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Exhibit (c)(2)
STOCK OPTION AGREEMENT
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STOCK OPTION AGREEMENT, dated as of August 2, 1999 (this
"AGREEMENT"), between Xxxxxx Corporation, a Delaware corporation ("PARENT"), and
Pacific Research & Engineering Corporation, a California corporation (the
"COMPANY").
W I T N E S S E T H:
WHEREAS, simultaneously with the execution and delivery of
this Agreement, Parent, Space Coast Merger Corp., a newly formed California
corporation and a wholly owned subsidiary of Parent ("SUB"), and the Company are
entering into an Agreement and Plan of Merger, dated as of the date hereof (the
"MERGER AGREEMENT"), which provides for the merger of Sub with and into the
Company;
WHEREAS, as a condition to Parent's willingness to enter into
the Merger Agreement, Parent has requested that the Company grant to Parent an
option to purchase up to 461,099 authorized and unissued shares of Common Stock,
no par value, of the Company (the "COMPANY COMMON STOCK") upon the terms and
subject to the conditions hereof; and
WHEREAS, in order to induce Parent to enter into the Merger
Agreement, the Company has agreed to grant Parent the requested option.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements set forth herein, the parties hereto agree as
follows:
1. THE OPTION; EXERCISE; ADJUSTMENTS. The Company hereby
grants to Parent an irrevocable option (the "OPTION") to purchase from time to
time up to 461,099 authorized and unissued shares of Company Common Stock upon
the terms and subject to the conditions set forth herein (the "OPTIONED
SHARES"). Subject to the conditions set forth in Section 2, the Option may be
exercised by Parent in whole or from time to time in part, at any time after the
date hereof and prior to the termination of the Option in accordance with
Section 19. In the event Parent wishes to exercise the Option, Parent shall
deliver a written notice to the Company (the "STOCK EXERCISE NOTICE") specifying
the total number of Optioned Shares it wishes to purchase and a date (not later
than 20 business days, or such later date if a waiting period is applicable
under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the
"HSR ACT"), and not earlier than two business days from the date such notice is
given) for the closing of such purchase (the "CLOSING DATE"). Parent may revoke
an exercise of the Option at any time prior to the Closing Date by written
notice to the Company. In the event of any change in the number of issued and
outstanding shares of Company Common Stock by reason of any stock dividend,
stock split, split-up, recapitalization, merger or other change in the corporate
or capital structure of the Company, the number of Optioned Shares subject to
the Option and the Exercise Price (as defined in Section 3) per Optioned Share
shall be appropriately adjusted. In the event that any additional shares of
Company Common Stock are issued
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after the date of this Agreement (other than pursuant to an event described in
the preceding sentence or pursuant to this Agreement), the number of Optioned
Shares subject to the Option shall be adjusted so that, after such issuance, it
equals (but does not exceed) 19.9% of the number of shares of Company Common
Stock then issued and outstanding and 19.9% of the voting power of shares of
capital stock of the Company then issued and outstanding, after reduction, to
the extent necessary to comply with the exception to the shareholder approval
requirements of the American Stock Exchange ("AMEX"), for any shares issued
pursuant to the Option.
2. CONDITIONS TO EXERCISE OF OPTION AND DELIVERY OF OPTIONED
SHARES. (a) Parent's right to exercise the Option is subject to the following
conditions:
(i) Neither Parent nor Sub shall have breached any of its
material obligations under the Merger Agreement;
(ii) No preliminary or permanent injunction or other order
issued by any federal or state court of competent jurisdiction in the
United States invalidating the grant or prohibiting the exercise of the
Option shall be in effect; and
(iii) One or more of the following events shall have occurred
on or after the date hereof: (A) any individual, corporation,
partnership, limited liability company or other entity or group (such
person, corporation, partnership, limited liability company or other
entity or group being referred to hereinafter, singularly or
collectively, as a "PERSON"), acquires or becomes the beneficial owner
of 20% or more of the outstanding shares of Company Common Stock (other
than a person who, as of the date hereof, is the beneficial owner of
20% or more of the outstanding shares of Company Common Stock (a "20%
HOLDER")); (B) any 20% Holder increases his beneficial ownership of
Company Common Stock by more than 1% (other than Xxxx and Xxxxx
Xxxxxxxx or the Xxxxxxxx Family Trust dated March 12, 1981 pursuant to
a Post-Termination Company Financing (as defined in the Merger
Agreement)); (C) any group (other than a group which includes or may
reasonably be deemed to include Parent or any of its affiliates) is
formed which beneficially owns 20% or more of the outstanding shares of
Company Common Stock; (D) any Person (other than Parent or its
affiliates) shall have commenced a tender or exchange offer for 20% or
more of the then outstanding shares of Company Common Stock or publicly
proposed any bona fide merger, consolidation or acquisition of all or
substantially all the assets of the Company, or other similar business
combination involving the Company; (E) the Company enters into, or
announces that it proposes to enter into, an agreement, including,
without limitation, an agreement in principle, providing for a merger
or other business combination involving the Company or a "significant
subsidiary" (as defined in Rule 1.02(w) of Regulation S-X as
promulgated by the Securities and Exchange Commission (the "SEC")) of
the Company or the acquisition of a substantial interest in, or a
substantial portion of the assets, business or operations of, the
Company or a significant subsidiary of the Company (other than the
transactions contemplated by the Merger Agreement); (F) any Person
(other than Parent or its affiliates or Xxxx and Xxxxx Xxxxxxxx or the
Xxxxxxxx Family Trust dated March 12, 1981 pursuant to a
Post-Termination Company Financing) is granted any option or right,
conditional or otherwise, to acquire or otherwise become the beneficial
owner of shares of
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Company Common Stock which, together with all shares of Company Common
Stock beneficially owned by such Person, results or would result in
such Person being the beneficial owner of 20% or more of the
outstanding shares of Company Common Stock; or (G) there is a public
announcement with respect to a plan or intention by the Company, other
than Parent or its affiliates, to effect any of the foregoing
transactions. For purposes of this subparagraph (iii), the terms
"group" and "beneficial owner" shall be defined by reference to Section
13(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), and the rules and regulations promulgated thereunder.
(b) Parent's obligation to purchase the Optioned Shares
following the exercise of the Option, and the Company's obligation to issue,
sell and deliver the Optioned Shares, are subject to the conditions that:
(i) No preliminary or permanent injunction or other order
issued by any federal or state court of competent jurisdiction in the
United States prohibiting the issuance, sale or delivery of the
Optioned Shares shall be in effect;
(ii) The purchase of the Optioned Shares will not violate Rule
10b-13 promulgated under the Exchange Act; and
(iii) All applicable waiting periods under the HSR Act shall
have expired or been terminated.
(c) The Company agrees to provide Parent prompt written notice
upon the occurrence of any of the events described in Section 2(a)(iii).
3. EXERCISE PRICE FOR OPTIONED SHARES. At any Closing Date,
the Company will deliver to Parent a certificate or certificates representing
the Optioned Shares in the denominations designated by Parent in its Stock
Exercise Notice and Parent will purchase the Optioned Shares from the Company at
a price per Optioned Share equal to $2.35 (the "EXERCISE PRICE"), payable in
cash. Payment made by Parent to the Company pursuant to this Agreement shall be
made by wire transfer of federal funds to a bank designated by the Company or a
check payable in immediately available funds. After payment of the Exercise
Price for the Optioned Shares covered by the Stock Exercise Notice, the Option
shall be deemed exercised to the extent of the Optioned Shares specified in the
Stock Exercise Notice as of the date such Stock Exercise Notice is given to the
Company and Parent shall be deemed a stockholder of record at the time of
payment of the Exercise Price.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Parent that (a) the execution and delivery of this
Agreement by the Company and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company and this Agreement has been duly executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms; (b) the
Company has taken all necessary corporate action to authorize and reserve the
Optioned Shares for issuance upon exercise of the Option, and the Optioned
Shares, when issued and delivered by the Company to Parent upon
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exercise of the Option, will be duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights; (c) except for routine filings and
subject to Section 7, the execution and delivery of this Agreement by the
Company and the consummation by it of the transactions contemplated hereby do
not require the consent, approval or authorization of, or filing with, any
person or public authority and will not violate the Company's Amended and
Restated Articles of Incorporation, as amended, or Amended and Restated By-laws,
or result in the acceleration or termination of, or constitute a default under,
any indenture, license, approval, agreement, understanding or other instrument,
or any statute, rule, regulation, judgment, order or other restriction binding
upon or applicable to the Company or any of its properties or assets; (d) the
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of California and has all requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby; and (e) the Company's Board of Directors has
approved the Merger and the execution of this Agreement and the consummation of
the transactions contemplated hereby.
5. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent represents
and warrants to the Company that (a) the execution and delivery of this
Agreement by Parent and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Parent and this Agreement has been duly executed and delivered by Parent and
constitutes a valid and binding agreement of Parent; and (b) Parent is acquiring
the Option and, if and when it exercises the Option, will be acquiring the
Optioned Shares issuable upon the exercise thereof, for its own account and not
with a view to distribution or resale in any manner which would be in violation
of the Securities Act of 1933, as amended (the "SECURITIES ACT"), and will not
sell or otherwise dispose of the Optioned Shares except pursuant to an effective
registration statement under the Securities Act or a valid exemption from
registration under the Securities Act.
6. THE CLOSING. Any closing hereunder shall take place on the
Closing Date specified by Parent in its Stock Exercise Notice pursuant to
Section 1 at 10:00 A.M., local time, or the first business day after the Closing
Date on which all of the conditions in Section 2 are met, at the principal
executive office of the Company, or at such other time and place as the parties
hereto may agree.
7. FILINGS RELATED TO OPTIONED SHARES. The Company will make
such filings with the SEC as are required by the Exchange Act, will effect all
necessary filings by the Company under the HSR Act and will have the Optioned
Shares approved for quotation on AMEX.
8. REGISTRATION RIGHTS. (a) If the Company effects any
registration or registrations of shares of Company Common Stock under the
Securities Act for its own account or for any other stockholder of the Company
at any time after the exercise of the Option (other than a registration on Form
X-0, Xxxx X-0 or any successor forms), it will allow Parent to participate in
such registration or registrations with respect to any or all of the Optioned
Shares acquired upon the exercise of the Option; PROVIDED, HOWEVER, that any
request of Parent pursuant to this Section 8(a) shall be with respect to at
least 100,000 Optioned Shares and PROVIDED, FURTHER, that if the managing
underwriters in such offering advise the Company that, in their written opinion,
the number of Optioned Shares requested by Parent to be included in such
registration exceeds the number of shares of Company
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Common Stock which can be sold in such offering, the Company may exclude from
such registration all or a portion, as may be appropriate, of the Optioned
Shares requested for inclusion by Parent.
(b) At any time after the exercise of the Option, upon the
request of Parent, the Company will promptly file and use its best efforts to
cause to be declared effective a registration statement under the Securities Act
(and applicable Blue Sky statutes) with respect to any or all of the Optioned
Shares acquired upon the exercise of the Option; PROVIDED, HOWEVER, that any
request of Parent pursuant to this Section 8(b) shall be with respect to at
least 100,000 Optioned Shares and PROVIDED, FURTHER, that the Company shall not
be required to have declared effective more than two registration statements
hereunder and shall be entitled to delay the effectiveness of each such
registration statement, for a period not to exceed 90 days in the aggregate, if
the commencement of such offering would, in the reasonable good faith judgment
of the Board of Directors of the Company, require premature disclosure of any
material corporate development or otherwise materially interfere with or
materially adversely affect any pending or proposed offering of securities of
the Company.
(c) In connection with any registration requested by Parent
under Section 8(b) above, if Parent requests the Company to effect such
registration within three months after the exercise of the Option, Parent will
pay the first $20,000 of the costs of such registration and all filing fees for
such registration, and the remaining costs of such registration shall be borne
by the Company. Notwithstanding the previous sentence, if Parent requests the
Company to effect a registration under Section 8(a) above, or a registration
under Section 8(b) above subsequent to three months after the exercise of the
Option, all costs of such registration shall be borne by the Company. In
connection with any registration requested by Parent under Sections 8(a) and
8(b) above, the Company and Parent each shall provide the other and any
underwriters with customary indemnification and contribution agreements.
9. OPTIONAL PUT; OPTIONAL REPURCHASE. (a) Prior to the
termination of the Option in accordance with Section 19, if a Put Event has
occurred, Parent shall have the right, upon three business days' prior written
notice given to the Company, to require the Company to purchase the Option from
Parent (the "PUT RIGHT") at a cash purchase price (the "PUT PRICE") equal to the
product determined by multiplying (A) the number of Optioned Shares as to which
the Option has not yet been exercised by (B) the Spread (as defined below). As
used herein, "PUT EVENT" means the occurrence on or after the date hereof of any
of the following: (i) any Person (other than Parent or its affiliates, or Xxxx
and Xxxxx Xxxxxxxx or the Xxxxxxxx Family Trust dated March 12, 1981 pursuant to
a Post-Termination Company Financing) acquires or becomes the beneficial owner
of 50% or more of the outstanding shares of Company Common Stock or (ii) the
Company consummates a merger or other business combination involving the Company
or a "significant subsidiary" (as defined in Rule 1.02(w) of Regulation S-X as
promulgated by the SEC) of the Company or the acquisition of a substantial
interest in, or a substantial portion of the assets, business or operations of,
the Company or a significant subsidiary of the Company (other than the
transactions contemplated by the Merger Agreement). As used herein, the term
"Spread" shall mean the excess, if any, of (i) the greater of (x) the highest
price (in cash or fair market value of securities or other property) per share
of Company Common Stock paid or to be paid within 12 months preceding the date
of exercise of the Put Right for any shares of Company Common Stock beneficially
owned by any Person who shall have acquired
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or become the beneficial owner of 20% or more of the outstanding shares of
Company Common Stock after the date hereof or (y) the average of the last
reported sale prices quoted on AMEX of the Company Common Stock during the five
trading days immediately preceding the written notice of exercise of the Put
Right over (ii) the Exercise Price.
(b) At any time after the termination of the Option granted
hereunder pursuant to Section 19 and for a period of 90 days thereafter, the
Company shall have the right, upon three business days' prior written notice, to
repurchase from Parent (the "REPURCHASE RIGHT"), all (but not less than all) of
the Optioned Shares acquired by Parent hereby and with respect to which Parent
then has beneficial ownership (as defined in Rule 13d-3 under the Exchange Act)
at a price per share equal to the greater of (i) the average of the last
reported sale prices quoted on AMEX of the Company Common Stock during the five
trading days immediately preceding the written notice of exercise of the
Repurchase Right and (ii) the Exercise Price, plus interest at a rate per annum
equal to the costs of funds to Parent at the time of exercise of the Repurchase
Right.
10. EXPENSES. Each party hereto shall pay its own expenses
incurred in connection with this Agreement, except as otherwise provided in
Section 8 or as specified in the Merger Agreement.
11. SPECIFIC PERFORMANCE. The parties recognize and agree that
if for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, the other party shall be entitled to an injunction restraining any
violation or threatened violation of the provisions of this Agreement. In the
event that any action should be brought in equity to enforce the provisions of
the Agreement, neither party will allege, and each party hereby waives the
defense, that there is an adequate remedy at law. Each party hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court for
the Southern District of California in any action, suit or proceeding arising in
connection with this Agreement, and agrees that any such action, suit or
proceeding shall be brought only in such courts (and waives any objection based
on forum non conveniens or any other objection to venue therein).
12. NOTICE. All notices or other communications required or
permitted hereunder shall be in writing and shall be deemed given or delivered
(i) when delivered personally, (ii) if transmitted by Fax when confirmation of
transmission is received, or (iii) if sent by registered or certified mail,
return receipt requested, or by private courier, when received; and shall be
addressed as follows:
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if to Parent, to:
Xxxxxx Corporation
0000 X. XXXX Xxxxxxxxx
Xxxxxxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxx and Corporate Secretary
Facsimile: 000-000-0000
with a copy (which shall not constitute notice) to:
Sidley & Austin
Xxx Xxxxx Xxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxx X. Xxxxx
Facsimile No.: 312- 853-7036
if to the Company, to:
Pacific Research & Engineering Corporation
0000 Xxx Xxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: President
Facsimile: 000-000-0000
with a copy (which shall not constitute notice) to:
Xxxx Xxxx Xxxx & Freidenrich
0000 Xxxxxxxxx Xxxxx, Xxxxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx Xxxxxxx
Facsimile No.: 000-000-0000
or to such other address as such party may indicate by a notice delivered to the
other party in accordance with this section.
13. PARTIES IN INTEREST. Nothing in this Agreement, expressed
or implied, is intended to confer upon any Person other than Parent or the
Company, or their permitted successors or assigns, any rights or remedies under
or by reason of this Agreement.
14. ENTIRE AGREEMENT; AMENDMENTS; WAIVER. This Agreement,
together with the Merger Agreement and the other documents referred to therein,
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the subject
matter hereof. This Agreement may be amended by the parties hereto and the terms
and conditions hereof may be waived only by an instrument in writing signed on
behalf of each of the
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parties hereto, or, in the case of a waiver, by an instrument signed on behalf
of the party waiving compliance.
15. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other party, except that Parent may
assign any or all of its rights, interests and obligations hereunder, in its
sole discretion, to any direct or indirect wholly owned subsidiary of Parent.
Subject to the preceding sentence, this Agreement shall inure to the benefit of
and be binding upon the parties named herein and their respective successors and
assigns.
16. HEADINGS. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be considered an original instrument, but all
of which shall be considered one and the same agreement, and shall become
binding when such counterparts have been signed by each of the parties hereto
and delivered to the other party.
18. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (as opposed to the conflicts of
law provisions) of the State of California.
19. TERMINATION. This Agreement and the Option shall terminate
upon the earlier of (i) the Effective Time (as defined in the Merger Agreement)
and (ii) the termination of the Merger Agreement in accordance with its terms;
PROVIDED, HOWEVER, the Option shall not terminate until 180 days after a
termination pursuant to clause (ii) immediately above if (A) the Merger
Agreement is terminated by Parent or Sub pursuant to Section 8.1(d) thereof, (B)
the Merger Agreement is terminated by the Company pursuant to Section 8.1(e)
thereof or (C) unless the Company has terminated the Merger Agreement pursuant
to Section 8.1(f) thereof, prior to the termination, a Takeover Proposal (as
defined in the Merger Agreement) shall have been commenced or the Company shall
have entered into an agreement with respect to, approved or recommended or taken
any action to facilitate, a Takeover Proposal; PROVIDED, FURTHER, that this
Agreement shall not terminate with respect to the Repurchase Right set forth in
Section 9(b) until 90 days after the termination of the Option pursuant to the
foregoing proviso. Notwithstanding the foregoing, the provisions of Section 8
shall survive the termination of this Agreement until such time as Parent or any
of its affiliates ceases to beneficially own at least 100,000 of the Optioned
Shares and the provisions of Sections 10, 18 and 19 shall survive the
termination of this Agreement.
20. CAPITALIZED TERMS. Capitalized terms not otherwise defined
in this Agreement shall have the meanings set forth in the Merger Agreement.
21. 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 Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
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substance of the transactions contemplated hereby are 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 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 contemplated by this Agreement may be consummated as
originally contemplated to the fullest extent possible.
22. WAIVER OF JURY TRIAL. EACH PARTY ACKNOWLEDGES AND AGREES
THAT ANY CONTROVERSY OR DISPUTE THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH
SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III)
EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH SUCH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION 22.
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IN WITNESS WHEREOF, Parent and the Company have caused this
Agreement to be duly executed and delivered on the day and year first above
written.
XXXXXX CORPORATION
By: /s/ Xxxxx X. Xxxxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: Vice President - Treasurer
PACIFIC RESEARCH & ENGINEERING CORPORATION
By: /s/ Xxxx X. Xxxxxxxx
---------------------------------
Name: Xxxx X. Xxxxxxxx
Title: Chief Executive Officer
(Signature Page for Stock Option Agreement)
