOME TAXES:
No provision or benefit for income taxes has been recognized as the
Company has incurred losses since inception.
Deferred tax assets of approximately $3,661,000 and $481,000 at March
31, 1998 and 1997, respectively, consist primarily of federal and California net
operating loss carryforwards. Based upon a number of factors, including the lack
of profits to date and the fact that the Company operates in a developing market
characterized by rapidly changing technology and intense competition, management
believes that there is sufficient uncertainty regarding the realization of
deferred tax assets that a full valuation allowance has been provided.
At March 31, 1998, the Company has approximately $8,724,000 of net
operating loss carryforwards available to offset future taxable income for both
federal and California purposes, which expire in varying amounts beginning in
2003 and 2012, respectively. Under the Tax Reform Act of 1986, the amount of net
operating losses that can be utilized may be limited in certain circumstances
including, but not limited to, a cumulative stock ownership change of more than
50% over a three-year period, as defined.
NOTE 6 - REDEEMABLE PREFERRED STOCK:
PREFERRED STOCK
The Company has authorized a total of 10,000,000 shares of Preferred
Stock, of which 5,770,000 shares have been designated as Series A Mandatorily
Redeemable Convertible Preferred Stock ("Series A") and 1,765,000 shares are
designated as Series B Mandatorily Redeemable Convertible Preferred Stock
("Series B").
In the periods ending March 31, 1998 and 1997, the Company issued
1,765,000 shares of Series B at $5.00 per share for total proceeds of $8,825,000
and 5,770,000 shares of Series A at $1.00 per share for total proceeds of
$5,770,000, respectively.
15
<PAGE> 16
BERKELEY NETWORKS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The rights, preferences, privileges and restrictions with respect to
the Company's Series A and Series B are as follows:
DIVIDENDS
The holders of Series A and Series B shall be entitled to receive
noncumulative dividends at the annual rate of $0.08 and $0.40, respectively, per
share, if and when declared by the Board of Directors. Such dividends are
payable in preference to any dividend for Common Stock declared by the Board of
Directors.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the
Company, if after converting to Common, the holders of Series A would receive at
least $3.00 per share upon the event occurring before August 30, 1999, or at
least $4.00 per share upon the event occurring after August 30, 1999 and the
holders of Series B would receive at least $9.00 per share, then the holders of
Series A and Series B shall be entitled to receive in preference to the holders
of Common Stock an amount equal to the purchase price per share for each share
of Series A and Series B, respectively, plus all declared but unpaid dividends
on the Series A and Series B. Any remaining proceeds shall be paid to the
holders of the Common Stock. If the holders of Series A and Series B would
receive less than the amounts specified above, then holders of Series A and
Series B shall be entitled to receive the preference amount and will then
participate on an as-converted basis with the holders of Common Stock in any
remaining proceeds.
REDEMPTION
Holders of a majority of the Series A and Series B may elect to cause
the Company to redeem the stock in three equal annual installments commencing on
October 15, 2002 at a redemption price equal to the purchase price.
CONVERSION
Each issued share of Series A and Series B is convertible, at the
option of the holder, into one share of Common Stock and will be automatically
converted upon the closing of an initial public offering of the Company's Common
Stock with a price per share of at least $5.00 and gross proceeds of $15,000,000
or more.
VOTING RIGHTS
The holders of Series A and Series B have one vote for each share of
Common Stock into which shares may be converted.
NOTE 7 - COMMON STOCK:
The Company has authorized 20,000,000 shares of Common Stock. In the
event that certain holders of Common Stock cease to be an employee of the
Company, the Company has the right to repurchase (the "Repurchase Right"), at
the original purchase price, a declining percentage of the shares issued. The
Repurchase Right lapses over a four year period. As of March 31, 1998, a total
of 4,563,659 shares were subject to repurchase by the Company. Additionally, in
the event the Repurchase Right has lapsed and the holder of Common Stock
determines to sell the shares, the Company has the first right of refusal with
respect to such shares.
16
<PAGE> 17
BERKELEY NETWORKS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
1996 STOCK PLAN
In June 1996, the Board of Directors adopted the 1996 Stock Option Plan
(the "1996 Plan") which provides for the issuance of Common Stock or the
granting of incentive stock options and nonstatutory stock options to employees,
directors and consultants of up to 1,935,000 shares of Common Stock. The price
of stock issued and options granted under the Plan is determined by the Board of
Directors, but in no event shall be less than 100% of the fair market value of
the Common Stock on the date of grant as determined by the Board of Directors.
Options granted under the Plan generally vest 25% each year and are exercisable
for a maximum period of ten years. Through March 31, 1998, all stock options
have been granted at prices equal to 100% of the fair market value of the Common
Stock at the date of grant as determined by the Board of Directors. Options may
be exercised in exchange for cash or, in certain cases at the discretion of the
Board, for promissory notes payable to the Company. Options granted to a
stockholder owning more than 10% of the outstanding stock of the Company at the
time of grant must be issued at a price not less than 110% of the estimated fair
value of the stock at the date of grant and such options are not exercisable
after five years.
1997 STOCK PLAN
In September 1997, the Company's Board of Directors adopted, and the
shareholders approved, the 1997 Stock Plan (the "1997 Plan"). The 1997 Plan
provides for the grant of incentive stock options and nonstatutory stock options
to employees, directors and consultants. The exercise price of the options
issued under the 1997 Plan is determined by the Board of Directors, but in no
event shall be less than 85% of the fair market value of the Common Stock on the
date of grant as determined by the Board of Directors. Through March 31, 1998,
all stock options have been granted at prices equal to 100% of the fair market
value of the Common Stock at the date of grant as determined by the Board of
Directors. Options granted under the 1997 Plan are exercisable for a maximum
period of ten years and vest over a period determined by the administrator of
the 1997 Plan. A portion of the unvested options will vest upon a change in
control of the Company, as defined. A total of 600,000 shares of Common Stock
have been reserved for issuance under the 1997 Plan.
Activity under the 1996 and 1997 Plans since inception (June 24, 1996)
through March 31, 1998 is as follows:
WEIGHTED
SHARES AVERAGE
AVAILABLE OPTIONS EXERCISE
FOR GRANT OUTSTANDING PRICE
---------- ----------- --------
Shares authorized 1,935,000 --
Options granted (1,469,998) 1,469,998 $0.10
Options canceled 26,923 (26,923) 0.10
---------- ----------
Balance at March 31, 1997 491,925 1,443,075 0.10
Shares authorized 600,000 --
Options granted (1,105,000) 1,105,000 0.27
Options exercised -- (1,325,156) 0.12
Options canceled 279,500 (279,500) 0.10
---------- ----------
Balance at March 31, 1998 266,425 943,419 0.26
========== ==========
17
<PAGE> 18
BERKELEY NETWORKS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
The following table summarizes information concerning outstanding and
exercisable options at March 31, 1998:
OPTIONS OUTSTANDING
------------------------------
WEIGHTED
AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL OPTIONS
PRICE OUTSTANDING LIFE EXERCISABLE
--------- ----------- ----------- -----------
$ 0.10 672,919 8.9 578,299
0.60 173,000 9.8 --
0.80 97,500 9.9 --
------- -------
943,419 578,299
======= =======
The weighted average fair value of options granted during the periods
ended March 31, 1998 and 1997, determined using the minimum value method was
$0.06 and $0.02 per share, respectively. The fair value of each option is
estimated on the date of grant using the following assumptions for grants during
the applicable period: dividend yield of 0.0% for both periods; risk-free rate
ranging from 6.04% - 6.51% for both periods and an expected option term of four
years. Had compensation cost for the Company's stock option plan been determined
based on fair value at the grant dates, the Company's pro forma net loss and net
loss per share for the periods ended March 31, 1998 and 1997 would not have been
materially different from the reported net loss for each respective period.
Additional option grants are expected to be made in the future and the
annual compensation expense will increase relative to the fair value of the
stock options granted in those future periods. Accordingly, pro forma
disclosures may differ materially from the reported results of operations in the
future.
NOTE 8 - COMMITMENTS:
The Company leases its facility under a noncancelable operating lease
which expires on January 31, 2003. Rent expense for the period ended March 31,
1998 was $189,000. Future minimum lease payments under all noncancelable
operating leases are as follows:
YEAR ENDING MARCH 31,
1999 $ 362,000
2000 375,000
2001 387,000
2002 400,000
2003 343,000
----------
Total minimum lease payments $1,867,000
==========
In connection with the termination of a lease agreement in March 1998,
the Company signed a corporate guarantee whereby the Company guarantees all
lease payments to be made by the new tenant. The agreement expires in December
1999. As of March 31, 1998, $212,000 remains outstanding in connection with this
lease agreement.
18
<PAGE> 19
BERKELEY NETWORKS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 9 - SUBSEQUENT EVENT:
In August 1998, the Company entered into a financing agreement in
connection with a proposed acquisition of the Company which allows the Company
to borrow up to $3,000,000. Upon entering the agreement, $1,000,000 of
borrowings are immediately available with the remaining borrowings becoming
available in increments of $1,000,000 each on September 9, 1998 and October 9,
1998, respectively. Borrowings under the agreement bear interest at a rate of 6%
and are convertible into shares of the Company's Common Stock upon certain
circumstances. The agreement expires no later then February 10, 2000. At August
10, 1998, $1,000,000 was outstanding under this agreement.
19
<PAGE> 20
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements are presented
for illustrative purposes only and are not necessarily indicative of the
combined financial position or results of operations that actually would have
been realized had FORE Systems, Inc. ("FORE") and Berkeley Networks, Inc.
("Berkeley") been a combined company during the specified periods. Additionally,
they are not indicative of the results of future combined operations.
The following pro forma combined financial statements give effect to the
business combination of FORE and Berkeley using the purchase method of
accounting. The pro forma combined financial statements utilize the historical
audited financial statements of FORE and Berkeley for the fiscal year ended
March 31, 1998 and the unaudited historical financial statements of FORE and
Berkeley as of and for the three months ended June 30, 1998. The pro forma
combined statements of operations assume that the acquisition took place as of
the beginning of the periods presented. The pro forma combined balance sheet
assumes that the acquisition took place as of the end of the interim period
ending June 30, 1998. The pro forma adjustments are preliminary and based on
management's estimates of the value of the tangible and intangible assets
acquired. A valuation of the intangible assets and purchased in-process
technology acquired is being conducted by an independent third-party appraisal
company.
Based on the final valuation of the intangible assets and purchased in-process
technology being acquired, the pro forma adjustments may differ materially from
those presented in these unaudited pro forma combined financial statements. A
change in the pro forma adjustments would result in a reallocation of the
purchase price based on the final value assigned to intangible assets and
purchased in-process technology (see note 2 to the unaudited pro forma combined
financial statements).
20
<PAGE> 21
FORE SYSTEMS INC. AND BERKELEY NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma
FORE Berkeley Adjustments Pro Forma
6/30/98 6/30/98 (Notes 1 and 2) Combined
---------- --------- --------------- ----------
ASSETS:
Current Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 121,492 $ 2,346 $123,838
Short-term investments 201,741 629 202,370
Accounts receivable, net 110,415 49 110,464
Inventories 76,964 -- 76,964
Deferred income taxes 35,619 -- 3,421 (d)(e) 39,040
Prepaid expenses and other current assets 14,586 34 14,620
---------- --------- ----------
Total current assets 560,817 3,058 567,296
Fixed assets, net 75,514 2,032 (367)(e) 77,179
Intangible assets -- -- 594 (e) 594
Other non-current assets 5,000 45 (8)(e) 5,037
Total assets $ 641,331 $ 5,135 $650,106
========== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 36,732 $ 317 $ 37,049
Accrued payroll and related costs 13,924 170 14,094
Current portion of long term debt -- 312 312
Income taxes payable 18,310 -- 18,310
Deferred revenue 27,858 -- 27,858
Other current liabilities 10,782 396 13,500 (b)(c)(f) 24,678
---------- --------- ---------
Total current liabilities 107,606 1,195 122,301
Long term debt -- 920 920
---------- --------- ---------
Total liabilities 107,606 2,115 123,221
Stockholders' equity:
Preferred Stock -- 14,567 (14,567)(a) --
Common stock 436,173 54 186,644 (a) 622,871
Additional paid-in capital -- 207 (207)(a) --
Retained earnings (deficit) 102,687 (11,788) (181,750)(a)(e)(f) (90,851)
Treasury stock (3,252) -- (3,252)
Notes receivable from shareholders -- (20) 20 (a) --
Cumulative translation adjustment (238) -- (238)
Valuation allowance for short-term investments (1,645) -- (1,645)
---------- --------- ---------
Total stockholder's equity 533,725 3,020 526,885
Total liabilities and stockholders' equity $ 641,331 $ 5,135 $650,106
========== ========= =========
</TABLE>
21
<PAGE> 22
FORE SYSTEMS, INC. AND BERKELEY NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER-SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma
Adjustments Pro Forma
FORE Berkeley (Notes 1 and 2) Combined
----------- -------- --------------- --------
<S> <C> <C> <C> <C>
Revenue $ 458,369 $ -- $ 458,369
Cost of Sales 203,173 -- 203,173
----------- --------- -----------
Gross Profit 255,196 -- 255,196
Operating Expenses:
Research and development 66,779 5,067 71,846
Sales and marketing 128,473 -- 128,473
General and administrative 23,372 2,293 198 (e) 25,863
----------- --------- -----------
Total operating expenses 218,624 7,360 226,182
Income from operations 36,572 (7,360) 29,014
Interest income, net 13,446 252 13,698
Other income (expense) 203 -- 203
----------- --------- -----------
Income before provision for income taxes 50,221 (7,108) 42,915
Provision for income taxes 15,066 -- (2,192)(g) 12,874
----------- --------- -----------
Net income $ 35,155 $ (7,108) $ 30,041
=========== ========= ===========
Net income per share - basic $ 0.35 $ (3.49) $ 0.28
=========== ========= ===========
Net income per share - diluted $ 0.35 $ (3.49) $ 0.27
=========== ========= ===========
Shares used in per share calculation - basic 99,214,000 2,035,000 107,481,322
=========== ========= ===========
Shares used in per share calculation - diluted 101,859,000 2,035,000 111,126,322
=========== ========= ===========
</TABLE>
22
<PAGE> 23
FORE SYSTEMS, INC. AND BERKELEY NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER-SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma
Adjustments Pro Forma
FORE Berkeley (Notes 1 and 2) Combined
------------ ---------- --------------- --------
<S> <C> <C> <C> <C>
Revenue $ 143,731 $ 118 $ 143,849
Cost of Sales 63,496 123 63,619
------------ ---------- --------------
Gross Profit 80,235 (5) 80,230
Operating Expenses:
Research and development 18,415 1,488 19,903
Sales and marketing 38,397 389 38,786
General and administrative 6,913 1,201 50 (e) 8,164
------------ ---------- --------------
Total operating expenses 63,725 3,078 66,853
Income from operations 16,510 (3,083) 13,377
Interest income, net 3,823 19 3,842
Other income (expense) (330) -- (330)
------------ ---------- --------------
Income before provision for income taxes 20,003 (3,064) 16,889
Provision for income taxes 5,601 -- (872)(g) 4,729
------------ ---------- --------------
Net income $ 14,402 $ (3,064) $ 12,160
============ ========== ==============
Net income per share - basic $ 0.14 $ (1.51) $ 0.11
============ ========== ==============
Net income per share - diluted $ 0.14 $ (1.51) $ 0.11
============ ========== ==============
Shares used in per share calculation - basic 100,718,889 2,035,000 108,986,211
============ ========== ==============
Shares used in per share calculation - diluted 105,732,601 2,035,000 114,999,923
============ ========== ==============
</TABLE>
23
<PAGE> 24
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The pro forma combined balance sheet assumes that the acquisition took place as
of June 30, 1998 and combines the unaudited balance sheets of FORE and Berkeley
as of that date.
The pro forma combined statements of operations assume that the acquisition took
place as of the beginning of the periods presented and combine FORE's and
Berkeley's audited statements of operations for the year ended March 31, 1998
and unaudited statements of operations for the three months ended June 30, 1998.
On a combined basis, there were no material transactions between FORE and
Berkeley during the periods presented.
There are no material differences between the accounting policies of FORE and
Berkeley.
Note 2: Pro Forma Adjustments
The pro forma adjustments are preliminary and based on FORE management's
estimates of the value of the tangible and intangible assets acquired. A
valuation of the intangible assets and purchased in-process technology acquired
is being conducted by an independent third-party appraisal company.
Based on the final valuation of the intangible assets and purchased in-process
technology being acquired, the pro forma adjustments may differ materially from
those presented in these pro forma financial statements. A change in the pro
forma adjustments would result in a reallocation of the purchase price based on
the final valuation of the purchased in-process technology. The pro forma
adjustments are as follows:
(a) Adjustments to record the elimination of Berkeley's stockholders' equity
and the components of the purchase price, which are $186,697,924 in FORE
common stock and options. The value of the FORE common stock issued is
based on a share price of $20.1458. This share price is the average of the
closing price on the transaction closing date, the day prior to the
transaction closing date and the day following the transaction closing
date. The value of FORE options issued is based on the estimated fair value
of the options. A total of 9,267,322 FORE shares and options will be
issued. The transaction is structured as a tax-free reorganization.
Under the terms of the purchase agreement, FORE is obligated to pay
additional consideration of up to $30,000,000 in cash over the next two
years, based on Berkeley demonstrating certain technological advances
and/or attaining certain revenue goals. No consideration has been given in
the accompanying pro forma financial statements for this contingent
consideration.
(b) Adjustment to record estimated acquisition costs (legal fees, accounting
fees and broker fees) of $6,500,000.
(c) Adjustment to record estimated restructuring costs related to Berkeley,
including the write-off of purchased software, closing of duplicate
facilities and employee termination costs. Total costs are estimated to be
$2,000,000.
(d) Adjustment to reduce the deferred tax valuation allowance of $3,661,000
related to net operating losses of Berkeley, which were fully reserved in
the Berkeley financial statements.
(e) Estimated valuation of tangible and intangible assets, including purchased
in-process technology. Valuation of the intangible assets and purchased
in-process technology is being conducted by an independent third party
appraisal company. The amounts allocated to tangible and intangible assets
acquired less liabilities assumed exceed the purchase price by $42,005,000.
The excess value over cost has been allocated to reduce proportionately the
values assigned to the long-term assets and purchased in-process technology
24
<PAGE> 25
in determining their fair values. As a result of the change in fair values
of the long-term assets, the deferred tax liability associated with these
assets was also adjusted.
The table below is a summary of the preliminary purchase price allocation:
Value
------
Current assets $ 6,517
Property, plant and equipment 1,665
Assembled work force 594
Purchased in-process technology 188,500
Other noncurrent assets 37
Liabilities (4,115)
-----------
Total purchase price $193,198
-----------
Management estimates that $188,500,000 ($230,000,000 before the
proportionate allocation of the excess of assets acquired over the purchase
price) of the purchase price represents in-process technology that has not
yet reached technological feasibility and has no alternative future use.
This amount will be expensed as a non-recurring, non-tax deductible charge
upon closing of the acquisition. This amount has been reflected as a
reduction to stockholders' equity and has not been included in the pro
forma combined statements of operations due to its non-recurring nature.
The value assigned to purchased in-process technology was determined by
identifying research projects in areas for which technological feasibility
has not been established. The value was determined by estimating the costs
to develop the purchased in-process technology into commercially viable
products; estimating the resulting net cash flows from such projects; and
discounting the net cash flows back to their present value. The nature of
the efforts to develop the purchased in-process technology into
commercially viable products principally relate to the completion of all
planning, designing, prototyping, high-volume manufacturing verification
and testing activities that are necessary to establish that the products
can be produced to meet their design specifications including functions,
features and technical performance requirements.
The resulting net cash flows from such projects are based on FORE
management's estimates of revenues, cost of sales, research and development
costs, selling, general and administrative costs, and income taxes from
such projects. Estimated revenues for the purchased in-process products
commence in fiscal year 2000 and increase through year 2002, at which time
they are assumed to decrease through year 2004, as newer products are
released. The discount rate used in discounting the net cash flows from
purchased in-process technology averaged 25%.
To date, Berkeley has generated no significant revenue and has not shipped
a completed product. The products currently under development by Berkeley
will need to be further developed by FORE prior to shipment to customers.
Accordingly, no value has been assigned to existing technology. Intangible
assets of $594,000 represent the value of Berkeley's assembled work force
and have an estimated useful life of 3 years.
Additional consideration of up to $30,000,000 may be paid by FORE based on
Berkeley achieving certain technological advances and/or attaining certain
revenue goals over the next 2 years. Depending on the amount and nature of
any additional consideration paid, the amount of purchased in-process
research and development could be increased or additional intangible assets
could be recorded and amortized over their remaining estimated useful
lives.
(f) Adjustment to record estimated restructuring charges of $5,000,000
related to FORE resulting from the acquisition. This amount has been
reflected as a reduction to stockholders' equity and has not been included
in the pro forma statements of operations due to its non-recurring nature.
(g) Adjustment to reflect the provision for income taxes in the combined
pro forma statements of operations using FORE's historical effective tax
rate for the periods presented.
25
<PAGE> 26
(c) Exhibits.
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of
Reorganization, dated as of August
25, 1998, by and among FORE Systems,
Inc., Fastwire Acquisition
Corporation and Berkeley Networks,
Inc. (filed herewith).
23.1 Consent of Independent Accountants
99.1 Press Release dated August 25, 1998
(filed herewith).
26
<PAGE> 27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FORE Systems, Inc.
Date: September 17, 1998 By: /s/ THOMAS J. GILL
--------------------------
Thomas J. Gill
President and Chief
Executive Officer
27
<PAGE> 28
EXHIBIT INDEX
Exhibit No. Exhibit
----------- -------
2.1 Agreement and Plan of Reorganization,
dated as of August 25, 1998, by and among
FORE Systems, Inc., Fastwire Acquisition
Corporation and Berkeley Networks, Inc.
23.1 Consent of Independent Accountants
99.1 Press Release dated August 25, 1998
<PAGE> 1
Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
dated as of August 25, 1998
by and among
FORE SYSTEMS, INC.,
FASTWIRE ACQUISITION CORPORATION
and
BERKELEY NETWORKS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - THE MERGER............................................................................................1
Section 1.01 The Merger........................................................................1
Section 1.02 Closing; Effective Time...........................................................2
Section 1.03 Effects of the Merger.............................................................2
ARTICLE II - CONVERSION OF SECURITIES.............................................................................3
Section 2.01 Merger Consideration..............................................................3
Section 2.02 Closing Per Share Merger Consideration............................................4
Section 2.03 Exchange of Certificates..........................................................5
Section 2.04 Distributions with respect to Unexchanged Company Shares..........................7
Section 2.05 No Further Ownership Rights in Company Shares.....................................7
Section 2.06 Lost Certificates.................................................................7
Section 2.07 Effect on Capital Stock of Sub....................................................8
Section 2.08 Company Stock Options.............................................................8
Section 2.09 Earn-Out Per Share Merger Consideration...........................................8
Section 2.10 Dissenters' Rights...............................................................10
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................................11
Section 3.01 Organization.....................................................................11
Section 3.02 Capital Structure................................................................11
Section 3.03 Authority; No Conflict; Required Filings and Consents............................12
Section 3.04 Financial Statements.............................................................14
Section 3.05 Inventory........................................................................14
Section 3.06 Accounts Receivable..............................................................14
Section 3.07 Taxes............................................................................14
Section 3.08 No Undisclosed Liabilities.......................................................15
Section 3.09 Title to Properties..............................................................16
Section 3.10 Condition of Tangible Assets.....................................................16
Section 3.11 Compliance with Law; Authorizations..............................................16
Section 3.12 Absence of Certain Changes or Events.............................................17
Section 3.13 Real Property....................................................................19
Section 3.14 Intellectual Property............................................................20
Section 3.15 Agreements, Contracts and Commitments............................................21
Section 3.16 Litigation.......................................................................23
Section 3.17 Employees........................................................................23
Section 3.18 Benefits Plans...................................................................24
Section 3.19 Transactions with Affiliates.....................................................27
Section 3.20 Environmental Matters............................................................27
Section 3.21 Insurance........................................................................30
Section 3.22 Books and Records................................................................30
Section 3.23 Product Design; Warranties.......................................................31
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 3.24 No Excess Parachute Payments; Section 162(m) of the Code.........................31
Section 3.25 Conditions Affecting the Company.................................................31
Section 3.26 Brokers..........................................................................31
Section 3.27 No Illegal Payments..............................................................32
Section 3.28 Suppliers and Customers..........................................................32
Section 3.29 Voting Requirements..............................................................32
Section 3.30 Opinion of Financial Advisors....................................................32
Section 3.31 Certain Enhancements.............................................................33
Section 3.32 Completeness of Disclosure.......................................................33
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB....................................................33
Section 4.01 Organization.....................................................................33
Section 4.02 Capital Structure................................................................33
Section 4.03 Authority; No Conflict; Required Filings and Consents............................34
Section 4.04 SEC Filings; Financial Statements................................................35
Section 4.05 Business in the Ordinary Course..................................................36
Section 4.06 Agreements, Contracts and Commitments............................................36
Section 4.07 Litigation.......................................................................36
Section 4.08 Interim Operations of Sub........................................................36
Section 4.09 Available Cash...................................................................36
Section 4.10 Form S-3.........................................................................36
Section 4.11 Completeness of Disclosure.......................................................36
ARTICLE V - COVENANTS OF THE PARTIES PENDING CLOSING.............................................................37
Section 5.01 Conduct of Business..............................................................37
Section 5.02 Negative Covenants...............................................................38
Section 5.03 Access...........................................................................39
Section 5.04 Exclusivity......................................................................40
Section 5.05 Company Shareholder Approval.....................................................41
Section 5.06 Confidentiality..................................................................41
Section 5.07 Further Assurances...............................................................41
Section 5.08 Form S-8 Registration Statement..................................................41
Section 5.09 Benefit Plans....................................................................41
Section 5.10 Tax-Free Reorganization..........................................................42
Section 5.11 Tax Opinions.....................................................................42
Section 5.12 Public Announcement..............................................................42
Section 5.13 Conduct of Business by Parent....................................................42
Section 5.14 Salary Levels....................................................................42
Section 5.15 Private Placement Determination..................................................42
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VI - CONDITIONS TO MERGER................................................................................43
Section 6.01 Conditions to Each Party's Obligation To Effect the Merger.......................43
Section 6.02 Conditions to Obligation of Parent and Sub To Effect the Merger..................44
Section 6.03 Conditions to Obligations of the Company To Effect the Merger....................47
ARTICLE VII - TERMINATION AND AMENDMENT..........................................................................49
Section 7.01 Termination......................................................................49
Section 7.02 Effect of Termination............................................................49
Section 7.03 Remedies.........................................................................50
Section 7.04 Amendment........................................................................50
Section 7.05 Waiver...........................................................................50
ARTICLE VIII - INDEMNIFICATION...................................................................................50
Section 8.01 Indemnification by the Company Shareholders......................................50
Section 8.02 Survival.........................................................................52
Section 8.03 Limitations......................................................................52
Section 8.04 Notice of Claims.................................................................53
Section 8.05 Third Party Claims...............................................................53
Section 8.06 Effect of Investigation; Waiver..................................................55
ARTICLE IX - GENERAL PROVISIONS..................................................................................55
Section 9.01 Contents of Agreement; Parties in Interest; etc..................................55
Section 9.02 Assignment and Binding Effect....................................................55
Section 9.03 Expenses.........................................................................56
Section 9.04 Company Shareholders' Representative Fund........................................56
Section 9.05 Notices..........................................................................56
Section 9.06 Delaware Law to Govern...........................................................57
Section 9.07 No Benefit to Others.............................................................57
Section 9.08 Headings, Gender and "Person."...................................................57
Section 9.09 Schedules and Exhibits...........................................................57
Section 9.10 Severability.....................................................................58
Section 9.11 Counterparts.....................................................................58
Section 9.12 Specific Performance.............................................................58
ARTICLE X - DEFINITIONS..........................................................................................58
Section 10.01 Definitions......................................................................58
Section 10.02 Knowledge........................................................................64
</TABLE>
<PAGE> 5
EXHIBITS
EXHIBIT A - FORM OF SHAREHOLDER AGREEMENT
EXHIBIT B - FORM OF AGREEMENT OF MERGER
EXHIBIT C - FORM OF CERTIFICATE OF MERGER
EXHIBIT D - FORM OF LETTER OF TRANSMITTAL
EXHIBIT E - FORM OF UNVESTED SHARES ESCROW AGREEMENT
EXHIBIT F - FORM OF SUBSTITUTE STOCK OPTION AGREEMENT
EXHIBIT G-1 - FORM OF ACCREDITED INVESTOR REPRESENTATION LETTER
EXHIBIT G-2 - FORM OF U.S. NON-ACCREDITED INVESTOR REPRESENTATION
LETTER
EXHIBIT G-3 - FORM OF NON-U.S. NON-ACCREDITED INVESTOR
REPRESENTATION LETTER
EXHIBIT H - FORM OF INDEMNITY ESCROW AGREEMENT
EXHIBIT I - FORM OF REPRESENTATIVE AGREEMENT
EXHIBIT J - FORM OF LEGAL OPINION OF WILSON SONSINI GOODRICH &
ROSATI, PROFESSIONAL CORPORATION
EXHIBIT K-1 - FORM OF R. SETHI EMPLOYMENT AGREEMENT
EXHIBIT K-2 - FORM OF D. BYRNE EMPLOYMENT AGREEMENT
EXHIBIT K-3 - FORM OF C. OZVEREN EMPLOYMENT AGREEMENT
EXHIBIT L - FORM OF NONCOMPETITION AGREEMENT
EXHIBIT M - FORM OF RELEASE
EXHIBIT N - REGISTRATION RIGHTS AGREEMENT
EXHIBIT O - FORM OF LEGAL OPINION OF MORGAN LEWIS & BOCKIUS LLP
EXHIBIT P - FORM OF SHAREHOLDER LETTER
Company Disclosure Schedule
Parent Disclosure Schedule
Schedule 2.09 - Earn-Out Consideration
Schedule 6.02(m) - Employment Arrangements
Schedule 6.02(q) - Noncompetition Agreements
Schedule 6.02(r) - Releases
Schedule 6.02(v) - Consents and Modifications
Schedule 6.02(w) - Invention Assignments
<PAGE> 6
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement"), dated
as of August 25, 1998 (the "Signing Date"), is by and among FORE SYSTEMS, INC.,
a Delaware corporation ("Parent"), FASTWIRE ACQUISITION CORPORATION, a Delaware
corporation and a wholly owned subsidiary of Parent ("Sub"), and BERKELEY
NETWORKS, INC. a California corporation (the "Company"). All capitalized terms
used in this Agreement shall have the definitions referenced in Article X
hereof.
WHEREAS, the Board of Directors of Parent, the Board of Directors and
the sole stockholder of Sub and the Board of Directors of the Company have
approved the acquisition of the Company by Parent by means of a merger of Sub
with and into the Company upon the terms and subject to the conditions set forth
herein;
WHEREAS, for federal income tax purposes, it is intended that the
acquisition of the Company by Parent pursuant hereto shall qualify as a
reorganization under the provisions of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code");
WHEREAS, concurrently with the execution of this Agreement, certain
shareholders of the Company (the "Shareholder Parties") who collectively own 75%
of the combined voting power of all classes of the Company's Stock are each
entering into a Shareholder's Agreement in substantially the form attached
hereto as Exhibit A (collectively, the "Shareholder Agreements");
NOW, THEREFORE, in consideration of the promises and the
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, Parent, Sub and the Company agree as
follows:
ARTICLE I - THE MERGER
Section 1.01 The Merger. Subject to the terms and conditions of this
Agreement and the Agreement of Merger and the Certificate of Merger in
substantially the forms attached hereto as Exhibits B and C, respectively, at
the Effective Time (as defined in Section 1.02), Sub shall be merged with and
into the Company and the separate corporate existence of Sub shall thereupon
cease (the "Merger"). As a result of the Merger, the outstanding shares of
capital stock of Sub and the Company shall be converted or canceled in the
manner provided in Article II of this Agreement, the separate corporate
existence of Sub shall cease and the Company shall be the surviving corporation
following the Merger. After the Effective Time, the Merger shall have the
effects specified in the General Corporation Law of the State of California (the
"CGCL") and the Delaware General Corporation Law (the "DGCL").
<PAGE> 7
Section 1.02 Closing; Effective Time. Subject to Article VII hereof,
the closing of the Merger (the "Closing") shall take place (i) at the offices of
Morgan, Lewis & Bockius LLP, 32nd Floor, One Oxford Centre, Pittsburgh,
Pennsylvania at 10:00 a.m., prevailing time, on the date which is the later of
(a) seven days following the Signing Date or (b) as soon as practicable after
all of the conditions to Closing set forth in Article VI hereof have been
satisfied, or (ii) at such other place and time and/or on such other date as
Parent and the Company may agree. The date upon which the Closing occurs is
herein referred to as the "Closing Date." As soon as practicable following the
Closing, the Company as the surviving corporation shall file the Agreement of
Merger together with an officers' certificate of each constituent corporation
with the Secretary of State of the State of California as provided in Section
1103 of the CGCL and concurrently therewith shall file the Certificate of Merger
with the Secretary of State of the State of Delaware. The Merger shall become
effective at such time as such documents are so filed or at such time as is set
forth in the Agreement of Merger and the Certificate of Merger, if different,
which time is hereinafter referred to as the "Effective Time."
Section 1.03 Effects of the Merger.
(a) At the Effective Time, (i) the separate existence of Sub
shall cease and Sub shall be merged with and into the Company (Sub and
the Company are sometimes referred to below as the "Constituent
Corporations" and the Company is sometimes referred to below as the
"Surviving Corporation"), (ii) the Articles of Incorporation of the
Company in effect immediately prior to the Effective Time shall be
amended and restated in the form of Exhibit A attached to the Agreement
of Merger, and, as so amended and restated, such Articles of
Incorporation shall be the Articles of Incorporation of the Surviving
Corporation, and (iii) the Bylaws of the Company as in effect
immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation.
(b) At and after the Effective Time, the Surviving Corporation
shall possess all the rights, privileges, powers and franchises of a
public as well as of a private nature, and be subject to all the
restrictions, disabilities and duties of each of the Constituent
Corporations; and all and singular rights, privileges, powers and
franchises of each of the Constituent Corporations, and all property,
real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever account, as well as for stock
subscriptions and all other things in action or belonging to each of
the Constituent Corporations, shall be vested in the Surviving
Corporation, and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as
effectually the property of the Surviving Corporation as they were of
the Constituent Corporations, and the title to any real estate vested
by deed or otherwise, in either of the Constituent Corporations, shall
not revert or be in any way impaired; but all rights of creditors and
all liens upon any property of either of the Constituent Corporations
shall be preserved unimpaired, and all debts, liabilities and duties
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<PAGE> 8
of the Constituent Corporations shall thereafter attach to the
Surviving Corporation, and may be enforced against it to the same
extent as if such debts and liabilities had been incurred by it.
(c) Further Assurances. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments or assurances or any other acts or
things are necessary, desirable or proper (i) to vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation its
right, title and interest in, to or under any of the rights,
privileges, powers, franchises, properties or assets of either of the
Constituent Corporations, or (ii) otherwise to carry out the purposes
of this Agreement, the Surviving Corporation and its proper officers
and directors or their designees shall be authorized to execute and
deliver, in the name and on behalf of either Constituent Corporation,
all such deeds, bills of sale, assignments and assurances and to do, in
the name and on behalf of either Constituent Corporation, all such
other acts and things as may be necessary, desirable or proper to vest,
perfect or confirm the Surviving Corporation's right, title and
interest in, to and under any of the rights, privileges, powers,
franchises, properties or assets of such Constituent Corporation and
otherwise to carry out the purposes of this Agreement.
(d) Directors and Officers. The directors of Sub immediately
prior to the Effective Time shall be the directors of the Surviving
Corporation until their resignation or removal or until their
respective successors have been elected and qualified. The officers of
Sub immediately prior to the Effective Time shall be the officers of
the Surviving Corporation until their resignation or removal or until
their respective successors have been elected and qualified.
ARTICLE II - CONVERSION OF SECURITIES
Section 2.01 Merger Consideration.
(a) The Merger Consideration shall consist of (i) the "Closing
Merger Consideration," (ii) the "Option Merger Consideration," and
(iii) the "Earn-Out Merger Consideration." The Closing Merger
Consideration shall be equal to the aggregate number of shares of
Parent Common Stock, par value $.01 per share ("Parent Common Stock")
issuable pursuant to Section 2.02. The Option Merger Consideration
shall be equal to the aggregate number of shares of Parent Common Stock
issuable upon the exercise of the Substitute Stock Options (as defined
in Section 2.01(b)) pursuant to Section 2.08. The Earn-Out Merger
Consideration shall consist of the amount of any cash payments, without
interest thereon, payable to the Company Shareholders (as defined in
Section 2.01(b)) and the Company Optionees (as defined in Section 2.08)
pursuant to Section 2.09.
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<PAGE> 9
(b) At and as of the Effective Time, each share of Company
Common Stock, $.01 par value per share (collectively, the "Company
Common Shares") (other than those Company Common Shares held by any
shareholder of the Company ("Company Shareholder") who properly
exercises any appraisal rights available under applicable law
("Dissenting Shares") and Company Common Shares held in treasury), by
virtue of the Merger and without any further action on the part of the
holder thereof, shall be canceled and retired and cease to exist and
shall thereafter represent the right to receive (i) subject to Sections
2.03 and Article VIII, the "Closing Per Share Merger Consideration"
which is defined in, and determined in accordance with, Section 2.02,
and (ii) subject to the terms and conditions set forth in Section 2.09,
the "Earn-Out Per Share Merger Consideration" which is defined in, and
determined in accordance, with Section 2.09. At the Effective Time,
each outstanding option to purchase Company Common Shares granted under
the Company's 1996 Stock Option Plan and 1997 Stock Option Plan
(collectively, the "Company Stock Options") shall be canceled, and
Parent shall grant in substitution thereof to each holder thereof
(collectively, the "Company Optionees") a new option to purchase shares
of Parent Common Stock as set forth in Section 2.08. Each Company
Optionee shall be entitled to receive a portion of the Earn-Out Merger
Consideration subject to and as provided by Section 2.09.
Section 2.02 Closing Per Share Merger Consideration.
(a) The Closing Per Share Merger Consideration shall be that
number of shares of Parent Common Stock ("Parent Common Shares")
obtained by multiplying one (1) by the Exchange Ratio.
(b) The Exchange Ratio shall be calculated by dividing the sum
of (i) the number of Parent Common Shares issuable in the Merger and
(ii) the number of Substitute Stock Options issuable in substitution
for Company Stock Options in the Merger in accordance with Section
2.08, by the sum of (Y) the number of Company Common Shares [which
shall include all Company Preferred Shares (as defined in Section
3.02(a)) which shall have been converted prior to the Effective Time in
accordance with Section 6.02(f)] issued and outstanding immediately
prior to the Effective Time and (Z) the number of Company Stock Options
outstanding immediately prior to the Effective Time. The aggregate
number of Parent Common Shares and Substitute Stock Options issuable in
the Merger shall be calculated by dividing (i) TWO HUNDRED AND TWENTY
MILLION DOLLARS ($220,000,000) less the amount of the Company
Shareholders' Representative Fund (as defined in Section 9.04), by (ii)
the Average Price. Subject to the following sentences of this
subsection (b), the Average Price shall be the average of the last
reported sale price per share of Parent Common Stock on The Nasdaq
National Market as reported in The Wall Street Journal for the ten (10)
trading days immediately preceding the date of execution of this
Agreement (the "Execution Date Average Price"). In the event that the
average of the last reported sale price per share of Parent Common
Stock on The Nasdaq National Market as reported in The Wall Street
Journal for the ten (10) trading days ending on the date which is three
(3) business days immediately preceding and not including the Closing
Date (the "Closing Date Average Price")
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<PAGE> 10
is less than the Execution Date Average Price, the Average Price shall
be reduced to equal the Closing Date Average Price, provided, however,
that the maximum reduction in the Average Price shall be two percent
(2%) of the Execution Date Average Price. In no event shall the Average
Price be less than ninety-eight percent (98%) of the Execution Date
Average Price. The Exchange Ratio shall be adjusted to reflect fully
the effect of any stock split, reverse stock split, stock dividend,
share combination or similar capitalization change with respect to
Parent Common Stock which may occur after the date on which the Average
Price is fixed pursuant to this Section 2.02(b) and prior to the
Effective Time.
(c) Notwithstanding anything to the contrary contained herein,
no shares of Parent Common Stock shall be delivered in the Merger to
any Company Shareholder who has not voted in favor of the adoption of
this Agreement and the Agreement of Merger until the earliest to occur
of (with respect to each such Company Shareholder) (i) the 31st day
following the date on which notice of approval of this Agreement and
the Agreement of Merger is sent to such Company Shareholder pursuant to
Section 1301 of the CGCL, provided that such Company Shareholder has
not made written demand upon the Company for the purchase of the
Company Shares owned by such Company Shareholder within such period,
(ii) the surrender by such Company Shareholder of a Certificate with
respect to the Company Shares owned by such Company Shareholder
together with the transmittal letter referenced in Section 2.03(a)
hereof with respect thereto, or (iii) the abandonment by such Company
Shareholder of any and all appraisal rights to which such Company
Shareholder is entitled under applicable laws.
(d) At and as of the Effective Time, all Company Common Shares
that are owned by the Company as treasury stock shall be canceled and
retired and shall cease to exist and no cash, securities or other
property shall be payable in respect thereof.
Section 2.03 Exchange of Certificates.
(a) As soon as practicable after the Effective Time, upon
surrender to Parent of certificates representing all of such Company
Shareholder's outstanding Company Common Shares, which Company Common
Shares may be represented by certificates formerly representing Company
Preferred Shares which have been converted into Company Common Shares
(collectively, "Certificates"), together with a duly executed
transmittal letter in substantially the form set forth as Exhibit D
hereto (the "Transmittal Letter") and executed signature pages to the
Representative Agreement (as defined below) and, if applicable, the
Unvested Shares Escrow Agreement (as defined below), each Company
Shareholder shall, subject to (i) Section 8.01(b) and (ii) the vesting
terms and repurchase option set forth in any restricted stock agreement
to which such Company Shareholder is a party (collectively, "Restricted
Stock Agreements"), be entitled to receive, in exchange therefor, a
certificate representing that number of whole shares of Parent Common
Stock which such Company Shareholder has the right to receive in
respect of the Certificate surrendered pursuant to the provisions of
this Article II, and each Certificate so surrendered shall forthwith be
canceled.
5
<PAGE> 11
Any reference to Company Common Shares in the Restricted Stock
Agreements shall, at and after the Effective Time, be deemed to
constitute a reference to Parent Common Shares subject to repurchase by
Parent in accordance with the repurchase option described therein
(after giving effect to any applicable vesting acceleration provisions
as set forth in the Company Disclosure Schedule). As soon as
practicable after the Effective Time, and subject to and in accordance
with the provisions of Section 8.01(b) hereof, Parent shall cause to be
delivered (A) to Chase Manhattan Trust Company, N.A. as indemnity
escrow agent (the "Indemnity Escrow Agent") a certificate or
certificates representing the Escrow Shares (as defined in Section
8.01(b) hereof) to be issued to such Company Shareholder; (B) to Chase
Manhattan Trust Company, N.A. as Escrow Agent (the "Escrow Agent") a
certificate or certificates representing the number of whole shares of
Parent Common Stock that are subject to repurchase by Parent or the
Company immediately following the Effective Time in accordance with the
terms of the Restricted Stock Agreements ("Unvested Shares"); and (C)
to such Company Shareholder a certificate representing those Parent
Common Shares issuable to such Company Shareholder which are not Escrow
Shares or Unvested Shares. The Escrow Shares shall be held in escrow by
the Indemnity Escrow Agent and shall be available to compensate Parent
for certain damages as provided in Article VIII and the Indemnity
Escrow Agreement referred to in Section 8.01(b). To the extent not used
for such purposes, the Escrow Shares shall be released, all as provided
in the Indemnity Escrow Agreement. The Unvested Shares shall be held in
escrow by the Escrow Agent and released in accordance with the
applicable Restricted Stock Agreement and the Unvested Shares Escrow
Agreement in substantially the form attached as Exhibit E (the
"Unvested Shares Escrow Agreement").
(b) If any certificate for shares of Parent Common Stock is to
be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition
of such exchange that the Certificate(s) so surrendered shall be
properly endorsed for transfer (or accompanied by an appropriate
instrument of transfer) and shall otherwise be in proper form for
transfer, and that the person requesting such exchange shall pay any
transfer or other taxes required by reason of the issuance of
certificates for such shares of Parent Common Stock in a name other
than that of the registered holder of the Certificate surrendered, or
shall establish to the satisfaction of Parent that any such taxes have
been paid or are not applicable.
(c) Notwithstanding any other provision of this Article II, no
fractional shares of Parent Common Stock will be issued and any holder
of Company Shares entitled hereunder to receive a fractional share of
Parent Common Stock but for this Section 2.03(c) will be entitled
hereunder to receive no such fractional share but a cash payment in
lieu thereof in an amount equal to such fraction multiplied by the
Average Price.
(d) None of Parent, Sub or the Company shall be liable to any
person in respect of any cash or other property delivered to a public
official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificates shall not have been surrendered prior
to seven years after the Effective Time (or immediately prior to such
earlier
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<PAGE> 12
date on which any payment pursuant to this Article II would otherwise
escheat to or become the property of any Governmental Entity), the
shares of Parent Common issuable, or cash payment determined in
accordance with Section 2.03(c), in respect of such Certificate shall,
to the extent permitted by applicable law, become the property of
Parent free and clear of all claims or interests of any person
previously entitled thereto.
Section 2.04 Distributions with respect to Unexchanged Company Shares.
Notwithstanding any other provisions of this Agreement, no dividends or other
distributions on shares of Parent Common Stock shall be paid with respect to any
Company Shares or other securities represented by a Certificate until such
Certificate is surrendered for exchange as provided herein or until the
requirements of Section 2.06 have been satisfied. Subject to the effect of
applicable laws, following surrender of any such Certificate (or satisfaction of
the requirements of Section 2.06) there shall be paid to the holder of
certificates representing shares of Parent Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender (or satisfaction
of the requirements of Section 2.06), the amount of dividends or other
distributions with a record date after the Effective Time theretofore payable
with respect to such shares of Parent Common Stock and not paid, less the amount
of any withholding taxes which may be required thereon, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender thereof (or
satisfaction of the requirements of Section 2.06) and a payment date subsequent
to surrender thereof (or satisfaction of the requirements of Section 2.06)
payable with respect to such shares of Parent Common Stock, less the amount of
any withholding taxes which may be required thereon. No holder of unsurrendered
Certificates shall be entitled, until the surrender of such Certificate (or
satisfaction of the requirements of Section 2.06), to vote the shares of Parent
Common Stock into which such holder's Company Common Shares shall have been
converted.
Section 2.05 No Further Ownership Rights in Company Shares. Subject to
Section 2.09, the payment of the Closing Per Share Merger Consideration in
respect of each Company Share owned by the Company Shareholders shall be deemed
to have been paid in full satisfaction of all rights pertaining to each such
Company Share, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the Company Shares which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented for transfer to the Surviving
Corporation, they shall be canceled and exchanged for certificates representing
shares of Parent Common Stock in accordance with the procedures set forth in
this Article 2.
Section 2.06 Lost Certificates. In the event any Certificate shall have
been lost, stolen or destroyed, Parent may, in its discretion and as a condition
precedent to the disbursement of the Closing Per Share Merger Consideration and
the Earn-Out Per Share Merger Consideration, if applicable, in respect of shares
represented by such Certificate, require the owner of such lost, stolen or
destroyed Certificate to make an affidavit of that fact containing such
indemnification provisions as Parent may deem appropriate, including, without
limitation, the posting of a standard bond required by Parent's transfer agent
as indemnity against any claim that may be made against it or the Surviving
Corporation with respect to such Certificate.
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<PAGE> 13
Section 2.07 Effect on Capital Stock of Sub. Each issued and
outstanding share of Common Stock of Sub shall be converted into and become one
fully paid and nonassessable share of Common Stock, $.01 par value per share, of
the Surviving Corporation.
Section 2.08 Company Stock Options. At the Effective Time, each Company
Stock Option shall be canceled, and Parent shall grant in substitution therefor
to each Company Optionee a new option (collectively, "Substitute Stock Options")
to purchase, subject to and in accordance with the vesting schedule applicable
to such Company Stock Option, a number of shares of Parent Common Stock equal to
the number of Company Common Shares subject to such Company Stock Option
multiplied by the Exchange Ratio; provided, however, that no Substitute Stock
Options shall be granted with respect to any Company Stock Options that have
expired or been canceled in accordance with their terms at or prior to the
Effective Time. The Substitute Stock Options granted to each Company Optionee
shall have an exercise price per share (rounded up to the nearest whole cent)
equal to the exercise price per share of the Company Stock Options held by the
Company Optionee immediately prior to the Effective Time divided by the Exchange
Ratio, all in accordance with the terms of the Stock Option Agreement governing
the Substitute Stock Options (the form of which is attached hereto as Exhibit
F). In addition, each Company Optionee shall be entitled to receive a portion of
the Earn-Out Merger Consideration, without interest thereon, subject to and in
accordance with Section 2.09.
Section 2.09 Earn-Out Per Share Merger Consideration.
(a) The Earn-Out Per Share Merger Consideration shall be
determined by dividing the amount of any Earn-Out Merger Consideration
determined in accordance with Schedule 2.09 by the sum of the number of
Company Common Shares and Company Stock Options outstanding immediately
prior to the Effective Time. The Earn-Out Merger Consideration shall
consist of (i) an E-8 Product Earn-Out Cash Payment, (ii) an OC-12
Uplink Earn-Out Cash Payment, and (iii) a Revenue Earn-Out Cash
Payment, all determined in accordance with Schedule 2.09 (each an
"Earn-Out Cash Payment" and, collectively, the "Earn-Out Cash
Payments"). Each Earn-Out Cash Payment, if any such payment(s) are
made, is separate and independent from the others. The Earn-Out Cash
Payments, if any such amounts are due, shall be paid to the Company
Shareholders and the Company Optionees in accordance with the
provisions of subsection (b).
(b) The amount of each Earn-Out Cash Payment, if any such
amount is due, shall be paid to the Company Shareholders and the
Company Optionees as follows; provided, however, that no Earn-Out Cash
Payment shall be due or payable with respect to any "Excluded Company
Common Shares" or "Excluded Company Options," as each such term is
defined below:
(i) Subject to subparagraph (ii) below, each Company
Shareholder and Company Optionee (a "Company Holder") shall
receive, with respect to each Company Common Share and/or
Company Stock Option held by such Company
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<PAGE> 14
Holder immediately prior to the Effective Time, an amount
equal to the product of (x) the Earn-Out Cash Payment
determined in accordance with Schedule 2.09, and (y) a
fraction (1) the numerator of which is the sum of the number
of Company Common Shares and Company Stock Options held by
such Company Holder immediately prior to the Effective Time,
less the sum of Excluded Company Common Shares and Excluded
Company Stock Options attributable to such Company Holder, and
(2) the denominator of which is the sum of the number of
Company Common Shares and Company Stock Options outstanding
immediately prior to the Effective Time. The term "Excluded
Company Common Shares" means Company Common Shares which have
both of the following attributes: (i) such Company Common
Shares were owned by a Company Shareholder who was an employee
of the Company as of the Effective Time and who is not
employed by Parent or the Company as of the applicable
Earn-Out Cash Payment Date (as defined in Schedule 2.09), and
(ii) with respect to such Company Common Shares, the shares of
Parent Common Stock issued in exchange therefor pursuant to
Section 2.02 were subject to repurchase pursuant to the terms
of a Restricted Stock Agreement ("Repurchase Restrictions")
immediately after the termination of such Company
Shareholder's employment. The term "Excluded Company Stock
Options" means Company Stock Options which have both of the
following attributes: (i) such Company Stock Options were held
by a Company Optionee who was an employee of the Company as of
the Effective Time and who is not employed by Parent or the
Company as of the applicable Earn-Out Cash Payment Date, and
(ii) with respect to such Company Stock Options, the
Substitute Stock Options issued in substitution therefor
pursuant to Section 2.08 were not vested pursuant to the terms
of such Company Optionee's Substitute Stock Option Agreement
immediately after the termination of such Company Optionee's
employment.
(ii) Any Earn-Out Cash Payment shall be paid by
Parent on the applicable Earn-Out Cash Payment Date determined
in accordance with Schedule 2.09; provided, however, that the
amount of any Earn-Out Cash Payment (an "Unvested Earn-Out
Payment") payable (y) with respect to Company Common Shares
owned by a Company Common Shareholder as of the Effective
Time, which Company Common Shares have been converted pursuant
to Section 2.02 into shares of Parent Common Stock subject, on
the applicable Earn-Out Cash Payment Date, to Repurchase
Restrictions, and (z) with respect to unvested Company Stock
Options held by a Company Optionee as of the Effective Time,
which Company Stock Options have been converted into
Substitute Stock Options pursuant to Section 2.08 and which
Substitute Stock Options remain unvested as of the applicable
Earn-Out Cash Payment Date, shall be paid by Parent in
installments based on the vesting schedule set forth in each
applicable Restricted Stock Agreement or Substitute Stock
Option Agreement, as the case may be; provided, further, any
such Unvested Earn-Out Payment shall be payable only if such
Company Shareholder or Company Optionee is employed by Parent
or the Company on the applicable vesting date.
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<PAGE> 15
(c) In the event that payment of any portion of the Earn-Out
Cash Payments in accordance with the terms of this Section 2.09 and
Schedule 2.09 would cause the Merger not to be treated as a
reorganization under the provisions of Section 368 of the Code (the
"Section 368 Reorganization") as reasonably determined jointly by
counsel to Parent and the Company Shareholders' Representative, then
Parent (i) shall pay the Earn-Out Cash Payments in accordance with this
Section 2.09 only to the extent that such cash payments would not
affect the Section 368 Reorganization, and (ii) shall issue Parent
Common Shares to the Company Holders in satisfaction of the balance of
the Earn-Out Merger Consideration earned and determined in accordance
with Schedule 2.09 ("Earn-Out Shares"). In such event, the number of
Earn-Out Shares issuable to each Company Holder shall be obtained by
dividing the Earn-Out Cash Payment(s) which would otherwise be due to
each such Holder pursuant to this Section 2.09 and Schedule 2.09 by the
average of the last reported sale price per share of Parent Common
Stock on The Nasdaq National Market as reported in The Wall Street
Journal for the ten (10) trading days ending on the date which is three
business days immediately preceding and not including the Earn-Out Cash
Payment Date. In the event that any Earn-Out Shares are issuable
pursuant to this subsection, then the issuance and delivery of such
Earn-Out Shares to the Company Holders shall be subject to all the
terms and conditions of this Section 2.09 and Schedule 2.09 as if they
were Earn-Out Cash Payments hereunder.
Section 2.10 Dissenters' Rights. Notwithstanding anything in this
Agreement to the contrary, any Company Shareholder who delivers to the Company a
written demand for appraisal of such shareholder's Company Common Shares in the
manner provided in the CGCL shall be entitled to an appraisal of the fair market
value of such shareholder's Company Common Shares and payment of such value
together with interest thereon, if any, under the CGCL and the Company Common
Shares held by any such Company Shareholder shall not represent the right to
receive the Closing Per Share Merger Consideration and the Earn-Out Per Share
Merger Consideration. If such Company Shareholder shall have failed to perfect
or shall have effectively withdrawn or lost his right to appraisal and payment
under the CGCL, as the case may be, each Company Common Share held by such
shareholder shall thereupon, subject to and in accordance with the procedures
set forth in this Article II, represent the right to receive the Closing Per
Share Merger Consideration and the Earn-Out Per Share Merger Consideration, when
and if any such amount becomes due.
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ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub that the
statements contained in this Article III are true and correct, except as set
forth in the disclosure schedule dated and delivered as of the date hereof by
the Company to Parent (the "Company Disclosure Schedule"), which relates to this
Agreement and is designated therein as being the Company Disclosure Schedule.
The Company Disclosure Schedule shall be arranged in paragraphs corresponding
to, and each exception to a representation and warranty set forth therein shall
be deemed to qualify, the specific numbered paragraph(s) of this Article III
which is referenced or cross-referenced in the applicable exception set forth on
the Company Disclosure Schedule; provided, however, that the inclusion of a
matter as part of a list which is disclosed in response to a subsection of
Article III which requires that a list be included in the Company Disclosure
Schedule shall not be deemed to constitute an exception to the representation or
warranty set forth in such subsection.
Section 3.01 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
has all requisite corporate power to own, lease and operate its property and to
carry on its business as now being conducted, and is duly qualified to do
business and is in good standing as a foreign corporation in which it owns or
leases property or conducts any business so as to require such qualification.
Except as set forth in the Company Disclosure Schedule, the Company does not
directly or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any corporation,
partnership, joint venture or other business association or entity. The Company
is not in violation of its Articles of Incorporation or Bylaws, in each case as
amended to date. The Articles of Incorporation and Bylaws of the Company in the
forms attached to the Company Disclosure Schedule are the Articles of
Incorporation and the Bylaws of the Company as in effect on the date of this
Agreement.
Section 3.02 Capital Structure.
(a) The authorized capital stock of the Company consists of
(i) 20,000,000 shares of Common Stock, $.01 par value per share, of
which 8,128,030 shares are issued and outstanding as of the date
hereof, (ii) 5,770,000 shares of Series A Preferred Stock, $0.1 par
value per share ("Company Series A Preferred Shares"), of which
5,770,000 shares are issued and outstanding as of the date hereof, and
(iii) 1,765,000 shares of Series B Preferred Stock, $0.1 par value per
share ("Company Series B Preferred Shares" and, together with the
Company Series A Preferred Shares, the "Company Preferred Shares;" the
Company Preferred Shares together with the Company Common Shares, the
"Company Shares"), of which 1,765,000 shares are issued and
outstanding. All Company Shares are duly authorized, validly issued,
fully paid and nonassessable, and were issued in compliance with all
applicable federal and state securities laws. Any repurchase by the
Company of any shares of its capital stock was duly approved and
authorized by the Board of Directors and complied in all respects with
applicable law, and the Company has no liability, contingent or
otherwise, to make any payments with respect to any such repurchased
shares. There are no obligations,
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contingent or otherwise, of the Company to repurchase, redeem or
otherwise acquire any Company Shares or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise)
in any entity. The Company Disclosure Schedule contains a true and
complete list of the record holders of the Company Shares and sets
forth the full name and number, class and series, of Company Shares
owned by each, and, with respect to the Company Preferred Shares, the
number of Company Common Shares into which such Company Preferred
Shares are convertible. The Company Disclosure Schedule contains a
complete list of the Restricted Stock Agreements and sets forth the
name of each Company Shareholder who is a party thereto, and the
purchase dates, purchase prices and vesting schedules applicable
thereto.
(b) Other than the Company Stock Options, a complete list of
which, including the names of the Company Optionees, grant dates,
exercise prices and vesting schedules, is included in the Company
Disclosure Schedule, and the Company Preferred Shares, all of which
will be converted into Company Common Shares prior to the Effective
Time, the Company does not have outstanding (i) any securities
convertible into, or exchangeable or exercisable for, any of its
capital stock, or (ii) any subscription, option, put, call, warrant or
other right or commitment of any nature to issue, sell or deliver any
of its capital stock, or securities or other instruments convertible
into, or exchangeable or exercisable for, its capital stock. The
Company is not a party to any other agreement obligating the Company to
issue additional shares of its capital stock. There are no shares of
capital stock of the Company that have been issued or transferred in
violation of, or are subject to, any preemptive rights, rights of first
offer or subscription agreements. The Company is not a party to any
stockholder agreements, voting agreements, voting trusts or any such
other similar arrangements which have the effect of restricting or
limiting the transfer, voting or other rights associated with the
capital stock of the Company, and, to the Company's knowledge, there
are no such agreements to which the Company is not a party. None of the
Company Stock Options or Company Shares subject to Repurchase
Restrictions is or will be subject to any acceleration of vesting or
other change as a result of the Merger or any of the transactions
contemplated hereby.
Section 3.03 Authority; No Conflict; Required Filings and Consents.
(a) The Company has all requisite corporate power and
authority to enter into this Agreement and the Agreement of Merger and
to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Agreement of Merger
and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on
the part of the Company, subject only to, in the case of the Merger,
the approval and adoption of this Agreement and the Merger Agreement by
the requisite vote of the Company Shareholders as contemplated by
Section 5.05 hereof. This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable against it in accordance with
its terms, except as such enforceability may be limited by (i)
bankruptcy,
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insolvency, reorganization, moratorium or other similar laws affecting
or relating to creditors rights generally, and (ii) the availability of
injunctive relief and other equitable remedies. The Agreement of
Merger, when executed and delivered as contemplated herein, will be
duly executed and delivered by the Company and, assuming the due
authorization, execution and delivery of Parent and Sub, will
constitute the valid and binding obligation of the Company, enforceable
against it in accordance with its terms, except as such enforceability
may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to creditors
rights generally, and (ii) the availability of injunctive relief and
other equitable remedies.
(b) Neither the execution and delivery of this Agreement or
the Agreement of Merger, nor the consummation of the transactions
contemplated herein or therein, by the Company (in each case, with or
without the passage of time or the giving of notice) will (i) violate
or conflict with any of the provisions of any of the Articles of
Incorporation or Bylaws of the Company, (ii) violate or constitute a
default, an event of default or an event creating rights of
acceleration, termination, cancellation or other additional rights, or
loss of rights under, any Material Contract (as defined in Section
3.15) to which the Company is a party or by which it or any of its
assets or property are bound, (iii) violate any statute, rule,
regulation, injunction, decree, order, judgment or ruling of any
foreign, federal, state, local or other governmental authority or
regulatory or judicial body ("Governmental Entity") to which the
Company is subject, or (iv) result in the creation of any Liens upon
any of the assets or property of the Company. The term "Liens" means
liens, claims, charges, security interests, mortgages, pledges,
easements, conditional sale or other title retention agreements,
defects in title, covenants or other restrictions of any kind,
including, any restrictions on the use, voting, transfer or other
attributes of ownership.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or
other Person, is required by or with respect to the Company in
connection with the execution and delivery of this Agreement, the
Agreement of Merger and the consummation of the transactions
contemplated hereby and thereby, except for (i) the filing of the
Agreement of Merger and the Certificate of Merger with the Secretary of
State of the State of California and the Secretary of State of the
State of Delaware, respectively, (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws and the
laws of any foreign country, and (iii) such consents, approvals,
orders, authorizations, registrations, declarations and filings listed
on Schedule 3.03(c).
(d) The Company hereby approves and consents to the execution
by each Shareholder Party of such Shareholder Party's Shareholder
Agreement and the consummation of the transactions contemplated
thereby, and represents that the Board of Directors of the Company
unanimously adopted resolutions approving and consenting to the
execution of the Shareholder Agreements and the consummation of the
transactions contemplated thereby.
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Section 3.04 Financial Statements. True and complete copies of the
audited financial statements of the Company (collectively the "Audited Financial
Statements") consisting of the balance sheet of the Company and the related
statements of income and retained earnings, stockholders' equity and cash flow,
for the years ended March 31, 1997 (the "1997 Financial Statements") and March
31, 1998 (the "1998 Financial Statements") and the unaudited financial
statements, consisting of a balance sheet of the Company and the related
statements of income and retained earnings, stockholders' equity and cash flow,
for the three-month period ended June 30, 1998 (the "Interim Financial
Statements" and, together with the Audited Financial Statements, the "Financial
Statements"), including the notes thereto, are included in the Company
Disclosure Schedule. The Financial Statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
to such financial statements) subject, in the case of the Interim Financial
Statements, to normal year-end recurring adjustments which are not, individually
or in the aggregate, material and the absence of notes. The Financial Statements
are based on the books and records of the Company, and fairly present the
financial condition of the Company as of the dates they were prepared and the
results of the operations of the Company for the periods indicated. The
consolidated balance sheet of the Company as of June 30, 1998 is referred to
herein as the "Interim Balance Sheet" and the date thereof as the "Interim
Balance Sheet Date."
Section 3.05 Inventory. All inventory of the Company (including
materials, supplies, parts, work-in-process and finished goods) is of a quality,
quantity and condition useable or saleable in the ordinary course of business
and none of such inventory is obsolete. The quantities of each item of inventory
are not excessive and are reasonable in the present circumstances of the
Company. All work in process and finished goods inventory is free of any defect
or other deficiency. All of such inventory is located at the Company's
facilities and no inventory is held on a consignment basis.
Section 3.06 Accounts Receivable. The accounts receivable of the
Company as set forth on the Interim Balance Sheet or arising since the date
thereof are valid and genuine; have arisen solely out of bona fide sales and
deliveries of goods, performance of services and other business transactions in
the ordinary course of business consistent with past practice; are not subject
to valid defenses, set-offs or counterclaims; and are collectible within 90 days
after billing at the full recorded amount thereof less, in the case of accounts
receivable appearing on the Interim Balance Sheet, the recorded allowance for
collection losses on the Interim Balance Sheet. The allowance for collection
losses on the Interim Balance Sheet has been determined in accordance with GAAP
consistent with past practice. The accounts receivable existing as of the
Closing Date will be collectible within 90 days after billing at the full
recorded amount thereof net of the reserves shown on the accounting records of
the Company as of the Closing Date (which reserve shall have been determined in
accordance with GAAP consistent with past practice).
Section 3.07 Taxes.
(a) All federal, state, local and foreign tax returns,
reports, statements and other similar filings required to be filed by
the Company (the "Tax Returns") with respect to any
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federal, state, local or foreign taxes, assessments, interest,
penalties, deficiencies, fees and other governmental charges or
impositions (including without limitation all income tax, unemployment
compensation, social security, payroll, sales and use, excise,
privilege, property, ad valorem, franchise, license, school and any
other tax or similar governmental charge or imposition under laws of
the United States or any state or municipal or political subdivision
thereof or any foreign country or political subdivision thereof)
("Taxes") have been timely filed with the appropriate governmental
agencies in all jurisdictions in which such Tax Returns are required to
be filed, and all such Tax Returns are true and correct.
(b) All Taxes, including without limitation those which are
called for by the Tax Returns, required to be paid, withheld or accrued
by the Company and any deficiency assessments, penalties and interest
have been timely paid, withheld or accrued. The accruals for Taxes
contained in the Interim Balance Sheet are adequate to cover the tax
liabilities of the Company as of that date and include adequate
provision for all deferred taxes, and nothing has occurred subsequent
to that date to make any of such accruals inadequate to cover the tax
liabilities of the Company as of such date.
(c) The Company Disclosure Schedule sets forth (i) the taxable
years of the Company as to which the respective statutes of limitations
with respect to federal and state income taxes have not yet expired,
and (ii) those taxable years and taxes as to which the Company has
agreed to extend the applicable statute of limitations.
(d) The Company has not received any notice of assessment or
proposed assessment in connection with any Tax Returns and there are
not pending tax examinations of or tax claims asserted against the
Company or any of its assets or properties. There are no tax liens
(other than any lien for current taxes not yet due and payable) on any
of the assets or properties of the Company nor, to the knowledge of the
Company, are any such liens threatened or pending on such assets or
properties. The Company has no knowledge of any basis for any
additional assessment of any Taxes in connection with any Tax Returns.
(e) All tax payments related to employees, including income
tax withholding, FICA, FUTA, unemployment and worker's compensation,
required to be made by the Company have been fully and properly paid,
withheld, accrued or recorded.
(f) The Company (i) is not a party to any Tax allocation or
sharing agreement or tax indemnification agreement, and (ii) has never
been (or has any liability for unpaid Tax because it was) a member of
an affiliated group.
Section 3.08 No Undisclosed Liabilities. The Company has no
liabilities, obligations or commitments of any nature whatsoever, absolute,
accrued, contingent or otherwise), matured or unmatured (herein, "Liabilities"),
except (a) Liabilities which are adequately reflected or reserved against in the
1998 Financial Statements, (b) Liabilities which have been disclosed in the
Company Disclosure Schedule, and (c) Liabilities which have been incurred in the
ordinary course of business
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and consistent with past practice since March 31, 1998 and which are not,
individually or in the aggregate, material in amount.
Section 3.09 Title to Properties. The Company has good, valid and
marketable title to all of its properties and assets, real, personal and mixed,
including, without limitation, all of the properties and assets reflected on the
Interim Balance Sheet (except for inventory sold since the date thereof in the
ordinary course of business consistent with past practice) free and clear of all
Liens, except for (i) liens for current personal property taxes not yet due and
payable, (ii) worker's, carrier's and materialman's liens, which, in the
aggregate are not material in amount, (iii) liens that are immaterial in
character, amount, and extent and which do not detract from the value or
interfere with the present or proposed use of the properties they affect, and
(iv) Liens in favor of Silicon Valley Bank existing on the date of this
Agreement ("Permitted Liens").
Section 3.10 Condition of Tangible Assets. All buildings, plants,
leasehold improvements, structures, facilities, equipment and other items of
tangible property and assets which are owned, leased or used by the Company are
structurally sound, are in good operating condition and repair, subject to
normal wear and maintenance, are usable in the regular and ordinary course of
business and conform to all applicable Regulations and Authorizations (as
defined in Section 3.11) relating to their construction, use and operation. No
Person other than the Company and holders of Permitted Liens, but solely to the
extent of such Permitted Liens, owns, or has any interest in, any equipment or
other tangible assets or properties situated on the premises of the Company or
used or held for use in or necessary to the operation of the business of the
Company.
Section 3.11 Compliance with Law; Authorizations.
(a) The Company has complied in all material respects with
each, and is not in violation of any, law, ordinance, code or governmental or
regulatory rule or regulation, whether federal, state, local or foreign, to
which the Company's business, operations, assets or properties is subject
("Regulations"). The Company owns, holds, possesses or lawfully uses in the
operation of its business all franchises, licenses, permits, easements, rights,
applications, filings, registrations, approvals and other authorizations
("Authorizations") which are in any manner necessary for it to conduct its
business as now or previously conducted or for the ownership and use of the
assets owned or used by the Company or in the conduct of the business of the
Company, free and clear of all Liens and in material compliance with all
Regulations. Such Authorizations are valid and in full force and effect and none
of such Authorizations will be terminated or impaired or become terminable as a
result of the transactions contemplated by this Agreement. All such
Authorizations are listed and described in the Company Disclosure Schedule.
(b) The Company is not in default, nor has the Company
received any notice of any claim of default, with respect to any Authorization.
All Authorizations are renewable by their terms or in the ordinary course of
business without the need to comply with any special qualification procedures or
to pay any amounts other than routine filing fees. No Person other than the
Company owns or has any proprietary, financial or other interest (direct or
indirect) in any Authorization which
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the Company owns, possesses or uses in the operation of the business of the
Company as now or previously conducted.
Section 3.12 Absence of Certain Changes or Events. Since March 31,
1998, and except as set forth on the Company Disclosure Schedule, the Company
has operated its business only in the ordinary course and there has not been:
(a) any event, act, occurrence or omission to act or occur
which has had a Material Adverse Effect on the Company or any event,
fact or condition of which the Company is aware that could reasonably
be expected to have a Material Adverse Effect on the Company and that
has not been disclosed in the Company Disclosure Schedule. As used in
this Agreement, the term "Material Adverse Effect" shall mean any
effect on, or change in, the business, financial condition, results of
operations, properties, assets or liabilities of the party affected
thereby that is, or that would reasonably be expected to be, materially
adverse to such party and its consolidated subsidiaries, taken as a
whole, provided, however, that the impact of general economic and
industry conditions and circumstances resulting from the announcement
of the Merger shall not be deemed to constitute a Material Adverse
Effect;
(b) any amendment of or change to the Articles of
Incorporation or Bylaws of the Company;
(c) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect
to the Company's capital stock;
(d) any split, combination or reclassification of any of the
Company's capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in
substitution for, shares of capital stock;
(e) (i) any increase in or modification of the compensation or
benefits payable or to become payable by the Company to any of its
directors or employees; (ii) any grant by the Company to any employee
of any increase in severance or termination pay, (iii) any entry by the
Company into any employment, severance or termination agreement with
any employee, or (iv) any grant, whether or not to an employee of the
Company, of any option, warrant or right to purchase or otherwise
acquire any shares of capital stock of the Company;
(f) any increase in or modification of any bonus, pension,
insurance or other employee benefit plan, payment or arrangement made
to, for or with any employees of the Company;
(g) any sale of the property or assets of the Company
individually in excess of $15,000 or in the aggregate in excess of
$50,000, except for sales of inventory in the ordinary course of
business;
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(h) any alteration in any term of any outstanding security of
the Company;
(i) any (i) incurrence, assumption or guarantee by the Company
of any debt for borrowed money; (ii) issuance or sale of any securities
convertible into or exchangeable or exercisable for debt securities of
the Company; or (iii) issuance or sale of options or other rights to
acquire from the Company, directly or indirectly, debt securities of
the Company or any securities convertible into or exchangeable or
exercisable for any such debt securities;
(j) any creation or assumption by the Company of any mortgage,
pledge, security interest or lien or other encumbrance on any asset
(other than liens arising under existing lease financing arrangements,
liens arising in the ordinary course of the Company's business which in
the aggregate are not material and liens for taxes not yet due and
payable);
(k) any making of any loan, advance or capital contribution
to, or investment in, any person other than travel loans or advances in
the ordinary course of business consistent with past practice;
(l) any entry into, amendment of, relinquishment, termination
or nonrenewal by the Company of any Material Contract or other right or
obligation material to the Company other than in the ordinary course of
business consistent with past practice;
(m) any transfer, grant or loss by the Company (or to the
knowledge of the Company, a material reduction in the value) of a right
under the Company Intellectual Property Rights (as defined in Section
3.14 hereof) other than those transferred or granted in the ordinary
course of business consistent with past practice under existing
agreements;
(n) any labor dispute, other than individual grievances, or
any activity or proceeding by a labor union or representative thereof
to organize any employees of the Company;
(o) any violation of or conflict with any applicable laws,
statutes, orders, rules and regulations promulgated or judgment entered
by any Governmental Entity which, individually or in the aggregate, has
had (or, insofar as the Company is aware, could be expected to have) a
Material Adverse Effect on the Company;
(p) any agreement or arrangement made by the Company to take
any action which, if taken prior to the date hereof, would have made
any representation or warranty set forth in this Article III untrue or
incorrect as of the date when made;
(q) any damage, destruction or loss, whether or not covered by
insurance, that has had or could have a Material Adverse Effect on the
Company; or
(r) any change in accounting practices by the Company; or
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(s) any agreement, whether or not in writing, to do any of the
foregoing.
Section 3.13 Real Property. The Company Disclosure Schedule contains a
complete and accurate description of all Real Property (as defined in Section
3.13(b)). The Real Property listed on the Company Disclosure Schedule includes
all interests in real property necessary to conduct the business and operations
of the Company. Except as set forth in the Company Disclosure Schedule:
(a) Owned Real Property. With respect to real property that is
owned by the Company (the "Owned Real Property"), title to such Owned
Real Property is, and at Closing shall be, good and marketable, fee
simple absolute, free and clear of all liens, adverse claims and other
matters affecting the Company's title to or possession of such Owned
Real Property, including, but not limited to, all encroachments,
boundary disputes, covenants, restrictions, easements, rights of way,
mortgages, security interests, leases, encumbrances and title
objections, excepting only such easements, restrictions and covenants
presently of record which do not interfere with or impair the intended
use of any of the Owned Real Property or reduce the value of any of the
Owned Real Property.
(b) Leased Real Property. Real property that is leased by the
Company is identified on the Company Disclosure Schedule ("Leased
Property" and, together with the Owned Real Property, the "Real
Property") and, in connection therewith: (i) the Company has delivered
to Parent a true and complete copy of every lease and sublease pursuant
to which the Company is a tenant or subtenant (the "Leases"); and (ii)
each Lease is, and at Closing shall be, in full force and effect and
has not been assigned, modified, supplemented or amended, and neither
the Company nor, to the knowledge of the Company, the landlord or
sublandlord under any Lease is in default under any of the Leases, and
no circumstances or state of facts presently exists which, with the
giving of notice or passage of time, or both, would permit the landlord
or sublandlord under any Lease to terminate any Lease.
(c) Zoning. The uses for which the buildings, facilities and
other improvements comprising the Real Property are zoned do not
materially restrict, or in any manner materially impair, the use of the
Real Property for purposes of the business, and the Company has not
received any notice from any landlord or Governmental Entity that the
Real Property does not comply with all applicable building and zoning
codes, deed restrictions, ordinances and rules.
(d) Eminent Domain. No Governmental Entity having the power of
eminent domain over the Real Property has commenced or, to the
knowledge of the Company, intends to exercise the power of eminent
domain or a similar power with respect to all or any part of the Real
Property.
(e) No Violations. The Real Property and the present uses
thereof materially comply with all Regulations of all Governmental
Entities, and the Company has not received any notices, oral or
written, from any landlord or Governmental Entity, nor does the
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Company have any reason to believe, that the Real Property, or the
conduct of the Company's business thereon, violates any Regulations of
any Governmental Entity.
(f) Condition. The Real Property is in good condition and, to
the Company's knowledge, is structurally sound, and all mechanical and
other systems located therein are in good operating condition, subject
to normal wear, and no condition exists requiring material repairs,
alterations or corrections.
(g) No Encumbrances. Between the date of this Agreement and
Closing the Company shall not sell, mortgage or encumber the Real
Property, or do or consent to any act which diminishes title to or
value of the Real Property.
Section 3.14 Intellectual Property.
(a) The Company owns, or is licensed or otherwise possesses
legally enforceable rights to use, all trademarks, trade names, service
marks, copyrights, mask works, processes, formulas, algorithms,
schematics, technology, know-how, computer software programs or code
and tangible or intangible proprietary information or material and any
applications for and registrations of any patents, trademarks, trade
names, service marks, copyrights, mask works or other proprietary
rights and, to the Company's knowledge, patents that are or will be
used in the Company's business as it is currently conducted or proposed
to be conducted by the Company (collectively, the "Company Intellectual
Property Rights"). For the purposes hereof, the business proposed to be
conducted by the Company shall be determined by reference to the Series
C Convertible Preferred Stock Confidential Offering Memorandum dated
June 22, 1998 (the "Confidential Offering Memorandum"), a copy of which
has been provided to Parent.
(b) The Company Disclosure Schedule lists (i) all patents,
trademarks, service marks, registered copyrights and all applications
for patents, or for registrations of trademarks, service marks, and
copyrights which are owned by the Company and included in the Company
Intellectual Property Rights, (ii) all licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which any
person is authorized to use any Company Intellectual Property Rights,
and (iii) all licenses, sublicenses and other agreements as to which
the Company is a party and pursuant to which the Company is authorized
to use any third party patents, trademarks, trade names, service marks,
copyrights, mask works, processes, formulas, algorithms, schematics,
technology, know-how, computer software programs or code and tangible
or intangible proprietary information or material ("Company Third Party
Intellectual Property Rights") which are incorporated in, are, or form
a part of any product or service currently offered by, or proposed to
be offered by, the Company.
(c) The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its
obligations under this Agreement, in breach of any
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license, sublicense or other agreement relating to the Company
Intellectual Property Rights or the Company Third Party Intellectual
Property Rights.
(d) All patents, registered trademarks, service marks and
copyrights which are owned by the Company and included in the Company
Intellectual Property Rights are valid and subsisting. The Company does
not infringe upon or unlawfully or wrongfully use any trademark, trade
name, service mark, mask work right, copyright or trade secret or, to
the Company's knowledge, patent owned or claimed by another. The
Company has not received any communication alleging that the Company
has violated or, by conducting its business as now conducted or as
currently proposed to be conducted by the Company, would violate, any
patent, trademark, trade name, service mark, copyright, trade secret or
other proprietary right owned or claimed by another. No action, suit,
proceeding or investigation has been instituted, or, to the knowledge
of the Company, threatened, relating to any patent, trademark, trade
name, service mark, copyright, trade secret or other proprietary right
formerly or currently used by the Company. None of the Company
Intellectual Property Rights owned by the Company is subject to any
outstanding order, decree or judgment.
(e) The Company has taken all appropriate steps to protect and
preserve the confidentiality of all Company Intellectual Property
Rights not otherwise protected by patents ("Confidential Information").
All use, disclosure or appropriation of Confidential Information by or
to a third party has been pursuant to the terms of a written agreement
between the Company and such third party. The Company has received
valid written assignments from all consultants and employees who have
contributed to the creation or development of the Company Intellectual
Property Rights.
(f) To the knowledge of the Company, no employee of the
Company is obligated under any fiduciary duty or any contract
(including licenses, covenants or commitments of any nature) or other
agreements, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company or that
would conflict with the Company's business as now conducted or
currently proposed to be conducted. To the knowledge of the Company,
neither the execution nor delivery of this Agreement, nor the carrying
on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as now conducted or currently
proposed to be conducted by the Company, will conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a
default under or a violation of, any fiduciary duty or any contract,
covenant or instrument under which any of such employees is now
obligated. To the knowledge of the Company, it is not, nor will it be
necessary, to utilize any inventions of any of the Company's employees
(or people it currently intends to hire) made prior to their employment
by the Company.
Section 3.15 Agreements, Contracts and Commitments. The Company
Disclosure Schedule sets forth an accurate, correct and complete list of all
agreements, contracts, commitments, arrangements and understandings, written or
oral, including all amendments and supplements thereto
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(collectively, the "Material Contracts"), to which the Company is a party or is
bound, or by which any of its assets are bound, and which involve any:
(a) agreement, contract, commitment, arrangement or
understanding with any present or former employee or consultant or for
the employment of any person, including any consultant, which is not
terminable at-will by the Company without liability to the Company;
(b) agreement, contract, commitment, arrangement or
understanding for the future purchase of, or payment for, supplies or
products, or for the future performance of services by a third party
involving in any one case $30,000 or more;
(c) agreement, contract, commitment, arrangement or
understanding to sell or supply products or to perform services
involving in any one case $30,000 or more;
(d) agreement, contract, commitment, arrangement or
understanding containing requirements or "take or pay" provisions;
(e) agreement, contract, commitment, arrangement or
understanding not otherwise listed on the Company Disclosure Schedule
and continuing over a period of more than six months from the date
hereof or exceeding $30,000 in value;
(f) distribution, dealer, representative or sales agency
agreement, contract, commitment, arrangement or understanding;
(g) lease under which the Company is either lessor or lessee;
(h) agreement, contract, commitment, arrangement or
understanding containing a provision to indemnify any Person or assume
any tax, environmental or other liability;
(i) agreement, contract, commitment, arrangement or
understanding with federal, state, local, regulatory or other
governmental entities;
(j) note, debenture, bond, equipment trust agreement, letter
of credit agreement, loan agreement or other contract or commitment for
the borrowing or lending of money or agreement or arrangement for a
line of credit or guarantee, pledge or undertaking of the indebtedness
of any other person;
(k) agreement, contract, commitment, arrangement or
understanding for any charitable or political contribution;
(l) agreement, contract, commitment, arrangement or
understanding for any capital expenditure or leasehold improvement in
excess of $30,000;
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(m) agreement, contract, commitment, arrangement or
understanding limiting or restraining the Company from engaging or
competing in any manner or in any business;
(n) license, franchise, distributorship or other agreement
which relates in whole or in part to any Company Intellectual Property
Right or Company Third Party Intellectual Property Right;
(o) any agreement, contract, commitment, arrangement or
understanding not made in the ordinary course of business.
Each of the Material Contracts is valid and enforceable in accordance with its
terms; the Company is, and to the Company's knowledge, all other parties thereto
are, in compliance with the provisions thereof. The Company is not, and to the
Company's knowledge, no other party thereto is, in default in the performance,
observance or fulfillment of any material obligation, covenant or condition
contained therein; and no event has occurred which with or without the giving of
notice or lapse of time, or both, would constitute a default thereunder by the
Company. None of the rights of the Company under any Material Contract will be
impaired by the consummation of the transactions contemplated hereby, and all
such rights will be enforceable by the Company after the Closing Date without
the consent or agreement of any other party. The Company has delivered accurate
and complete copies of each Contract to Parent. No Material Contract requires
the consent of any party to its assignment in connection with the transactions
contemplated hereby.
Section 3.16 Litigation. There is no action, suit or proceeding, claim,
arbitration, litigation or investigation ("Action"), against the Company pending
or as to which the Company has received any written notice of assertion, or, to
the knowledge of the Company, threatened, nor is there any such Action against
any current or former affiliate of the Company with respect to which the Company
has or may have an indemnification obligation. Except as set forth in the
Company Disclosure Schedule, (i) there is no unsatisfied judgment, penalty or
award against or affecting the Company or any of its properties or assets, and
(ii) there is no award, injunction, judgment, order, ruling, subpoena or verdict
of other decision entered, issued or rendered by any Governmental Entity to
which the Company or any of its properties or assets are subject.
Section 3.17 Employees. The Company Disclosure Schedule sets forth the
following:
(a) a list of all employees of the Company (including name,
title and position);
(b) each employee's length of service; and
(c) the compensation (including terms of payment, bonuses,
commissions and deferred compensation, as well as any benefits) of each
employee.
(i) There have not been since inception and, to the Company's knowledge, there
are not pending, any labor disputes, work stoppages, requests for
representation, pickets, work slow-downs due to labor
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disagreements or any actions or arbitrations which involve the labor or
employment relations of the Company; (ii) the Company has not violated any laws
relating to antidiscrimination and equal employment opportunities; (iii) there
are and have been no material violations of any other Regulations of any
Governmental Entity respecting the employment or benefits of any employees; (iv)
there is no unfair labor practice, charge or complaint pending, unresolved or,
to the knowledge of the Company, threatened before the National Labor Relations
Board; (v) there is no employment handbook, personnel policy manual, or similar
document that creates prospective employment rights or obligations; (vi) the
employees of the Company are not covered by any collective bargaining agreement;
(vii) the Company is not a party to any agreement which restricts the Company
from relocating, closing or terminating any of its operations or facilities or
any portion thereof; (viii) the Company has provided or will timely provide
prior to Closing all notices required by law to be given prior to Closing to all
local, state, federal or national labor, wage-payment, equal employment
opportunity, unemployment insurance and related agencies; (ix) the Company has
paid or properly accrued in the ordinary course of business all wages and
compensation due to employees, including all vacations or vacation pay, holidays
or holiday pay, sick days or sick pay, and bonuses; (x) the transactions
contemplated by this Agreement will not in and of themselves create liability
under any Regulations of any Governmental Entity respecting reductions in force
or the impact on employees on plant closing or sales of businesses; and (xi) all
employees of the Company are legally able to work in the United States.
Section 3.18 Benefits Plans. The Company is not, nor has previously
been, a party to (1) any "employee benefit plan" as defined in Section 3(3) of
ERISA ("Plan"), or (2) any formal or informal deferred compensation, bonus,
performance compensation, stock purchase, stock option, stock appreciation,
severance, vacation, sick leave, holiday pay, fringe benefits, personnel policy,
reimbursement program, incentive, insurance, welfare or similar plan, program,
policy or arrangement ("Benefit Plan"). The Company does not have any intent or
commitment to create any additional Plan or Benefit Plan or amend any Plan or
Benefit Plan so as to increase benefits thereunder except in the ordinary course
of business consistent with past practice. A current, accurate and complete copy
of each such Plan and each Benefit Plan has been made available to Parent.
(a) Each Plan and Benefit Plan is in material compliance with
all reporting, disclosure and other requirements of ERISA and the Code
and any other law applicable to such Plan or Benefit Plan.
(b) Each Plan which is an employee pension benefit plan (a
"Pension Plan"), as defined in Section 3(2) of ERISA, and which is
intended to be qualified under Section 401(a) of the Code, has been
determined by the Internal Revenue Service to be so qualified or still
has time to qualify under applicable Treasury regulations or IRS
pronouncements and no condition exists that would adversely affect any
such determination. No such Pension Plan is a "defined benefit plan" as
defined in Section 3(35) of ERISA.
(c) Neither any Plan nor the Company, nor any trustee or agent
has been or are presently engaged in any prohibited transactions as
defined by Section 406 of ERISA or
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Section 4975 of the Code for which an exemption is not applicable which
could subject the Company to any tax or penalty imposed by Section 4975
of the Code or Section 502 of ERISA.
(d) The Company and any member of its "controlled group" (as
defined in Section 4001(a)(14) of ERISA) are not, and have not been,
parties to any "multi-employer plan," as defined in Section 3(37) of
ERISA.
(e) True and correct copies of Form 5500 and any attached
schedules for each of the three most recent completed plan years for
each Plan and a true and correct copy of the most recent determination
letter, if applicable, issued by the Internal Revenue Service for each
Pension Plan has been made available to Parent.
(f) With respect to each Plan and Benefit Plan, there are no
actions, suits or claims (other than routine claims for benefits in the
ordinary course) pending or, to the best of the Company's knowledge,
threatened against any Plan or Benefit Plan, the Company or any trustee
or agent of any Plan or Benefit Plan.
(g) With respect to each welfare benefit plan to which the
Company is a party which constitutes a group health plan subject to
Section 4980B of the Code or Section 601 of ERISA, each such Plan
substantially complies, and in each case has substantially complied,
with all applicable requirements of Section 4980B of the Code and
Section 601 of ERISA.
(h) (i) Full payment has been made, within the time limits
prescribed by law for a current deduction thereof, of all
amounts which the Company was required to have paid as a
contribution to any Plan, and all other such contributions
have been properly accrued on the Financial Statements, and
none of the Plans has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, as of the last day of
the most recent fiscal year of each such Plan ended prior to
the date of this Agreement;
(ii) Each of the Plans and Benefit Plans is, and its
administration is and has been during the six-year period
preceding the date of this Agreement, in material compliance
with, and the Company has not received any claim or notice
that any such Plan or Benefit Plan is not in compliance with,
all applicable laws and orders and prohibited transaction
exemptions, including without limitation, to the extent
applicable, the requirements of ERISA and the Code;
(iii) The Company is in not default in performing any
of its material contractual obligations under any of the Plans
or Benefit Plans or any related trust agreement or insurance
contract;
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(iv) There are no material outstanding liabilities of
any Plan or Benefit Plan other than liabilities for benefits
to be paid to participants in such Plan or Benefit Plan and
their beneficiaries in accordance with the terms of such Plan
or Benefit Plan;
(v) Each Plan or Benefit Plan may be amended,
modified, terminated or otherwise discontinued by the Company
at any time without liability other than ordinary
administration expenses typically incurred in a termination;
(vi) No Plan or Benefit Plan other than a Pension
Plan, retiree medical plan or severance plan or as required by
(COBRA) Section 4980B of the Code, any applicable statute or
any benefits provided by life insurance, or at the employee's
own expense provides benefits to any individual after
termination of employment;
(vii) The consummation of the transactions
contemplated by this Agreement will not (in and of itself) (i)
entitle any employee of the Company to severance pay,
unemployment compensation or any other payment; (ii)
accelerate the time of payment or vesting, or increase the
amount of compensation due to any such employee; (iii) result
in any prohibited transaction described in Section 406 of
ERISA or Section 4975 of the Code for which an exemption is
not available or (iv) result (either alone or in conjunction
with any other event) in the payment or series of payments by
the Company or any of its Affiliates to any person of an
"excess parachute payment" within the meaning of Section 280G
of the Code. The term "Affiliate" shall mean, with respect to
any Person, any individual, corporation, partnership or other
entity which directly or indirectly controls, is controlled by
or is under common control with, such Person;
(viii) With respect to each Plan or Benefit Plan that
is funded wholly or partially through an insurance policy, all
premiums required to have been paid to date under the
insurance policy have been paid, all premiums required to be
paid under the insurance policy through the Closing will have
been paid on or before the Closing and, as of the Closing,
there will be no liability of the Company under any insurance
policy or ancillary agreement with respect to such insurance
policy in the nature of a retroactive rate adjustment, loss
sharing arrangement or other actual or contingent liability
arising wholly or partially out of events occurring prior to
the Closing; and
(ix) Each Plan that constitutes a "welfare benefit
plan" within the meaning of Section 3(1) of ERISA, and for
which contributions are claimed by any of the Companies as
deductions under any provision of the Code, is in material
compliance with all applicable requirements pertaining to such
deduction, (ii) with respect to any welfare benefit fund
(within the meaning of Section 419 of the Code) related to a
welfare benefit plan, there is no disqualified benefit (within
the meaning of Section 4976(b) of the Code) that would result
in the imposition of a tax under Section 4976(a) of the Code,
and (iii) all welfare benefit funds intended to be exempt from
tax
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under Section 501(a) of the Code have been determined by the
Internal Revenue Service to be so exempt and no event or
condition exists which would adversely affect any such
determination.
Section 3.19 Transactions with Affiliates. There is no lease, sublease,
indebtedness, contract, agreement, commitment, understanding, or other
arrangement of any kind entered into by the Company with any officer, director
or shareholder of the Company or any affiliate of any of them, or any agreements
between the Company, except in each case, for (a) employment agreements, fringe
benefits and other compensation paid to directors and officers consistent with
previously established policies (including normal merit increases in such
compensation in the ordinary course of business) and copies of which have been
provided to Parent; and (b) reimbursements of ordinary and necessary expenses
incurred in connection with their employment, and amounts paid pursuant to
employee benefit plans of which copies have been provided to Parent.
Section 3.20 Environmental Matters.
(a) The Company has secured, and is in compliance with, all
Environmental Permits, with respect to its operations and the Real
Property. All such Environmental Permits are valid and in full force
and effect and none of such Environmental Permits will be terminated or
impaired or become terminable as a result of the transactions
contemplated by this Agreement. The Company has always been, and is
currently, in material compliance with all Environmental Laws;
(b) There are no past, pending, or threatened Environmental
Claims against the Company, and the Company is not aware of any facts
or circumstances which could be expected to form the basis for any
Environmental Claim against them;
(c) The Company has not entered into or agreed to any court
decree or order, and the Company is subject to any judgment, decree or
order relating to compliance with any Environmental Law or to
investigation or cleanup of a Hazardous Substance under any
Environmental Law;
(d) No Lien has been attached, asserted, or to the knowledge
of the Company, threatened to or against the assets or any property of
the Company pursuant to any Environmental Law, and, to the Company's
knowledge, there are no facts, circumstances, or conditions that could
be expected to restrict, encumber, or result in the imposition of
special conditions under any Environmental Law with respect to the
ownership, occupancy, development, use, or transferability of any real
property currently operated, owned or leased by the Company;
(e) There has been no treatment, storage, disposal or Release
of any Hazardous Substance at, from, in to, on or under any Real
Property or any other property owned, operated or leased by the
Company, and, to the Company's knowledge, no Hazardous
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Substances are present in, on, about or migrating to or from any Real
Property that could give rise to an Environmental Claim against the
Company;
(f) The Company has not received a CERCLA 104(e) information
request or has been named a potentially responsible party for any
National Priorities List site under CERCLA or any site under analogous
state law or received an analogous notice or request from any non-U.S.
Governmental Entity, which notice, request or any resulting inquiry or
litigation has not been fully and finally resolved without possibility
of reopening;
(g) There are no aboveground tanks or underground storage
tanks on, under or about the Real Property and any former aboveground
or underground tanks on the Real Property have been removed in
accordance with all Environmental Laws and no residual contamination,
if any, remains at such sites in excess of applicable standards;
(h) There are no polychlorinated biphenyls ("PCBs") leaking
from any article, container or equipment on, under or about the Real
Property and there are no such articles, containers or equipment
containing PCBs, and there is no asbestos containing material or lead
based paint containing materials in at, on, under or within Real
Property;
(i) The Company has not transported or arranged for the
treatment, storage, handling, disposal, or transportation of any
Hazardous Material to any off-site location which is an Environmental
Clean-up Site;
(j) none of the Real Property is a current or proposed
Environmental Clean-up Site;
(k) the Company has provided to Parent a true and complete
copies of, or access to, all written environmental assessment materials
and reports in its possession that have been prepared by or on behalf
of the Company during the past five years.
(l) As used in this Agreement:
(i) The term "Environment" shall mean all air,
surface water, groundwater, or land, including land surface or
subsurface, including all fish, wildlife, biota and all other
natural resources.
(ii) The term "Environmental Action" shall mean any
claim, proceeding or action which may be brought or
threatened, or which Parent reasonably believes may be brought
or threatened, under any Environmental Law or otherwise
asserting any claim that any of the Companies, at any time on
or prior to the Closing Date, has (i) incurred liability with
respect to an environmental condition, whether on the Real
Property or elsewhere, or (ii) otherwise failed to comply with
any Environmental Law.
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(iii) The term "Environmental Claim" shall mean any
and all pending and/or threatened administrative or judicial
actions, suits, orders, claims, liens, notices, notices of
violations, investigations, complaints, requests for
information, proceedings, or other communication (written or
oral), whether criminal or civil, pursuant to or relating to
any Environmental Law.
(iv) The term "Environmental Clean-up Site" shall
mean any location which is listed or proposed for listing on
the National Priorities List, the Comprehensive Environmental
Response, Compensation and Liability Information System, or on
any similar state or foreign list of sites requiring
investigation or cleanup, or which is the subject of any
pending or threatened action, suit, proceeding, or
investigation related to or arising from any alleged violation
of any Environmental Law, or at which there has been a
threatened or actual Release of a Hazardous Material.
(v) The term "Environmental Laws" shall mean any and
all applicable treaties, laws, regulations, ordinances, common
law, enforceable requirements, binding determinations, orders,
decrees, judgments, injunctions, permits, approvals,
authorizations, licenses or binding agreements issued,
promulgated or entered into by any Governmental Entity,
relating to the Environment, worker health and safety,
preservation or reclamation of natural resources, or to the
management, handling, use, generation, treatment, storage,
transportation, disposal, manufacture, distribution,
formulation, packaging, labeling, Release or threatened
Release of or exposure to Hazardous Substances, whether now
existing or subsequently amended or enacted, including but not
limited to: the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et
seq. ("CERCLA"), the Federal Water Pollution Control Act, 33
U.S.C. Section 1251 et seq., the Clean Air Act, 42 U.S.C.
Section 7401 et seq., the Toxic Substances Control Act, 15
U.S.C. Section 2601 et seq., the Occupational Safety and
Health Act, 29 U.S.C. Section 651 et seq., the Emergency
Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
Section 11001 et. seq., the Safe Drinking Water Act, 42 U.S.C.
Section 300(f) et seq., the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801 et seq., the Federal Insecticide,
Fungicide and Rodenticide Act 7 U.S.C. Section 136 et seq.,
the Resource Conservation and Recovery Act of 1976 ("RCRA"),
42 U.S.C. Section 6901 et seq., the Toxic Substances Control
Act, 15 U.S.C. Section 2601 et seq., the Oil Pollution Act of
1990, 33 U.S.C. Section 2701 et seq., and any similar or
implementing state or local law, and any non-U.S. laws and
regulations of similar import, and all amendments or
regulations promulgated thereunder; and any common law
doctrine, including but not limited to, negligence, nuisance,
trespass, personal injury, or property damage related to or
arising out of the presence, Release, or exposure to Hazardous
Substances.
(vi) The term "Environmental Permits" shall mean all
permits, licenses, approvals or authorizations from any
Governmental Entity required under Environmental Laws to
conduct the operations of the Companies, and includes any
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and all orders, consent orders or binding agreements issued or
entered into by a Governmental or Regulatory Authority under
any applicable Environmental Law.
(vii) The term "Hazardous Substances" shall mean all
explosive or regulated radioactive materials or substances,
hazardous or toxic materials, wastes or chemicals, petroleum
and petroleum products (including crude oil or any fraction
thereof), asbestos or asbestos containing materials, and all
other materials, chemicals or substances which are regulated
by, form the basis of liability or are defined as hazardous,
extremely hazardous, toxic or words of similar import, under
any Environmental Law, including materials listed in 49 C.F.R.
Section 172.101 and materials defined as hazardous pursuant to
Section 101(14) of CERCLA (as defined above in the definition
of "Environmental Laws").
(viii) The term "Release" shall mean any spilling,
leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping, or disposing of
Hazardous Substances into the Environment.
Section 3.21 Insurance. The assets, properties and operations of the
Company are insured under various policies of general liability and other forms
of insurance, all of which are described in the Company Disclosure Schedule,
which discloses for each policy the risks insured against, coverage limits,
deductible amounts, all outstanding claims thereunder, and whether the terms of
such policy provide for retrospective premium adjustments. All such policies are
issued by an insurer that is, to the Company's knowledge, financially sound and
reputable, are in full force and effect in accordance with their terms and will
continue in full force and effect following the Effective Time, no notice of
cancellation has been received, and there is no existing default or event which,
with the giving of notice or lapse of time or both, would constitute a default
thereunder. Such policies are in amounts which are adequate in relation to the
business and assets of the Company, are sufficient for compliance with all laws
and contracts to which the Company is a party or by which it is bound, and all
premiums to date have been paid in full. The Company has not been refused any
insurance, nor has the Company's coverage been limited, by any insurance carrier
to which it has applied for insurance or with which it has carried insurance.
The Company Disclosure Schedule contains a true and complete description of all
outstanding bonds and other surety arrangements issued or entered into by the
Company and describes any self-insurance by or affecting the Company, including
any reserves established thereunder. The Company Disclosure Schedule also
contains a statement describing each claim for the current policy year and each
of the two preceding policy years under an insurance policy for an amount in
excess of $5,000, which sets forth (i) the name of the claimant, (ii) the
description of the policy, type of insurance, and period of coverage, and (iii)
the amount and brief description of the claim.
Section 3.22 Books and Records. The books, records and accounts of the
Company accurately and fairly reflect, in reasonable detail, the transactions
and the assets and liabilities of the Company. The Company has not engaged in
any transaction, maintained any bank account or used
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any of the funds of the Company except for transactions, bank accounts and funds
which have been and are reflected in the normally maintained books and records
of the business.
Section 3.23 Product Design; Warranties.
(a) The Company has not agreed to become, or is not otherwise,
responsible for consequential damages; and there are no warranties
(express or implied) outstanding with respect to any products
("Products") currently or formerly created, manufactured, sold,
distributed or licensed, or any services rendered, by the Company. A
copy of the standard warranty of the Company is included in the Company
Disclosure Schedule. The Company has not modified or expanded its
warranty obligation to any customer beyond that set forth in such
standard warranty.
(b) The Company Interim Balance Sheet reflects appropriate
reserves for warranty claims.
Section 3.24 No Excess Parachute Payments; Section 162(m) of the Code.
(a) Any amount that could be received (whether in cash or
property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any employee, officer or
director of the Company or any of its affiliates who is a "disqualified
individual" (as such term is defined in Proposed Treasury Regulation
Section 1.280G-1) under any employment, severance or termination
agreement or other compensation arrangement currently in effect would
not be characterized as an "excess parachute payment" (as such term is
defined in Section 280G of the Code).
(b) The disallowance of a deduction under Section 162(m) of
the Code for employee remuneration will not apply to any amount paid or
payable by the Company under any contract, plan, program, arrangement
or understanding.
Section 3.25 Conditions Affecting the Company. The Company has used its
reasonable commercial efforts to keep available the services of the employees,
agents, customers and suppliers of the Company. The Company has no reason to
believe that any loss of any employee, agent, customer or supplier or other
advantageous arrangement will result because of the consummation of the
transactions contemplated hereby.
Section 3.26 Brokers. There is no investment banker, broker, finder,
financial advisor or other intermediary which has been retained by or is
authorized to act on behalf of the Company or Company Shareholders who might be
entitled to any fee or commission in connection with the transactions
contemplated by this Agreement, other than Credit Suisse First Boston ("Credit
Suisse"), the fees and expenses of which shall not exceed $4,375,000. No claim
(other than any claim of Parent which may arise pursuant to Section 5.03(b)
hereof) exists against the Company or the Surviving Corporation or, based on any
action by the Company, against Parent for payment of any "topping,"
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"break-up" or "bust-up" fee or any similar compensation or payment arrangement
as a result of the transactions contemplated hereby.
Section 3.27 No Illegal Payments. Neither the Company nor, to the
knowledge of the Company, any Affiliate, officer, agent or employee thereof,
directly or indirectly, has, during the past two (2) years, on behalf of or with
respect to the Company, (i) made any unlawful domestic or foreign political
contributions, (ii) made any payment or provided services which were not legal
to make or provide or which the Company or any Affiliate thereof or any such
officer, employee or other Person should have known were not legal for the payee
or the recipient of such services to receive, (iii) received any payment or any
services which were not legal for the payer or the provider of such services to
make or provide, (iv) had any transactions or payments which are not recorded in
its accounting books and records or (v) had any off-book bank or cash accounts
or "slush funds."
Section 3.28 Suppliers and Customers. No supplier or customer who
accounted for more than five percent of the Company's sales or purchases in
either of the past two fiscal years and no other supplier or customer material
to the business of the Company has terminated its relationship with the Company
or has during the past fiscal year decreased or delayed materially, or, to the
Company's knowledge, threatened to decrease or delay materially, its services or
supplies to the Company or decrease its usage of the Company's products or
services. Other than the transactions contemplated by this Agreement, the
Company is not aware of any facts or events which may reasonably be expected to
form the basis for such a decrease or delay. The Company Disclosure Schedule
sets forth with respect to the Company:
(a) each supplier from whom purchases exceeded $10,000 for the
last fiscal year;
(b) each customer to whom sales exceeded $10,000 for the last
fiscal year and the aggregate sales with respect to each such customer;
and
(c) each supplier who constitutes a sole source of supply to
the Company.
Section 3.29 Voting Requirements. The affirmative vote of the holders
of a majority of the then outstanding Company Common Shares and the affirmative
vote of the holders of at least a majority (on an
as-converted-to-Common-Stock-basis) of the then outstanding Company Preferred
Shares at a duly convened meeting of the Company Shareholders or any adjournment
or postponement thereof to approve and adopt this Agreement and the Agreement of
Merger is the only vote of the holders of any class necessary to approve this
Agreement and the Agreement of Merger and the transactions contemplated hereby
and thereby.
Section 3.30 Opinion of Financial Advisors. The financial advisor to
the Company, Credit Suisse, has delivered to the Company an opinion dated as of
the date of this Agreement to the effect that the Exchange Ratio is fair from a
financial point of view to the Company Shareholders, and a copy of such opinion
has been made available to Parent.
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Section 3.31 Certain Enhancements. The enhancements set forth on the
list attached hereto as Schedule 3.31 constitute all of the enhancements which
the Company has made to the third party product mentioned thereon, and such
enhancements may be removed from the Company's current products and from its
design for currently proposed products without materially affecting the
performance characteristics of such products, and without material cost or delay
in the reintroduction of the Company's current products.
Section 3.32 Completeness of Disclosure. No representation or warranty
by the Company in this Agreement, and no written statement made by the Company
in the exhibits attached hereto, or any certificate or schedule furnished or to
be furnished to Parent pursuant hereto, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
required to be stated herein or therein or necessary to make any statement
herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company that the statements
contained in this Article IV are true and correct, except as set forth in the
disclosure schedule dated and delivered as of the date hereof by Parent and Sub
to the Company (the "Parent Disclosure Schedule"), which relates to this
Agreement and is designated therein as being the Parent Disclosure Schedule. The
Parent Disclosure Schedule shall be arranged in paragraphs corresponding to, and
each exception to a representation and warranty set forth therein shall be
deemed to qualify, the specific numbered and lettered paragraph(s) of this
Article IV which is referenced or cross-referenced in the applicable exception
set forth on the Parent Disclosure Schedule.
Section 4.01 Organization. Each of Parent and Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, has all requisite corporate power to own, lease and operate its
property and to carry on its business as now being conducted, and is duly
qualified to do business and is in good standing as a foreign corporation in
which it owns or leases property or conducts any business so as to require such
qualification, except where failure to be so qualified would not have a Material
Adverse Effect on Parent. Neither Parent nor Sub is in violation of its
Certificate of Incorporation or Bylaws, in each case as amended to date.
Section 4.02 Capital Structure.
(a) The authorized capital stock of Parent consists of
300,000,000 shares of Common Stock, $.01 par value, and 5,000,000
shares of Preferred Stock, $.01 par value ("Parent Preferred Stock").
As of March 31, 1998, (i) 100,302,143 shares of Parent Common Stock
were issued and outstanding, all of which are duly authorized, validly
issued, fully paid and nonassessable, (ii) 137,310 shares of Parent
Common Stock were held in the treasury of
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Parent or by Subsidiaries of Parent, (iii) 15,737,342 shares of Parent
Common Stock were reserved for future issuance pursuant to stock
options granted and outstanding under Parent's stock option plans
("Parent Options"), and (iv) 1,612,460 shares of Parent Common Stock
were reserved for issuance under Parent's Employee Stock Purchase Plans
("Parent ESPPs"). As of the date of this Agreement, none of the shares
of Parent Preferred Stock is issued and outstanding. The shares of
Parent Common Stock issuable in connection with the Merger have been
duly authorized and reserved for issuance and, when issued in
accordance with the terms of this Agreement, will be validly issued,
fully paid, nonassessable and free of preemptive rights. The authorized
capital stock of Sub consists of 1,000 shares of common stock, par
value $.01 per share, 100 of which are issued and outstanding, and all
of which shares are validly issued, fully paid and nonassessable, free
of preemptive rights and owned by Parent. Except for the shares
referred to above that are issuable pursuant to Parent Options, there
are not any options, warrants, calls, conversion rights, commitments or
agreements of any character to which Parent or Sub is a party or by
which either of them may be bound obligating Parent to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of
the capital stock of Parent or obligating Parent to grant, extend or
enter into any such option warrant, call, conversion right, commitment
or agreement.
(b) Except as set forth in this Section 4.02 or as reserved
for future grants of options under the Parent stock option plans or the
Parent ESPPs, there are no equity securities of any class of Parent or
any of its Subsidiaries, or any security convertible into, exchangeable
into or exercisable for such equity securities, issued, reserved for
issuance or outstanding. Except as set forth in this Section 4.02,
there are no options, warrants, equity securities, calls, rights,
commitments or agreements of any character to which Parent or any of
its Subsidiaries is a party or by which any of them is bound obligating
Parent or any of its Subsidiaries to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock of
Parent or any of its Subsidiaries.
Section 4.03 Authority; No Conflict; Required Filings and Consents.
(a) Each of Parent and Sub has all requisite corporate power
and authority to enter into this Agreement and the Agreement of Merger
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Agreement of Merger
and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on
the part of Parent and Sub. This Agreement has been duly executed and
delivered by Parent and Sub and constitutes the valid and binding
obligation of Parent and Sub, enforceable in accordance with its terms,
except as such enforceability may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
or relating to creditors rights generally and (ii) the availability of
injunctive relief and other equitable remedies. The Agreement of
Merger, when executed and delivered as contemplated herein, will be
duly executed and delivered by Parent and Sub and, assuming the due
authorization, execution and delivery by the Company, will constitute
the valid and binding obligation of Parent and Sub, enforceable in
accordance with
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its terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting or relating to creditors rights generally and (ii) the
availability of injunctive relief and other equitable remedies.
(b) Neither the execution and delivery of this Agreement or
the Agreement of Merger, nor the consummation of the transactions
contemplated herein or therein, by Parent or Sub (in each case, with or
without the passage of time or the giving of notice) will (i) violate
or conflict with any of the provisions of any of the charters or Bylaws
of Parent or Sub, (ii) violate or constitute a default, an event of
default or an event creating rights of acceleration, termination,
cancellation or other additional rights, or loss of rights under, any
mortgage, indenture, deed of trust, lease, contract, agreement, license
or other instrument to which Parent or Sub is a party or by which they
or any of their assets or property are bound, (iii) any statute, rule,
regulation, injunction, decree, order, judgment or ruling of any
Governmental Entity to which Parent or Sub is subject, (iv) result in
the creation of any Liens upon any of the assets or property of Parent
or Sub.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is
required by or with respect to Parent or any of its Subsidiaries in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i)
the filing of the Agreement of Merger and the Certificate of Merger
with the Secretary of State of the State of California and the
Secretary of State of the State of Delaware, respectively, and (ii)
such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal
and state securities laws and the laws of any foreign country.
Section 4.04 SEC Filings; Financial Statements.
(a) Parent has filed and made available to the Company all
forms, reports and documents required to be filed by Parent with the
SEC since March 31, 1996 (collectively, the "Parent SEC Reports"). The
Parent SEC Reports at the time filed, complied in all material respects
with the applicable requirements of the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
the case may be.
(b) Each of the consolidated financial statements (including,
in each case, any related notes) contained in the Parent SEC Reports,
including any Parent SEC Reports filed after the date of this Agreement
until the Closing, complied or will comply as to form in all material
respects with the applicable rules and regulations of the SEC with
respect thereto, was or will be prepared in accordance GAAP applied on
a consistent basis throughout the periods involved (except as may be
indicated in the notes to such financial statements or, in the case of
unaudited statements, as permitted by Form 10-Q promulgated by the SEC)
and fairly presented or will fairly present the consolidated financial
position of Parent and its Subsidiaries as at the respective dates and
the consolidated results of its operations and cash flows for the
periods indicated, except that the unaudited interim financial
statements were
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or are subject to normal year-end recurring adjustments which were not
or are not expected to be, individually or in the aggregate, material
in amount. The audited balance sheet of Parent as of March 31, 1998 is
referred to herein as the "Parent Balance Sheet."
Section 4.05 Business in the Ordinary Course. Since March 31, 1998,
Parent and its Subsidiaries have conducted their businesses only in the ordinary
course and in a manner consistent with past practice.
Section 4.06 Agreements, Contracts and Commitments. Parent has not
breached, or received in writing any claim or threat that it has breached, any
of the terms or conditions of any agreement, contract or commitment that is
material to the business of Parent as currently conducted or as proposed to be
conducted ("Parent Material Contracts") in such a manner as would permit any
other party to cancel or terminate the same or would entitle any other party to
damages from Parent under any Parent Material Contract which cancellation,
termination or damages would reasonably be expected to have a Material Adverse
Effect on Parent. Each Parent Material Contract that has not expired or been
terminated in accordance with its terms is in full force and effect and is not
subject to any material default thereunder of which Parent is aware by any party
obligated to Parent pursuant to the Parent Material Contract, which default
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent.
Section 4.07 Litigation. Except as described in the Parent SEC Reports,
there is no action, suit or proceeding, claim, arbitration or investigation
against Parent pending or as to which Parent has received any written notice of
assertion, or, to Parent's knowledge, threatened, which, if decided adversely to
Parent, would have a Material Adverse Effect on Parent or impair the ability of
Parent to consummate the transactions contemplated by this Agreement.
Section 4.08 Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
Section 4.09 Available Cash. Parent currently has sufficient cash
available to pay the full Earn-Out Cash Payments and has allocated and budgeted
its cash in such a way as to enable it to pay the Full Earn-Out Cash Payments if
and when due.
Section 4.10 Form S-3. Parent is currently eligible to use Form S-3.
Section 4.11 Completeness of Disclosure. No representation or warranty
by Parent or Sub in this Agreement, and no written statement made by Parent or
Sub in the exhibits or schedules attached hereto or any certificate furnished to
the Company pursuant hereto contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact required to be
stated herein or therein or necessary to make any statement herein or therein
not misleading. Other than the transactions contemplated hereby, no event has
occurred since the filing of Parent's most recent report under the Exchange Act
which would be required to be disclosed as part of a
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registration statement on Form S-4 under the Securities Act which is declared
effective on the date hereof (a "Disclosable Event") and which has not
previously been disclosed to the Company. If a Disclosable Event occurs after
the date hereof and prior to the Closing, such Disclosable Event will be
disclosed to the Company prior to the Closing.
ARTICLE V
COVENANTS OF THE PARTIES PENDING CLOSING
The respective parties hereto agree to take the following actions
between the date hereof and the Closing Date:
Section 5.01 Conduct of Business. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, except with the prior written consent of
Parent, the Company shall:
(a) maintain its corporate existence, pay its debts and taxes
when due subject to good faith disputes over such debts or taxes, pay
or perform other obligations when due, and carry on its business in the
usual, regular and ordinary course in a manner consistent with past
practice and in accordance with the provisions of the Agreement and in
compliance with all applicable Laws, Authorizations and Contracts;
(b) use all reasonable efforts consistent with past practices
and policies to preserve intact its present business organization, keep
available the services of its present officers and key employees and
preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it, to
the end that its goodwill and ongoing businesses be substantially
unimpaired at the Effective Time;
(c) maintain its facilities and assets in the same state of
repair, order and conditions as they are on the date hereof, reasonable
wear and tear excepted;
(d) maintain its books and records in accordance with past
practice, and to use best efforts to maintain in full force and effect
all Authorizations and insurance policies;
(e) promptly notify Parent of any event or occurrence not in
the ordinary course of business; and
(f) use its reasonable commercial efforts to conduct its
business in such a manner that on the Closing Date the representations
and warranties of the Company contained in this Agreement shall be
true, as though such representations and warranties were made on and as
of such date, and the Company shall use its reasonable commercial
efforts to cause all of the conditions to the obligations of Parent
under this Agreement to be satisfied on or prior to the Closing Date.
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Section 5.02 Negative Covenants. Except as expressly provided in this
Agreement, the Company shall not, without the prior written consent of Parent:
(a) sell, assign, transfer, lease, consume or otherwise
dispose of any property or assets except in the ordinary course of
business consistent with past practice, or be party to any merger,
acquisition, consolidation, recapitalization, liquidation, dissolution
or similar transaction involving, or any purchase of all or any
substantial portion of the assets or any equity securities of, the
Company;
(b) except in the ordinary course of business consistent with
past practice, amend, modify, cancel or waive any rights under any
Material Contract listed on the Company Disclosure or enter into any
Material Contract that would be required to be disclosed on the Company
Disclosure Schedule;
(c) make any capital expenditure or commit to make any capital
expenditure which, individually or in the aggregate, exceeds $50,000;
(d) mortgage, pledge or subject to Liens (other than purchase
money liens) any properties or assets of the Company;
(e) assume, incur or guarantee any obligation or liability for
borrowed money, except for endorsements for collection in the ordinary
course of business or in connection with the Company's Credit Agreement
with Parent dated August 10, 1998 (the "Credit Agreement");
(f) cancel, compromise or waive any debts owed to it, except
for compromises of trade debt in the ordinary course of business
consistent with past practice;
(g) make any changes in its accounting methods, principles or
practices;
(h) knowingly do any act or omit to do any act within its
reasonable control which will cause it to breach of any representation,
warranty or obligation contained in this Agreement;
(i) amend its Articles of Incorporation or Bylaws;
(j) except upon conversion of the Company Preferred Shares as
contemplated by this Agreement or upon exercise of any Company Stock
Options outstanding on the date hereof and set forth on the Company
Disclosure Schedule, issue any of its capital stock or make any change
in its issued and outstanding capital stock, issue any option or any
security or other instrument convertible into, or exchangeable or
exercisable for, its capital stock or redeem, purchase or otherwise
acquire any shares of its capital stock; provided, however, that the
Company may terminate its rights of first refusal with respect to the
transfer of, and any
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lock-up provisions applicable to, any Company Shares owned by any
Company Shareholder; provided, further, Parent shall not unreasonably
withhold its consent to the grant of options to new hires.
(k) declare or pay any dividend or make any other payment or
distribution with respect to its capital stock;
(l) increase the wages, salaries, compensation, pension or
other benefits payable to any former employee or any current employee
who, as of the date hereof, receives annual compensation in excess of
$50,000, or pay any bonus or other amount to any such former or current
employee other than pursuant to a written agreement or benefit plan
disclosed to Parent in the amount required thereunder, or enter into
any employment, deferred compensation, retirement or other agreement or
arrangement providing for additional or different benefits with any
employee than those payable on the date hereof;
(m) make any filings or registrations, with any Governmental
Entity, except routine filings and registrations made in the ordinary
course of business;
(n) take any actions outside the ordinary course of business;
(o) make any Tax election, change its method of Tax accounting
or settle any claim relating to Taxes; or
(p) agree to do any of the foregoing, except as contemplated
by this Agreement.
Section 5.03 Access. The Company shall give to Parent's officers,
employees, counsel, accountants and other representatives reasonable free and
full access to and the right to inspect, during normal business hours, all of
the premises, properties, assets, records, contracts and other documents of the
Company and shall reasonably permit them to consult with the officers,
employees, accountants, counsel and agents of the Company for the purpose of
making such investigation of the Company as Parent shall desire to make,
provided that such investigation shall not unreasonably interfere with the
Company's business operations and subject to the terms of the Nondisclosure
Agreement between Parent and the Company dated May 15, 1998, as amended August
10, 1998 (the "Nondisclosure Agreement"). Furthermore, the Company shall furnish
to Parent all such documents and copies of documents and records and information
with respect to the affairs of the Company and copies of any working papers
relating thereto as Parent shall from time to time reasonably request and shall
reasonably permit Parent and its agents to make such physical inventories and
inspections of the Company as Parent may request from time to time.
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Section 5.04 Exclusivity.
(a) Except with respect to this Agreement and the transactions
contemplated hereby, the Company shall not and shall cause its
employees, shareholders, agents and representatives (including, without
limitation, any investment banking, legal or accounting firm retained
by any of them and any individual member or employee of the foregoing)
(each, an "Agent") not to:
(i) initiate, solicit or seek, directly or
indirectly, any inquiries or the making or implementation of
any proposal or offer (including, without limitation, any
proposal or offer to its shareholders or any of them) with
respect to a merger, acquisition, consolidation,
recapitalization, liquidation, dissolution or similar
transaction involving, or any purchase of all or any
substantial portion of the assets or any equity securities of,
the Company (any such transaction being hereinafter referred
to as an "Acquisition" and any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal");
(ii) engage in any negotiations concerning an
Acquisition Proposal, or provide any confidential information
or data to, or have any substantive discussions with, any
person relating to an Acquisition Proposal;
(iii) otherwise cooperate in any effort or attempt to
make, implement or accept an Acquisition Proposal; or
(iv) enter into or consummate any agreement or
understanding with any Person relating to an Acquisition
Proposal, except for the Merger contemplated hereby. If the
Company or its Agents have provided any Person (other than
Parent or its Agents or the Company's Agents) with any
confidential information or data relating to an Acquisition
Proposal other than the Confidential Offering Memorandum, they
shall request the immediate return thereof. The Company shall
notify Parent immediately if any inquiries, proposals or
offers related to an Acquisition Proposal are received by, any
confidential information or data in connection with an
Acquisition Proposal is requested from, or any negotiations or
discussions related to an Acquisition Proposal are sought to
be initiated or continued with, the Company, its directors,
officers, 10% shareholders or investment bankers.
(b) In the event that the Company, any Company Shareholder, or
any of their respective Affiliates or Agents takes any of the actions
prohibited under the preceding subsection (a), and the Company enters
into an agreement with respect to, or consummates, an Acquisition other
than the Merger contemplated hereby at any time prior to March 31,
1999, then the Company shall immediately pay to Parent, as liquidated
damages and not as a penalty, the sum of FIVE MILLION DOLLARS
($5,000,000). Parent and the Company
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acknowledge that such payment is reasonable compensation to Parent as a
result of such breach.
(c) This Section 5.04 shall terminate if Parent fails to make
any scheduled advance to the Company under the Credit Agreement and
such failure constitutes a breach of the Credit Agreement which remains
uncured ten days after written notice thereof from the Company to
Parent.
Section 5.05 Company Shareholder Approval. The Company shall take all
actions necessary, in accordance with the CGCL and its Articles of Incorporation
and Bylaws, to solicit the written consent of the Company's Shareholders as
promptly as practicable to adopt and approve this Agreement, the Agreement of
Merger and the Merger contemplated hereby, and the other transactions
contemplated by this Agreement (the "Company Shareholder Approval") to the
extent such approval is required by the CGCL and the Company's Articles of
Incorporation. The Company will, through its Board of Directors, recommend that
the Company Shareholder Approval be given.
Section 5.06 Confidentiality. Each party will, and will cause its
principals, Affiliates, associates, officers and other personnel and authorized
representatives to hold all information received by it in connection with the
transactions contemplated hereby in accordance with the Nondisclosure Agreement,
except as may be required by applicable law or as otherwise contemplated herein.
Section 5.07 Further Assurances. Each of the parties hereto shall
execute such documents and other instruments and take such further actions as
may be reasonably required or desirable to carry out the provisions hereof and
consummate the transactions contemplated hereby. Upon the terms and subject to
the conditions hereof, each of the parties hereto shall use its respective
reasonable best efforts to (i) take or cause to be taken all actions and to do
or cause to be done all other things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement and (ii) obtain in a timely manner all necessary
waivers, consents and approvals and to effect all necessary registrations and
filings.
Section 5.08 Form S-8 Registration Statement. Parent shall file, as
promptly as practicable following the Effective Time but in no event later than
ten (10) business days following the Effective Time, a registration statement on
Form S-8 (or any successor form) under the Securities Act for the shares of
Parent Common Stock issuable with respect to the Substitute Stock Options, and
use reasonable commercial efforts to maintain its effectiveness (and the current
status of the prospectus contained therein) for so long as such options remain
outstanding.
Section 5.09 Benefit Plans. Parent shall take reasonable actions to
allow eligible employees of the Company that will be employees of the Surviving
Corporation (with such employees receiving credit for services with the
Company), to participate on substantially similar terms in benefit programs
which are substantially comparable to those maintained for the benefit of
similarly situated employees of Parent, as soon as practicable after the
Effective Time, to the extent permitted by the terms of such
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benefit programs. The Company's employee benefit plans as set forth on the
Company Disclosure Schedule shall be continued until such comparable benefit
programs are available to employees of the Surviving Corporation. Employees of
the Company as of the Effective Time shall be permitted to participate in the
Parent ESPPs commencing on the first enrollment date following the Effective
Time, subject to compliance with the eligibility provisions of such plan (with
employees receiving credit, for purposes of such eligibility provisions, for
service with the Company).
Section 5.10 Tax-Free Reorganization. Parent and the Company shall each
use their best efforts to cause the Merger to be treated as a reorganization
within the meaning of Section 368(a) of the Code.
Section 5.11 Tax Opinions. Parent and the Company agree to make
reasonable representations to counsel for purposes of rendering the opinions
described in Sections 6.02(m) and 6.03(i).
Section 5.12 Public Announcement. Neither Parent nor the Company or any
Company Shareholder shall make any press release or other public statement or
any statement to any sell-side analyst or member of the press concerning the
transactions contemplated by this Agreement without the approval of the other
party hereto; provided, however, that Parent may, without such approval but
after prior consultation with the Company to the extent practicable, make such
press releases or other public statements as it, upon the advice of counsel,
believes are required under the rules of The Nasdaq Stock Market or applicable
securities laws. If this Agreement is terminated pursuant to Sections 7.01(a),
(b) or (c), Parent shall consult with the Company concerning the content of any
public statement it believes is required under the rules of The Nasdaq Stock
Market or applicable securities laws.
Section 5.13 Conduct of Business by Parent. Parent shall use its
reasonable commercial efforts to conduct its business in such a manner that on
the Closing Date the representations and warranties of Parent contained in this
Agreement shall be true, as though such representations and warranties were made
on and as of such date, and Parent shall use its reasonable commercial efforts
to cause all of the conditions to the obligations of the Company under this
Agreement to be satisfied on or prior to the Closing Date.
Section 5.14 Salary Levels. Parent will evaluate salary levels of the
employees of the Company and, in its sole discretion, consider increases thereto
in the light of market conditions.
Section 5.15 Private Placement Determination.
(a) As soon as practicable following the Signing Date, the
Company shall use its commercially reasonable efforts to obtain from
each Company Shareholder a signed letter agreement in the form attached
as Exhibit P. The Company shall advise Parent as soon as it has
obtained signed letter agreements from a sufficient number of Company
Shareholders which establish, based upon a review of such agreements,
that there are no more than 35
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Company Shareholders who are neither accredited investors (as defined
in Regulation D) nor non-U.S. persons (as defined in Regulation S)
(such Company Shareholders, the "Unaccredited U.S. Investors"). With
respect to those Unaccredited U.S. Investors who have not executed a
letter agreement in the form of Exhibit P, the Company shall present to
Parent a certificate or certificates signed by an officer of the
Company to the effect that (i) such Unaccredited U.S. Investors are
known personally to such officer, (ii) such officer reasonably believes
that such Unaccredited U.S. Investor has such knowledge and experience
in business matters that he is capable of evaluating the merits and
risks of an investment in the shares of Parent Common Stock issuable in
the Merger, and (iii) sets forth in reasonable detail the basis of such
belief.
(b) No later than one (1) business day following receipt of
the underlying documentation, Parent shall determine, with the advice
of its counsel, whether, based upon such documentation, the issuance of
the shares of Parent Common Stock in the Merger will be exempt from
registration under Rule 506 under the Securities Act (the "Private
Placement Determination"). In the event that Parent makes the Private
Placement Determination, it shall so advise the Company in writing and
the Company shall commence the solicitation of consents from the
Company Shareholders with respect to the approval of this Agreement,
the Agreement of Merger and the transactions contemplated hereby and
thereby. The Company agrees that it shall not solicit consents from any
Company Shareholder unless and until Parent has advised the Company in
writing that it has made the Private Placement Determination.
(c) In the event that Parent does not make the Private
Placement Determination, Parent shall, as soon as practicable, prepare
and file with the Commission a registration statement on Form S-4 or
other applicable form (the "Registration Statement") covering the
shares of Parent Common Stock issuable in the Merger pursuant to
Section 2.02. Parent shall use reasonable commercial efforts to cause
the Registration Statement to become effective as soon after such
filing as practicable. The information supplied by the Company for
inclusion in the Registration Statement shall not, at the time such
Registration Statement is declared effective by the Commission, contain
any untrue statement of a material fact required to be stated in the
Registration Statement or necessary in order to make the statements in
the Registration Statement, in light of the circumstances under which
they were made, not misleading.
ARTICLE VI
CONDITIONS TO MERGER
Section 6.01 Conditions to Each Party's Obligation To Effect the
Merger. The respective obligations of each party to this Agreement to effect the
Merger shall be subject to the satisfaction on or prior to the Closing Date of
the following conditions:
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(a) Approvals. No Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, judgment, decree, temporary
restraining order, preliminary or permanent injunction or other legal
restraint or prohibition which is in effect on the Closing Date and
prohibits the consummation of the Merger.
(b) Registration Statement. In the event that Parent files the
Registration Statement pursuant to Section 5.15, the Registration
Statement shall have become effective under the Securities Act and
shall not be subject to any stop order or proceedings seeking a stop
order.
Section 6.02 Conditions to Obligation of Parent and Sub To Effect the
Merger. The obligations of Parent and Sub to consummate the transactions
contemplated by this Agreement will be subject to the satisfaction, on or prior
to the Closing Date, of each of the following conditions unless waived in
writing by Parent:
(a) Representations and Warranties of the Company. Each of the
representations and warranties of the Company set forth in this
Agreement that is qualified by materiality shall be true and correct at
and as of the Closing Date as if made at and as of the Closing Date and
each of such representations and warranties that is not so qualified
shall be true and correct in all material respects at and as of the
Closing Date as if made at and as of the Closing Date, except (i) to
the extent that such representations and warranties refer specifically
to an earlier date, (ii) for changes contemplated by this Agreement, or
(iii) for circumstances under which the breach of the representation or
warranty or the failure of a representation and warranty to be true and
correct would not have a Material Adverse Effect on the Company, and
Parent shall have received a certificate signed on behalf of the
Company by the President of the Company to such effect.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by the President
of the Company to such effect, provided, however, that a failure to
perform any obligation set forth in Section 5.01 shall not be deemed to
constitute the non-satisfaction of this condition unless such failure
has a Material Adverse Effect on the Company.
(c) No Material Adverse Change. There shall have been no
"Material Adverse Change." For the purposes, hereof, a "Material
Adverse Change" shall mean a change which has, or would reasonably be
expected to have, a Material Adverse Effect on the Company.
(d) Authorizations, Approvals and Consents. All
authorizations, approvals or consents of any and all Governmental
Entities or other Persons required to be obtained by the Company to
consummate the transactions contemplated by this Agreement as listed on
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Schedule 3.03(b), shall have been validly obtained and copies thereof
shall have been delivered to Parent and Sub.
(e) No Injunction; No Litigation. No provision of any
applicable law or regulation and no judgment, injunction, order or
decree shall restrain, prohibit or otherwise interfere with the
effective operation or enjoyment by Parent of all or any material
portion of the business of the Company. There shall not be pending or
threatened by any Governmental Entity or other Person any suit, action
or proceeding, which imposes any restriction on Parent, the Company
Shareholders or the Company in connection with the consummation of the
Merger or with respect to the operations of the Company's business
which, if determined adversely, would reasonably be expected to have a
Material Adverse Effect on the Company.
(f) Conversion of Preferred Stock. All Company Preferred
Shares shall have been converted into Company Common Shares.
(g) Corporate Action. The Company shall have taken all
corporate action necessary to approve the transactions contemplated by
the Agreement, and the Company shall have furnished Parent and Sub with
copies of resolutions, adopted by the Board of Directors of the Company
and by holders of not less 90% of the outstanding Company Shares on an
as-if converted basis (and the requisite vote of the holders of the
Company Preferred Shares) and certified by the secretary of the Company
as of the Closing Date, in form and substance reasonably satisfactory
to counsel for Parent, in connection with such transactions.
(h) Agreement of Merger. The Agreement of Merger shall have
been duly executed and delivered by the Company.
(i) Indemnity Escrow Agreement. The Indemnity Escrow Agreement
shall have been duly executed and delivered by the Company
Shareholders' Representative and the Indemnity Escrow Agent named
therein in substantially the form attached as Exhibit H hereto (the
"Indemnity Escrow Agreement").
(j) The Company Shareholders' Representative. Parent shall
have received a true and complete copy of an agreement entered into
among the holders of no less than 90% of the Company Shares and
Nicholas Mitsakos as the Company Shareholders' Representative (the
"Company Shareholders' Representative"), in the form attached hereto as
Exhibit I (the "Representative Agreement"), authorizing the Company
Shareholders' Representative to act on behalf of the Company
Shareholders in regard to matters arising under the Indemnity Escrow
Agreement; provided, however, that there shall be no more than ten
Company Shareholders who have not executed and delivered the
Representative Agreement on or prior to the Closing Date.
(k) Opinion of Counsel. Parent and Sub shall have received a
written opinion from Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel to the Company,
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addressed to Parent and Sub, dated as of the Closing Date, in the form
attached hereto as Exhibit J.
(l) Tax Opinion. Parent shall have received the written
opinion of Morgan, Lewis & Bockius LLP, counsel to Parent, to the
effect that the Merger will be treated for Federal income tax purposes
as a tax-free reorganization within the meaning of Section 368(a) of
the Code. In rendering such opinion, counsel may rely upon the
representations and certificates of Parent, Sub and the Company.
(m) Employment Arrangements. Each of the key employees
separately identified on Schedule 6.02(m) shall have executed and
delivered to Parent an employment agreement in substantially the form
attached hereto as Exhibit K.
(n) Resignation of Directors and Officers. Parent shall have
received resignations in writing from all of the directors and such of
the officers of the Company as Parent shall have requested.
(o) Termination of Existing Agreements. The Company shall have
delivered to Parent evidence satisfactory to Parent that the Amended
and Restated Shareholder Rights Agreement dated as of October 15, 1997
by and between the Company, the Investors and the Common Holders, and
the Amended and Restated Right of First Refusal and Co-Sale Agreement
dated as of October 15, 1997 among the Investors and the Shareholders
shall have been terminated.
(p) Company Shareholder Letter Agreements. In the event that
Parent makes the Private Placement determination, each Company
Shareholder who is an "accredited investor" (as defined in Regulation D
under the Securities Act) shall have executed and delivered to Parent a
Letter Agreement in the form attached hereto as Exhibit G-1. Each
Company Shareholder who is not a U.S. person (as defined in Regulation
S under the Securities Act) shall have executed and delivered to Parent
a Letter Agreement in the form attached hereto as Exhibit G-2. Each
Company Shareholder who is a U.S. person but who is not an "accredited
investor" shall have executed and delivered to Parent a Letter
Agreement in the form attached hereto as Exhibit G-3.
(q) Noncompetition Agreements. Each of the persons separately
identified on Schedule 6.02(q) shall have executed and delivered to
Parent a noncompetition agreement in substantially the form attached
hereto as Exhibit L.
(r) Releases. Each of the persons separately identified on
Schedule 6.02(r) shall have executed and delivered to Parent a waiver
and release in substantially the form attached hereto as Exhibit M.
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(s) Company Stock Options. Other than as set forth on the
Company Disclosure Schedule, none of the Company Shares subject to
Repurchase Restrictions or Company Stock Options shall be subject to
accelerated vesting as a result of the Merger or any other transaction
contemplated hereby.
(t) Invoices. Parent shall have received a final statement of
all fees, costs and expenses, including without limitation, fees and
expenses of Credit Suisse, counsel and accountants, incurred by the
Company in connection with the Merger and the transactions contemplated
hereby, which statement shall be certified by the President of the
Company as true and complete.
(u) Parachute Payments. All Company Shareholders who signed
Shareholder Agreements shall have voted (or have had their proxyholder
vote) in favor of the matters set forth in Annex A of the Shareholder
Agreements.
(v) Certain Agreements. The Company shall have received in a
form reasonably acceptable to Parent the consents and the modification
described in Schedule 6.02(v) of certain agreements listed therein.
(w) Invention Assignments. The Company shall have received in
a form reasonably acceptable to Parent executed assignment letters from
the Persons listed in Schedule 6.02(w).
Section 6.03 Conditions to Obligations of the Company To Effect the
Merger. The obligation of the Company to effect the Merger is subject to the
satisfaction of each of the following conditions, any of which may be waived, in
writing, exclusively by the Company:
(a) Representations and Warranties. Each of the
representations and warranties of Parent and Sub set forth in this
Agreement that is qualified by materiality shall be true and correct at
and as of the Closing Date as if made at and as of the Closing Date and
each of such representations and warranties that is not so qualified
shall be true and correct in all material respects at and as of the
Closing Date as if made at and as of the Closing Date, except (i) to
the extent that such representations and warranties refer specifically
to an earlier date, (ii) for changes contemplated by this Agreement,
and (iii) for circumstances under which the breach of the
representation or warranty or the failure of a representation and
warranty to be true and correct would not have a Material Adverse
Effect on Parent, and the Company shall have received a certificate
signed on behalf of Parent by the President or Chief Financial Officer
of Parent to such effect.
(b) Performance Of Obligations. Parent and Sub shall have
performed all obligations required to be performed by them under this
Agreement at or prior to the Closing Date and the Company shall have
received a certificate signed on behalf of Parent by the President or
Chief Financial Officer of Parent to such effect, provided, however,
that a failure
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to perform any obligation set forth in Section 5.13 shall not
constitute the non-satisfaction of this condition unless such failure
has a Material Adverse Effect on Parent.
(c) Corporate Action. Parent and Sub shall have taken all
corporate action necessary to approve the transactions contemplated by
this Agreement, and Parent and Sub shall have furnished the Company
with copies of resolutions, adopted by their respective Boards of
Directors and, if necessary, stockholders and certified by their
respective secretaries as of the Closing Date, in form and substance
reasonably satisfactory to counsel for the Company, in connection with
such transactions.
(d) Agreement of Merger. The Agreement of Merger shall have
been duly executed and delivered by Parent and Sub.
(e) Indemnity Escrow Agreement. The Indemnity Escrow Agreement
shall have been duly executed and delivered by Parent and the Indemnity
Escrow Agent named therein.
(f) Registration Rights Agreement. Parent shall have executed
and delivered the Registration Rights Agreement in the form attached
hereto as Exhibit N.
(g) Legal Opinion. The Company shall have received a written
opinion from Morgan, Lewis & Bockius LLP, dated as of the Closing Date,
in the form attached hereto as Exhibit O.
(h) Tax Opinion. The Company shall have received the written
opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
to the effect that the Merger will be treated for Federal income tax
purposes as a tax-free reorganization within the meaning of Section
368(a) of the Code. In rendering such opinion, counsel may rely upon
the representations and certificates of Parent, Sub and the Company.
(i) Parachute Payments. The Shareholders signing the
Shareholder Agreements shall have voted in favor of (or had their proxy
holder vote in favor of) the matters set forth in Annex A to the
Shareholder Agreements.
(j) Employment Agreements. Parent shall have executed and
delivered to each of the persons separately identified on Schedule
6.02(m) an Employment Agreement in substantially the form attached
hereo as Exhibit K.
(k) Transfer Agent. Parent shall have delivered to the Company
evidence from its transfer agent that shares of Parent Common Stock
have been issued in exchange for Certificates which have been duly
surrendered in accordance with Section 2.03 hereof together with a duly
executed Transmittal Letter and, if applicable, an executed signature
page to the Unvested Shares Escrow Agreement, provided, however, that
such evidence shall
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only be required with respect to Certificates as to which Parent has
received written notice of surrender at least three (3) business days
prior to the Closing.
(l) Unvested Shares Escrow Agreement. The Unvested Shares
Escrow Agreement shall have been duly executed and delivered by Parent
and the Escrow Agent named therein.
ARTICLE VII
TERMINATION AND AMENDMENT
Section 7.01 Termination. This Agreement may be terminated at any time
prior to the Effective Time by written notice by the terminating party to the
other party under the circumstances set forth below:
(a) by mutual written consent of Parent and the Company: or
(b) by either Parent or the Company if the Merger shall not
have been consummated by October 31, 1998 (provided, however, that the
right to terminate this Agreement under this Section 7.01(b) shall not
be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of or resulted in the failure of the
Merger to occur on or before such date); or
(c) by Parent if a breach or failure of any representation,
warranty, covenant or agreement on the part of the Company set forth in
this Agreement shall have occurred which would cause any condition set
forth in Sections 6.01 or 6.02 not to be satisfied and such breach is
not cured within 10 business days thereof; provided, however, that
there shall be no cure period with respect to any breach of Sections
5.04, 5.06 and 5.12;
(d) by the Company, if a breach or failure of any
representation, warranty, covenant or agreement on the part of Parent
set forth in this Agreement shall have occurred which would cause any
condition set forth in Sections 6.01 or 6.03 not to be satisfied and
such breach is not cured within 10 business days thereof; provided,
however, that there shall be no cure period with respect to any breach
of Sections 5.06 and 5.12; or
(e) by the Company if Parent fails to make any scheduled
advance to the Company under the Credit Agreement and such failure
constitutes a breach of the Credit Agreement which remains uncured ten
days after written notice thereof from the Company to Parent.
Section 7.02 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.01, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of Parent, Sub,
the Company or their respective officers, directors,
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shareholders or Affiliates, except as set forth in Section 7.03; provided,
however, that the provisions of Sections 5.04(b) and (c), 5.06, 5.12 and 7.03 of
this Agreement shall remain in full force and effect and survive any termination
of this Agreement.
Section 7.03 Remedies. Any party terminating this Agreement pursuant to
Section 7.01 (b), (c) or (d) shall have the right to recover damages sustained
by such party if the basis for termination is a result of the other party's
fraud or willful and intentional breach of its obligations hereunder, provided
that the party seeking relief is not in breach of its obligations hereunder
under circumstances which would have permitted the other party to terminate the
Agreement under Section 7.01.
Section 7.04 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors in
the case of Parent, Sub or the Company, at any time before or after approval of
the matters presented in connection with the Merger by the Company Shareholders
or by Parent, but, after any such approval, no amendment shall be made which by
law requires further approval by such shareholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
Section 7.05 Waiver. At any time prior to the Effective Time, Parent
and Sub may waive compliance by the Company or any Company Shareholder, and the
Company may waive compliance by Parent or Sub, by an instrument in writing
signed by or on behalf of the party waiving compliance, with any term or
provision of this Agreement that the other party was or is obligated to comply
with or perform.
ARTICLE VIII
INDEMNIFICATION
Section 8.01 Indemnification by the Company Shareholders.
(a) Subject to Sections 8.01(b) and 8.03, each Company
Shareholder (collectively, the "Company Indemnifying Parties") shall,
jointly and severally, indemnify and defend Parent and its Affiliates,
officers, directors and employees, (the "Parent Indemnified Parties")
against, and shall hold them harmless from, any loss, liability of
every type and nature (whether known or unknown, fixed or contingent),
claim, including, without limitation, any third-party claim, charge,
action, suit, proceeding, assessed interest, penalty, damage, Tax or
expense (including legal and other professional fees and expenses)
(collectively, "Losses") resulting from, arising out of, or incurred by
any Parent Indemnified Party in connection with, or otherwise with
respect to:
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(i) any breach or failure of a representation or
warranty by the Company contained in this Agreement or any
exhibit attached hereto, or any certificate or schedule
furnished or to be furnished to Parent pursuant hereto;
(ii) any breach of any covenant of the Company or any
Company Shareholder contained in this Agreement or any exhibit
attached hereto, or any certificate or schedule furnished or
to be furnished to Parent pursuant hereto;
(iii) the matters, if any, disclosed on Schedule
3.02, subsections (1) and (2); Schedule 3.03, subsection (b);
Schedule 3.07, subsections (1) and (2); Schedule 3.11,
subsections (1) and (2); Schedule 3.12, subsection (11)(b);
Schedule 3.14, subsections (6) and (7); Schedule 3.15,
subsections (12) and (15); Schedule 3.16; Schedule 3.18,
subsection (4); and Schedule 3.19, subsection (10) (but only
with reference to the failure of certain persons listed
therein to sign the agreements set forth therein) and
subsection (11).
(iv) in the event that any Company Shareholder
properly exercises any appraisal rights under applicable law,
the amount, if any, by which the fair market value (determined
in accordance with applicable law) of Dissenting Shares
exceeds the amount such Company Shareholder was otherwise
entitled to receive pursuant to Sections 2.02 and 2.09 of this
Agreement;
(v) in addition to and not in limitation of the
foregoing, any and all Losses that result from, relate to or
arise out of any action based upon a written claim or claim
communicated orally to a representative of the Company or
Parent ("Intellectual Property Claim") that (i) the Company
has infringed or violated, does infringe or violate, or would
infringe or violate, any patent of any third party, or (ii)
the carrying on of the Company's business by the present or
former employees or independent contractors of the Company
conflicts with or breaches the terms, conditions and
provisions of, or constitutes a default under, any employment,
confidentiality, assignment of inventions or non-competition
agreement under circumstances in which such conflict, breach
or default would limit the Company's ability to carry on its
business or to use or employ any employee or independent
contractor in the Company's business as conducted prior to the
Closing or as proposed to be conducted as described in the
Company's Confidential Offering Memorandum; provided, however,
that a claim relating to patents based upon any alteration or
modification of any product or component thereof currently
manufactured or under development by the Company or the
combination of such Company product or component with any
other product or component made by, or at the request of,
Parent (provided that such product or component would not
otherwise be infringing but for the alterations or
modifications or combinations made by Parent) shall not be
deemed to constitute an Intellectual Property Claim which is
covered by this indemnity; and
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(vi) any breach by a Company Shareholder of the
representation and warranty contained in the third paragraph
of such Company Shareholder's Transmittal Letter delivered to
Parent pursuant to Section 2.03(a).
(b) At the Effective Time, the Escrow Shares (as defined
below) shall be delivered to Chase Manhattan Trust Company, N.A. as
Indemnity Escrow Agent. Such Escrow Shares, together with any and all
income and proceeds thereon, shall be referred to hereinafter as the
"Indemnity Escrow Fund." The Indemnity Escrow Fund shall be available
to compensate the Parent Indemnified Parties pursuant to the
indemnification obligations of the Company Indemnifying Parties. The
Indemnity Escrow Fund shall be held and disbursed by the Indemnity
Escrow Agent in accordance with the Indemnity Escrow Agreement. The
term "Escrow Shares" means a number of Parent Common Shares which are
not Unvested Shares and which equals TWENTY-TWO MILLION DOLLARS
($22,000,000) divided by the Average Price, rounded up to the nearest
whole share. The number of Escrow Shares attributable to each Company
Shareholder shall be equal to the aggregate number of Escrow Shares
multiplied by a fraction the numerator of which is the number of Parent
Common Shares other than Unvested Shares issuable to each such Company
Shareholder and the denominator of which is the aggregate number of
Parent Common Shares which are not Unvested Shares issuable to all
Company Shareholders. Parent's sole and exclusive remedy for Losses
shall be the release of Escrow Shares from the Indemnity Escrow Fund to
Parent subject to and in accordance with the Indemnity Escrow
Agreement.
Section 8.02 Survival. The representations, warranties, covenants and
agreements of the Company, Parent and Sub contained in this Agreement shall
survive the Closing for a period of one (1) year following the Closing Date. No
claim for indemnification may be made by an Indemnitee (as defined below) after
such date, provided that in the event that a Notice of Claim (as defined below)
shall have been given within the survival period (whether or not formal legal
action shall have been commenced based upon such claim), the claim specified
therein shall continue to be subject to indemnification in accordance herewith.
Section 8.03 Limitations.
(a) No Escrow Shares shall be released to Parent from the
Indemnity Escrow Fund under the Indemnity Escrow Agreement until the
aggregate amount of all Losses as to which claims have been asserted
exceeds $500,000 (the "Indemnification Floor"). Subject to and in
accordance with the Indemnity Escrow Agreement, once the
Indemnification Floor has been reached, a number of Escrow Shares shall
be released to Parent from the Indemnity Escrow Fund that have an
aggregate value equal to the amount of all Losses from the first
dollar, computed, with respect to Losses attributable to each
respective claim, on the basis of the Indemnity Average Price (as
hereinafter defined) as the deemed value of an Escrow Share. The
"Indemnity Average Price" shall mean, with respect to each claim made
by a Parent Indemnified Party, the average of the last reported sale
price per share of Parent Common Stock on The Nasdaq National Market as
reported in The Wall Street Journal for
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the ten (10) trading days ending on the date which is three (3)
business days immediately preceding and not including (i) that date on
which such claim is made pursuant to the Indemnity Escrow Agreement, or
(ii) if such claim is contested in accordance with the provisions of
the Indemnity Escrow Agreement, the date on which such claim is finally
resolved in accordance therewith.
(b) The indemnification provided in this Article VIII (which
is limited to the release of Escrow Shares to Parent from the Indemnity
Escrow Fund subject to and in accordance with the Indemnity Escrow
Agreement) shall be the exclusive post-closing remedy for Losses
available to Parent and Sub for any breach of any representation,
warranty, covenant or agreement contained in this Agreement. In no
event shall the liability of the Company Shareholders exceed the total
number of Escrow Shares in the Indemnity Escrow Fund.
(c) The sole right of the Company Shareholders from and after
the Closing with respect to any breach or alleged breach by Parent or
Sub of their obligations, covenants, representations or warranties
hereunder or the failure of any representation or warranty made by
either of them hereunder to be true and correct on the date hereof or
on the Closing Date shall be as follows: acting through the Company
Shareholders' Representative, the Company Shareholders may assert a
claim for damages with respect to a breach by Parent of the
representations set forth in Sections 4.04, 4.07, 4.10 and 4.11 and the
covenants set forth in Sections 5.08 and 5.09 if, and only if, such
breach had a Material Adverse Effect on Parent, and the holders of a
majority of the Company Shares have determined to pursue such claim
pursuant hereto. The right set forth in this subsection shall be the
exclusive remedy of the Company Shareholders for such a breach. Nothing
set forth herein shall preclude the Company Shareholders, acting
through the Company Shareholders' Representative, from asserting their
respective rights to receive the Merger Consideration or the Earn-Out
Merger Consideration in accordance with Article II.
Section 8.04 Notice of Claims. Any party entitled to indemnification
under this Article VIII (the "Indemnitee") shall notify the party obligated to
provide such indemnification (who, in the case of any claims submitted by any
Parent Indemnified Party under this Article VIII shall be the Company
Shareholders' Representative) (the "Indemnitor") in writing of any claim, which
the Indemnitee shall have determined has given rise to a claim for
indemnification under this Article VIII ("Notice of Claim").
Section 8.05 Third Party Claims.
(a) If the facts giving rise to any indemnification provided
for in this Agreement involve any actual or threatened claim or demand
by any third party ("Third Party Claim") against any Indemnitee, the
Indemnitee shall give prompt written notice of such Third Party Claim
to the Indemnitor. Failure or delay in notifying the Indemnitor will
not relieve the Indemnitor of any liability it may have to the
Indemnitee, except to the extent that such failure
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or delay causes actual harm to the Indemnitor with respect to such
claim. The Indemnitor will be entitled, upon its election, by written
notice given to the Indemnitee within thirty (30) days after the date
on which the Indemnitee has given notice of such Third Party Claim to
the Indemnitor (without prejudice to the right of such Indemnitee to
participate at its expense through counsel of its own choosing), to
assume the defense or prosecution of such claim and any litigation
resulting therefrom (a "Third Party Defense") at its expense and
through counsel of its own choosing reasonably acceptable to the
Indemnitee; provided, however, that the Indemnitor shall not have the
right to assume the Third Party Defense (i) subject to subsection (b),
in an Intellectual Property Claim, or (ii) if any such claim seeks, in
addition to or in lieu of monetary damages, any injunctive or other
equitable relief, or (iii) if, in the reasonable opinion of the
Indemnitee and its counsel, there is or could reasonably be expected to
be a conflict of interest with respect to a third party between the
position of the Indemnitor and the Indemnitee, or (iv) the Indemnitor
fails to provide reasonable assurance to the Indemnitee of its
financial capacity to defend such proceeding and provide
indemnification in accordance with the provisions of this Agreement
with respect to such proceeding, and provided further, that if, by
reason of the claim of such third party a lien, attachment, garnishment
or execution is placed upon any of the property or assets of such
Indemnitee, the Indemnitor, if it desires to exercise its right to
assume such Third Party Defense, must furnish a satisfactory indemnity
bond to obtain the prompt release of such lien, attachment, garnishment
or execution. If the Indemnitor assumes a Third Party Defense, it will
take all steps necessary in the defense, prosecution, or settlement of
such claim or litigation and will hold all Indemnitees harmless from
and against all Losses caused by or arising out of any settlement
thereof (other than such Indemnitee's expenses of participation in such
defense, prosecution or settlement). No Indemnitor will, in a Third
Party Defense, except with the written consent of the Indemnitee to
which such Indemnitor is obligated to furnish indemnification pursuant
to this Agreement, consent to the entry of any judgment or enter into
any settlement (i) which does not include as an unconditional term
thereof the giving to the Indemnitee by the third party of a release
from all liability in respect of such suit, claim, action, or
proceeding, (ii) unless there is no finding or admission of any
violation of law by the Indemnitee (or any affiliate thereof) or any
violation of the rights of any Person and no effect on any other claims
of a similar nature that may be made by the same third party against
the Indemnitee, or (iii) which imposes any form of relief other than
monetary damages. If the Indemnitor does not assume a Third Party
Defense, the Indemnitee may, at the expense of the Indemnitor, defend
or prosecute such claim or litigation in such manner as it may deem
appropriate and may settle such claim or litigation after giving
written notice thereof to the Indemnitor, on such terms as such
Indemnitee may deem appropriate and the Indemnitor will promptly
reimburse such Indemnitee for any Losses incurred in connection with
such settlement. If no settlement of such claim or litigation is made,
the Indemnitor will promptly reimburse such Indemnitee for any Losses
arising out of any judgment rendered with respect to such claim or
litigation. Any Losses for which an Indemnitee is entitled to
indemnification hereunder shall be promptly paid as incurred. If the
Indemnitor does not elect to assume a Third Party Defense which it has
the right to assume hereunder, the Indemnitee shall have no obligation
to do so.
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(b) For so long as Ravinder Sethi, Donal Byrne or Cuneyt
Ozveren is acting as the Company Shareholders' Representative with
respect to any indemnifiable claim that the Company Intellectual
Property Rights infringe the patent rights of any third party, and
provided that such Company Shareholders' Representative is then
employed by the Company or Parent, Parent shall permit such Company
Shareholders' Representative to participate actively in investigating,
setting a strategy for, negotiating the settlement of, or conducting
the litigation of, any such indemnifiable claim.
Section 8.06 Effect of Investigation; Waiver.
(a) Parent's right to indemnification or other remedies based
upon the representations and warranties, covenants, agreements and
undertakings of the other party will not be affected by any
investigation, knowledge or waiver of any condition of such party. Such
representations and warranties shall not be affected or deemed waived
by reason of the fact that Parent knew or should have known that any of
the same is or might be inaccurate. Any investigation by such party
shall be for its own protection only and shall not affect or impair any
right or remedy hereunder.
(b) The waiver by Parent of any condition based on the
accuracy of any representation or warranty, or compliance with any
covenant or obligation, will not affect any right to indemnification or
other remedy based on such warranties, covenants and obligations unless
otherwise expressly agreed in writing by Parent.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01 Contents of Agreement; Parties in Interest; etc. This
Agreement and the Agreement of Merger sets forth the entire understanding of the
parties hereto with respect to the Merger. Any and all previous agreements and
understandings between or among the parties regarding the subject matter hereof,
whether written or oral, are superseded by this Agreement and the Agreement of
Merger.
Section 9.02 Assignment and Binding Effect. This Agreement may not be
assigned by any party hereto without the prior written consent of the other
parties. Subject to the foregoing, all of the terms and provisions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective executors, heirs, personal representatives, successors and
assigns.
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Section 9.03 Expenses. The Company and the Company Shareholders shall
pay their own legal and other expenses and fees incurred by them, or on their
behalf, in connection with the negotiation and preparation of this Agreement if
the transactions contemplated herein are not completed or this Agreement is
terminated. In the event that the transactions contemplated herein are
completed, at the Effective Time Parent shall pay, subject to presentation of
satisfactory invoices, the Company's fees and expenses owed to Credit Suisse up
to an aggregate of $4,375,000, the Company's attorneys' fees and expenses up to
an aggregate of $125,000 and the Company's accountants' fees up to an aggregate
of $25,000 (the "Permitted Expenses"). Any other fees and expenses of the
Company incurred in connection with the Merger in excess of the Permitted
Expenses (the "Excess Expenses") shall be paid by the Company Shareholder
Representative on behalf of the Company Shareholders out of the Company
Shareholders' Representative Fund (as defined in Section 9.04). Parent and Sub
will each pay its own legal and other expenses incurred by it, or on its behalf,
in connection with the negotiation and preparation of this Agreement and the
transactions contemplated herein whether or not such transactions are completed
or this Agreement is terminated.
Section 9.04 Company Shareholders' Representative Fund. At the Closing,
Parent shall pay to the Company Shareholders' Representative the amount of
$500,000 (the "Company Shareholder's Representative Fund"). The Company
Shareholders' Representative Fund shall be used first to pay the amount of any
Excess Expenses and then to pay the out-of-pocket expenses incurred by the
Company Shareholders' Representative in the performance of his duties under the
Representative Agreement. Any amounts not so used shall be distributed among the
Company Holders in accordance with the Representative Agreement.
Section 9.05 Notices. Any notice, request, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given on the day established by the sender as
having been delivered personally; on the day delivered by a private courier as
established by the sender by evidence obtained from the courier; or on the third
(3rd) day after the date mailed, by certified or registered mail, return receipt
requested, postage prepaid. Such communications, to be valid, must be addressed
as follows:
If to Parent or Sub, to:
FORE Systems, Inc.
1000 FORE Drive
Warrendale, PA 15086
Attention: Christopher H. Gebhardt, Esq.
With a required copy to:
Morgan, Lewis & Bockius LLP
One Oxford Centre
Pittsburgh, PA 15232
Attention: Marlee S. Myers, Esq.
56
<PAGE> 62
If to the Company to:
Berkeley Networks, Inc.
1805 McCandless Drive
Milpitas, California 95035
Attention: President
With a required copy to:
Wilson Sonsini Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Neil Wolff
or to such other address or to the attention of person or persons as the
recipient party has specified by prior written notice to the sending party (or
in the case of counsel, to such other readily ascertainable business address as
such counsel may hereafter maintain). If more than one method for sending notice
as set forth above is used, the earliest notice date established as set forth
above shall control.
Section 9.06 Delaware Law to Govern. This Agreement shall be governed
by and interpreted and enforced in accordance with the laws of the State of
Delaware, excluding any laws that would cause the laws of another jurisdiction
to apply.
Section 9.07 No Benefit to Others. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit of
the parties hereto and, in the case of Article VIII hereof, the other
Indemnified Parties, and their heirs, executors, administrators, legal
representatives, successors and assigns, and they shall not be construed as
conferring any rights on any other persons; provided, however, that the Company
Shareholders and Company Optionees shall have the rights under this Agreement to
receive the Earn-Out Merger Consideration set forth in Section 2.09 hereof, and
to assert claims pursuant to Section 8.03(c), subject to the limitations set
forth therein, exercisable on their behalf exclusively by the Company
Shareholders' Representative.
Section 9.08 Headings, Gender and "Person." All section headings
contained in this Agreement are for convenience of reference only, do not form a
part of this Agreement and shall not affect in any way the meaning or
interpretation of this Agreement. Words used herein, regardless of the number
and gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine, or
neuter, as the context requires. Any reference to a "person" herein shall
include an individual, firm, corporation, partnership, trust, governmental
authority or body, association, unincorporated organization or any other entity.
Section 9.09 Schedules and Exhibits. All Exhibits and Schedules
referred to herein are intended to be and hereby are specifically made a part of
this Agreement.
57
<PAGE> 63
Section 9.10 Severability. Any provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall be ineffective to the extent
of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 9.11 Counterparts. This Agreement may be executed in any number
of counterparts, and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered by the parties. It shall
not be necessary in making proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
Section 9.12 Specific Performance. The Company and Parent each agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed by them in accordance with the terms hereof
and that each party shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity.
ARTICLE X
DEFINITIONS
Section 10.01 Definitions. As used in this Agreement, the following
terms shall have the following meanings:
1997 Financial Statements 3.04
1998 Financial Statements 3.04
Acquisition 5.04(a)
Acquisition Proposal 5.04(a)
Action 3.16
Affiliate 3.18(h)(vii)
Agent 5.04
Agreement Title
Audited Financial Statements 3.04
58
<PAGE> 64
Authorizations 3.11(a)
Average Price 2.02(b)
Benefit Plan 3.18
CERCLA 3.20(l)
CGCL 1.01
Closing 1.02
Closing Date 1.02
Closing Date Average Price 2.02(b)
Closing Merger Consideration 2.01(a)
Closing Per Share Merger Consideration 2.02(a)
Certificates 2.03(a)
Code Recitals
Company Title
Company Common Shares 2.01(b)
Company Disclosure Schedule Article III
Company Holder 2.09(b)
Company Indemnifying Parties 8.01(a)
Company Intellectual Property Rights 3.14(a)
Company Optionees 2.01(b)
Company Preferred Shares 3.02(a)
Company Shareholder 2.01(b)
Company Shareholder Approval 5.05
Company Shareholders' Representative 6.02(k)
Company Shareholders' Representative Fund 9.04
Company Shares 3.02(a)
Company Stock Options 2.01(b)
59
<PAGE> 65
Company Third Party Intellectual Property 3.14(b)
Rights
Confidential Information 3.14(e)
Confidential Offering Memorandum 3.14(a)
Constituent Corporations 1.03(a)
Contracts 3.15
Credit Agreement 5.02(e)
DGCL 1.01
Disclosable Event 4.11
Dissenting Shares 2.01(b)
Earn-Out Cash Payment 2.09(a)
Earn-Out Merger Consideration 2.01(a)
Earn-Out Per Share Merger Consideration 2.09(a)
Earn-Out Shares 2.09(c)
Effective Time 1.02
Environment 3.20(l)
Environmental Action 3.20(l)
Environmental Claim 3.20(l)
Environmental Clean-up Site 3.20(l)
Environmental Laws 3.20(l)
Environmental Permits 3.20(l)
Escrow Agent 2.03(a)
Escrow Shares 8.01(b)
Excess Expenses 9.03
Exchange Act 4.04(a)
Exchange Ratio 2.02(b)
60
<PAGE> 66
Excluded Company Common Shares 2.09(e)
Excluded Company Stock Options 2.09(e)
Execution Date Average Price 2.02(b)
Financial Statements 3.04
GAAP 3.04
Governmental Entity 3.03(b)
Hazardous Substances 3.20(l)
Indemnification Floor 8.03(a)
Indemnity Average Price 8.03(a)
Indemnity Escrow Agent 2.03(a)
Indemnity Escrow Agreement 6.02(i)
Indemnity Escrow Fund 8.01(b)
Indemnitee 8.04
Indemnitor 8.04
Intellectual Property Claim 8.01(v)
Interim Balance Sheet 3.04
Interim Balance Sheet Date 3.04
Interim Financial Statements 3.04
Leased Property 3.13(b)
Leases 3.13(b)
Liabilities 3.08
Liens 3.03(b)
Losses 8.01(a)
Material Adverse Change 6.02(c)
Material Adverse Effect 3.12(a)
Material Contract 3.15
61
<PAGE> 67
Merger 1.01
Merger Consideration 2.01
Nondisclosure Agreement 5.03
Notice of Claim 8.04
Option Merger Consideration 2.01(a)
Owned Real Property 3.13(a)
PCBS 3.20(h)
Parent Title
Parent Balance Sheet 4.04(b)
Parent Common Stock 2.01(a)
Parent Common Shares 2.02(a)
Parent Disclosure Schedule Article IV
Parent ESPPs 4.02
Parent Indemnified Parties 8.01(a)
Parent Material Contracts 4.06
Parent Options 4.02(a)
Parent Preferred Stock 4.02(a)
Parent SEC Reports 4.04(a)
Pension Plan 3.18(b)
Permitted Expenses 9.03
Permitted Liens 3.09
Person 9.08
Plan 3.18
Products 3.23(a)
RCRA 3.20(l)
Real Property 3.13(b)
62
<PAGE> 68
Registration Rights Agreement 3.32
Registration Statement 5.15(c)
Regulations 3.11
Release 3.20(l)
Representative Agreement 6.02(k)
Repurchase Restrictions 2.09(b)
Restricted Stock Agreements 2.03(a)
Section 368 Reorganization 2.09(c)
Securities Act 3.02(c)
Shareholder Agreements Recitals
Shareholder Party Recitals
Signing Date Title
Sub Title
Substitute Stock Options 2.01(b)
Surviving Corporation 1.03(a)
Taxes 3.07(a)
Tax Returns 3.07(a)
Third-Party Claim 8.05
Third-Party Defense 8.05
Transmittal Letter 2.03(a)
Unvested Earn-Out Payment 2.09(b)
Unvested Shares 2.03(a)
Unvested Shares Escrow Agreement 2.03(a)
63
<PAGE> 69
Section 10.02 Knowledge. When any of the representations and warranties
of any Person are qualified by the expression "to the knowledge of" or any
similar expression, such representations and warranties shall be deemed to be
given to the best knowledge of such Person after due investigation and, if such
Person is the Company, then to the actual knowledge of each officer or director
of the Company and the knowledge that could reasonably be expected to be
obtained by each such officer or director after due inquiry of the Company's
employees and advisors concerning the subject matter.
64
<PAGE> 70
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto, duly authorized
as of the date first written above.
FORE SYSTEMS, INC.
By: /s/ THOMAS J. GILL
------------------------------------------
Thomas J. Gill
President and Chief Executive Officer
FASTWIRE ACQUISITION CORPORATION
By: /s/ THOMAS J. GILL
------------------------------------------
Thomas J. Gill
President
BERKELEY NETWORKS, INC.
By: /s/ RAVINDER SETHI
------------------------------------------
Ravinder Sethi
President
<PAGE> 71
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF REORGANIZATION
This AMENDMENT NO. 1 ("Amendment No. 1"), dated as of September 11,
1998, amends the Agreement and Plan of Reorganization ("Agreement"), dated as of
August 25, 1998, by and among FORE Systems, Inc., a Delaware corporation
("Parent"), Fastwire Acquisition Corporation, a Delaware corporation and a
wholly owned subsidiary of Parent ("Sub"), and Berkeley Networks, Inc., a
California corporation (the "Company"). Capitalized terms used but not defined
herein shall have the meanings ascribed to such terms in the Agreement.
WHEREAS, Parent, Sub and the Company deem it advisable and in the best
interests of each corporation and its respective stockholders that the Agreement
be amended so as to effect certain amendments thereto and the Company Disclosure
Schedule;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree that the Agreement and the Company Disclosure
Schedule are hereby amended as set forth below:
1. Letter Agreements. Section 6.02(p) of the Agreement is hereby
deleted in its entirety and is replaced with the following:
"(p) Company Shareholder Letter Agreements. In the event that Parent
makes the Private Placement determination, each Company Shareholder who is an
"accredited investor" (as defined in Regulation D under the Securities Act)
shall have executed and delivered to Parent a Letter Agreement in the form
attached hereto as Exhibit G-1. Each Company Shareholder who is not a U.S.
person (as defined in Regulation S under the Securities Act) shall have executed
and delivered to Parent a Letter Agreement in the form attached hereto as
Exhibit G-2. Each Company Shareholder who is a U.S. person but who is not an
"accredited investor" shall have executed and delivered to Parent a Letter
Agreement in the form attached hereto as Exhibit G-3. In the event that Parent
waives the condition to Closing set forth in the first three sentences of this
Section 6.02(p), it shall be a condition to Parent's obligation to deliver a
certificate or certificates representing shares of Parent Common Stock to any
Company Shareholder who has not executed and delivered to Parent a Letter
Agreement to Parent on or prior to the Closing Date, that such Company
Shareholder execute and deliver to Parent a Letter Agreement in the form
required hereby."
2. Company Disclosure Schedule.
(a) The Company Disclosure Schedule is hereby amended by
adding the following language as Schedule 3.03(d), Schedule 3.08(14),
and Schedule 3.15(16) thereof: "The Company is required to pay up to
$15,000 to Sierra Atlantic and/or SwitchOn Networks, Inc. in connection
with their consent to the transactions contemplated by the Agreement."
<PAGE> 72
(b) The Company Disclosure Schedule is hereby amended by
adding the following language as subsection (b)(iv) of Schedule 3.03
and subsection (15)(d) of Schedule 3.15 thereof: "The consummation of
the Merger will constitute an event of default under the Loan and
Security Agreement with Silicon Valley Bank (the "Bank") dated March
16, 1998, but the Bank has agreed not to take any action on such
default prior to September 30, 1998."
3. Indemnification by the Company Shareholders. Section 8.01(a)(iii) of
the Agreement is hereby deleted in its entirety and is replaced with the
following: "the matters, if any, disclosed on Schedule 3.02, subsections (1) and
(2); Schedule 3.03, subsection (b)(i)(ii) and (iii); Schedule 3.07, subsections
(1) and (2); Schedule 3.11, subsections (1) and (2); Schedule 3.12, subsection
(11)(b); Schedule 3.14, subsections (6) and (7); Schedule 3.15, subsections (12)
and (15)(a)(b) and (c); Schedule 3.16; Schedule 3.18, subsection (4); and
Schedule 3.19, subsection (10) (but only with reference to the failure of
certain persons listed therein to sign the agreements set forth therein) and
subsection (11)."
4. Certificate. The certificate required by Section 6.02(a), (b) and
(t) may be signed by any executive officer of the Company.
5. Contents of Agreement; Parties in Interest; etc. The Agreement as
amended by this Amendment No. 1 and the Agreement of Merger sets forth the
entire understanding of the parties hereto with respect to the Merger. Any and
all previous agreements and understandings between or among the parties
regarding the subject matter hereof, whether written or oral, are superseded by
this Agreement as amended by this Amendment No. 1 and the Agreement of Merger.
Except as expressly amended by this Amendment No. 1, the Agreement shall remain
in full force and effect. The Company Disclosure Schedule shall not be amended
except as expressly amended by this Amendment No. 1.
6. Delaware Law to Govern. The Agreement as amended by this Amendment
No. 1 shall be governed by and interpreted and enforced in accordance with the
laws of the State of Delaware, excluding any laws that would cause the laws of
another jurisdiction to apply.
7. Counterparts. This Amendment No. 1 may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one and the same document.
8. Agreement. Any reference in any other agreement, document or
certificate to the Agreement shall be deemed to refer to the Agreement as
amended hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE> 73
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Amendment No. 1 to the Agreement to be signed by their respective officers
thereunto, duly authorized as of the date first written above.
FORE SYSTEMS, INC.
By: /s/ THOMAS J. GILL
------------------------------------------
Thomas J. Gill
President and Chief Executive Officer
FASTWIRE ACQUISITION CORPORATION
By: /s/ THOMAS J. GILL
------------------------------------------
Thomas J. Gill
President
BERKELEY NETWORKS, INC.
By: /s/ RAVINDER S. SETHI
------------------------------------------
Ravinder Sethi
President
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-81796, 33-99350, 333-01728, 333-04052,
333-17017 and 333-47483) and the Post Effective Amendment No. 1 to Form S-4
Registration Statement on Form S-8 (No. 333-00468) of FORE Systems, Inc. of our
report dated June 5, 1998, except as to Note 9, which is as of August 10, 1998,
appearing on page 7 of the Current Report on Form 8-K of FORE Systems, Inc.
dated September 11, 1998.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
September 18, 1998
<PAGE> 1
EXHIBIT 99.1
FORE Systems Signs Agreement to Acquire Berkeley Networks
Announces Plans to Introduce Industry-Leading Application Aware
Network Technology and Expand Into New Markets
PITTSBURGH, Aug. 25 /PRNewswire/ -- FORE Systems, Inc. (Nasdaq: FORE - news), a
global supplier of networking solutions based on an Intelligent
Infrastructure(TM), today announced that it has signed a definitive agreement to
acquire all the outstanding equity of Milpitas, California-based Berkeley
Networks, a privately-held developer of a new generation of Application
Aware(TM) multi-Gigabit switching and routing solutions.
Berkeley Networks has been featured in several industry publications as one of
the hottest private companies in the networking industry. They were recently
acknowledged as the #1 communications equipment company in "1998's Hot 100
Private Companies" in the May edition of Upside magazine and they were featured
as one of "The Top 25 Hot Startups" in Data Communications magazine in October
of 1997. Berkeley Networks was also awarded the Grand Winner - Best of Show
Award acknowledging the single most significant new product or service at the
recent NetWorld+Interop trade show held in Las Vegas in May of 1998.
This acquisition brings together a common vision of Application Aware network
solutions across both ATM and Ethernet technologies. Berkeley Networks' focus on
the integration of network services via an industry standard Windows NT software
platform complements FORE's Intelligent Infrastructure. Berkeley Networks'
Application Aware technology enables the seamless integration of network powered
applications with FORE's multi-service IP networks. This combination enables the
integration and delivery of a wide range of new services in the areas of
directory enabled networking, policy based network management, firewall
switching, and high performance Gigabit Ethernet layer-3 and layer-4 switching
solutions. With the introduction of these new products, FORE is well positioned
to build on its success with large enterprise customers and expand into new
markets, specifically medium sized businesses and IP service providers.
"The addition of Berkeley Networks to FORE Systems allows us to provide unique
solutions that optimize the delivery, security, and predictability of
business-critical applications," said Thomas J. Gill, president and CEO of FORE
Systems. "FORE has developed a reputation for delivering scalable, reliable
networking solutions across an Intelligent Infrastructure that easily
accommodates network expansion. By adding the Berkeley Networks' technology to
our product line, we can also offer each customer the most appropriate switching
solution for their current needs, plus an easy migration path for the future."
The first product to market as a result of the acquisition is available for
order immediately. ATM integration enhancements are planned for release in
Q1CY99. In addition, FORE will provide integrated ForeView(R) Network Management
Software in the first appropriate release of ForeView in 1999.
<PAGE> 2
Under this agreement, FORE will issue approximately 8,475,000 shares in exchange
for the outstanding shares of Berkeley Networks and will also grant options to
acquire approximately 607,000 shares to Berkeley Networks option holders. In
addition, FORE will pay the equity holders of Berkeley Networks up to an
additional $30 million in cash if certain product development and revenue
milestones are achieved. Based on FORE's closing price on August 25, 1998, the
combination will have a transaction value of approximately $250 million if those
milestones are achieved.
Immediately following the closing, FORE plans to file a registration statement
with the Securities and Exchange Commission covering the shares issued in the
transaction. The acquisition will be accounted for as a purchase for financial
reporting purposes, and FORE plans to take a one-time charge in its fiscal
quarter ending September 30, 1998, in the range of $1.80 - $2.20 per share to
cover a write-off of in-process R&D. FORE will also establish a restructure
reserve of approximately $0.05 per share to cover certain costs related to the
acquisition of Berkeley Networks.
This acquisition is subject to customary closing conditions, and is expected to
close before the end of September, 1998. Berkeley Networks will become a wholly
owned subsidiary of FORE Systems and their 70 employees will become part of FORE
Systems' corporate organization. FORE currently employs 1,650 people around the
world.
About Berkeley Networks
Founded in June, 1996, Berkeley Networks is a leading developer of multi-
Gigabit Application Aware Routing Switches for use by Global 2000 enterprises
and Internet service providers. Berkeley Networks' products are the first in the
industry to support integrated directory enabled networking, policy management,
line-rate firewall switching, and stateful application flow classification,
based on its unique Integrated Network Services architecture. The company is
headquartered in Milpitas, CA. For more information visit Berkeley Networks' Web
site at www.berkeleynet.com.
About FORE Systems
FORE Systems is a leading global supplier of networking solutions based on an
Intelligent Infrastructure designed to handle the networked applications of
today and tomorrow.
FORE's Networks of Steel(TM) deliver the increased capacity, reduced complexity
and unparalleled flexibility and scalability necessary to build networks that
last. Thousands of enterprise and service provider customers worldwide have put
FORE Systems' solutions at the heart of their networks.
For more information on FORE's Networks of Steel, call 888-404-0444 or visit the
FORE Systems web site at www.fore.com.
This press release contains forward-looking statements with respect to products,
marketing plans, future growth and other matters. These statements are subject
to risks, including the risk that products will not be introduced on the
scheduled release dates or at all and the risk that financial results will
differ from those anticipated. In addition, please refer to the Annual Report on
Form 10-K
<PAGE> 3
filed by FORE Systems with the Securities and Exchange Commission in June, 1998,
for a discussion of risks that could cause actual results to differ materially
from such statements.
All FORE Systems' editorial information and graphics can be found on NEWSdesk,
the high-tech Internet Network at www.newsdesk.com.
FORE Systems and ForeView are registered trademarks of FORE Systems, Inc.
Intellignt Infrastructure, Networks of Steel and Application Aware are
trademarks of FORE Systems, Inc. All other brands or product names are
trademarks of their respective holders.
