<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
Commission file number 1-13810
SOCKET COMMUNICATIONS, INC.
(Name of small business issuer as specified in its charter)
Delaware 94-3155066
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
37400 Central Court, Newark, CA 94560
(Address of principal executive offices including zip code)
(510) 744-2700
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. YES X NO ___
Number of shares of Common Stock ($0.001 par value) outstanding as of July
31, 1997 was 5,526,450 shares.
Page 1
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DRAFT
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I. Financial information
Condensed Balance Sheets - June 30, 1997 and December 31, 1996 . . . . 3
Condensed Statements of Operations - Three Months and Six Months
Ended June 30, 1997 and 1996. . . . . . . . . . . . . . . . . . . 4
Condensed Statements of Cash Flows - Six Months Ended
June 30, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Financial Statements. . . . . . . . . . . . . . . . 6-8
Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . 9-12
Part II. Other information
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
Page 2
<PAGE>
SOCKET COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
SOCKET COMMUNICATIONS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1997 1996*
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 252,806 $ 618,344
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651,818 833,259
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 936,890 738,808
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,701 20,523
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,851,215 2,210,934
Property and equipment:
Machinery and office equipment . . . . . . . . . . . . . . . . . . . . . . . . . 558,840 495,199
Computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 506,554 452,713
----------- -----------
1,065,394 947,912
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . (674,882) (535,387)
----------- -----------
390,512 412,525
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,239 48,235
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,305,966 $ 2,671,694
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank line of credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 220,737 $ 322,743
Convertible subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . 1,600,000 --
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . . . . 1,453,682 1,295,913
Accrued payroll and related expenses . . . . . . . . . . . . . . . . . . . . . . 334,948 230,758
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,408 238,776
Current portion of capital leases and equipment financing notes. . . . . . . . . 74,339 109,236
----------- -----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,817,114 2,197,426
Long-term portion of capital leases and equipment financing notes. . . . . . . . . 69,793 102,735
Stockholders' equity (deficit):
Undesignated preferred stock, $0.001 par value:
Authorized shares - 3,000,000. . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Series A convertible preferred stock
Authorized shares - 1,000,000
Issued and outstanding shares - 3,490 at June 30, 1997 and
15,500 at December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . 403,897 1,793,813
Common stock, $0.001 par value:
Authorized shares - 15,000,000
Issued and outstanding shares - 5,521,322 at June 30, 1997, and
3,028,976 at December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . 5,521 3,029
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,805,121 11,413,920
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,795,480) (12,839,229)
----------- -----------
Total stockholders' equity (deficit) . . . . . . . . . . . . . . . . . . . . . (1,580,941) 371,533
----------- -----------
Total liabilities and stockholders' equity (deficit). . . . . . . . . . . . $ 2,305,966 $ 2,671,694
----------- -----------
----------- -----------
</TABLE>
- --------------------
*Derived from audited financial statements.
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<PAGE>
SOCKET COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
SOCKET COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ----------------------------
1997 1996 1997 1996
-------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenue:
Product . . . . . . . . . . . . . . . . . $ 1,116,484 $ 908,397 $ 2,184,447 $ 2,125,450
Royalty . . . . . . . . . . . . . . . . . 6,208 60,000 8,993 136,790
------------ --------- ----------- -----------
Total revenue. . . . . . . . . . . . . 1,122,692 968,397 2,193,440 2,262,240
Cost of revenue. . . . . . . . . . . . . . . 545,584 569,877 1,085,707 1,288,049
------------ --------- ----------- -----------
Gross profit . . . . . . . . . . . . . . . . 577,108 398,520 1,107,733 974,191
Operating expenses:
Research and development. . . . . . . . . 273,105 243,517 544,892 514,537
Sales and marketing . . . . . . . . . . . 796,234 697,263 1,553,034 1,328,093
General and administrative. . . . . . . . 536,817 408,042 866,172 775,185
------------ --------- ----------- -----------
Total operating expenses . . . . . . . 1,606,156 1,348,822 2,964,098 2,617,815
------------ --------- ----------- -----------
Operating loss . . . . . . . . . . . . . . . (1,029,048) (950,302) (1,856,365) (1,643,624)
Interest income. . . . . . . . . . . . . . . 639 5,499 2,510 24,132
Interest expense . . . . . . . . . . . . . . (36,477) (10,551) (63,458) (20,669)
------------ --------- ----------- -----------
Net loss . . . . . . . . . . . . . . . $ (1,064,886) $(955,354) $(1,917,313) $(1,640,161)
--------- -----------
--------- -----------
Preferred stock dividend . . . . . . . (8,620) (38,938)
------------ -----------
Net loss applicable to common
stockholders . . . . . . . . . . . . . $ (1,073,506) $(1,956,251)
------------ -----------
------------ -----------
Net loss per share applicable to
common stockholders. . . . . . . . . . $ (0.22) $ (0.44)
------------ -----------
------------ -----------
Net loss per share . . . . . . . . . . $ (0.32) $ (0.55)
--------- -----------
--------- -----------
Weighted average shares outstanding. . 4,955,822 3,017,052 4,405,066 3,007,158
------------ --------- ----------- -----------
------------ --------- ----------- -----------
</TABLE>
Page 4
<PAGE>
SOCKET COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
SOCKET COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,917,313) $(1,640,161)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . 139,495 108,957
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,441 190,434
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (198,082) (217,645)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,822 (1,538)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,004) 10,925
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . . 149,149 (205,483)
Accrued payroll and related expenses . . . . . . . . . . . . . . . . . . . . 104,190 (128,104)
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (105,368) (1,401)
----------- -----------
Net cash used in operating activities. . . . . . . . . . . . . . . . . . . (1,651,670) (1,884,016)
INVESTING ACTIVITIES
Purchase of equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (117,482) (118,306)
----------- -----------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . (117,482) (118,306)
FINANCING ACTIVITIES
Payments on capital leases and equipment financing notes . . . . . . . . . . . . . (67,839) (57,038)
Proceeds from equipment financing. . . . . . . . . . . . . . . . . . . . . . . . . -- 85,861
Proceeds from issuance of convertible notes. . . . . . . . . . . . . . . . . . . . 1,600,000 --
Preferred stock dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . (30,318) --
Stock options and warrants exercised . . . . . . . . . . . . . . . . . . . . . . . 3,777 3,473
Proceeds (repayment) from borrowing under bank line of credit. . . . . . . . . . . (102,006) 230,000
----------- -----------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . 1,403,614 262,296
----------- -----------
Net (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . (365,538) (1,740,026)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . 618,344 2,406,655
----------- -----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . $ 252,806 $ 666,629
----------- -----------
----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,477 $ 20,669
Dividends accrued but unpaid . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,620 --
</TABLE>
Page 5
<PAGE>
SOCKET COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements of Socket Communications, Inc. (the
"Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB item 310(b). Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting only of normal recurring accruals) considered
necessary for fair presentation have been included.
The financial statements have been prepared on a going concern basis. The
Report of Independent Auditors on the Company's financial statements for the
year ended December 31, 1996 included in Form 10-KSB contained an explanatory
paragraph which indicated substantial doubt about the Company's ability to
continue as a going concern because of the Company's recurring operating
losses and the need for additional financing. At June 30, 1997, the Company
has a net capital deficiency of $1,580,941 and a working capital deficiency
of $1,965,899. The Company will require additional financing during 1997 and
ultimately will need to achieve profitable operations. The Company believes
that sufficient outside financing sources will be available, however, there
can be no assurance that the Company will be able to obtain such financing on
commercially reasonable terms, if at all, and such terms may be dilutive to
existing stockholders. If the Company is unable to obtain the necessary
funds, other more substantial restructuring options may be necessary which
may have adverse effects on the Company's operations. The financial
statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and
classification of assets and liabilities that may result from the outcome of
this uncertainty.
Operating results for the three months and six months ended June 30, 1997
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997.
NOTE 2 - CASH EQUIVALENTS
Cash equivalents consist mainly of money market funds which are highly liquid
financial instruments that are readily convertible to cash. The Company has not
incurred losses related to these instruments. As of June 30, 1997 and December
31, 1996, the Company had no material investments in debt or equity securities.
NOTE 3 - INVENTORIES
Inventories consist principally of raw materials and sub-assemblies, which
are stated at the lower of cost (first-in, first-out) or market.
June 30, December 31,
1997 1996
-----------------------------
Raw materials and sub-assemblies. . . . . . . . $ 916,333 $ 712,106
Finished goods. . . . . . . . . . . . . . . . . 20,557 26,702
-----------------------------
$ 936,890 $ 738,808
-----------------------------
-----------------------------
NOTE 4 - INCOME TAXES
Due to the Company's loss position, there was no provision for income taxes
for the three months and six months ended June 30, 1997 and 1996.
Page 6
<PAGE>
SOCKET COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - NET LOSS PER SHARE AND NET LOSS PER SHARE APPLICABLE TO COMMON
STOCKHOLDERS
Net loss per share is calculated using the weighted average number of common
shares outstanding during the period. Common equivalent shares are excluded from
the calculation as the effect is antidilutive.
The Company is required to pay dividends on outstanding shares of its
Series A Convertible Preferred Stock. Dividends of $8,620 and $38,938 for
the quarter and six months ended June 30, 1997 were added to the net loss for
the periods to determine the net loss per share applicable to common
stockholders. The effect of such dividends on the net loss for the quarter
ended June 30, 1997 was $(0.01) per share. There was no effect of such
dividends on net loss for the six months ended June 30, 1997.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating earnings per share, the
dilutive effect of stock options will be excluded. The impact is expected to
result in no change in loss per share for the quarters and six month periods
ended June 30, 1997 and 1996 as reported.
NOTE 6 - BANK FINANCING ARRANGEMENTS
The Company entered into a credit agreement (the Agreement) with a bank,
which commenced in July 1995 and expires on September 15, 1997. The Agreement
is secured by the Company's current and future assets. The credit facility
under the Agreement allows the Company to borrow up to $500,000 based on the
level of qualified receivables. The Agreement contains covenants that require
the Company to maintain certain financial ratios. The Company was not in
compliance with the covenants at June 30, 1997 and December 31, 1996 and has
obtained a temporary waiver through the expiration date. As of June 30, 1997
there were $220,737 outstanding in borrowings under the Agreement.
NOTE 7 - SERIES A CONVERTIBLE PREFERRED STOCK
On November 1, 1996, the Company sold 15,500 shares of its Series A
Convertible Preferred Stock ("Series A Stock") at $100 per share. The holders
of the Series A Stock are entitled to receive dividends at an annual rate of 6%.
Each share of Series A Stock is convertible at any time from January 2, 1997
through November 1, 1997 (at which time conversion is mandatory) at the option
of the holder into that number of shares of the Company's Common Stock equal to
100 divided by the lower of (a) 65% of the average bid price of the Company's
common stock as reported on the OTC bulletin board for the five business days
prior to the date of conversion notice, or b) $2 5/8. During the six month
period ended June 30, 1997, holders of Series A Stock converted 12,010 shares of
Series A Stock into 2,486,696 common shares.
NOTE 8 - CONVERTIBLE SUBORDINATED NOTES
On January 29, 1997, the Company received a $500,000 loan from Cetronic AB
pursuant to a subordinated secured convertible promissory note (the "Cetronic
Note") issued by the Company to Cetronic. The interest rate on the Cetronic
Note is 8% and the term prior to its amendment was six
Page 7
<PAGE>
SOCKET COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
months. The principal and accrued interest thereon may be converted into the
Company's Common Stock at $1.00 per share at any time during the term at the
option of Cetronic. The Company may also prepay the Cetronic Note in whole
or in part at any time upon prior written notice to Cetronic. The Cetronic
Note is secured by certain marketing and manufacturing rights for the FLEX (a
high speed paging protocol) and ERMES/POCSAG (a worldwide standard for
transmitting alphanumeric messages to paging receivers) products being
developed jointly by Socket and Cetronic.
On February 14, 1997, the Company received an aggregate of $500,000 in loans
from several Cetronic shareholders (the "Cetronic Shareholders") pursuant to
subordinated convertible promissory notes issued by the Company to the Cetronic
Shareholders. The terms of each note are identical to the terms of the Cetronic
Note except that these notes are unsecured.
On June 12, 1997, pursuant to a Combination Agreement (see Note 9), the
Company received an additional $500,000 in exchange for subordinated
convertible promissory notes issued by the Company to Cetronic and an
additional $100,000 pursuant to subordinated convertible promissory notes
issued by the Company to the Company's directors. The due date of the
previously issued notes was changed to conform to the due date of these notes
of December 12, 1997. Upon completion of the combination, the notes issued
to Cetronic ($1,000,000 principal plus accumulated interest) will be forgiven
and the notes issued to the Cetronic shareholders and the Company's directors
($600,000 principal plus accrued interest) are subject to repayment or
conversion at the option of the holder.
NOTE 9 - AGREEMENT TO MERGE WITH CETRONIC AB
On June 12, 1997, the Company and Cetronic AB signed a definitive Combination
Agreement. Under the terms of the Combination Agreement, the Company will issue
up to $11.7 million in Socket common stock in an exchange offer for all the
common shares of Cetronic AB. The number of shares in the exchange offer will
be determined by dividing $11.7 million by 80 percent of the average market
price of the Company's common stock over a 20 day period prior to the expiration
of the exchange offer, with a minimum of 5.2 million and a maximum of 15.6
million common shares to be issued to Cetronic shareholders in the combination.
The purchase price in U.S. dollars will be adjusted for currency fluctuations
between the U.S. Dollar and the Swedish Krona. The Combination Agreement also
provides for additional six-month convertible bridge loans of up to $1 million
in the aggregate, of which $600,000 of notes have been issued (see Note 8). The
combination is subject to shareholder approval of both companies and
satisfaction of conditions to closing. The transaction will be accounted for
using the purchase method of accounting.
NOTE 10 - STOCK OPTION/STOCK ISSUANCE PLAN
At the Annual Meeting of Stockholders of the Company, held on June 17, 1997
and reconvened on July 1, 1997, the stockholders approved an amendment to the
1995 Stock Plan to reserve an additional 300,000 shares of Common Stock for
issuance thereunder.
Page 8
<PAGE>
SOCKET COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SECTION CONTAINS FORWARD-LOOKING STATEMENTS (IDENTIFIED WITH AN
ASTERISK "*") THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FOR A MORE COMPLETE DISCUSSION OF THE FACTORS
THAT MIGHT CAUSE SUCH A DIFFERENCE, SEE "BUSINESS" INCLUDING "ADDITIONAL RISK
FACTORS AFFECTING FUTURE PERFORMANCE" IN THE COMPANY'S ANNUAL REPORT ON FORM
10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996 (COLLECTIVELY, THE "FORM 10-KSB
SECTIONS").
OVERVIEW
The Company's family of serial PC card products and Ethernet card products
for PC Card mobile computers are its principal sources of revenues. The
Company also sells a PageCard PC Card wireless messaging system introduced in
January 1995 and, formerly sold in the first half of 1996, a GPS card which
was subsequently discontinued in the second half of 1996. In addition, the
Company earns sales royalties from sale of certain of the Company's products
by the third party manufacturers of those products, and service royalties on
its Socket Wireless Messaging Services ("SWiMS") and on paging revenues of
certain third party paging carriers.
The Company completed its initial public offering ("IPO") in June 1995,
with net proceeds of approximately $4.8 million. Prior to the IPO, the
Company's working capital requirements were met primarily through the private
sale of equity and debt securities. Subsequent to the IPO, the Company
issued 15,500 shares of Series A Convertible Preferred Stock for $1,550,000
in November 1996 (see Note 7 of Notes to Condensed Financial Statements), and
issued $1,600,000 in convertible subordinated notes to Cetronic AB, certain
shareholders of Cetronic and to the Company's directors on various dates in
the first six months of 1997 (see Note 8 of Notes to Condensed Financial
Statements). The Company has sustained significant quarterly operating
losses in every fiscal period since its inception. The Company expects to
incur substantial quarterly operating losses at least through 1997 and
possibly longer.* Achieving revenue growth from the Company's existing and
future products will be highly dependent upon the market acceptance of the
PageCard wireless messaging system, continued increases in the market
acceptance of the Company's serial and Ethernet cards and the ability of the
Company to develop successful new products for new and existing markets.*
There can be no assurances that any of these events will occur or that the
Company's revenues will grow. The Company's ability to continue its
operations is also dependent upon the availability of additional capital.* On
June 12, 1997, the Company signed a Combination Agreement with Cetronic AB
(see Note 9 of Notes to Condensed Financial Statements). See also "Liquidity
and Capital Resources."
- --------------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations due to factors
described in this Management's Discussion and Analysis Of Financial Condition
and Results Of Operations and in the Form 10-KSB Sections.
Page 9
<PAGE>
SOCKET COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company believes that its operating results will be subject to
substantial quarterly fluctuations due to several factors, some of which are
outside the control of the Company, including fluctuating market demand for, and
declines in the average selling price of, the Company's products, the timing of
significant orders from distributors and OEM customers, delays in the
introduction of enhancements to existing and new products, market acceptance of
existing and new products, competitive product introductions, the mix of
products sold, changes in the Company's distribution network, changes in
customer product requirements, changes in the regulatory environment, the cost
and availability of components, the level of royalties from and to third parties
and general economic conditions. The Company generally does not operate with a
significant order backlog, and a substantial portion of the Company's revenue in
any quarter is derived from orders booked in that quarter. Accordingly, the
Company's sales expectations are based almost entirely on its internal estimates
of future demand and not on firm customer orders. The Company is making
significant investments in sales and marketing and in research and development,
and if orders and sales do not meet expectations, the Company's operating
results could be materially adversely affected.
RESULTS OF OPERATIONS
REVENUE
Revenue for the quarter and six months ended June 30, 1997 of $1,122,692 and
$2,193,440 increased 16% and decreased 3%, respectively, in comparison to the
corresponding periods a year ago. The increase in the quarter ended June 30,
1997 resulted from substantial volume increases in the sale of the Company's
serial PC cards and Ethernet cards, offset in part by GPS PC Card sales in the
second quarter of 1996 which were discontinued at the end of that quarter, by a
higher volume of PageCard PC card sales in 1996 compared to the same period in
1997, and by higher royalties in 1996 earned on the sale of GPS PC cards by a
third party manufacturer. The moderate decrease in the six months ended June
30, 1997 resulted from higher volumes of serial PC card product sales offset by
sales in 1996 of the GPS PC card and by higher royalties in 1996 earned on the
sale of GPS PC cards by a third party manufacturer.
PRODUCT GROSS PROFIT
Product gross profit, excluding royalty revenue, is equal to product revenue
less the cost of revenue, because the costs of royalty revenue generally are
negligible. The Company's product gross margin for the second quarter of 1997
was 51% of product revenues compared to 37% for the same quarter a year ago. The
Company's product gross margin for the six month period in 1997 was 50% of
product revenues compared to 39% for the same period a year ago. The increases
resulted primarily from lower manufacturing costs resulting from volume vendor
discounts for certain product components and the higher margin serial PC cards
comprising a higher percentage of total revenue in 1997.
Page 10
<PAGE>
SOCKET COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESEARCH AND DEVELOPMENT
Research and development expenses for the quarter and six months ended June
30, 1997 were $273,105 and $544,892, respectively, a 12% and 6% increase versus
the corresponding periods a year ago, primarily reflecting higher travel costs
and additional contract engineering services. To date, the Company has not
capitalized any software development costs. The Company expects to increase its
research and development expenses in the second half of 1997.*
SALES AND MARKETING
Sales and marketing expenses for the quarter and six months ended June 30,
1997 were $796,234 and $1,553,034, respectively, a 14% and 17% increase over the
corresponding periods a year ago. The increase primarily reflected higher
staffing levels, increased advertising activity and increased levels of travel.
The Company expects to further increase its sales and marketing expenses in the
second half of 1996.*
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the quarter and six months ended June
30, 1997 were $536,817 and $866,172, respectively, a 32% and 12% increase over
the corresponding periods a year ago. The increases primarily reflected
professional fees associated with the financing and merger activities of the
Company during 1997 and one-time severance costs for the Company's CEO whose
services terminated in April 1997, partially offset by lower occupancy costs in
1997 from a move to smaller facilities in the fourth quarter of 1996. The
Company expects the higher level of combination related costs to continue during
the second half of 1997.*
INTEREST AND OTHER INCOME / EXPENSE
Interest income primarily reflects interest on cash balances. Interest
expense for the quarter and six months ended June 30, 1997 was $36,477 and
$63,458, respectively, and related to interest on equipment lease financing
obligations and to interest on convertible subordinated debt issued in 1997.
Interest expense for the quarter and six months ended June 30, 1996 was $10,551
and $20,669, respectively, and related primarily to interest on equipment lease
financing obligations.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities in the six months ended June 30,
1997 was $1,651,670, resulting primarily from the net loss, an increase in
inventories and decreases in deferred revenues, partially offset by decreases
in accounts receivable and by increases in accounts payable and accrued
expenses and accrued payroll and related expenses. Net cash used for
operating activities in the six months ended June 30, 1996 was $1,884, 016,
resulting primarily from the net loss, an increase in
- --------------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations due to factors
described in this Management's Discussion and Analysis Of Financial Condition
and Results Of Operations and in the Form 10-KSB Sections.
Page 11
<PAGE>
SOCKET COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
inventories and decreases in accounts payable and accrued expenses and
accrued payroll and related expenses, partially offset by decreases in
accounts receivable.
Net cash provided by financing activities during the first half of 1997 of
$1,403,614 resulted from proceeds from the issuance of subordinated convertible
notes of $1,600,000 partially offset by a reduction in borrowings under the bank
line of credit, payments of capital leases and equipment financing notes and
payment of dividends to Series A Preferred Stock holders. Net cash provided by
financing activities during the first half of 1996 of $262,296 primarily
reflected borrowings under a revolving credit line with a bank (see Note 6 of
Notes to Condensed Financial Statements) and equipment financing notes.
As of June 30, 1997, the Company had cash and cash equivalents of
$252,806. The Company believes its existing capital resources and revenue
from operations will be insufficient to satisfy its working capital
requirements through the end of 1997. As of June 30, 1997 the Company had a
net capital deficiency of $1,580,941 and a working capital deficiency of
$1,965,899. The Company will need to raise additional capital to fund
operations in 1997, which the Company intends to seek through the issuance of
additional convertible subordinated notes as provided for in the Combination
Agreement with Cetronic (see Note 9 of Notes to Condensed Financial
Statements), through increased borrowings on the Company's bank line and
through development funding from various development partners.* In addition,
the combined company will have the remaining portion of the proceeds from a
recent equity financing completed in May 1997 with net proceeds of
approximately $3.8 million.* The Report of Independent Auditors on the
Company's financial statements for the year ended December 31, 1996 included
in the Form 10-KSB contains an explanatory paragraph regarding the Company's
need for additional financing and indicated substantial doubt about the
Company's ability to continue as a going concern absent such financing. There
can be no assurances that such capital will be available on acceptable terms,
if at all, and such terms may be dilutive to existing stockholders. The
Company's inability to complete the combination with Cetronic or to otherwise
secure the necessary funding would have a material adverse affect on the
Company's financial condition and results of operations. The Company's actual
working capital needs will depend upon numerous factors, however, including
the extent and timing of acceptance of the Company's products in the market,
the Company's operating results, the progress of the Company's research and
development activities, the cost of increasing the Company's sales and
marketing activities and the status of competitive products, the costs of the
combination with Cetronic, and the timing and ultimate success at completing
the combination, none of which can be predicted with certainty.
- --------------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations due to factors
described in this Management's Discussion and Analysis Of Financial Condition
and Results Of Operations and in the Form 10-KSB Sections.
Page 12
<PAGE>
PART II. OTHER INFORMATION
Items 1-3. Not applicable.
Item 4. Submission of matters to a vote of Security Holders.
At the Annual Meeting of Stockholders of the Company, held at the
Company's Newark facilities on June 17, 1997 and reconvened on July 1, 1997,
the stockholders elected four directors to serve until the next Annual
Meeting of Stockholders, approved an amendment to the 1995 Stock Plan to
reserve an additional 300,000 shares of Common Stock for issuance thereunder,
and ratified the appointment of Ernst & Young LLP as independent public
accountants of the Company for the fiscal year ending December 31, 1997.
Results of the stockholder vote:
- --------------------------------------------------------------------------------
| ITEM | FOR | AGAINST | WITHHOLD/|
| | | | ABSTAIN |
- --------------------------------------------------------------------------------
| Election of Directors: | | | |
| ---------------------- | | | |
| Charlie Bass | 3,850,313 | | 34,640 |
| Micheal Gifford | 3,850,313 | | 34,640 |
| Jack Carsten | 3,850,313 | | 34,640 |
| Gary Kalbach | 3,850,313 | | 34,640 |
| | | | |
| Amend 1995 Stock Plan | 2,124,780 | 72,725 | 11,890 |
| --------------------- | | | |
| Appoint Ernst & Young LLP | 3,848,363 | 30,000 | 6,590 |
| ------------------------- | | | |
- --------------------------------------------------------------------------------
Item 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a. The following exhibits are filed herewith:
EXHIBIT
NUMBER EXHIBIT TITLE
- -------- -------------
10.1 Combination Agreement By and Between Socket Communications, Inc. and
Cetronic Aktiebolag [Publ] dated as of June 12, 1997
27.1 Financial Data Schedule (Edgar)
b. Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and Exchange Commission
during the quarter ended June 30, 1997.
Page 13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOCKET COMMUNICATIONS, INC.
Registrant
Date: August 7, 1997 /s/ David W. Dunlap
-------------- -------------------------------
David W. Dunlap
Vice President of Finance
and Administration and
Chief Financial Officer
Page 14
<PAGE>
EXHIBIT 10.1
COMBINATION AGREEMENT
BY AND BETWEEN
SOCKET COMMUNICATIONS, INC.
AND
CETRONIC AKTIEBOLAG [PUBL]
DATED AS OF JUNE 12, 1997
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
ARTICLE I THE TRANSACTIONS................................................................................. 1
SECTION 1.01 Closing.................................................................................... 1
SECTION 1.02 The Exchange Offer......................................................................... 1
SECTION 1.03 Depositary................................................................................. 3
SECTION 1.04 Compulsory Acquisition..................................................................... 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SOCKET........................................................ 3
SECTION 2.01 Organization and Qualification; Subsidiaries............................................... 3
SECTION 2.02 Capitalization............................................................................. 4
SECTION 2.03 Authority Relative to This Agreement....................................................... 4
SECTION 2.04 No Conflict; Required Filings and Consents................................................. 4
SECTION 2.05 Permits; Compliance........................................................................ 5
SECTION 2.06 SEC Filings; Financial Statements.......................................................... 5
SECTION 2.07 Absence of Certain Changes or Events....................................................... 6
SECTION 2.08 Employee Benefit Plans; Labor Matters...................................................... 6
SECTION 2.09 Contracts; Debt Instruments................................................................ 7
SECTION 2.10 Litigation................................................................................. 7
SECTION 2.11 Environmental Matters...................................................................... 7
SECTION 2.12 Trademarks, Patents and Copyrights......................................................... 8
SECTION 2.13 Taxes...................................................................................... 8
SECTION 2.14 Brokers.................................................................................... 8
SECTION 2.15 Interested Party Transactions.............................................................. 9
SECTION 2.16 Ownership of Property...................................................................... 9
SECTION 2.17 Material Relationships..................................................................... 9
SECTION 2.18 Disclosure................................................................................. 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF CETRONIC..................................................... 9
SECTION 3.01 Organization and Qualification; Subsidiaries............................................... 9
SECTION 3.02 Capitalization............................................................................. 10
SECTION 3.03 Authority Relative to This Agreement....................................................... 10
SECTION 3.04 No Conflict; Required Filings and Consents................................................. 10
SECTION 3.05 Permits; Compliance........................................................................ 11
SECTION 3.06 Financial Statements....................................................................... 11
SECTION 3.07 Absence of Certain Changes or Events....................................................... 12
SECTION 3.08 Employee Benefit Plans; Labor Matters...................................................... 12
SECTION 3.09 Contracts; Debt Instruments................................................................ 13
SECTION 3.10 Litigation................................................................................. 13
SECTION 3.11 Environmental Matters...................................................................... 13
SECTION 3.12 Trademarks, Patents and Copyrights......................................................... 14
SECTION 3.13 Taxes...................................................................................... 14
SECTION 3.14 Interested Party Transactions.............................................................. 14
SECTION 3.15 Ownership of Property...................................................................... 14
SECTION 3.16 Material Relationships..................................................................... 15
SECTION 3.17 Disclosure................................................................................. 15
ARTICLE IV COVENANTS....................................................................................... 15
SECTION 4.01 Conduct of Business by Socket Pending the Closing.......................................... 15
</TABLE>
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<S> <C>
SECTION 4.02 Conduct of Business by Cetronic Pending the Closing........................................ 16
SECTION 4.03 Cooperation................................................................................ 18
SECTION 4.04 Notices of Certain Events.................................................................. 18
SECTION 4.05 Contractual Consents....................................................................... 18
ARTICLE V ADDITIONAL AGREEMENTS............................................................................ 19
SECTION 5.01 Registration Statement; Disclosure Documents............................................... 19
SECTION 5.02 Stockholders' Meetings..................................................................... 20
SECTION 5.03 Access to Information; Confidentiality..................................................... 21
SECTION 5.04 No Solicitation of Transactions............................................................ 21
SECTION 5.05 Employee Benefits Matters.................................................................. 22
SECTION 5.06 Letters of Accountants..................................................................... 22
SECTION 5.07 Further Action; Consents; Filings.......................................................... 22
SECTION 5.08 Socket Organization........................................................................ 23
SECTION 5.09 Public Announcements....................................................................... 23
SECTION 5.10 Stock Exchange Listings.................................................................... 23
SECTION 5.11 Convertible Bridge Loans................................................................... 24
SECTION 5.12 Cetronic Intellectual Property Agreements.................................................. 24
SECTION 5.13 Termination of Cetronic Stockholders' Agreement............................................ 24
SECTION 5.14 Cetronic Related-Party Agreements.......................................................... 24
SECTION 5.15 Conversion of Cetronic Convertible Notes................................................... 24
SECTION 5.16 Registration Rights Agreement.............................................................. 24
ARTICLE VI CONDITIONS TO THE TRANSACTIONS.................................................................. 25
SECTION 6.01 Conditions to the Obligations of Each Party to Consummate the
Transactions.............................................................................. 25
SECTION 6.02 Conditions to the Obligations of Socket.................................................... 25
SECTION 6.03 Conditions to the Obligations of Cetronic.................................................. 26
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.............................................................. 27
SECTION 7.01 Termination................................................................................ 27
SECTION 7.02 Effect of Termination...................................................................... 28
SECTION 7.03 Amendment.................................................................................. 28
SECTION 7.04 Waiver..................................................................................... 28
SECTION 7.05 Fees and Expenses.......................................................................... 29
ARTICLE VIII GENERAL PROVISIONS............................................................................ 30
SECTION 8.01 No Survival of Representations............................................................. 30
SECTION 8.02 Notices.................................................................................... 31
SECTION 8.03 Certain Definitions........................................................................ 32
SECTION 8.04 Severability............................................................................... 32
SECTION 8.05 Assignment; Binding Effect; Benefit........................................................ 33
SECTION 8.06 Incorporation of Exhibits.................................................................. 33
SECTION 8.07 Governing Law.............................................................................. 33
SECTION 8.08 Arbitration................................................................................ 33
SECTION 8.09 Headings................................................................................... 34
SECTION 8.10 Counterparts............................................................................... 34
SECTION 8.11 Entire Agreement........................................................................... 35
</TABLE>
ii
<PAGE>
INDEX OF SCHEDULES
Socket Disclosure Schedule
Cetronic Disclosure Schedule
Schedule 5.11--Holders of Socket Convertible Promissory Notes
Schedule 5.12--Intellectual Property Agreements
Schedule 5.15--Holders of Cetronic Convertible Promissory Notes
Schedule 5.16--Registration Rights Holders
Schedule 6.3(f)--Socket Consents
iii
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A Form of Cetronic Convertible Promissory Note
Exhibit B Form of Socket Convertible Promissory Note
</TABLE>
iv
<PAGE>
COMBINATION AGREEMENT
COMBINATION AGREEMENT, dated as of June 12, 1997 (this "Agreement"), by and
between CETRONIC AKTIEBOLAG [PUBL], a corporation organized under the laws of
the Kingdom of Sweden ("Cetronic"), and SOCKET COMMUNICATIONS, INC., a Delaware
corporation ("Socket").
WHEREAS, the Boards of Directors of Cetronic and Socket have determined that
it is in the best interests of their respective companies and stockholders to
combine their respective businesses in a transaction to be effected as set forth
in this Agreement;
WHEREAS, upon the terms and subject to the conditions of this Agreement,
Socket will acquire, pursuant to an exchange offer (the "Exchange Offer") and,
if deemed necessary by Socket, through compulsory acquisition proceedings in
accordance with the Swedish Companies Act (collectively, the "Transactions"),
all the issued and outstanding Class A Common Shares, nominal value SEK 1.00 per
share, of Cetronic (the "Cetronic Class A Common Shares"), and Class B Common
Shares, nominal value SEK 1.00 per share, of Cetronic (the "Cetronic Class B
Common Shares," and together with the Cetronic Class A Common Shares, the
"Cetronic Shares"), as more fully described below;
WHEREAS, as a result of the Exchange Offer, Cetronic may become, directly or
indirectly, a wholly owned subsidiary of Socket, and the holders of Cetronic
Shares will receive newly issued shares of Common Stock, par value $0.001 per
share, of Socket (the "Socket Common Stock");
WHEREAS, the Board of Directors of Cetronic has approved the Exchange Offer
and recommended that all the stockholders of Cetronic tender their Cetronic
Shares into the Exchange Offer;
WHEREAS, the Board of Directors of Socket has approved this Agreement and
recommended that the stockholders of Socket vote to adopt this Agreement upon
the terms and subject to the conditions contained herein;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I
THE TRANSACTIONS
SECTION 1.01 CLOSING. Provided that this Agreement shall not have been
terminated in accordance with Section 7.01, as promptly as practicable after the
satisfaction or, if permissible and effected as provided in Section 7.04, waiver
of the Exchange Offer Conditions (as hereinafter defined) (or such other date as
may be agreed to in writing by Cetronic and Socket), a closing (the "Closing")
will be held at the offices of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California, or such other location as the parties may
mutually agree (the date and time of such Closing, or such later date and time
as shall be agreed by the parties, being the "Closing Date" and the "Closing
Time," respectively).
SECTION 1.02 THE EXCHANGE OFFER. (a) Provided that this Agreement shall
not have been terminated in accordance with Section 7.01, Socket shall commence
the Exchange Offer on or as soon as practicable after the Registration Statement
Effective Date (the "Exchange Offer Commencement Date") as contemplated by the
Disclosure Documents (as hereinafter defined) and otherwise in accordance with
applicable Laws. Pursuant to the Exchange Offer, Socket shall offer to exchange
for each Cetronic Share, subject to the conditions set forth below, that number
of shares of Socket Common Stock equal to the quotient obtained by dividing (i)
the quotient obtained by dividing (A) the quotient obtained by dividing SEK
90,720,000 by the average exchange rate for the U.S. dollar against the Swedish
krona based on the Noon Buying Rate (as defined in Section 8.03 hereof) during
the Measurement Period (as defined below) (the "Aggregate Purchase Price") by
(B) the Applicable Socket Share Valuation Price (as defined below); by (ii) the
total number of Cetronic Shares outstanding; provided, that the Aggregate
Purchase Price shall be reduced to the extent (i) that on the business day
immediately preceding the Exchange Offer Commencement Date there remain any
unpaid shares of Class B Common Stock and (ii) any portion of the Cetronic
convertible notes referred to in Section 5.15 hereof remain unconverted on the
initial
<PAGE>
Expiration Date (as defined below). For purposes of this Agreement, the
"Applicable Socket Share Valuation Price" means 80% of the average closing sale
price of the Socket Common Stock on the OTC Bulletin Board for the period (the
"Measurement Period") which is the twenty (20) trading days ending on the fifth
trading day immediately prior to the initial Expiration Date (as defined below)
(the "Socket Share Valuation Price"); provided, that if the Socket Share
Valuation Price is less than $0.75, the Applicable Socket Share Valuation Price
shall be $0.75; provided, further, that if the Socket Share Valuation Price is
greater than $2.25, the Applicable Socket Share Valuation Price shall be $2.25.
The obligation of Socket to accept for payment and pay for Cetronic Shares
tendered pursuant to the Exchange Offer shall be subject only to this Agreement
not having been terminated pursuant to Section 7.01 and the satisfaction or
waiver, if permissible and effected as provided in Section 7.04, of (i) the
condition that a number of Cetronic Shares representing more than 90% of the
number of shares and voting power of the then outstanding Cetronic Shares shall
have been validly tendered and not withdrawn prior to the expiration of the
Exchange Offer (the "Minimum Condition"), (ii) the condition that this Agreement
shall have been adopted by the requisite affirmative vote of the stockholders of
Socket in accordance with the DGCL (the "Socket Stockholder Approval Condition")
and (iii) the other conditions set forth in Article VI of this Agreement
(together with the Minimum Condition and the Socket Stockholder Approval
Condition, the "Exchange Offer Conditions"). The initial expiration date of the
Exchange Offer shall be the date which is twenty (20) Business Days after the
Exchange Offer Commencement Date (such date, as it may be extended from time to
time as hereinafter provided, the "Expiration Date") and, provided that a number
of Cetronic Shares representing more than 70% of the number of shares and voting
power of the then outstanding Cetronic Shares shall have been validly tendered
and not withdrawn prior to the initial Expiration Date and that this Agreement
shall not have been terminated in accordance with Section 7.01, shall be
extended by Socket from time to time thereafter until such time as all of the
Exchange Offer Conditions have been satisfied or waived; provided, however that
if the Minimum Condition is not satisfied on an Expiration Date that occurs on
or after the fifth Business Day immediately preceding the Final Closing Date (as
defined in Section 7.01(b) hereof), Socket may permit the Exchange Offer to
expire on such Expiration Date. Subject only to the conditions set forth above,
Socket shall accept for exchange and shall exchange all Cetronic Shares validly
tendered and not withdrawn pursuant to the terms of the Exchange Offer at the
earliest practicable time following the Closing Time.
(b) Notwithstanding the provisions of Section 1.02(a) above, each holder of
Cetronic Shares may elect to receive, with respect to one percent (1%) of the
Cetronic Shares held by such stockholder tendered in the Exchange Offer, in lieu
of shares of Socket Common Stock in the Exchange Offer, an amount in cash equal
to the dollar value of the shares of Socket Common Stock otherwise exchangeable
for such Cetronic Shares in the Exchange Offer based on the Applicable Socket
Share Valuation Price.
(c) In the event of any reclassification, stock split or stock dividend with
respect to the Socket Common Stock, any change or conversion of Socket Common
Stock into other securities or any other dividend or distribution with respect
thereto (or if record date with respect to any of the foregoing should occur)
prior to the Closing, appropriate and proportionate adjustments, if any, shall
be made to the Applicable Socket Share Valuation Price, and all references to
the Applicable Socket Share Valuation Price in this Agreement shall be deemed to
be to such Applicable Socket Share Valuation Price as so adjusted.
(d) Prior to or substantially contemporaneously with the Exchange Offer
Commencement Date, Socket shall file a Swedish language prospectus (or Swedish
language translations or summaries of the Joint Proxy Statement (as defined
herein) as may be necessary and appropriate in Sweden) with the Financial
Supervisory Authority (the "FSA"), as required in Sweden.
(e) As promptly as practicable after the Closing Time, Socket shall cause
there to be held a meeting of the holders of Cetronic Shares to elect the Board
of Directors of Cetronic so that members of the Cetronic Board of Directors
shall, subject to applicable Laws, be the same individuals who comprise the
whole Board of Directors of Socket; provided, that, if applicable Laws prohibit
such composition of the
2
<PAGE>
Board of Directors, then the Cetronic Board of Directors shall be comprised so
that the number of Socket and Cetronic designees thereon shall be, as nearly as
practicable, in the same proportion as on the Socket Board of Directors.
(f) No fraction of a share of Socket Common Stock will be issued, but in
lieu thereof, each holder of Cetronic Shares who would otherwise be entitled to
a fraction of a share of Socket Common Stock (after aggregating all fractional
shares of Socket Common Stock to be received by such holder) shall be entitled
to receive from Socket an amount of cash (rounded to the nearest whole cent)
equal to the product of (i) such fraction, multiplied by (ii) the Applicable
Socket Share Valuation Price.
SECTION 1.03 DEPOSITARY. Socket shall appoint a Swedish bank or broker
reasonably satisfactory to Cetronic to act as depositary for the Exchange Offer
(the "Depositary").
SECTION 1.04 COMPULSORY ACQUISITION. (a) As soon as practicable after the
Closing Date, assuming that the Minimum Condition has been satisfied and not
waived, Socket may at its sole discretion, unless the parties mutually agree
that there is a more effective method of achieving the objectives described in
this Section 1.04 (in which case such method may be used), contribute all of the
Cetronic Shares owned by it to a newly formed wholly-owned subsidiary organized
under the laws of the Kingdom of Sweden ("Swedish Newco") in exchange for all of
the capital stock of Swedish Newco, and shall cause Swedish Newco to take all
actions necessary and proper under the Swedish Companies Act to commence a
process leading to a compulsory acquisition under Section 14:31 of the Swedish
Companies Act to acquire all the issued and outstanding Cetronic Shares not
acquired by Socket pursuant to the Exchange Offer.
(b) In the event of consummation of the Transactions following the waiver of
the Minimum Condition effected as provided in Section 7.04, Socket may, at its
sole discretion, conduct, directly or indirectly, such other offers (including,
without limitation, pursuant to open market purchases) as are necessary to
obtain, when aggregated with the number of shares and vote of Cetronic Shares
already owned by it, more than 90% of the number of shares and voting power of
the then outstanding Cetronic Shares. Thereafter, Socket shall take the actions
described in Section 1.04(a).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SOCKET
Except as set forth on the Disclosure Schedule delivered by Socket to
Cetronic prior to the execution of this Agreement (the "Socket Disclosure
Schedule"), Socket hereby represents and warrants to Cetronic as follows:
SECTION 2.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Socket has been
duly organized, and is validly existing and in good standing under the laws of
the jurisdiction of its incorporation, and has the requisite power and authority
and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not, individually or in
the aggregate, have a Socket Material Adverse Effect (defined below). Socket
does not own, directly or indirectly, any capital stock or other equity interest
of any corporation or have any direct or indirect equity or ownership interest
in any other business, whether organized as a corporation, partnership, joint
venture or otherwise. Socket is duly qualified or licensed to do business, and
is in good standing, in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its business makes such
qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Socket Material Adverse Effect. For purposes of this
Agreement, "Socket Material Adverse Effect" means any change in or effect on the
business of Socket that is, or is reasonably likely to be, materially adverse to
the business, assets (including intangible assets), liabilities (contingent or
otherwise), condition (financial or
3
<PAGE>
otherwise) or results of operations of Socket. Socket has made available to
Cetronic complete and correct copies of the certificate of incorporation and
bylaws of Socket, in each case as amended to date.
SECTION 2.02 CAPITALIZATION. The authorized capital stock of Socket
consists of (a) 15,000,000 shares of Socket Common Stock and (b) 3,000,000
shares of preferred stock, 1,000,000 shares of which are Series A Preferred
Stock (the "Socket Series A Preferred Stock"). As of the Business Day
immediately preceding the date of this Agreement, (i) 5,380,937 shares of Socket
Common Stock were issued and outstanding, all of which were validly issued and
fully paid and nonassessable, (ii) 381,517 shares of Socket Common Stock were
reserved for issuance upon exercise of stock options ("Socket Options") granted
pursuant to Socket's 1995 Stock Plan (the "1995 Plan") and Socket's 1993 Stock
Option/Stock Issuance Plan (the "1993 Plan" and together with the 1995 Plan, the
"Socket Stock Option Plans"), (iv) 236,426 shares of Socket Common Stock were
reserved for issuance upon exercise of future grants of stock options under the
Socket Stock Option Plans, (vi) 757,590 shares of Socket Common Stock were
reserved for issuance upon exercise of current warrants outstanding (the "Socket
Warrants"), and (vii) 4,052 shares of Socket Series A Preferred Stock were
issued and outstanding, all of which were validly issued, fully paid and
nonassessable. Except for the Socket Options granted pursuant to the Socket
Stock Option Plans and the Socket Warrants or pursuant to agreements or
arrangements described in Section 2.02 of the Socket Disclosure Schedule, there
are no options, warrants or other rights, agreements, arrangements or
commitments of any character to which Socket is a party or by which Socket is
bound relating to the issued or unissued capital stock of Socket or obligating
Socket to issue or sell any shares of capital stock of, or other equity
interests in, Socket. All shares of Socket Common Stock subject to issuance as
aforesaid, upon issuance prior to the Closing Time on the terms and conditions
specified in the instruments pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid and nonassessable. The shares of Socket
Common Stock to be issued pursuant to the Transactions will be duly authorized,
validly issued, fully paid and non-assessable. Except as set forth in Section
2.02 of the Socket Disclosure Schedule, there are no outstanding contractual
obligations of Socket to repurchase, redeem or otherwise acquire any shares of
Socket Common Stock. Except as set forth in Section 2.02 of the Socket
Disclosure Schedule, there are no material outstanding contractual obligations
of Socket to provide funds to, or make any investment (in the form of a loan,
capital contribution or otherwise) in, any other person.
SECTION 2.03 AUTHORITY RELATIVE TO THIS AGREEMENT. Socket has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
(including, without limitation, the Transactions) contemplated herein to be
consummated by Socket. The execution and delivery of this Agreement by Socket
and the consummation by Socket of such transactions have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of Socket are necessary to authorize this Agreement or to consummate
such transactions (other than the adoption of this Agreement by the requisite
affirmative vote of the stockholders of Socket as required by the DGCL). This
Agreement has been duly authorized and validly executed and delivered by Socket
and constitutes a legal, valid and binding obligation of Socket, enforceable
against Socket in accordance with its terms. Socket has taken all appropriate
actions so that the restrictions on business combinations contained in Section
203 of the DGCL will not apply with respect to or as a result of the
Transactions.
SECTION 2.04 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The execution
and delivery of this Agreement by Socket do not, and the performance of this
Agreement by Socket will not, (i) conflict with or violate any provision of the
Restated Certificate of Incorporation or By-Laws of Socket, (ii) assuming that
all consents, approvals, authorizations and other actions described in Section
2.04(b) have been obtained and all filings and obligations described in Section
2.04(b) have been made, conflict with or violate any foreign or domestic law,
statute, ordinance, rule, regulation, treaty, directive, order, judgment or
decree ("Law") applicable to Socket or by which any property or asset of Socket
is bound or affected, or (iii) except as set forth in Section 2.04(a) of the
Socket Disclosure Schedule, result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under,
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or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of Socket pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation, except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, breaches, defaults, or other occurrences which would
neither, individually or in the aggregate, (A) have a Socket Material Adverse
Effect nor (B) prevent or materially delay the performance of this Agreement by
Socket.
(b) The execution and delivery of this Agreement by Socket do not, and the
performance of this Agreement by Socket will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any domestic or
foreign governmental or regulatory authority ("Governmental Entity"), except for
(i) applicable requirements of the FSA, the Securities Act of 1933, as amended
(together with the rules and regulations promulgated thereunder, the "Securities
Act"), the NASD, the filing of a request with the Stockholm District Court with
regard to the compulsory acquisition described in Section 1.04, and as set forth
in Section 2.04(b) of the Socket Disclosure Schedule and (ii) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not (A) prevent or materially delay consummation
of the Transactions, (B) otherwise prevent Socket from performing its material
obligations under this Agreement, and (C) individually or in the aggregate, have
a Socket Material Adverse Effect.
SECTION 2.05 PERMITS; COMPLIANCE. Socket is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any Governmental
Entity necessary for Socket to own, lease and operate its properties or to carry
on its business as it is now being conducted (the "Socket Permits"), except
where the failure to have, or the suspension or cancellation of, any of the
Socket Permits would neither, individually or in the aggregate, (A) have a
Socket Material Adverse Effect nor (B) prevent or materially delay the
performance of this Agreement by Socket, and, as of the date of this Agreement,
no suspension or cancellation of any of the Socket Permits is pending or, to the
actual knowledge of the executive officers of Socket, threatened, except where
the failure to have, or the suspension or cancellation of, any of the Socket
Permits would neither, individually or in the aggregate, (A) have a Socket
Material Adverse Effect nor (B) prevent or materially delay the performance of
this Agreement by Socket. Socket is not in conflict with, or in default or
violation of, (i) any Law applicable to Socket or by which any property or asset
of Socket is bound or affected or (ii) any Socket Permits, except for any such
conflicts, defaults or violations that would neither, individually or in the
aggregate, (A) have a Socket Material Adverse Effect nor (B) prevent or
materially delay the performance of this Agreement by Socket.
SECTION 2.06 SEC FILINGS; FINANCIAL STATEMENTS. (a) Socket has filed all
forms, reports and documents required to be filed by it under the Securities
Exchange Act of 1934, as amended (together with the rules and regulations
promulgated thereunder, the "Exchange Act") since January 1, 1993 through the
date of this Agreement (collectively, the "Socket SEC Reports"). The Socket SEC
Reports (i) were prepared in accordance with the requirements of the Exchange
Act and (ii) did not at the time they were filed contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the financial statements (including, in each case, any notes
thereto) contained in the Socket SEC Reports was prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as may be indicated in the notes
thereto) and each presented fairly, in all material respects, the financial
position of Socket as at the respective dates thereof and the consolidated
operating results for the respective periods indicated therein, except as
otherwise noted therein (subject, in the case of unaudited statements, to normal
and recurring year-end adjustments which were not and are not expected,
individually or in the aggregate, to have a Socket Material Adverse Effect).
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(c) Except as and to the extent set forth on the balance sheet of Socket as
of December 31, 1996, including the notes thereto, Socket has no liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
that would be required to be reflected on a balance sheet or in notes thereto
prepared in accordance with United States generally accepted accounting
principles, except for liabilities or obligations incurred in the ordinary
course of business since December 31, 1996 that would neither, individually or
in the aggregate, (A) have a Socket Material Adverse Effect nor (B) prevent or
materially delay the performance of this Agreement by Socket.
SECTION 2.07 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since January 1, 1997,
except as contemplated by or as disclosed in this Agreement or as set forth in
Section 2.07 of the Socket Disclosure Schedule, Socket has conducted its
business only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (a) any Socket Material
Adverse Effect, (b) any event that could reasonably be expected to prevent or
materially delay the performance of this Agreement by Socket, (c) any material
change by Socket in its accounting methods, principles or practices, (d) any
declaration, setting aside or payment of any dividend or distribution in respect
of the shares of Socket Common Stock or any redemption, purchase or other
acquisition of any of Socket's securities, or (e) any increase in the
compensation or benefits or establishment of any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including, without limitation, the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any executive officers of Socket
except in the ordinary course of business consistent with past practice or
except as required by applicable Law.
SECTION 2.08 EMPLOYEE BENEFIT PLANS; LABOR MATTERS. (a) With respect to
each material employee benefit plan, program, arrangement and contract
(including, without limitation, any "employee benefit plan", as defined in
section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), maintained or contributed to by Socket or with respect to which
Socket could incur material liability under section 4069, 4212(c) or 4204 of
ERISA (the "Socket Benefit Plans"), Socket will make available to Cetronic,
promptly after the date hereof, a true and complete copy of (i) the most recent
annual report (Form 5500) filed with the Internal Revenue Service (the "IRS"),
(ii) such Socket Benefit Plan, (iii) each trust agreement relating to such
Socket Benefit Plan, (iv) the most recent summary plan description for each
Socket Benefit Plan for which a summary plan description is required, (v) the
most recent actuarial report or valuation relating to a Socket Benefit Plan
subject to Title IV of ERISA and (vi) the most recent determination letter, if
any, issued by the IRS with respect to any Socket Benefit Plan qualified under
section 401(a) of the Code.
(b) Except as set forth in Section 2.08(b) of the Socket Disclosure
Schedule, with respect to the Socket Benefit Plans, no event has occurred and,
to the knowledge of Socket, there exists no condition or set of circumstances in
connection with which Socket could be subject to any liability under the terms
of such Socket Benefit Plans, ERISA, the Code or any other applicable Law which
would have a Socket Material Adverse Effect.
(c) All contributions or premiums due from Socket with respect to any of the
Socket Benefit Plans have been made as required under ERISA or have been accrued
on Socket's financial statements as of March 31, 1997, or will be made prior to
the Closing. Each Socket Benefit Plan has been maintained in compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations, including, without limitation, ERISA and the Code, which
are applicable to such Socket Benefit Plans, except as would not have a Socket
Material Adverse Effect.
(d) Except as set forth in Section 2.08(d) of the Socket Disclosure
Schedule, Socket is not a party to any collective bargaining or other labor
union contract applicable to persons employed by Socket and no collective
bargaining agreement or other labor union contract is being negotiated by
Socket. As of the date of this Agreement, there is no labor dispute, strike or
work stoppage against Socket pending or threatened
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in writing which may interfere with the business activities of Socket, except
where such dispute, strike or work stoppage would not have a Socket Material
Adverse Effect. As of the date of this Agreement, to the knowledge of Socket,
neither Socket nor its representatives or employees has committed any unfair
labor practices in connection with the operation of the respective businesses of
Socket, and there is no charge or complaint against Socket by the National Labor
Relations Board or any comparable state or foreign agency pending or threatened
in writing, except where such unfair labor practice, charge or complaint would
not have a Socket Material Adverse Effect.
(e) Socket has made available to Cetronic true and complete (i) copies of
all severance and employment agreements with directors, officers or employees of
Socket; (ii) copies of all severance programs and policies of Socket or relating
to its employees; and (iii) copies of all plans, programs, agreements and other
arrangements of Socket with or relating to its employees which contain change of
control provisions.
(f) Except as provided in Section 2.08 of the Socket Disclosure Schedule or
as otherwise required by Law, no Socket Benefit Plan provides retiree medical or
retiree life insurance benefits to any person.
SECTION 2.09 CONTRACTS; DEBT INSTRUMENTS. Except as disclosed in Section
2.09 of the Socket Disclosure Schedule, there is no contract or agreement that
is material to the business, financial condition or results of operations of
Socket (each, a "Socket Material Contract"). Socket is not in violation of or in
default under (nor does there exist any condition which with the passage of time
or the giving of notice would cause such a violation of or default under) any
loan or credit agreement, note, bond, mortgage, indenture or lease, or any other
contract, agreement, arrangement or understanding to which it is a party or by
which it or any of its properties or assets is bound, except for violations or
defaults that would not, individually or in the aggregate, result in a Socket
Material Adverse Effect.
SECTION 2.10 LITIGATION. Except as disclosed in Section 2.10 of the Socket
Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or threatened in writing against Socket before any
Governmental Entity that, individually or in the aggregate, is reasonably likely
to have a Socket Material Adverse Effect. Except as disclosed in Section 2.10 of
the Socket Disclosure Schedule, Socket is not subject to any outstanding Order,
writ, injunction or decree which, insofar as can be reasonably foreseen,
individually or in the aggregate, would have a Socket Material Adverse Effect.
SECTION 2.11 ENVIRONMENTAL MATTERS. Except as disclosed in Section 2.11 of
the Socket Disclosure Schedule or as would not, individually or in the
aggregate, have a Socket Material Adverse Effect:
(a) Socket (i) is in compliance with all applicable Environmental Laws
(defined below), (ii) holds all Environmental Permits (defined below), and
(iii) is in compliance with its Environmental Permits.
(b) Socket has not received any written request for information, or been
notified that it is a potentially responsible party, under CERCLA (defined
below) or any similar state, local or foreign Law.
(c) Socket has not entered into or agreed to any consent decree or order
or is subject to any judgment, decree or judicial order relating to
compliance with Environmental Laws, Environmental Permits or the
investigation, sampling, monitoring, treatment, remediation, removal or
cleanup of Hazardous Materials (defined below), and to the best knowledge of
Socket, no investigation, litigation or other proceeding is pending or
threatened in writing with respect thereto.
(d) None of the real property owned or leased by Socket is listed or, to
the best knowledge of Socket, proposed for listing on the "National
Priorities List" under CERCLA, as updated through the date hereof, or any
similar state or foreign list of sites requiring investigation or cleanup.
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For purposes of this Agreement:
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended as of the date hereof.
"Environmental Laws" means any federal, state, local or foreign statute,
law, ordinance, regulation, rule, code or order and any enforceable judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to pollution or protection of the
environment or natural resources, including, without limitation, those relating
to the use, handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Materials, as in effect as of the date hereof.
"Environmental Permits" means any permit, approval, identification number,
license and other authorization required under any applicable Environmental Law.
"Hazardous Materials" means (a) any petroleum, petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (b) any chemical, material or
substance defined or regulated as toxic or hazardous or as a pollutant or
contaminant or waste under any applicable Environmental Law.
SECTION 2.12 TRADEMARKS, PATENTS AND COPYRIGHTS. Except as set forth in
Section 2.12 of the Socket Disclosure Schedule, Socket owns or possesses
adequate licenses or other legal rights to use all patents, patent rights,
trademarks, trademark rights, trade names, trade dress, trade name rights,
copyrights, servicemarks, trade secrets, applications for trademarks and for
servicemarks, mask works, know-how and other proprietary rights and information
used or held for use in connection with the business of Socket as conducted
since inception, and as currently conducted or as contemplated to be conducted,
and Socket is unaware of any assertion or claim challenging the validity of any
of the foregoing. The conduct of the business of Socket as conducted since
inception, as currently conducted and as contemplated to be conducted did not,
does not and will not infringe in any way any patent, patent right, license,
trademark, trademark right, trade dress, trade name, trade name right, service
mark, mask work or copyright of any third party that, individually or in the
aggregate, could have a Socket Material Adverse Effect. To Socket's knowledge,
there are no infringements of any proprietary rights owned by or licensed by or
to Socket that, individually or in the aggregate, could have a Socket Material
Adverse Effect.
SECTION 2.13 TAXES. Except for such matters that would not have a Socket
Material Adverse Effect, (a) Socket has timely filed or will timely file all
returns and reports required to be filed by them with any taxing authority with
respect to Taxes for any period ending on or before the Closing Time, taking
into account any extension of time to file granted to or obtained on behalf of
Socket, (b) all Taxes shown to be payable on such returns or reports that are
due prior to the Closing Time have been paid or will be paid, (c) as of the date
hereof, no deficiency for any material amount of Tax has been asserted or
assessed by a taxing authority against Socket, and (d) Socket has provided
adequate reserves in their financial statements for any Taxes that have not been
paid, whether or not shown as being due on any returns. As used in this
Agreement, "Taxes" shall mean any and all taxes, fees, levies, duties, tariffs,
imposts, and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any government or taxing authority, including, without limitation:
taxes or other charges on or with respect to income, franchises, windfall or
other profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation,
or net worth; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value added, or gains taxes; license, registration and
documentation fees; and customers' duties, tariffs, and similar charges.
SECTION 2.14 BROKERS. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of Socket.
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SECTION 2.15 INTERESTED PARTY TRANSACTIONS. Except as disclosed in the
Socket SEC Reports filed prior to the date of this Agreement, no officer or
director of Socket or any "affiliate" or "associate" (as those terms are defined
in Rule 405 promulgated under the Securities Act) of any such person has had,
either directly or indirectly, a material interest in: (i) any person or entity
which purchases from or sells, licenses or furnishes to Socket any goods,
property, technology or intellectual or other property rights or services; or
(ii) any oral or written contract or agreement to which Socket is a party or by
which it may be bound or affected.
SECTION 2.16 OWNERSHIP OF PROPERTY. Except as set forth in Section 2.16 of
the Socket Disclosure Schedule, Socket owns its real and personal property free
and clear of all security interests, mortgages, liens, charges, claims, options
and encumbrances. All real and personal property of Socket is in generally good
repair and is operational and usable in the operations of Socket, subject to
ordinary wear and tear. To Socket's knowledge, Socket is not in violation of any
zoning, building or safety ordinance, regulation or requirement or other law or
regulation applicable to the operation of owned or leased properties (the
violation of which would have a Socket Material Adverse Effect), or has received
any notice of violation with which it has not complied, except where such
violation would not have a Socket Material Adverse Effect.
SECTION 2.17 MATERIAL RELATIONSHIPS. Except as set forth in Section 2.17
of the Socket Disclosure Schedule, Socket has not received notice that any of
its officers or key employees, and, to its knowledge has not received notice
that any material customer or supplier or other person having a material
business relationship with Socket, that such officer, employee, customer,
supplier or person presently intends to terminate its relationship with Socket.
SECTION 2.18 DISCLOSURE. No representation or warranty made by Socket in
this Agreement, nor any document, written information, statement, financial
statement, certificate or exhibit prepared and furnished or to be prepared and
furnished by Socket or its representatives pursuant hereto or in connection with
the transactions contemplated hereby, when taken together, contains any untrue
statement of a material fact, or omits to state a material fact necessary to
make the statements or facts contained herein or therein not misleading in light
of the circumstances under which they were furnished.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CETRONIC
Except as set forth on the Disclosure Schedule delivered by Cetronic to
Socket prior to the execution of this Agreement (the "Cetronic Disclosure
Schedule"), Cetronic hereby represents and warrants to Socket that:
SECTION 3.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of
Cetronic and each subsidiary of Cetronic set forth on Schedule 3.01 of the
Cetronic Disclosure Schedule (the "Cetronic Subsidiaries") has been duly
organized and is validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, as the case may be, and has
the requisite power and authority and all necessary governmental approvals to
own, lease and operate its properties and to carry on its business as it is now
being conducted, except where the failure to be so organized, existing or in
good standing or to have such power, authority and governmental approvals would
not, individually or in the aggregate, have a Cetronic Material Adverse Effect
(defined below). Section 3.01 of the Cetronic Disclosure Schedule sets forth a
correct and complete list of the Cetronic Subsidiaries, the holders of record of
each Cetronic Subsidiary's outstanding equity, and a correct and complete list
of each jurisdiction in which each Cetronic Subsidiary is duly qualified and in
good standing to do business. Other than the Cetronic Subsidiaries, Cetronic
does not own, directly or indirectly, any capital stock or other equity interest
of any corporation or have any direct or indirect equity or ownership interest
in any other business, whether organized as a corporation, partnership, joint
venture or otherwise. Each of Cetronic and the Cetronic Subsidiaries is duly
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qualified or licensed to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing that would not, individually or in the aggregate, have a Cetronic
Material Adverse Effect. For purposes of this Agreement, "Cetronic Material
Adverse Effect" means any change in or effect on the business of Cetronic and
the Cetronic Subsidiaries that is, or is reasonably likely to be, materially
adverse to the business, assets (including intangible assets), liabilities
(contingent or otherwise), condition (financial or otherwise) or results of
operations of Cetronic and the Cetronic Subsidiaries taken as a whole. Cetronic
has made available to Socket complete and correct copies of the articles of
association and all other corporate organizational documents of Cetronic and
each of the Cetronic Subsidiaries, in each case as amended to date.
SECTION 3.02 CAPITALIZATION. The authorized share capital of Cetronic
consists of a minimum of SEK 1,000,000 and a maximum of SEK 4,000,000 to be
issued in Cetronic Class A Shares and/or Cetronic Class B Shares. As of the date
hereof, (i) 1,600,000 Cetronic Class A Common Shares are issued and outstanding,
all of which are validly issued and fully paid and (ii) 800,000 Cetronic Class B
Common Shares are issued and outstanding, all of which are validly issued and
fully paid. Except as set forth in Section 3.02 of the Cetronic Disclosure
Schedule, there are no warrants or other rights, arrangements or commitments of
any character to which Cetronic is a party or by which Cetronic is bound
relating to the issued or unissued capital stock of Cetronic or any Cetronic
Subsidiary or obligating Cetronic or any Cetronic Subsidiary to issue or sell
any shares of capital stock of, or other equity interests in, Cetronic or any
Cetronic Subsidiary. Except as set forth in Section 3.02 of the Cetronic
Disclosure Schedule, there are no outstanding contractual obligations of
Cetronic or any Cetronic Subsidiary to redeem or otherwise acquire any Cetronic
Shares or any capital stock of any Cetronic Subsidiary. Each outstanding share
of capital stock of each Cetronic Subsidiary is duly authorized, validly issued
and fully paid and each such share is owned by Cetronic or another Cetronic
Subsidiary free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on Cetronic's or such
other Cetronic Subsidiary's voting rights, charges and other encumbrances of any
nature whatsoever, except where failure to own such shares free and clear would
not, individually or in the aggregate, have a Cetronic Material Adverse Effect.
Except as set forth in Section 3.02 of the Cetronic Disclosure Schedule, there
are no material outstanding contractual obligations of Cetronic or any Cetronic
Subsidiary to provide funds to, or make any investment (in the form of a loan,
capital contribution or otherwise) in, any Cetronic Subsidiary or any other
person, other than guarantees by Cetronic of any indebtedness of any Cetronic
Subsidiary.
SECTION 3.03 AUTHORITY RELATIVE TO THIS AGREEMENT. Cetronic has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
(including, without limitation, the Transactions) contemplated herein to be
consummated by Cetronic. The execution and delivery of this Agreement by
Cetronic and the consummation by Cetronic of such transactions have been duly
and validly authorized by all necessary corporate action and no other corporate
proceedings on the part of Cetronic are necessary to authorize this Agreement or
to consummate such transactions. This Agreement has been duly authorized and
validly executed and delivered by Cetronic and constitutes a legal, valid and
binding obligation of Cetronic, enforceable against Cetronic in accordance with
its terms.
SECTION 3.04 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The execution
and delivery of this Agreement by Cetronic do not, and the performance of this
Agreement by Cetronic will not, (i) conflict with or violate any provision of
the Articles of Association or other corporate organization documents of
Cetronic or any equivalent organizational documents of any Cetronic Subsidiary,
(ii) assuming that all consents, approvals, authorizations and other actions
described in Section 3.04(b) have been obtained and all filings and obligations
described in Section 3.04(b) have been made, conflict with or violate any Law
applicable to Cetronic or any Cetronic Subsidiary or by which any property or
asset of Cetronic or any Cetronic Subsidiary is bound or affected, or (iii)
result in any breach of or constitute a default (or an event
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which with notice or lapse of time or both would become a default) under, or
give to others any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or other encumbrance on any property or
asset of Cetronic or any Cetronic Subsidiary pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation, including without limitation any grants or
subsidized loans or other subsidies from state or local Governmental Entities,
except, with respect to clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults, or other occurrences which would neither,
individually or in the aggregate, (A) have a Cetronic Material Adverse Effect
nor (B) prevent or materially delay the performance of this Agreement by
Cetronic.
(b) The execution and delivery of this Agreement by Cetronic do not, and the
performance of this Agreement by Cetronic will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (i) for applicable requirements of the FSA, the
Securities Act, the NASD, the filing of a request with the Stockholm District
Court with regard to the compulsory acquisition described in Section 1.05, and
(ii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not (A) prevent or
materially delay consummation of the Transactions, (B) otherwise prevent
Cetronic from performing its material obligations under this Agreement, and (C)
individually or in the aggregate, have a Cetronic Material Adverse Effect.
SECTION 3.05 PERMITS; COMPLIANCE. Each of Cetronic and the Cetronic
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for Cetronic or any
Cetronic Subsidiary to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Cetronic Permits"), except where the
failure to have, or the suspension or cancellation of, any of the Cetronic
Permits would neither, individually or in the aggregate, (A) have a Cetronic
Material Adverse Effect nor (B) prevent or materially delay the performance of
this Agreement by Cetronic, and, as of the date of this Agreement, no suspension
or cancellation of any of the Cetronic Permits is pending or, to the actual
knowledge of the executive officers of Cetronic, threatened, except where the
failure to have, or the suspension or cancellation of, any of the Cetronic
Permits would neither, individually or in the aggregate, (A) have a Cetronic
Material Adverse Effect nor (B) prevent or materially delay the performance of
this Agreement by Cetronic. Neither Cetronic nor any Cetronic Subsidiary is in
conflict with, or in default or violation of, (i) any Law applicable to Cetronic
or any Cetronic Subsidiary or by which any property or asset of Cetronic or any
Cetronic Subsidiary is bound or affected or (ii) any Cetronic Permits, except
for any such conflicts, defaults or violations that would neither, individually
or in the aggregate, (A) have a Cetronic Material Adverse Effect nor (B) prevent
or materially delay the performance of this Agreement by Cetronic.
SECTION 3.06 FINANCIAL STATEMENTS. (a) Each of the consolidated financial
annual accounts (including, in each case, any notes thereto) of Cetronic since
January 1, 1996 was prepared in accordance with Swedish generally accepted
accounting principles, in each case applied on a consistent basis throughout the
periods indicated (except as may be indicated in the notes thereto) and each
presented fairly, in all material respects, the consolidated financial position
of Cetronic and the consolidated Cetronic Subsidiaries as at the respective
dates thereof and the consolidated operating results for the respective periods
indicated therein, except as otherwise noted therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments which were
not and are not expected, individually or in the aggregate, to have a Cetronic
Material Adverse Effect).
(b) Except as and to the extent set forth on the consolidated balance sheet
of Cetronic and the consolidated Cetronic Subsidiaries as of December 31, 1996,
including the notes thereto, neither Cetronic nor any of the Cetronic
Subsidiaries has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would be required to be reflected on a
balance sheet or in notes thereto prepared in accordance with Swedish generally
accepted accounting principles, except for liabilities
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or obligations incurred in the ordinary course of business since December 31,
1996 that would neither, individually or in the aggregate, (A) have a Cetronic
Material Adverse Effect nor (B) prevent or materially delay the performance of
this Agreement by Cetronic.
SECTION 3.07 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since January 1, 1997,
except as contemplated by or as set forth in Section 3.07 of the Cetronic
Disclosure Schedule, Cetronic and the Cetronic Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (a) any Cetronic Material
Adverse Effect, (b) any event that could reasonably be expected to prevent or
materially delay the performance of this Agreement by Cetronic, (c) any material
change by Cetronic in its accounting methods, principles or practices, (d) any
declaration, setting aside or payment of any dividend or distribution in respect
of the Cetronic Shares or any redemption, purchase or other acquisition of any
of Cetronic's securities, or (e) any increase in the compensation or benefits or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), or other employee benefit plan,
or any other increase in the compensation payable or to become payable to any
executive officers of Cetronic or any Cetronic Subsidiary except in the ordinary
course of business consistent with past practice or except as required by
applicable law.
SECTION 3.08 EMPLOYEE BENEFIT PLANS; LABOR MATTERS. (a) Cetronic has made
available to Socket a true and complete copy of each employee benefit plan,
program, arrangement and contract maintained by Cetronic or any Cetronic
Subsidiary for the benefit of any current or former employee, officer or
director of Cetronic or any Cetronic Subsidiary or with respect to which
Cetronic or any Cetronic Subsidiary could incur material liability (the
"Cetronic Benefit Plans"), and each material document prepared in connection
with each Cetronic Benefit Plan.
(b) With respect to the Cetronic Benefit Plans, no event has occurred and,
to the knowledge of Cetronic, there exists no condition or set of circumstances
in connection with which Cetronic or any Cetronic Subsidiary could be subject to
any liability under the terms of such Cetronic Benefit Plans or any applicable
Law which would have a Cetronic Material Adverse Effect.
(c) In addition to the foregoing, and except as would not have a Cetronic
Material Adverse Effect, with respect to each Cetronic Benefit Plan:
(i) all employer and employee contributions to each Cetronic Benefit
Plan required by Law or by the terms of such Cetronic Benefit Plan have been
made, or if applicable, accrued in accordance with normal accounting
practices and a pro rata contribution for the period from the date hereof to
and including the Closing Date has been made or accrued in accordance with
normal accounting principles;
(ii) the fair market value of the assets of each funded Cetronic Benefit
Plan, the liability of each insurer for any Cetronic Benefit Plan funded
through insurance or the book reserve established for any Cetronic Benefit
Plan, together with any accrued contributions, is sufficient to procure or
provide for the accrued benefit obligations, as of the Closing Date, with
respect to all current and former participants in such plan according to the
actuarial assumptions and valuations most recently used to determine
employer contributions to such Cetronic Benefit Plan and no transaction
contemplated by this Agreement shall cause such assets or insurance
obligations to be less than such benefit obligations; and
(iii) each Cetronic Benefit Plan required to be registered has been
registered and has been maintained in good standing with applicable
regulatory authorities.
(d) Except as set forth in Section 3.08(d) of the Cetronic Disclosure
Schedule, neither Cetronic nor any Cetronic Subsidiary is a party to any
collective bargaining or other labor union contract applicable to persons
employed by Cetronic or any Cetronic Subsidiary and no collective bargaining
agreement or other
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labor union contract is being negotiated by Cetronic or any Cetronic Subsidiary.
As of the date of this Agreement, there is no labor dispute, strike or work
stoppage against Cetronic or any Cetronic Subsidiary pending or threatened in
writing that may interfere with the respective business activities of Cetronic
or any Cetronic Subsidiary, except where such dispute, strike or work stoppage
would not have a Cetronic Material Adverse Effect. As of the date of this
Agreement, to the knowledge of Cetronic, none of Cetronic, any Cetronic
Subsidiary, or their respective representatives or employees, has committed any
unfair labor practices in connection with the operation of the respective
businesses of Cetronic or any Cetronic Subsidiary.
(e) Cetronic has made available to Socket, promptly after the date hereof,
true and complete (i) copies of all severance and employment agreements with the
officers of Cetronic and the Cetronic Subsidiaries (taken as a whole); (ii)
copies of all severance programs and policies of Cetronic with or relating to
its officers and (iii) copies of all plans, programs, agreements and other
arrangements of Cetronic and the Cetronic Subsidiaries (taken as a whole) with
or relating to their officers which contain change of control provisions.
(f) Except as otherwise required by Law, no Cetronic Benefit Plan provides
retiree medical or retiree life insurance benefits to any person.
SECTION 3.09 CONTRACTS; DEBT INSTRUMENTS. Except as disclosed in Section
3.09 of the Cetronic Disclosure Schedule, there is no contract or agreement that
is material to the business, financial condition or results of operations of
Cetronic and the Cetronic Subsidiaries taken as a whole (each, a "Cetronic
Material Contract"). Neither Cetronic nor any Cetronic Subsidiary is in
violation of or in default under (nor does there exist any condition which upon
the passage of time or the giving of notice would cause such a violation of or
default under) any loan or credit agreement, note, bond, mortgage, indenture or
lease, or any other contract, agreement, arrangement or understanding to which
it is a party or by which it or any of its properties or assets is bound,
including without limitation any grants or subsidized loans or other subsidies
from state or local Governmental Entities except for violations or defaults that
would not, individually or in the aggregate, result in a Cetronic Material
Adverse Effect.
SECTION 3.10 LITIGATION. Except as disclosed in Section 3.10 of the
Cetronic Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or threatened in writing against Cetronic or any Cetronic
Subsidiary before any Governmental Entity which, individually or in the
aggregate, is reasonably likely to have a Cetronic Material Adverse Effect.
Except as disclosed in the Section 3.10 of the Cetronic Disclosure Schedule, in
the case of any suit, claim, action, proceeding or investigation relating to
Cetronic's operations, or present or former personnel, there has been no change
since December 31, 1996 in the status of any such matters that would be
reasonably likely to have a Cetronic Material Adverse Effect. Except as
disclosed in the Cetronic Reports or in Section 3.10 of the Cetronic Disclosure
Schedule, neither Cetronic nor any Cetronic Subsidiary is subject to any
outstanding Order, writ, injunction or decree which, insofar as can be
reasonably foreseen, individually or in the aggregate, would have a Cetronic
Material Adverse Effect.
SECTION 3.11 ENVIRONMENTAL MATTERS. Except as disclosed in Section 3.11
the Cetronic Disclosure Schedule or as would not, individually or in the
aggregate, have a Cetronic Material Adverse Effect:
(a) Cetronic and the Cetronic Subsidiaries (i) are in compliance with
all applicable Environmental Laws, (ii) hold all Environmental Permits, and
(iii) are in compliance with its Environmental Permits.
(b) None of Cetronic or any Cetronic Subsidiary has received any written
request for information, or been notified that it is a potentially
responsible party, under CERCLA or any similar state, local or foreign Law.
(c) None of Cetronic or any Cetronic Subsidiary has entered into or
agreed to any consent decree or order or is subject to any judgment, decree
or judicial order relating to compliance with
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Environmental Laws, Environmental Permits or the investigation, sampling,
monitoring, treatment, remediation, removal or cleanup of Hazardous
Materials, and to the best knowledge of Cetronic, no investigation,
litigation or other proceeding is pending or threatened in writing with
respect thereto.
(d) None of the real property owned or leased by Cetronic or any
Cetronic Subsidiary is listed or, to the best knowledge of Cetronic,
proposed for listing on the "National Priorities List" under CERCLA, as
updated through the date hereof, or any similar state or foreign list of
sites requiring investigation or cleanup.
SECTION 3.12 TRADEMARKS, PATENTS AND COPYRIGHTS. Except as set forth in
Section 3.12 of the Cetronic Disclosure Schedule, Cetronic and the Cetronic
Subsidiaries own or possess adequate licenses or other legal rights to use all
patents, patent rights, trademarks, trademark rights, trade names, trade dress,
trade name rights, copyrights, servicemarks, trade secrets, applications for
trademarks and for servicemarks, mask works, know-how and other proprietary
rights and information used or held for use in connection with the business of
Cetronic and the Cetronic Subsidiaries as conducted since inception, and as
currently conducted or as contemplated to be conducted, and Cetronic is unaware
of any assertion or claim challenging the validity of any of the foregoing. The
conduct of the business of Cetronic and the Cetronic Subsidiaries as conducted
since inception, as currently conducted and as contemplated to be conducted did
not, does not and will not infringe in any way any patent, patent right,
license, trademark, trademark right, trade dress, trade name, trade name right,
service mark, mask work or copyright of any third party that, individually or in
the aggregate, could have a Cetronic Material Adverse Effect. To Cetronic's
knowledge, there are no infringements of any proprietary rights owned by or
licensed by or to Cetronic or any Cetronic Subsidiary that, individually or in
the aggregate, could have a Cetronic Material Adverse Effect.
SECTION 3.13 TAXES. Except for such matters that would not have a Cetronic
Material Adverse Effect, (a) Cetronic and its subsidiaries have timely filed or
will timely file all returns and reports required to be filed by them with any
taxing authority with respect to Taxes for any period ending on or before the
Closing Date, taking into account any extension of time to file granted to or
obtained on behalf of Cetronic and its subsidiaries, (b) all Taxes shown to be
payable on such returns or reports that are due prior to the Closing Date have
been paid or will be paid, (c) as of the date hereof, no deficiency for any
material amount of Tax has been asserted or assessed by a taxing authority
against Cetronic or its subsidiaries, and (d) Cetronic and its subsidiaries have
provided adequate reserves in their financial statements for any Taxes that have
not been paid, whether or not shown as being due on any returns.
SECTION 3.14 INTERESTED PARTY TRANSACTIONS. Except as set forth in Section
3.14 of the Cetronic Disclosure Schedule, no officer or director of Cetronic or
any "affiliate" or "associate" (as those terms are defined in Rule 405
promulgated under the Securities Act) of any such person has had, either
directly or indirectly, a material interest in: (i) any person or entity which
purchases from or sells, licenses or furnishes to Cetronic or any of the
Cetronic Subsidiaries any goods, property, technology or intellectual or other
property rights or services; or (ii) any oral or written contract or agreement
to which Cetronic or any of the Cetronic Subsidiaries is a party or by which it
may be bound or affected.
SECTION 3.15 OWNERSHIP OF PROPERTY. Except or as set forth in Section 3.15
of the Cetronic Disclosure Schedule, Cetronic and each of the Cetronic
Subsidiaries owns its real and personal property free and clear of all security
interests, mortgages, liens, charges, claims, options and encumbrances. All real
and personal property of Cetronic and each of the Cetronic Subsidiaries is in
generally good repair and is operational and usable in the operations of
Cetronic, subject to ordinary wear and tear. Neither Cetronic nor any Cetronic
Subsidiary is in violation of any zoning, building or safety ordinance,
regulation or requirement or other law or regulation applicable to the operation
of owned or leased properties (the violation of which would have a Cetronic
Material Adverse Effect), or has received any notice of violation with which it
has not complied, except where such violation would not have a Cetronic Material
Adverse Effect.
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SECTION 3.16 MATERIAL RELATIONSHIPS. Except as set forth in Section 3.16
to the Cetronic Disclosure Schedule, Cetronic has not received written notice
that any of its officers or key employees, and to its knowledge has not received
notice, that any material customer or supplier or other person having a material
business relationship with Cetronic that such officer, employee, customer,
supplier or person presently intends to terminate its relationship with
Cetronic.
SECTION 3.17 DISCLOSURE. No representation or warranty made by Cetronic in
this Agreement, nor any document, written information, statement, financial
statement, certificate or exhibit prepared and furnished or to be prepared and
furnished by Cetronic or its representatives pursuant hereto or in connection
with the transactions contemplated hereby, when taken together, contains any
untrue statement of a material fact, or omits to state a material fact necessary
to make the statements or facts contained herein or therein not misleading in
light of the circumstances under which they were furnished.
ARTICLE IV
COVENANTS
SECTION 4.01 CONDUCT OF BUSINESS BY SOCKET PENDING THE CLOSING. Socket
agrees that, between the date of this Agreement and the Closing Time, except as
contemplated by any provision of this Agreement, unless Cetronic shall otherwise
agree in writing, which agreement shall not be unreasonably withheld or delayed,
(1) the business of Socket shall be conducted only in, and Socket shall not take
any action except in, the ordinary course of business consistent with past
practice and (2) Socket shall use its reasonable best efforts to keep available
the services of such of the current officers, significant employees and
consultants of Socket and to preserve the current relationships of Socket with
such of the customers, suppliers and other persons with which Socket has
significant business relations as Socket deems reasonably necessary in order to
preserve substantially intact its business organization. Except as contemplated
by any provision of this Agreement, the Board of Directors of Socket shall not
(unless required by applicable Laws or stock exchange regulations) cause or
permit Socket to, and shall neither cause nor permit any of Socket's affiliates
(over which it exercises control), or any of their officers, directors,
employees and agents to, between the date of this Agreement and the Closing
Time, directly or indirectly, do, or agree to do, any of the following, without
the prior written consent of Cetronic, which consent shall not be unreasonably
withheld or delayed:
(a) amend or otherwise change its Certificate of Incorporation or
By-laws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee, encumber, or authorize the issuance, sale, pledge, disposition,
grant, transfer, lease, license, guarantee or encumbrance of, (i) any shares
of capital stock of Socket of any class, or securities convertible or
exchangeable or exercisable for any shares of such capital stock, or any
options, warrants or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest (including, without
limitation, any phantom interest), of Socket except for the issuance of (A)
a maximum of 381,517 shares of Socket Common Stock issuable pursuant to the
Socket Options outstanding on the date of this Agreement and the issuance,
in the ordinary course of business and consistent with past practice, of the
Socket Options to purchase a maximum of number of 500,000 shares of Socket
Common Stock pursuant to the Socket Stock Option Plans in effect on the date
of this Agreement (which includes 300,000 shares subject to stockholder
approval at the Socket 1997 Annual Meeting of Stockholders) and the shares
of Socket Common Stock issuable pursuant to such Socket Options, in
accordance with the terms of the Socket Stock Option Plan (it being
understood that Socket may grant a significant number of Socket Options in
connection with hiring and retaining a new Chief Executive Officer, and that
any such grant shall be deemed to be in the ordinary course of business
consistent with past practice; provided, that any such grant shall be
reasonably acceptable to Cetronic); and (B) a number
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of shares (determined as provided in the Certificate of Designations
relating thereto) of Socket Common Stock issuable upon conversion of 4,052
shares of Socket Series A Preferred Stock; or (ii) any property or assets of
Socket or any Socket Subsidiary, except in the ordinary course of business
and in a manner consistent with past practice;
(c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization, person or any
division thereof or any assets, other than acquisitions of assets in the
ordinary course of business consistent with past practice and any other
acquisitions for consideration that are not, in the aggregate, in excess of
$50,000; (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations of any person for borrowed money,
except for indebtedness for borrowed money incurred in the ordinary course
of business and consistent with past practice or incurred to refinance
outstanding indebtedness for borrowed money existing on the date of this
Agreement or other indebtedness for borrowed money with a maturity of not
more than one year in a principal amount not, in the aggregate, in excess of
$50,000; (iii) terminate, cancel or request any material change in, or agree
to any material change in any Socket Material Contract or enter into any
contract or agreement material to the business, results of operations or
financial condition of Socket, in either case other than in the ordinary
course of business, consistent with past practice; (iv) make or authorize
any capital expenditure, other than capital expenditures that are not, in
the aggregate, in excess of $50,000 for Socket; or (v) enter into or amend
any contract, agreement, commitment or arrangement that, if fully performed,
would not be permitted under this Section 4.01(e);
(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past
practices in salaries or wages of employees of Socket who are not officers
of Socket, or grant any rights to severance or termination pay to, or enter
into any employment or severance agreement with, any director, officer or
other employee of Socket, or establish, adopt, enter into or amend any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any director, officer or employee,
except as contemplated by this Agreement, to the extent required by
applicable Law or the terms of a collective bargaining agreement, or in
connection with the hiring and retaining of a new Chief Executive Officer
(it being understood, however, that any such employment agreement or other
arrangement entered into in connection with hiring and retaining of a new
Chief Executive Officer shall be on terms reasonably acceptable to
Cetronic);
(g) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with
past practice;
(h) waive, release, assign, settle or compromise any material claims or
litigation;
(i) make any tax election or settle or compromise any material federal,
state, local or foreign income tax liability; or
(j) authorize or enter into any formal or informal agreement or
otherwise make any commitment to do any of the foregoing.
SECTION 4.02 CONDUCT OF BUSINESS BY CETRONIC PENDING THE CLOSING. Cetronic
agrees that, between the date of this Agreement and the Closing Time, except as
contemplated by any provision of this
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Agreement, unless Socket shall otherwise agree in writing, which agreement shall
not be unreasonably withheld or delayed, (1) the business of Cetronic and the
Cetronic Subsidiaries shall be conducted only in, and the Cetronic and the
Cetronic Subsidiaries shall not take any action except in, the ordinary course
of business consistent with past practice and (2) Cetronic shall use its
reasonable best efforts to keep available the services of such of the current
officers, significant employees and consultants of Cetronic and the Cetronic
Subsidiaries and to preserve the current relationships of Cetronic and the
Cetronic Subsidiaries with such of the customers, suppliers and other persons
with which Cetronic or any Cetronic Subsidiary has significant business
relations as Cetronic deems reasonably necessary in order to preserve
substantially intact its business organization. Except as contemplated by any
provision of this Agreement, Cetronic shall not (unless required by applicable
Laws or stock exchange regulations) cause or permit Cetronic or any Cetronic
Subsidiary to, and shall neither cause nor permit any of Cetronic's affiliates
(over which it exercises control), or any of their officers, directors,
employees and agents to, between the date of this Agreement and the Closing
Time, directly or indirectly, do, or agree to do, any of the following without
the prior written consent of Socket, which consent shall not be unreasonably
withheld or delayed:
(a) amend or otherwise change its Articles of Association or equivalent
organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee, encumber, or authorize the issuance, sale, pledge, disposition,
grant, transfer, lease, license, guarantee or encumbrance of, (i) any shares
of capital stock of Cetronic or any Cetronic Subsidiary of any class, or
securities convertible or exchangeable or exercisable for any shares of such
capital stock, or any options, warrants or other rights of any kind to
acquire any shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interest), of Cetronic or any
Cetronic Subsidiary or (ii) any property or assets of Cetronic or any
Cetronic Subsidiary, except in the ordinary course of business and in a
manner consistent with past practice;
(c) recommend to its stockholders that the stockholders declare, set
aside, make or pay any dividend or other distribution, payable in cash,
stock, property or otherwise, with respect to any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization, person or any
division thereof or any assets, other than acquisitions of assets in the
ordinary course of business consistent with past practice and any other
acquisitions for consideration that are not, in the aggregate, in excess of
$50,000; (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations of any person for borrowed money,
except for indebtedness for borrowed money incurred in the ordinary course
of business and consistent with past practice or incurred to refinance
outstanding indebtedness for borrowed money existing on the date of this
Agreement or other indebtedness for borrowed money with a maturity of not
more than one year in a principal amount not, in the aggregate, in excess of
$50,000; (iii) terminate, cancel or request any material change in, or agree
to any material change in any Cetronic Material Contract or enter into any
contract or agreement material to the business, results of operations or
financial condition of Cetronic and the Cetronic Subsidiaries taken as a
whole, in either case other than in the ordinary course of business,
consistent with past practice; (iv) make or authorize any capital
expenditure, other than capital expenditures that are not, in the aggregate,
in excess of $50,000 for Cetronic and the Cetronic Subsidiaries taken as a
whole; or (v) enter into or amend any contract, agreement, commitment or
arrangement that, if fully performed, would not be permitted under this
Section 4.02(e);
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(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past
practices in salaries or wages of employees of Cetronic or any Cetronic
Subsidiary who are not officers of Cetronic, or grant any rights to
severance or termination pay to, or enter into any employment or severance
agreement with, any director, officer or other employee of Cetronic or any
Cetronic Subsidiary, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee, except to
the extent required by applicable Law or the terms of a collective
bargaining agreement;
(g) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with
past practice;
(h) waive, release, assign, settle or compromise any material claims or
litigation;
(i) make any tax election or settle or compromise any material federal,
state, local or foreign income tax liability;
(j) take any action that would result in a reduction of Cetronic's cash
balances (accounted for using generally accepted accounting principles) to
an amount less than SEK 18,400,000 (if the Closing Date shall occur on or
prior to September 30, 1997) or SEK 14,700,000 (if the Closing Date shall
occur after September 30, 1997 but prior to November 1, 1997) (the "Minimum
Cash Balance Requirement"); or
(k) authorize or enter into any formal or informal agreement or
otherwise make any commitment to do any of the foregoing.
SECTION 4.03 COOPERATION. Cetronic and Socket shall coordinate and
cooperate in connection with (i) the preparation of the Registration Statement
and the Disclosure Documents, (ii) determining whether any action by or in
respect of, or filing with, any Governmental Entity is required, or any actions,
consents, approvals or waivers are required to be obtained from parties to any
Socket Material Contracts or Cetronic Material Contracts, in connection with the
consummation of the Transactions and (iii) seeking any such actions, consents,
approvals or waivers or making any such filings, furnishing information required
in connection therewith or with the Registration Statement and the Disclosure
Documents and timely seeking to obtain any such actions, consents, approvals or
waivers.
SECTION 4.04 NOTICES OF CERTAIN EVENTS. Each of Cetronic and Socket shall
give prompt notice to the other of (i) any event occurring subsequent to the
date of this Agreement that would reasonably be likely to render any
representation and warranty of Cetronic or Socket untrue or inaccurate in any
material respect, (ii) any notice or other communication from any person
alleging that the consent of such person is or may be required in connection
with the Transactions, (iii) any notice or other communication from any
Governmental Entity in connection with the Transactions, (iv) any actions,
suits, claims, investigations or proceedings commenced or, to the best of its
knowledge threatened in writing against, relating to or involving or otherwise
affecting Cetronic, Socket or their subsidiaries that relate to the consummation
of the Transactions, (v) the occurrence of a default or event that, with notice
or lapse of time or both, will become a default under any Socket Material
Contract or Cetronic Material Contract, and (vi) any change that is reasonably
likely to result in a Socket Material Adverse Effect or a Cetronic Material
Adverse Effect or is likely to delay or impede the ability of either Socket or
Cetronic to consummate the transactions contemplated by this Agreement or to
fulfill its obligations set forth herein.
SECTION 4.05 CONTRACTUAL CONSENTS. Prior to or at the Closing Time, each
of Cetronic and Socket shall use its reasonable best efforts to prevent the
occurrence, as a result of the Transactions, of a change of control or any event
which constitutes a default (or an event which with notice or lapse of time or
both would become a default) under any material contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which it or any
of its subsidiaries is a party.
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ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01 REGISTRATION STATEMENT; DISCLOSURE DOCUMENTS. (a) As promptly
as practicable after the execution of this Agreement, Cetronic and Socket shall
jointly prepare and Socket shall file with the SEC a single document that will
constitute (i) the proxy statement of Socket relating to the special meeting of
Socket's stockholders (the "Socket Stockholders' Meeting") to be held to
consider (A) adoption of this Agreement, (B) approval of a one-for-five reverse
split of the outstanding Socket Common Stock so that every five shares of Socket
Common Stock shall thereafter be consolidated into one Share of Common Stock as
soon as practicable following the Closing (the "Reverse Stock Split"), (C)
approval of an amendment to increase the authorized number of shares of Socket
Common Stock from 15,000,000 to 25,000,000 (based on shares as constituted prior
to the Reverse Stock Split) and (D) approval of the 1997 Stock Option Plan for
Non-U.S. Employees and the reservation of shares of Socket Common Stock for
issuance thereunder; (ii) the prospectus forming part of the registration
statement on Form S-4 of Socket (together with all amendments thereto, the
"Registration Statement"), in connection with the registration under the
Securities Act of the Socket Common Stock to be issued to the stockholders of
Cetronic pursuant to the Exchange Offer, (iii) the offer to purchase to be used
by Socket in connection with the Exchange Offer, and (iv) the proxy statement of
Cetronic relating to the special meeting of Cetronic's stockholders (the
"Cetronic Stockholders' Meeting") to be held to consider the waiver or
termination of the preemptive rights (the "Preemptive Rights Waiver") of
Cetronic stockholders in connection with the exchange of their Cetronic Shares
in the Exchange Offer (such document, together with any amendments thereof or
supplements thereto, the "Joint Proxy Statement"). Substantially
contemporaneously with the filing of the Joint Proxy Statement with the SEC,
copies thereof shall be provided to the National Association of Securities
Dealers ("NASD") and the PSE. Cetronic and Socket each shall use its reasonable
best efforts to cause the Registration Statement to become effective as promptly
as practicable, and, prior to the effective date of the Registration Statement
(the "Registration Statement Effective Date"), Socket shall take all or any
action required under any applicable Laws in connection with the issuance of
Socket Common Stock pursuant to the Exchange Offer. Cetronic or Socket, as the
case may be, shall furnish all information concerning Cetronic or Socket as the
other party may reasonably request in connection with such actions and the
preparation of the Registration Statement and Disclosure Documents. As promptly
as practicable after the Registration Statement Effective Date, the Joint Proxy
Statement will be mailed to the stockholders of Cetronic and Socket, and, in the
case of Cetronic, Swedish language translations or summaries thereof or a
separate Swedish language prospectus, as may be necessary or appropriate, will
be provided to its registered stockholders. The Joint Proxy Statement, the
Swedish language prospectus, Registration Statement and all other documents
filed with the SEC, FSA or other U.S. or Swedish Governmental Entity, including
any translations or summaries thereof, are referred to herein as the "Disclosure
Documents." Cetronic and Socket shall cause the Disclosure Documents to comply
as to form and substance in all material respects with the applicable
requirements of (i) the Exchange Act, including, without limitation, Sections
14(a) and 14(d) thereof and the respective regulations promulgated thereunder,
(ii) the NASD, the PSE and, with respect to the Swedish language prospectus, the
FSA, (iii) the Securities Act, (iv) the NBK Recommendations Concerning Public
Offers for the Acquisition of Shares (1988), with respect to the Swedish
language prospectus, and (v) the DGCL.
(b) (i) The Disclosure Documents shall include the unanimous and
unconditional recommendation of the Board of Directors of Socket to the
stockholders of Socket that they vote in favor of adoption of this Agreement
and approval of the Reverse Stock Split; provided, however, that the Board
of Directors of Socket may, at any time prior to the Closing, withdraw,
modify or change any such recommendation if the Board of Directors of Socket
determines in good faith that failure to so withdraw, modify or change its
recommendation would cause the Board of Directors of Socket to breach its
fiduciary duties to Socket's stockholders under applicable Laws after
receipt of advice to
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such effect from independent legal counsel (who may be Socket's regularly
engaged independent legal counsel).
(ii) The Disclosure Documents shall include the unanimous and
unconditional recommendation of the Board of Directors of Cetronic to the
stockholders of Cetronic that they approve the Preemptive Rights Waiver and
accept the Exchange Offer; provided, however, that the Board of Directors of
Cetronic may, at any time prior to the Closing, withdraw, modify or change
any such recommendations if the Board of Directors of Cetronic determines in
good faith that failure to so withdraw, modify or change its recommendation
would cause the Board of Directors of Cetronic to breach its fiduciary
duties to Cetronic or Cetronic's stockholders under Swedish Laws after
receipt of advice to such effect from independent legal counsel (who may be
Cetronic's regularly engaged independent legal counsel).
(c) No amendment or supplement to the Disclosure Documents or the
Registration Statement will be made without the approval of Cetronic and Socket,
which approval shall not be unreasonably withheld or delayed. Each of Cetronic
and Socket will advise the others promptly after it receives notice thereof, of
the time when the Registration Statement has become effective or any supplement
or amendment has been filed, of the issuance of any stop order, of the
suspension of the qualification of Socket Common Stock issuable in connection
with the Exchange Offer for offering or sale in any jurisdiction, or of any
request by the SEC, the NASD, the PSE or the FSA for amendment of the Disclosure
Documents or the Registration Statement or comments thereon and responses
thereto or requests by the SEC, the NASD, the PSE or the FSA for additional
information.
(d) The information supplied by Cetronic for inclusion in the Registration
Statement and the Disclosure Documents shall not, at (i) the time the
Registration Statement is declared effective, (ii) the time the Joint Proxy
Statement (or any amendment thereof or supplement thereto) or Swedish language
prospectus is first mailed to the stockholders of Cetronic and Socket, (iii) the
time of the Socket Stockholders' Meeting and the Cetronic Stockholders' Meeting
and (iv) the Closing Date, contain any untrue statement of a material fact or
fail to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading. If at any time prior to the
Closing, any event or circumstance relating to Cetronic or any Cetronic
Subsidiary, or their respective officers or directors, should be discovered by
Cetronic that should be set forth in an amendment or a supplement to the
Registration Statement or Disclosure Documents, Cetronic shall promptly inform
Socket. All documents that Cetronic is responsible for filing with any
Governmental Entity in connection with the Transactions will comply as to form
and substance in all material respects with the applicable requirements of the
FSA, the DGCL, the Securities Act, the Exchange Act and other applicable Laws.
(e) The information supplied by Socket for inclusion in the Registration
Statement and the Disclosure Documents shall not, at (i) the time the
Registration Statement is declared effective, (ii) the time the Joint Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
the stockholders of Socket and Cetronic, (iii) the time of the Socket
Stockholders' Meeting, and (v) the Closing Date, contain any untrue statement of
a material fact or fail to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. If at any
time prior to the Closing any event or circumstance relating to Socket or any
Socket Subsidiary, or their respective officers or directors, should be
discovered by Socket that should be set forth in an amendment or a supplement to
the Registration Statement or Disclosure Documents, Socket shall promptly inform
Cetronic. All documents that Socket is responsible for filing with any
Governmental Entity in connection with the Transactions will comply as to form
and substance in all material respects with the applicable requirements of the
FSA, DGCL, the Securities Act, the Exchange Act and other applicable Laws.
SECTION 5.02 STOCKHOLDERS' MEETINGS. (a) Socket shall call and hold the
Socket Stockholders' Meeting as promptly as practicable after the Registration
Statement Effective Date for the purpose of voting upon the adoption of this
Agreement and the approval of the Reverse Stock Split, and Cetronic and
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Socket will cooperate with each other to cause the Socket Stockholders' Meeting
to be held on or proximate to the Expiration Date of the Exchange Offer. Socket
shall use its reasonable best efforts (through its agents or otherwise) to
solicit from its stockholders proxies in favor of the adoption of this Agreement
and approval of the Reverse Stock Split, and shall take all other action
necessary or advisable to secure the affirmative vote of its stockholders
required by the DGCL to secure such adoption and approval, except to the extent
that the Board of Directors of Socket determines in good faith that doing so
would cause the Board of Directors of Socket to breach its fiduciary duties to
Socket's stockholders under applicable Laws after receipt of advice to such
effect from independent legal counsel (who may be Socket's regularly engaged
independent legal counsel).
(b) Cetronic shall call and hold the Cetronic Stockholders' Meeting as
promptly as practicable after the Registration Statement Effective Date for the
purpose of voting upon the approval of the Preemptive Rights Waiver, and
Cetronic and Socket will cooperate with each other to cause the Cetronic
Stockholders' Meeting to be held on or proximate to the Expiration Date of the
Exchange Offer. Cetronic shall use its reasonable best efforts (through its
agents or otherwise) to solicit from its stockholders proxies in favor of the
approval of the Preemptive Rights Waiver, and shall take all other action
necessary or advisable to secure the affirmative vote of its stockholders
required by the FSA to secure such approval, except to the extent that the Board
of Directors of Cetronic determines in good faith that doing so would cause the
Board of Directors of Cetronic to breach its fiduciary duties to Cetronic's
stockholders under applicable Laws after receipt of advice to such effect from
independent legal counsel (who may be Cetronic's regularly engaged independent
legal counsel).
SECTION 5.03 ACCESS TO INFORMATION; CONFIDENTIALITY. (a) Except as
required pursuant to any confidentiality agreement or similar agreement or
arrangement to which Cetronic or Socket or any of their respective subsidiaries
is a party or pursuant to applicable Law or the regulations or requirements of
any stock exchange or other regulatory organization with whose rules the parties
are required to comply, from the date of this Agreement to the Closing Date,
Cetronic and Socket shall (and shall cause their respective subsidiaries to):
(i) provide to the other (and its officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives, collectively,
"Representatives") access at reasonable times upon prior notice to the officers,
employees, agents, properties, offices and other facilities of the other and its
subsidiaries and to the books and records thereof and (ii) furnish promptly such
information concerning the business, properties, contracts, assets, liabilities,
personnel and other aspects of the other party and its subsidiaries as the other
party or its Representatives may reasonably request. No investigation conducted
pursuant to this Section 5.03 shall affect or be deemed to modify any
representation or warranty made in this Agreement.
(b) The parties shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under any
and all the Confidentiality Agreements between Cetronic and Socket with respect
to the information disclosed pursuant to this Section 5.03.
SECTION 5.04 NO SOLICITATION OF TRANSACTIONS. (a) From and after the date
of this Agreement until the earlier of the Closing Time or the termination of
this Agreement in accordance with its terms, each party to this Agreement will
not, directly or indirectly, and will instruct its officers, directors,
employees, subsidiaries, agents or advisors or other representatives (including,
without limitation, any investment banker, attorney or accountant retained by
it), not to, directly or indirectly, solicit, initiate or take any action
intended, designed or reasonably likely to encourage (including by way of
furnishing nonpublic information), or take any other action intended, designed
or reasonably likely to facilitate, any inquiries or the making of any proposal
or offer (including, without limitation, any proposal or offer to its
stockholders) that constitutes, or may reasonably be expected to lead to, any
Competing Transaction, or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize or permit any of the officers, directors or employees
of such party or any of its subsidiaries, or any investment banker, financial
advisor, attorney, accountant or other representative retained by such party or
any of
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such party's subsidiaries, to take any such action. Each party to this Agreement
shall notify the other parties promptly if any proposal or offer, or any inquiry
or contact with any person with respect thereto, regarding a Competing
Transaction is made. Each party to this Agreement immediately shall cease and
cause to be terminated all existing discussions or negotiations with any parties
conducted heretofore with respect to a Competing Transaction and promptly
request that all confidential information furnished on behalf of such party be
returned. Each party to this Agreement agrees not to release any third party
from, or waive any provision of, any confidentiality or standstill agreement to
which it is a party.
(b) Notwithstanding anything to the contrary in Section 5.04 the Board of
Directors of each party to this Agreement may cause such party to furnish
information to, and may participate in discussions or negotiations with, any
person that, unsolicited by such party, has submitted a written proposal to such
Board of Directors relating to a Competing Transaction, in each case to the
extent that the Board of Directors of such party determines in good faith that
the failure to do so would cause the Board of Directors of such party to breach
its fiduciary duties to such party or its stockholders under applicable Laws
after receipt of advice to such effect from independent legal counsel (who may
be such party's regularly engaged independent legal counsel) and,
notwithstanding anything to the contrary contained in this Agreement, any such
furnishing of information and participation in discussions or negotiations shall
not constitute a breach of this Agreement by such party; provided, however, that
any party furnishing such information, or participating in such discussions or
negotiations shall notify the other promptly of such action and shall, in any
such notice, indicate the identity of the person making the written proposal
referred to in this Section 5.04, and, in reasonable detail, the terms and
conditions of such written proposal.
(c) A "Competing Transaction" means any of the following involving Cetronic
or Socket, as the case may be (other than the Transactions contemplated by this
Agreement): (i) a merger, consolidation, share exchange, business combination or
other similar transaction; (ii) any sale, lease, exchange transfer or other
disposition of 25% or more of the assets of such party and its subsidiaries,
taken as a whole or (iii) a tender offer or exchange offer for, or any other
acquisition of, 10% or more of the outstanding voting securities of such party.
SECTION 5.05 EMPLOYEE BENEFITS MATTERS. Annex A hereto sets forth certain
agreements among the parties hereto with respect to employee benefits matters
and is incorporated herein by this reference.
SECTION 5.06 LETTERS OF ACCOUNTANTS. (a) Socket shall use its reasonable
best efforts to cause to be delivered to Cetronic "comfort" letters of Ernst &
Young LLP, Socket's independent public accountants, dated and delivered on the
Registration Statement Effective Date and as of the Closing Date, and addressed
to Cetronic, in form and substance reasonably satisfactory to Cetronic and
reasonably customary in scope and substance for letters delivered by independent
public accountants in connection with transactions such as those contemplated by
this Agreement.
(b) Cetronic shall use its reasonable best efforts to cause to be delivered
to Socket "comfort" letters of Ohrlings Coopers & Lybran AB, Cetronic's
independent public accountants, dated and delivered the Registration Statement
Effective Date and as of the Closing Date, and addressed to Socket, in form and
substance reasonably satisfactory to Socket and reasonably customary in scope
and substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement.
SECTION 5.07 FURTHER ACTION; CONSENTS; FILINGS. (a) Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use its best
efforts to (i) take, or cause to be taken, all appropriate action, and do, or
cause to be done, all things necessary, proper or advisable under applicable Law
or otherwise to consummate and make effective the Transactions, (ii) obtain from
Governmental Entities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Cetronic or Socket
or any of their subsidiaries in connection with the authorization, execution and
delivery of this Agreement and the consummation of the Transactions, (iii) make
all necessary filings, and
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thereafter make any other submissions either required or deemed appropriate by
each of the parties, with respect to this Agreement and the Transactions
required under (A) the rules and regulations of the FSA, (B) the Securities Act,
the Exchange Act and any other applicable federal or Blue Sky Laws, (C) the HSR
Act, and (D) any other applicable Law. The parties hereto shall cooperate and
consult with each other in connection with the making of all such filings,
including by providing copies of all such documents to the nonfiling party and
its advisors prior to filing, and none of the parties will file any such
document if any of the other parties shall have reasonably objected to the
filing of such document. No party to this Agreement shall consent to any
voluntary extension of any statutory deadline or waiting period or to any
voluntary delay of the consummation of the Transactions at the behest of any
Governmental Entity without the consent and agreement of the other parties to
this Agreement, which consent shall not be unreasonably withheld or delayed.
(b) Without limiting the generality of Section 5.07(a), each of Cetronic and
Socket shall:
(i) take promptly any or all of the following actions to the extent
necessary to obtain the approval of any Governmental Entity with
jurisdiction over the enforcement of any applicable Laws regarding the
legality of the Transactions: entering into negotiations, providing
information, making proposals, entering into and performing agreements or
submitting to judicial or administrative orders, or selling or otherwise
disposing of, or holding separate (through the establishment of a trust or
otherwise) particular assets or categories of assets, or businesses, of
Cetronic, Socket or any of their affiliates; provided, however, neither
Cetronic nor Socket shall be obligated to take any action that would have a
Cetronic Material Adverse Effect or a Socket Material Adverse Effect, as the
case may be, assuming for purposes of this proviso that the Transactions
have been consummated;
(ii) use its best efforts to prevent the entry in a judicial or
administrative proceeding brought under any Law by any Government Entity or
any other party of any permanent or preliminary injunction or other order
(an "Order") that would make consummation of the Transactions in accordance
with the terms of this Agreement unlawful or that would prevent or delay
such consummation, including, without limitation, taking the steps
contemplated by Section 5.07(b)(i); and
(iii) take promptly, in the event that such an Order has been issued in
such a proceeding, any and all steps, including, without limitation, the
appeal thereof, the posting of a bond or the steps contemplated by Section
5.07(b)(i), necessary to vacate, modify or suspend such injunction or order
so as to permit such consummation on a schedule as close as possible to that
contemplated by this Agreement.
SECTION 5.08 SOCKET ORGANIZATION. Immediately prior to the Closing Time,
Socket shall take action to cause the full Board of Directors of Socket at the
Closing to consist of (A) two persons who are currently directors of Socket, (B)
two persons who are currently directors of Cetronic, and (C) the Chief Executive
Officer of Socket; provided, however, that if Socket has not hired a new Chief
Executive Officer by the Closing Time, such Socket Board position shall remain
vacant until such time as Socket hires a new Chief Executive Officer who is
mutually agreeable to Socket and Cetronic.
SECTION 5.09 PUBLIC ANNOUNCEMENTS. Cetronic and Socket shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or any Transaction and shall not issue
any such press release or make any such public statement prior to such
consultation, except to the extent required by applicable Law or the
requirements of the NASD or the Pacific Stock Exchange ("PSE"), in which case
the issuing party shall use its reasonable best efforts to consult with the
other party before issuing any such release or making any such public statement.
SECTION 5.10 STOCK EXCHANGE LISTINGS. Socket shall use its best efforts to
cause the shares of Socket Common Stock to be issued in the Transactions to be
approved for listing on the OTC Bulletin Board or the Nasdaq SmallCap Market, as
applicable, and the PSE, subject to official notice of issuance, prior to the
Closing Date. Following the Closing Date, Socket shall use its reasonable
efforts to cause its
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Common Stock (or Swedish securities (i.e., SDS's) based on the Socket Common
Stock) to be approved for listing on the SSE or similar Swedish exchange.
SECTION 5.11 CONVERTIBLE BRIDGE LOANS. (a) Concurrently with the execution
of this Agreement, (i) Cetronic shall provide Socket with a six-month
convertible bridge loan in the principal amount of $500,000, which loan shall be
evidenced by a promissory note in the form attached hereto as EXHIBIT A (the
"New Cetronic Note"); and (ii) the individuals and entities set forth on
Schedule 5.11 hereof shall provide Socket with a six-month convertible bridge
loan in the aggregate principal amount of $100,000, which loan shall be
evidenced by a promissory note in the form attached hereto as EXHIBIT B.
(b) Prior to the earlier of their respective maturity dates or the Closing
Time, (i) with respect to a prior convertible bridge loan provided by Cetronic
to Socket in the principal amount of $500,000 (the "Prior Cetronic Note"),
Cetronic shall, and with respect to prior convertible bridge loans provided by
certain Cetronic stockholders, Cetronic shall use its best efforts to extend the
maturity date of such bridge loans outstanding so that they become due on the
same date as the six-month loan described in paragraph (i) hereof; and (ii)
Socket shall use its best efforts to obtain up to an additional $400,000 in
six-month convertible bridge loans on substantially the same terms as the
six-month loans described in paragraph (a)(ii) hereof.
SECTION 5.12 CETRONIC INTELLECTUAL PROPERTY AGREEMENTS. Prior to the
Closing Time, (a) the individuals and entities listed on Schedule 5.12(a) will
enter into agreements (the "IP Agreements") with Cetronic confirming Cetronic's
ownership of its intellectual property and confirming that such individual or
entity has no rights in any Cetronic intellectual property; (b) the individuals
and entities listed on Schedule 5.12(b) will enter into IP Agreements with
Cetronic Norge A/S, a Norwegian corporation and wholly owned subsidiary of
Cetronic ("Cetronic Norge"), confirming Cetronic Norge's ownership or rights to
use intellectual property and confirming that such individual or entity have no
rights in any Cetronic Norge intellectual property; and (c) the individuals and
entities listed on Schedule 5.12(c) will enter into IP Agreements with Socket
confirming Socket's ownership of its intellectual property and confirming that
such individual or entity has no rights in any Socket intellectual property.
SECTION 5.13 TERMINATION OF CETRONIC STOCKHOLDERS' AGREEMENT. Prior to the
Closing Time, the agreement between Cetronic and the holders of Cetronic Class A
Shares, which provides for, among other things, a right of first refusal with
respect to the sale of such shares, shall be terminated in accordance with its
terms and shall be of no further force or effect.
SECTION 5.14 CETRONIC RELATED-PARTY AGREEMENTS. Prior to the Closing Time,
Cetronic shall cause the agreements listed in Section 3.14 of the Cetronic
Disclosure Schedule to be amended on terms mutually agreeable to Socket and the
parties thereto.
SECTION 5.15 CONVERSION OF CETRONIC CONVERTIBLE NOTES. Prior to the
initial Expiration Date of the Exchange Offer, Cetronic shall use its best
efforts to cause the holders of the convertible promissory notes of Cetronic
listed on Schedule 5.15 to convert all of the outstanding principal of such
notes and any accrued interest thereon into Cetronic Shares in accordance with
the terms thereof.
SECTION 5.16 REGISTRATION RIGHTS AGREEMENT. Prior to the Closing Time,
Socket and the persons listed on Schedule 5.16 shall have entered into a
Registration Rights Agreement in a form to be mutually agreed upon by such
persons pursuant to which, among other things, Socket shall agree to file a
Registration Statement for the registration of the shares of Socket Common Stock
to be owned by the persons listed on Schedule 5.16 following the Closing Date
within ninety (90) days of the Closing Date and that Socket shall use its
reasonable best efforts to cause such Registration Statement to be declared
effective as soon as practicable thereafter and to remain effective for a period
of two (2) years.
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ARTICLE VI
CONDITIONS TO THE TRANSACTIONS
SECTION 6.01 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO CONSUMMATE THE
TRANSACTIONS. The obligations of Cetronic and Socket to consummate the
Transactions, or to permit the consummation of the Transactions, are subject to
the satisfaction or, if permitted by applicable Law, waiver of the following
conditions:
(a) the Registration Statement shall have been declared effective by the
SEC under the Securities Act, and no stop order suspending the effectiveness
of the Registration Statement shall have been issued by the SEC and no
proceeding for that purpose shall have been initiated by the SEC;
(b) The Swedish language prospectus shall have been filed with the FSA,
and no action shall have been taken by the FSA that might influence the
Exchange Offer and no proceeding for that purpose shall have been initiated
by the FSA;
(c) This Agreement and the Transactions shall have been approved and
adopted by the requisite vote of the stockholders of Socket, and the
amendment to Cetronic's Articles of Association involving the termination of
all preemptive or similar rights of Cetronic stockholders shall have been
approved by the requisite vote of the stockholders of Cetronic.
(d) no court of competent jurisdiction shall have issued or entered any
Order which is then in effect and has the effect of making any of the
Transactions illegal or otherwise prohibiting their consummation;
(e) all consents, approvals and authorizations required to be obtained
to consummate the Transactions shall have been obtained from all
Governmental Entities, except where the failure to obtain any such consents,
approvals and authorizations would not result in a change in or effect on
the business of Socket or Cetronic that is, or is reasonably likely to be,
materially adverse to the business, assets (including intangible assets),
liabilities (contingent or otherwise), condition (financial or otherwise) or
results of operations of Socket, Cetronic and their respective subsidiaries,
taken as a whole;
(f) the shares of Socket Common Stock to be issued pursuant to the
Exchange Offer shall have been authorized for listing on the OTC Bulletin
Board or the Nasdaq Small Cap Market, as applicable, subject to official
notice of issuance, and shall have been authorized for listing on the PSE;
and
(g) the Minimum Condition.
SECTION 6.02 CONDITIONS TO THE OBLIGATIONS OF SOCKET. The obligations of
Socket to consummate the Transactions, or to permit the consummation of the
Transactions, are subject to the satisfaction or, if permitted by applicable
Law, waiver of the following further conditions:
(a) each of the representations and warranties of Cetronic contained in
this Agreement shall be true and correct as of the Closing Date as though
made on and as of the Closing Date, except for changes contemplated by this
Agreement (including the Cetronic Disclosure Schedule) and except that those
representations and warranties that address matters only as of a particular
date which shall remain true and correct as of such date, with the same
force and effect as if made on and as of the Closing Date, except where any
such failure or failures to be so true and correct, in the aggregate, would
not have a Cetronic Material Adverse Effect, and Socket shall have received
a certificate of the Chairman, President or Chief Financial Officer of
Cetronic and the Cetronic Stockholder Agent to such effect;
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(b) Cetronic shall have performed or complied in all material respects
with all agreements and covenants required by this Agreement to be performed
or complied with by it or them on or prior to the Closing Date, and Socket
shall have received a certificate of the Chairman, President or Chief
Financial Officer of Cetronic to that effect;
(c) Socket shall have been furnished with evidence satisfactory to it
that Cetronic has obtained the consents, approvals and waivers set forth in
Schedule 6.02(c);
(d) Socket shall have received a legal opinion from Advokatfirman
Fylgia, legal counsel to Cetronic, in a form that is customary for similar
transactions and is reasonably satisfactory to Socket; and
(e) Socket shall have been furnished with evidence satisfactory to it
that Cetronic has, as of the Closing Date, the Minimum Cash Balance
Requirement, and, other than as contemplated by this Agreement or as set
forth in Cetronic Disclosure Schedules, Cetronic has no agreement or
commitment that would reduce its cash balances below the Minimum Cash
Balance Requirement following the Closing Time, other than for agreements or
commitments consented to in writing by Socket prior to such agreement or
commitment, which consent shall not be unreasonably withheld.
SECTION 6.03 CONDITIONS TO THE OBLIGATIONS OF CETRONIC. The obligations of
Cetronic to consummate the Transactions, or to permit the consummation of the
Transactions, are subject to the satisfaction or, if permitted by applicable
Law, waiver of the following further conditions:
(a) Each of the representations and warranties of Socket contained in
this Agreement shall be true and correct as of the Closing Date, as though
made on and as of the Closing Date, except for changes contemplated by this
Agreement (including the Socket Disclosure Schedule) and except that those
representations and warranties that address matters only as of a particular
date (which shall remain true and correct as of such date) with the same
force and effect as if made on and as of the Closing Date, except where any
such failure or failures to be so true and correct, in the aggregate, would
not have a Socket Material Adverse Effect, and Cetronic shall have received
a certificate of the Chairman, President or Chief Financial Officer of
Socket to such effect;
(b) Socket shall have performed or complied in all material respects
with all agreements and covenants required by this Agreement to be performed
or complied with by it on or prior to the Closing Date, and Cetronic shall
have received a certificate of the Chairman, President or Chief Financial
Officer of Socket to that effect;
(c) Cetronic shall have been furnished with evidence satisfactory to it
that Socket has obtained the consents, approvals and waivers set forth in
Schedule 6.03(c);
(d) Cetronic shall have received a legal opinion from Wilson Sonsini
Goodrich & Rosati, legal counsel to Socket, in a form that is customary for
similar transactions and is reasonably satisfactory to Cetronic;
(e) Two members of the Board of Directors of Socket shall have resigned,
and the Board of Directors of Socket shall have taken appropriate action to
elect two Cetronic designees to fill the vacancies resulting from such
resignations to the Board of Directors of Socket, effective upon the
Closing; and
(f) To the extent required under the agreements listed on Schedule
6.3(f), Socket shall have received the written consent, waiver or
authorization of the parties to the agreements listed on Schedule 6.3(f).
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01 TERMINATION. This Agreement may be terminated and the
Exchange Offer may be abandoned at any time prior to the Closing, whether before
or after approval and adoption of this Agreement by the Socket stockholders or
the approval of the Preemptive Rights Waiver by the Cetronic stockholders, as
follows:
(a) by mutual written consent duly authorized by the Board of Directors
of each of Cetronic and Socket;
(b) by either Cetronic or Socket, if the Closing shall not have occurred
on or before November 1, 1997 (the "Final Closing Date"); provided, however,
that the right to terminate this Agreement under this Section 7.01(b) shall
not be available to the party whose willful failure to fulfill any
obligation under this Agreement shall have been the cause of, or resulted
in, the failure of the Closing to occur on or before such date;
(c) by either Cetronic or Socket, if any Order preventing the
consummation of the Transactions shall have been entered by any court of
competent jurisdiction and shall have become final and nonappealable;
(d) by Cetronic, if (i) the Board of Directors of Socket withdraws,
modifies or changes its recommendation of this Agreement in a manner adverse
to Cetronic or shall have resolved to do so, (ii) the Board of Directors of
Socket shall have recommended to the stockholders of Socket a Competing
Transaction or shall have resolved to do so, or (iii) a tender offer or
exchange offer for 10% or more of the outstanding shares of capital stock of
Socket is commenced, and the Board of Directors of Socket fails to recommend
against acceptance of such tender offer or exchange offer by its
stockholders (including by taking no position with respect to the acceptance
of such tender offer or exchange offer by its stockholders);
(e) by Socket, if (i) the Board of Directors of Cetronic withdraws,
modifies or changes its recommendation of the Exchange Offer in a manner
adverse to Socket or shall have resolved to do so, (ii) the Board of
Directors of Cetronic shall have recommended to the stockholders of Cetronic
a Competing Transaction or shall have resolved to do so, or (iii) a tender
offer or exchange offer for 10% or more of the outstanding shares of capital
stock of Cetronic is commenced (other than the Exchange Offer), and the
Board of Directors of Cetronic fails to recommend against acceptance of such
tender offer or exchange offer by its stockholders (including by taking no
position with respect to the acceptance of such tender offer or exchange
offer by its stockholders);
(f) by Cetronic or Socket if, (i) this Agreement shall fail to receive
the requisite vote for adoption at the Socket Stockholders' Meeting or any
adjournment or postponement thereof, (ii) the Exchange Offer expires without
the Minimum Condition having been met or any Cetronic Shares having been
accepted for payment or (iii) the Preemptive Rights Waiver shall fail to
receive the requisite vote for approval at the Cetronic Stockholders'
Meeting or any postponement or adjournment thereof;
(g) by Cetronic, upon a breach of any material representation, warranty,
covenant or agreement on the part of Socket set forth in this Agreement, or
if any representation or warranty of Socket shall have become untrue, in
either case such that the conditions set forth in Section 6.03 would not be
satisfied ("Terminating Socket Breach"); provided, however, that, if such
Terminating Socket Breach is curable by Socket through the exercise of its
best efforts and for so long as Socket continues to exercise such best
efforts, Cetronic may not terminate this Agreement under this Section
7.01(g);
27
<PAGE>
(h) by Socket, upon breach of any material representation, warranty,
covenant or agreement on the part of Cetronic set forth in this Agreement,
or if any representation or warranty of Cetronic shall have become untrue,
in either case such that the conditions set forth in Section 6.02 would not
be satisfied ("Terminating Cetronic Breach"); provided, however, that, if
such Terminating Cetronic Breach is curable by Cetronic through best efforts
and for so long as Cetronic continues to exercise such best efforts, Socket
may not terminate this Agreement under this Section 7.01(h);
(i) by Cetronic, if the Board of Directors of Cetronic shall, following
receipt of advice of independent legal counsel (who may be Cetronic's
regularly engaged independent legal counsel) that failure to so terminate
would cause the Board of Directors of Cetronic to breach its fiduciary
duties under applicable Laws, have withdrawn, modified or changed its
recommendation of the approval of the Exchange Offer in a manner adverse to
Socket and, on or prior to such date, any person (other than Socket) shall
have made a public announcement or otherwise communicated to Cetronic and
its stockholders with respect to a Competing Transaction; provided, however,
that Cetronic may not terminate this Agreement pursuant to this subsection
(i) until three business days have elapsed following delivery to Socket of
written notice of such determination of Cetronic (which written notice will
inform Socket of material terms and conditions of the Competing
Transaction); provided, further, however, that such termination under this
Section 7.01(i) shall not be effective until Cetronic has converted the New
Cetronic Note and the Prior Cetronic Note to Socket as required pursuant to
Section 7.05(c); or
(j) by Socket, if the Board of Directors of Socket shall, following
receipt of advice of independent legal counsel (who may be Socket's
regularly engaged independent legal counsel) that failure to so terminate
would cause the Board of Directors of Socket to breach its fiduciary duties
under applicable Laws, have withdrawn, modified or changed its
recommendation of the adoption of this Agreement in a manner adverse to
Cetronic and, on or prior to such date, any person (other than Cetronic)
shall have made a public announcement or otherwise communicated to Socket
and its stockholders with respect to a Competing Transaction; provided,
however, that Socket may not terminate this Agreement pursuant to this
subsection (j) until three business days have elapsed following delivery to
Cetronic of written notice of such determination of Socket (which written
notice will inform Cetronic of the material terms and conditions of the
Competing Transaction); provided, further, however, that such termination
under this Section 7.01(j) shall not be effective until SOCKET HAS DELIVERED
TO CETRONIC THE SHARES REQUIRED TO BE DELIVERED PURSUANT TO SECTION 7.05(B).
SECTION 7.02 EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to Section 7.01, this Agreement shall forthwith become void,
there shall be no liability under this Agreement on the part of Cetronic, or
Socket or any of their respective officers or directors, and all rights and
obligations of each party hereto shall cease, subject to the remedies of the
parties set forth in Sections 7.05(b), (c), (d) and (e); provided, however, that
nothing herein shall relieve any party from liability for the wilful breach of
any of its representations and warranties or the breach of any of its covenants
or agreements set forth in this Agreement.
SECTION 7.03 AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Closing Time. This Agreement may not be amended except
by an instrument in writing signed by the parties hereto.
SECTION 7.04 WAIVER. At any time prior to the Closing Time, any party
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and warranties contained herein or in any document delivered pursuant hereto,
and (c) waive compliance with any agreement or condition contained herein. Any
waiver of a condition set forth in Section 6.01, or any determination that such
a condition has been satisfied, will be effective only if made in writing by
each of Socket and Cetronic and, unless otherwise specified in such writing,
shall thereafter operate as a waiver (or satisfaction) of such condition for any
and all purposes of this
28
<PAGE>
Agreement. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby.
SECTION 7.05 FEES AND EXPENSES. (a) Except as set forth in this Section
7.05, all Expenses (as defined below) incurred in connection with this Agreement
and the Transactions shall be paid by the party incurring such expenses, whether
or not the Exchange Offer is consummated, except that Cetronic and Socket each
shall pay one-half of all Expenses relating to printing, filing and mailing the
Registration Statement and the Disclosure Documents and all SEC and other
regulatory filing fees incurred in connection with the Registration Statement
and the Disclosure Documents. "Expenses" as used in this Agreement shall consist
of all out-of-pocket expenses (including, without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts and consultants to
a party hereto and its affiliates) incurred by a party or on its behalf in
connection with or related to the authorization, preparation, negotiation,
execution and performance of this Agreement, the preparation, printing, filing
and mailing of the Registration Statement and the Disclosure Documents, the
solicitation of stockholder approvals and all other matters related to the
closing of the Transactions.
(b) Socket agrees that, if (A) Socket shall terminate this Agreement
pursuant to Section 7.01(j); (B) Cetronic shall terminate this Agreement
pursuant to Section 7.01(d) and at the time of such termination, any person
shall have made a public announcement or otherwise communicated to Socket and
its stockholders with respect to a Competing Transaction with respect to Socket;
or (C) (i) Cetronic shall terminate this Agreement pursuant to Section
7.01(f)(i) due to the failure of the Socket Stockholder Approval Condition, (ii)
at the time of such failure, any person shall have made a public announcement or
otherwise communicated to Socket and its stockholders with respect to a
Competing Transaction with respect to Socket and (iii) within six months
thereafter, such Competing Transaction shall be consummated, in each case
resulting in a Change of Control (as defined below) of Socket, then promptly
after such termination, or (in the case of clause (C)) promptly after the
consummation of such Competing Transaction, Socket shall issue to Cetronic
500,000 shares of Socket Common Stock. For purposes of this Agreement, the term
"Change of Control," with respect to any particular person, shall mean the
occurrence of any of the following events with respect to such person: (i) there
shall be consummated (A) any merger, consolidation or combination (any, a
"Combination") involving such person in which such person is not the continuing
or surviving corporation, or pursuant to which shares of such person's voting
stock would be converted in whole or in part into cash, other securities or
other property, other than a Combination involving such person in which the
holders of such person's voting stock immediately prior to the Combination have
substantially the same proportionate ownership of voting stock of the surviving
corporation immediately after the Combination, or (B) any sale, lease, exchange
or transfer (in one transaction or a series of related transactions) of all or
substantially all of the assets of such person, or (ii) any person, other than
such person or a subsidiary thereof or any employee benefit plan sponsored by
such person or a subsidiary thereof or a corporation owned, directly or
indirectly, by the stockholders of such person in substantially the same
proportions in their ownership of stock of such person, shall become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
securities of such person representing 50% or more of the combined voting power
of then outstanding securities ordinarily (and apart from rights accruing in
special circumstances) having the right to vote in the election of directors, as
a result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise.
(c) Cetronic agrees that, if (A) Cetronic shall terminate this Agreement
pursuant to Section 7.01(i); (B) Socket shall terminate this Agreement pursuant
to Section 7.01(e) and at the time of such termination, any person shall have
made a public announcement or otherwise communicated to Cetronic and its
stockholders with respect to a Competing Transaction with respect to Cetronic;
or (C) (i) Socket shall terminate this Agreement pursuant to Section 7.01(f)(ii)
or 7.01(f)(iii) due to the fact that the Exchange Offer has expired without any
Cetronic Shares having been accepted for payment or the failure of the
Preemptive Rights Waiver to receive the requisite approval at the Cetronic
Stockholders' Meeting, (ii) at
29
<PAGE>
the time of such failure, any person shall have made a public announcement or
otherwise communicated to Cetronic and its stockholders with respect to a
Competing Transaction with respect to Cetronic and (iii) within six months
thereafter, such Competing Transaction shall be consummated, in each case
resulting in a Change of Control of Cetronic, then promptly after such
termination, or (in the case of clause (C)) promptly after the consummation of
such Competing Transaction, Cetronic shall convert into shares of Socket Common
Stock the New Cetronic Note and the Prior Cetronic Note, as amended, referred to
in Section 5.11 hereof, plus accrued interest thereon in accordance with the
terms thereof.
(d) (i) Socket agrees that if this Agreement is terminated by either party
pursuant to Section 7.01(f)(i) as a result of the failure to obtain the
requisite vote for adoption of this Agreement at the Socket Stockholders'
Meeting or any adjournment or postponement thereof, then Socket shall reimburse
Cetronic for all its Expenses (upon receipt of reasonable documentation in
respect thereof) up to an aggregate amount of $350,000; and (ii) Cetronic agrees
that if this Agreement is terminated by either party pursuant to Section
7.01(f)(ii) or (iii) as a result of the Exchange Offer expiring without any
Cetronic Shares having been accepted for payment or the failure of the
Preemptive Rights Waiver to receive the requisite vote for approval at the
Cetronic Stockholders' Meeting or any postponement or adjournment thereof, then
Cetronic shall reimburse Socket for all of its Expenses (upon receipt of
reasonable documentation in respect thereof) up to an aggregate amount of
$350,000.
(e) Each of Cetronic and Socket agrees that the provisions of Sections
7.05(b), (c) and (d) shall be the sole and exclusive remedies of the parties
upon a termination of this Agreement pursuant to Section 7.01(d), (e), (f), (i)
or (j), as the case may be, and such remedies shall be limited to the provisions
stipulated in Sections 7.05(b), (c) and (d); provided, however, that nothing
herein shall relieve any party from liability for the wilful breach of any of
its representations and warranties or the breach of any of its covenants or
agreements set forth in this Agreement.
(f) Any note conversion or share issuance required to be made pursuant to
Section 7.05(b) or (c) shall be taken by the party required to take such action
as soon as practicable after delivery to the other party of notice of demand for
such note conversion or share issuance. Any payment required to be made pursuant
to Section 7.05(d) shall be made to the party entitled to receive such payment
not later than five business days after delivery to the other party of notice of
demand for payment and shall be made by wire transfer of immediately available
funds to an account designated by the party entitled to receive payment in the
notice of demand for payment delivered pursuant to this Section 7.05(f).
(g) In the event that Cetronic or Socket, as the case may be, shall fail to
pay any Expenses when due, the amount of any such Expenses shall be increased to
include the costs and expenses actually incurred or accrued by the other
(including, without limitation, fees and expenses of counsel) in connection with
the collection under and enforcement of this Section 7.05, together with
interest on such unpaid Expenses, commencing on the date that such Expenses
became due, at a rate equal to the rate of interest publicly announced by
Citibank, N.A., from time to time, in The City of New York, as such bank's Prime
Rate plus 1.00%.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01 NO SURVIVAL OF REPRESENTATIONS. All representations,
warranties and covenants of the parties contained in this Agreement will remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of the parties to this Agreement, until the earlier of the
termination of this Agreement or the Closing Date, whereupon such
representations, warranties and covenants will expire (except for covenants that
by their terms survive for a longer period).
30
<PAGE>
SECTION 8.02 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
and facsimile or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties at the following addresses (or at
such other address for a party as shall be specified in a notice given in
accordance with this Section 9.02):
if to Cetronic:
Cetronic Aktiebolag
Box 153
S-864 22 MATFORS
SWEDEN
Attention: Kurt Sjoblom
Telecopier: 46 60 67 13 09
with a copy to:
Tomlinson Zisko Morosoli & Maser LLP
200 Page Mill Road, Second Floor
Palo Alto, CA 94306
Attention: Richard Allan Horning
Telecopier: (415) 324-1808
and a copy to:
Advokatfirman Fylgia
P.O. Box 55555
Linnegatan 2
S-102 04 Stockholm
SWEDEN
Attention: Jan Ramkvist, Esq.
Telecopier: +46-8-442 53 15
if to Socket:
Socket Communications, Inc.
37400 Central Court
Newark, CA 94560
Attention: Chief Financial Officer
Telecopier: (510) 744-2728
with copies to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Barry E. Taylor, Esq.
Telecopier: (415) 493-6811
31
<PAGE>
and a copy to:
Lagerlof & Leman Advokatbyra
P.O. Box 5402
S-114 84 Stockholm
SWEDEN
Attention: Peter Traung, Esq.
Telecopier: +46-8 667 68 83
SECTION 8.03 CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "affiliate" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by, or is
under common control with, such specified person;
(b) "beneficial owner" with respect to any shares of capital stock means a
person who shall be deemed to be the beneficial owner of such shares (i) which
such person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of consideration
rights, exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding, or (iii) which are
beneficially owned, directly or indirectly, by any other persons with whom such
person or any of its affiliates or associates or person with whom such person or
any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
shares of capital stock;
(c) "business day" means any day on which the principal offices of the SEC
in Washington, D.C. are open to accept filings, or, in the case of determining a
date when any payment is due, any day on which banks are generally open for
commercial transactions in The City of New York, USA or in Stockholm, Sweden;
(d) "control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management and policies of
a person, whether through the ownership of voting securities, as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "knowledge" means, with respect to any matter in question, that the
executive officers of Cetronic or Socket, as the case may be, (i) have knowledge
of such matter, or (ii) after due investigation, should have known of such
matter;
(f) "Noon Buying Rate" means the noon buying rate in The City of New York
for cable transfers in Swedish kronor as certified for customs purposes by the
Federal Reserve Bank of New York;
(g) "person" means an individual, corporation, company, limited liability
company, partnership, limited partnership, syndicate, person (including, without
limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act),
trust, association or entity or government, political subdivision, agency or
instrumentality of a government; and
(h) "subsidiary" or "subsidiaries" of any person means any corporation,
limited liability company, partnership, joint venture or other legal entity of
which such person (either alone or through or together with any other
subsidiary) owns, directly or indirectly, more than 50% of the stock or other
equity interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
SECTION 8.04 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this
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<PAGE>
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the Transactions is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the Transactions be consummated as originally contemplated
to the fullest extent possible.
SECTION 8.05 ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of Law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
SECTION 8.06 INCORPORATION OF EXHIBITS. The Cetronic Disclosure Schedule,
the Socket Disclosure Schedule, Annex A and all Exhibits attached hereto and
referred to herein are hereby incorporated herein and made a part of this
Agreement for all purposes as if fully set forth herein.
SECTION 8.07 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without regard
to the conflicts of law provisions of the State of California or of any other
state or country except that the fiduciary duties of the directors of Socket and
Cetronic shall be governed under the laws of the jurisdiction of their
respective organizations.
SECTION 8.08 ARBITRATION. Except as otherwise provided herein, all
disputes, controversies, demands, or claims arising out of or relating to this
Agreement, to the transactions contemplated by this Agreement, or to the
formation, interpretation, performance, breach or termination thereof, which
cannot be settled by direct negotiation between the parties, shall be finally
settled and determined by arbitration administered by the International Chamber
of Commerce (the "ICC") under its then current Rules of Conciliation and
Arbitration (the "ICC Rules"). The written award of the arbitrators shall be
final and binding upon the parties, and judgment on or enforcement of the award
so rendered may be sought, had or entered in any court having jurisdiction.
(a) INITIATION OF ARBITRATION. Any party may initiate arbitration by filing
a written request for arbitration with the Secretariat of the ICC. A copy of the
request shall be furnished to all other parties in accordance with the
provisions of the ICC Rules and Section 8.02 Notices.
(b) APPOINTMENT OF ARBITRATORS. Each party shall appoint an arbitrator, and
after consultation with the parties the ICC shall appoint a third arbitrator.
Each arbitrator so appointed shall have an international reputation as being
experienced in the legal and technical matters related to the dispute.
(c) LOCATION OF THE ARBITRATION. The seat of arbitration shall be
Stockholm, Sweden, if the request for arbitration is first made by Socket, or
Palo Alto, California, if the request for arbitration is first made by Cetronic.
The arbitrators may hold hearings at such other locations as the arbitrators
shall determine, after consultation with the parties.
(d) LANGUAGE OF ARBITRATION. The arbitral proceedings and all pleadings and
written evidence shall be in the English language. Any written evidence
originally in a language other than English shall be submitted in English
translation accompanied by the original or true copy thereof.
33
<PAGE>
(e) TERMS OF REFERENCE. In addition to those matters required by the ICC
Rules to be included in the Terms of Reference, the arbitrators shall, after
consultation with the parties, include within the Terms of Reference appropriate
provisions which:
(i) require the disclosure of all exhibits expected to be used by the
parties at the arbitration, and the exchange of complete copies of all such
exhibits in advance of the arbitration;
(ii) determine the dates for the exchange of said written disclosures
and copies of said exhibits;
(iii) require the written disclosure of the identity of all witnesses
whom the parties expect to call at the arbitration;
(iv) determine the dates for the exchange of the written disclosures of
the identity of witnesses which the parties expect to call at the
arbitration;
(v) determine the dates for the exchange of sworn narrative statements
containing the testimony of all witnesses whom the parties expect to call at
the arbitration;
(vi) require that the sworn narrative testimony of witnesses be
submitted in substitution for the direct examination of the witness, and
that all witnesses whose sworn testimony is submitted for consideration by
the arbitrators must present him or herself for cross examination at the
time and place of the arbitration hearing, unless some other procedure
providing the parties with a full and complete opportunity for
cross-examination has been established and provided by the arbitrators, the
parties and the witness;
(vii) prohibit, except upon a showing of good cause, or for purposes of
rebuttal, the receipt into evidence of any exhibit not disclosed by the
parties, nor shall the arbitrators permit a party to present the testimony
of any witness whose identity and testimony was not exchanged prior to the
arbitration; and
(viii) permit discovery as reasonable and necessary for the orderly
preparation of the dispute for hearing and determination of the dispute
(said discovery may include requests for production of documents and
depositions of witnesses who cannot be summoned to the arbitration or are
otherwise unavailable to attend the arbitration).
(f) LIMITATION ON REMEDIES. The arbitrators are precluded from awarding
punitive or exemplary damages, and may not award any indirect, special,
incidental or consequential damages except upon a showing of bad faith. In no
event shall the arbitrators have the powers of an amiable compositeur.
(g) RESORT TO THE COURTS. Nothing in this Agreement prohibits any party
from seeking interim or conservatory relief in any court of competent
jurisdiction; PROVIDED, HOWEVER, that neither the filing of an application for a
temporary restraining order, preliminary injunction, or other interim or
conservatory relief, as necessary, nor the granting of such relief, shall be
deemed to be a waiver of the obligation of the party to have the dispute heard
and determined solely and exclusively by arbitration.
(h) SURVIVAL. The rights and obligations of the parties as described herein
shall survive the termination, expiration, non-renewal, or rescission of the
Agreement between the parties.
SECTION 8.09 HEADINGS. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 8.10 COUNTERPARTS. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
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<PAGE>
SECTION 8.11 ENTIRE AGREEMENT. This Agreement (including Annex A, the
Exhibits, the Cetronic Disclosure Schedule, the Socket Disclosure Schedule and
the Schedules hereto) and any Confidentiality Agreement between Socket and
Cetronic constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings
among the parties with respect thereto. No addition to or modification of any
provision of this Agreement shall be binding upon any party hereto unless made
in writing and signed by all parties hereto.
IN WITNESS WHEREOF, Socket and Cetronic have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
"SOCKET"
SOCKET COMMUNICATIONS, INC.
By:
--------------------------------------
Name:
Title:
Attest by:
- ------------------------------------
Name:
Title:
"CETRONIC"
CETRONIC AKTIEBOLAG [PUBL]
By:
--------------------------------------
Name:
Title:
Attest by:
- ------------------------------------
Name:
Title:
35
<PAGE>
ANNEX A
EMPLOYEE BENEFITS
Cetronic and Socket agree to the following with respect to the compensation
and benefits programs of Cetronic and the Cetronic Subsidiaries:
1. CONTINUATION OF BENEFITS. Except as contemplated by the Agreement
or this Annex B, for a period of twelve (12) months following the Closing
Date, Cetronic shall maintain employee benefit plans and arrangements
(directly or in conjunction with Socket) which in the aggregate will provide
a similar level of benefits to active and retired employees of Cetronic and
the Cetronic Subsidiaries to those provided under Cetronic employee benefit
plans and arrangements as in effect immediately prior to the Closing Time;
provided, however, that changes may be made to such employee benefit plans
and arrangements to the extent necessary to comply with applicable Law. From
and after the Closing Time, Socket shall honor, and shall cause Cetronic to
honor in accordance with their terms, all existing employment and severance
agreements and severance plans which apply to current or former employees or
directors of Cetronic or the Cetronic Subsidiaries.
2. SERVICE RECOGNITION. To the extent that service is relevant for
purposes of eligibility, participation, vesting or benefit accrual under any
employee benefit plan, program or arrangement established or maintained by
Socket, Cetronic or a Cetronic Subsidiary, employees of Cetronic and the
Cetronic Subsidiaries shall be credited for service accrued or deemed
accrued prior to the Closing Time with Cetronic or a Cetronic Subsidiary;
provided, however, that such crediting of service does not result in the
duplication of benefits or an unintended windfall with respect to the
accrual of benefits.
3. EQUITY INCENTIVES. Socket intends to provide equity incentives to
Cetronic employees to provide additional income and to promote the success
of the combined company's business following the Closing Date. In this
regard, Socket intends to adopt a stock option plan for the non-U.S.
employees of Cetronic that will provide for such equity incentives, and,
within twelve (12) months following the Closing Date, to grant stock options
to Cetronic employees at levels comparable to similarly situated Socket
employees to the end that employees of Socket and Cetronic will, to the
extent practicable, will enjoy substantially comparable levels of equity
compensation.
<PAGE>
SCHEDULE 5.11
HOLDERS OF SOCKET CONVERTIBLE PROMISSORY NOTES
<TABLE>
<CAPTION>
NAME OF HOLDER AMOUNT OF NOTE
- -------------------------------------------------------------------- --------------
<S> <C>
The Bass Trust $ 60,000.00
Jack Carsten $ 30,000.00
El Dorado Ventures III 9,611.67
El Dorado C&L Fund 177.99
El Dorado Technology IV 210.34
--------------
Total $ 100,000.00
</TABLE>
<PAGE>
SCHEDULE 5.12
INTELLECTUAL PROPERTY AGREEMENTS
(a) INDIVIDUALS AND ENTITIES TO EXECUTE INTELLECTUAL PROPERTY AGREEMENTS WITH
CETRONIC
Energy Communication System AB
Nya Comtel AB
Datorelektronik AB
Foretagsbyggarna AB
Foretagsbyggarna BV
Kurt Sjoblom
In addition, other individuals and entities who have technical and
engineering responsibilities shall be required to sign IP Agreements with
Cetronic to the extent reasonably required by Socket following further due
diligence prior to the Closing Time.
(b) INDIVIDUALS AND ENTITIES TO EXECUTE INTELLECTUAL PROPERTY AGREEMENTS WITH
CETRONIC NORGE A/S
Individuals and entities who have technical and engineering responsibilities
shall be required to sign IP Agreements with Cetronic Norge A/S to the
extent reasonably required by Socket following further due diligence prior
to the Closing Time.
(c) INDIVIDUALS TO EXECUTE INTELLECTUAL PROPERTY AGREEMENTS WITH SOCKET
Bobby Dale Gifford
Steve Kiraly
In addition, other individuals shall be required to sign IP Agreements with
Socket to the extent reasonably required by Cetronic following further due
diligence prior to the Closing Time.
<PAGE>
SCHEDULE 5.15
HOLDERS OF CETRONIC CONVERTIBLE PROMISSORY NOTES
<TABLE>
<CAPTION>
FACE VALUE OF
CONVERTIBLE LOAN
NOTEHOLDER (KRONOR)
- ------------------------------------------------------------------------------ ------------------------
<S> <C>
Telenor Venture A/S SEK 1,290,000
ForetagsByggarna 600,000
Revert AB 798,000
Nils-Erik Sjoblom 198,000
Karl-Erik Eklund 72,000
Martin Gemvik 96,000
Mariegarden Investment AB 66,000
Jelka Forvaltning 54,000
Mats Carlgrens Stiftelse AB 48,000
TRC/Statens institut for blinda 48,000
Goran Garberg 42,000
Tellus Maskin AB 42,000
Birgitta Holmstrom 36,000
Familjen Ljungberg 36,000
Gert Blomen 30,000
Gerania AB 30,000
Scandinavian Merchant Group 30,000
Fredrik Grunewald 24,000
Cambista AB 18,000
Bona Utilia AB 24,000
Sture Lunden 18,000
------------------------
Total SEK 3,600,000
</TABLE>
<PAGE>
SCHEDULE 5.16
REGISTRATION RIGHTS HOLDERS
Telenor Venture A/S
ForetagsByggarna
Kurt Sjoblom and wife, or such other transferee from them subject to Rule 144
<PAGE>
SCHEDULE 6.3(f)
SOCKET CONSENTS
Loan Agreement between Socket and CivicBank of Commerce dated July 5, 1995,
as amended by the Change in Terms Agreement dated June 14, 1996, or such other
agreement(s) as shall be executed between Socket and CivicBank of Commerce at or
prior to the expiration of such Loan Agreement, as amended, otherwise amending
and/or extending the maturity date of the loan.
Loan Agreement dated as of November 30, 1995 between Socket, as Borrower,
and Venture Lending & Leasing, Inc., as Lender.
Dominion Ventures Master Lease Agreement effective February 28, 1994 between
Dominion Ventures, Inc., as Lessor/Agent, and Socket Communications, Inc., as
Lessee.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SOCKET COMMUNICATIONS, INC. CONDENSED FINANCIAL STATEMENTS FOR THE INTERIM
PERIOD ENDED JUNE 30, 1997 INCLUDED IN FORM 10-QSB AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 252,806
<SECURITIES> 0
<RECEIVABLES> 651,818
<ALLOWANCES> 0
<INVENTORY> 936,890
<CURRENT-ASSETS> 1,851,215
<PP&E> 1,065,394
<DEPRECIATION> 674,882
<TOTAL-ASSETS> 2,305,966
<CURRENT-LIABILITIES> 3,817,114
<BONDS> 0
0
403,897
<COMMON> 5,521
<OTHER-SE> 1,990,359
<TOTAL-LIABILITY-AND-EQUITY> 2,305,966
<SALES> 2,184,447
<TOTAL-REVENUES> 2,193,440
<CGS> 1,085,707
<TOTAL-COSTS> 1,085,707
<OTHER-EXPENSES> 2,964,098
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,458
<INCOME-PRETAX> (1,917,313)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,917,313)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,917,313)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
