Exhibit (c)(2)
EXECUTION COPY
STOCK OPTION AGREEMENT dated as of April 26, 1999, between
FORE SYSTEMS, INC., a Delaware corporation ("Issuer"), and GEC
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ACQUISITION CORP., a Delaware corporation ("Grantee").
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WHEREAS, concurrently with the execution and delivery of this
Agreement, Issuer, Grantee and GEC Incorporated ("Parent") have entered into an
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Agreement and Plan of Merger (as the same may be amended or supplemented, the
"Merger Agreement"; terms used but not defined herein have the meanings set
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forth in the Merger Agreement), providing for, among other things, the merger of
Grantee with and into Issuer whereby Issuer will be the surviving corporation
and will be a wholly owned subsidiary of Parent; and
WHEREAS, as a condition and inducement to Grantee's and Parent's
willingness to enter into the Merger Agreement, Grantee and Parent have
requested that Issuer agree, and Issuer has agreed, to grant Grantee the Option
(as defined below).
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Grant of Option. Subject to the terms and conditions set
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forth herein, Issuer hereby grants to Grantee an irrevocable option (the
"Option") to purchase up to 23,187,340 (as adjusted as set forth herein) shares
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(the "Option Shares") of Common Stock, par value $.01 per share ("Issuer Common
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Stock"), of Issuer at a purchase price of $35.00 (as adjusted as set forth
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herein) per Option Share (the "Purchase Price"); provided, however, that in no
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event shall the number of shares for which this Option is exercisable exceed
19.9% of the issued and outstanding shares of Issuer Common Stock.
SECTION 2. Exercise of Option. (a) Grantee may exercise the Option,
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with respect to any of or all the Option Shares at any time or from time to
time, subject to the provisions of Section 2(c), (i) after the occurrence of any
event as a result of which the Grantee is entitled (without any further
contingencies) to receive a Termination Fee pursuant to the terms of the Merger
Agreement (a "Purchase Event") and (ii) following Grantee's acceptance of shares
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of Issuer Common Stock for payment pursuant to the Offer, to the extent the
effect of such exercise would result in Parent owning, directly or indirectly,
immediately
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after such exercise 90% of the then outstanding shares of Issuer
Common Stock (a "Top Up Event"); provided, however, that (i) except as provided
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in the last sentence of this Section 2(a), the Option shall terminate and be of
no further force and effect upon the earliest to occur of (A) the Effective
Time, (B) 15 months after the occurrence of a Purchase Event (including any
Purchase Event occurring after termination of the Merger Agreement), and (C)
termination of the Merger Agreement in accordance with its terms prior to the
occurrence of any Purchase Event, unless, in the case of this clause (C),
Grantee is or may be entitled to receive a Termination Fee under the Merger
Agreement following such termination pursuant to Section 9.05(b)(i) (but only to
the extent the Merger Agreement was terminated pursuant to Section 9.01(e)(iv)
thereof), 9.05(b)(ii) or 9.05(b)(iii) of the Merger Agreement, in which case the
Option shall not terminate pursuant to this clause (C) until Grantee could no
longer under any circumstances become entitled to receive a Termination Fee. Any
purchase of Option Shares upon exercise of the Option shall be subject to
compliance with the HSR Act and the obtaining or making of any consents,
approvals, orders, notifications or authorizations (the "Regulatory Approvals"),
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the failure of which to have obtained or made would have the effect of making
the issuance of Option Shares unlawful. Notwithstanding the termination of the
Option, Grantee shall be entitled to purchase the Option Shares if it has
exercised the Option in accordance with the terms hereof prior to the
termination of the Option and the termination of the Option shall not affect any
rights hereunder that by their terms do not terminate or expire prior to or as
of such termination.
(b) The exercise of the Option shall be effected by Grantee sending
to Issuer a written notice (an "Exercise Notice"; the date of which being herein
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referred to as the "Notice Date") to that effect. An Exercise Notice shall
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specify the number of Option Shares Grantee wishes to purchase pursuant to this
Section 2(b), whether such exercise is the result of a Purchase Event or a Top
Up Event, the denominations of the certificate or certificates evidencing the
Option Shares that Grantee wishes to purchase pursuant to this Section 2(b) and
a date (subject to obtaining applicable Regulatory Approvals) not earlier than
three business days from the Notice Date for the closing of such purchase (the
"Option Closing Date"). Any Option Closing will be at the offices of Cravath,
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Swaine & Xxxxx, Worldwide Plaza, 000 Xxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 at
10:00 a.m. (New York City time) on the applicable Option Closing Date or at such
later date as may be necessary so as to comply with clause (ii) of Section 2(a).
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(c) Notwithstanding anything to the contrary contained herein, any
exercise of the Option and purchase of Option Shares shall be subject to
compliance with applicable Laws and Regulations, which may prohibit the purchase
of all the Option Shares specified in the Exercise Notice without first
obtaining or making certain Regulatory Approvals. In such event, if the Option
is otherwise exercisable and Grantee wishes to exercise the Option, the Option
may be exercised in accordance with Section 2(b) and Grantee shall acquire the
maximum number of Option Shares specified in the Exercise Notice that Grantee is
then permitted to acquire under the applicable Laws and Regulations, and if
Grantee thereafter obtains the Regulatory Approvals to acquire the remaining
balance of the Option Shares specified in the Exercise Notice, then Grantee
shall be entitled to acquire such remaining balance. Issuer agrees to use its
reasonable best efforts to assist Grantee in seeking the Regulatory Approvals.
SECTION 3. Payment and Delivery of Certificates. (a) At any Option
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Closing Date, Grantee shall pay to Issuer in immediately available funds by wire
transfer to a bank account designated in writing by Issuer an amount equal to
the Purchase Price multiplied by the number of Option Shares to be purchased at
such Option Closing Date.
(b) At any Option Closing Date, simultaneously with the delivery of
immediately available funds as provided in Section 3(a), Issuer shall deliver to
Grantee a certificate or certificates representing the Option Shares to be
purchased at such Option Closing Date, which Option Shares shall be free and
clear of all Liens.
(c) Certificates for the Option Shares delivered at an Option Closing
Date shall have typed or printed thereon a restrictive legend, which will read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE."
It is understood and agreed that the reference to restrictions arising under the
Securities Act in the above legend will be removed by delivery of substitute
certificate(s) without such reference if such Option Shares have been registered
pursuant to the Securities Act, such Option Shares have been sold in reliance on
and in accordance with Rule 144 under the Securities Act upon
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receipt of an opinion of counsel to such effect in form and substance reasonably
satisfactory to Issuer and its counsel or Grantee has delivered to Issuer a copy
of a letter from the staff of the SEC, or an opinion of counsel in form and
substance reasonably satisfactory to Issuer and its counsel, to the effect that
such legend is not required for purposes of the Securities Act.
SECTION 4. Cash-Out Right. (a) To the extent the exercise of this
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Option is the result of a Purchase Event, during the period commencing on such
Purchase Event and ending on the termination of the Option in accordance with
Section 2, Grantee shall have the right (the "Cash-Out Right"), in lieu of
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exercising the Option, to surrender to Issuer for cancellation of the Option
with respect to such number of Option Shares as Grantee specifies in the Cash-
Out Notice (as hereinafter defined) in exchange for the payment by Issuer of an
amount in cash (the "Cash-Out Amount") equal to the greater of (i) $0.05 per
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Option Share the subject of such Exercise Notice and (ii) such number of Option
Shares multiplied by the amount by which (A) the average closing price, for the
ten trading days commencing on the 12th trading day immediately preceding the
Cash-Out Notice Date (as hereinafter defined), per share of Issuer Common Stock
as quoted on the Nasdaq National Market (the "NASDAQ"), as reported in The Wall
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Street Journal (Northeast edition), or, if not reported thereby, any other
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authoritative source (the "Closing Price") exceeds (B) the Purchase Price.
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(b) The Cash-Out Right may be exercised by Grantee sending to Issuer
a written notice (a "Cash-Out Notice"; the date of which being herein referred
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to as the "Cash-Out Notice Date") indicating Grantee's election to exercise the
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Cash-Out Right. A Cash-Out Notice shall specify the number of Option Shares
covered by the portion of the Option to be surrendered to Issuer for
cancellation and a date not earlier than three business days from the Cash-Out
Notice Date for the closing of such cancellation and payment of the Cash-Out
Amount in respect thereof. Such closing will be at an agreed location and time
in New York, New York, on the date so specified. At such closing, Issuer shall
pay to Grantee the Cash-Out Amount in immediately available funds by wire
transfer to a bank account designated in writing by Grantee.
(c) Notwithstanding the termination of the Option, Grantee shall be
entitled to exercise its rights under this Section 4 if it has exercised such
rights in accordance with the terms hereof prior to the termination of the
Option.
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SECTION 5. Profit Limitations. (a) Notwith-standing any other
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provision of this Agreement, to the extent the exercise of this Option is the
result of a Purchase Event, in no event shall the Total Option Profit (as
hereinafter defined) exceed, when aggregated with the Termination Fee, in the
aggregate $135 million and, if any payment to be made to Grantee otherwise would
cause such aggregate amount to be exceeded, the Grantee, at its sole election,
shall either (i) reduce the number of shares of Issuer Common Stock subject to
this Option, (ii) deliver to the Issuer for cancellation Option Shares
previously purchased by Grantee, (iii) pay cash to the Issuer, or (iv) any
combination thereof, so that the Total Option Profit, when aggregated with such
Termination Fee so paid to Grantee, shall not exceed $135 million after taking
into account the foregoing actions, plus an additional amount, not in excess of
$22.5 million, as reimbursement for out-of-pocket fees and expenses incurred by
Parent, Purchaser or their respective Affiliates in connection with the
Transactions, including all fees and expenses of their counsel, accountants,
investment bankers, experts and consultants (collectively "Expenses").
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(b) Notwithstanding any other provision of this Agreement, to the
extent the exercise of this Option is the result of a Purchase Event, this
Option may not be exercised for a number of shares of Issuer Common Stock as
would, as of the date of exercise, result in a Notional Total Option Profit (as
hereinafter defined) which would exceed, when aggregated with the Termination
Fee, in the aggregate $135 million, plus an additional amount, not in excess of
$22.5 million, as reimbursement for Expenses, and, if it otherwise would exceed
such amount, the Grantee, at its sole election, shall either (i) reduce the
number of shares of Issuer Common Stock subject to such exercise, (ii) deliver
to the Issuer for cancellation Option Shares previously purchased by Grantee,
(iii) pay cash to the Issuer, or (iv) any combination thereof, so that the
Notional Total Option Profit, when aggregated with such Termination Fee so paid
to Grantee shall not exceed $135 million after taking into account the foregoing
actions, plus an additional amount, not in excess of $22.5 million, as
reimbursement for Expenses; provided, however, that this paragraph (b) shall not
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be construed as to restrict any exercise of the Option that is not prohibited
hereby on any subsequent date.
(c) As used herein, the term "Total Option Profit" shall mean the
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aggregate amount (before taxes) of the following: (i) any Cash-Out Amount
received or then entitled to be received by Grantee pursuant to Section 4, (ii)
(x) the net consideration, if any, received by Grantee
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pursuant to the sale of Option Shares (or any other securities into which such
Option Shares are converted or exchanged) purchased by Grantee pursuant to an
exercise of this Option following a Purchase Event to any unaffiliated party,
valuing any non-cash consideration at its fair market value (as defined below),
less (y) the Purchase Price and any cash paid by Grantee to Issuer pursuant to
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Section 5(a)(iii) or Section 5(b)(iii), as the case may be, and (iii) the net
consideration, if any, received by Grantee from, the transfer of the Option (or
any portion thereof) to any unaffiliated party, valuing any non-cash
consideration at its fair market value (as defined below).
(d) As used herein, the term "Notional Total Option Profit" with
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respect to any number of shares of Issuer Common Stock as to which Grantee has
delivered an Exercise Notice shall be the Total Option Profit determined as of
the date of such proposal assuming that the Option were exercised on such date
for such number of shares of Issuer Common Stock and assuming that such shares,
together with all other Option Shares held by Grantee and its Affiliates as of
such date, were sold for cash at the closing market price for the Issuer Common
Stock as of the close of business on the preceding trading day (less customary
brokerage commissions or underwriting discounts).
(e) As used herein the "fair market value" of any non-cash
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consideration consisting of:
(i) securities listed on a national securities exchange or traded on
the NASDAQ shall be equal to the average closing price per share of such
security as reported on such exchange or NASDAQ for the five trading days
after the date of determination; and
(ii) consideration which is other than cash or securities of the form
specified in clause (i) above shall be determined by a nationally
recognized independent investment banking firm mutually agreed upon by the
parties within five business days of the event requiring selection of such
banking firm; provided, however, that if the parties are unable to agree
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within two business days after the date of such event as to the investment
banking firm, then the parties shall each select one firm, and those firms
shall select a third nationally recognized independent investment banking
firm, which third firm shall make such determination.
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SECTION 6. Representations and Warranties of Issuer. Issuer hereby
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represents and warrants to Grantee as follows:
(a) Issuer has taken all necessary corporate and other action to
authorize and reserve and, subject to the expiration or termination of any
required waiting period under the HSR Act, to permit it to issue, and, at all
times from the date hereof until the obligation to deliver Option Shares upon
the exercise of the Option terminates, shall have reserved for issuance, upon
exercise of the Option, shares of Issuer Common Stock sufficient for Grantee to
exercise the Option in full, and Issuer shall take all necessary corporate
action to authorize and reserve for issuance all additional shares of Issuer
Common Stock or other securities which may be issued pursuant to Section 8 upon
exercise of the Option.
(b) The shares of Issuer Common Stock to be issued upon due exercise
of the Option, including all additional shares of Issuer Common Stock or other
securities which may be issuable upon exercise of the Option or any other
securities which may be issued pursuant to Section 8, upon issuance pursuant
hereto, when paid for in accordance herewith, will be duly and validly issued,
fully paid and nonassessable, and will be delivered free and clear of all liens,
including any preemptive rights of any stockholder of Issuer.
SECTION 7. Representations and Warranties of Grantee. Grantee hereby
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represents and warrants to Issuer that any Option Shares purchased by Grantee
will be acquired for investment only and not with a view to public distribution
thereof, and Grantee will not offer to sell or otherwise dispose of any Option
Shares so acquired by it in violation of the registration requirements of the
Securities Act.
SECTION 8. Adjustment upon Changes in Capitalization, Etc. (a) In
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the event of any change in Issuer Common Stock by reason of a stock dividend,
split-up, merger, recapitalization, combination, exchange of shares, or similar
transaction, the type and number of shares or securities subject to the Option,
and the Purchase Price thereof, shall be adjusted appropriately, and proper
provision will be made in the agreements governing such transaction, so that
Grantee shall receive upon exercise of the Option the number and class of shares
or other securities or property that Grantee would have received in respect of
Issuer Common Stock if the Option had been exercised immediately prior to such
event or the record date
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therefor, as applicable. Subject to Section 1, and without limiting the parties'
relative rights and obligations under the Merger Agreement, if any additional
shares of Issuer Common Stock are issued after the date of this Agreement (other
than pursuant to an event described in the first sentence of this Section 8(a)),
the number of shares of Issuer Common Stock subject to the Option shall be
adjusted so that, after such issuance, it equals 19.9% of the number of shares
of Issuer Common Stock then issued and outstanding, without giving effect to any
shares subject to or issued pursuant to the Option.
(b) Without limiting the parties' relative rights and obligations
under the Merger Agreement, in the event that Issuer enters into an agreement
(i) to consolidate with or merge into any person, other than Grantee or one of
its subsidiaries, and Issuer will not be the continuing or surviving corporation
in such consolidation or merger, (ii) to permit any person, other than Grantee
or one of its subsidiaries, to merge into Issuer and Issuer will be the
continuing or surviving corporation, but in connection with such merger, the
shares of Issuer Common Stock outstanding immediately prior to the consummation
of such merger will be changed into or exchanged for stock or other securities
of Issuer or any other person or cash or any other property, or the shares of
Issuer Common Stock outstanding immediately prior to the consummation of such
merger will, after such merger, represent less than 50% of the outstanding
voting securities of the merged company, or (iii) to sell or otherwise transfer
all or substantially all its assets to any person, other than Grantee or one of
its subsidiaries, then, and in each such case, the agreement governing such
transaction will make proper provision so that the Option will, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option with identical terms
appropriately adjusted to acquire the number and class of stock or other
securities or cash or other property that Grantee would have received in respect
of Issuer Common Stock if the Option had been exercised immediately prior to
such consolidation, merger, sale, or transfer, or the record date therefor, as
applicable, and make any other necessary adjustments.
SECTION 9. Registration Rights. Issuer shall, if requested by
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Grantee at any time and from time to time within one year of the exercise of the
Option, as expeditiously as possible prepare and file one, and only one,
registration statement under the Securities Act if such registration is
necessary in order to permit the sale or other disposition of any or all shares
of securities that
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have been acquired by or are issuable to Grantee upon exercise of the Option in
accordance with the intended method of sale or other disposition stated by
Grantee, including a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and Issuer shall use reasonable best
efforts to qualify such shares or other securities under any applicable state
securities laws. Issuer shall use reasonable best efforts to cause such
registration statement to become effective, to obtain all consents or waivers of
other parties that are required therefor, and to keep such registration
statement effective for such period not in excess of 180 calendar days from the
day such registration statement first becomes effective (which period shall be
extended for any period during which use of such registration statement is
suspended after it becomes effective pursuant to the next sentence) as may be
reasonably necessary to effect such sale or other disposition. The obligations
of Issuer hereunder to file such registration statement and to maintain its
effectiveness may be suspended for up to 45 calendar days in the aggregate if
the Board of Directors of Issuer shall have determined that the filing of such
registration statement or the maintenance of its effectiveness would require
premature disclosure of material nonpublic information. Such registration
statement prepared and filed under this Section 9, and any sale covered thereby,
shall be at Issuer's expense except for underwriting discounts or commissions,
brokers' fees and the fees and disbursements of Grantee's counsel related
thereto. Grantee will provide all information reasonably requested by Issuer for
inclusion in such registration statement to be filed hereunder. If, during the
time periods referred to in the first sentence of this Section 9, Issuer effects
a registration under the Securities Act of Issuer Common Stock for its own
account or for any other stockholders of Issuer (other than on Form S-4 or Form
S-8, or any successor form), it shall allow Grantee the right to participate in
such registration, and such participation shall not affect the obligation of
Issuer to effect the demand registration statement for Grantee under this
Section 9; provided, however, that, if the managing underwriters of such
offering advise Issuer in writing that in their opinion the number of shares of
Issuer Common Stock requested to be included in such registration exceeds the
number which can be sold in such offering, Issuer shall include the shares
requested to be included therein by Grantee pro rata with the shares intended to
be included therein by Issuer. In connection with such registration pursuant to
this Section 9, Issuer and Grantee shall provide each other and any underwriter
of the offering with customary representations, warranties, covenants,
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indemnification, and contribution in connection with such registration.
SECTION 10. Listing. If Issuer Common Stock or any other securities
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to be acquired upon exercise of the Option are then traded on the NASDAQ (or any
national securities exchange or other national securities quotation system),
Issuer, upon the request of Grantee, will promptly file an application to list
the shares of Issuer Common Stock or other securities to be acquired upon
exercise of the Option on the NASDAQ (and any such national securities exchange
or other national securities quotation system) and will use reasonable best
efforts to obtain approval of such listing as promptly as practicable.
SECTION 11. Loss or Mutilation. Upon receipt by Issuer of evidence
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reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered will constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed, or mutilated shall at any time be
enforceable by anyone.
SECTION 12. Miscellaneous. (a) Expenses. Except as otherwise
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provided in this Agreement or the Merger Agreement, each of the parties hereto
will bear and pay all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants, and
counsel.
(b) Amendment. This Agreement may not be amended, except by an
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instrument in writing signed on behalf of each of the parties.
(c) Extension; Waiver. Any agreement on the part of a party to waive
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any provision of this Agreement, or to extend the time for performance, will be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise will not constitute a waiver of such rights.
(d) Entire Agreement; No Third-Party Beneficiaries. This Agreement
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and the Merger Agreement (including the documents and instruments attached
thereto as
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exhibits or schedules or delivered in connection therewith) (i) constitute the
entire agreement, and supersede all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter of this
Agreement, and (ii) except as provided in Section 10.7 of the Merger Agreement,
are not intended to confer upon any person other than the parties any rights or
remedies.
(e) GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED
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IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE LAWS
THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF LAWS
THEREOF.
(f) Notices. All notices, requests, claims, demands, and other
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communications under this Agreement shall be given in accordance with Section
10.2 of the Merger Agreement.
(g) Assignment. Neither this Agreement, the Option nor any of the
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rights, interests, or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise, by Issuer or Grantee without
the prior written consent of the other, except that Grantee may assign all its
rights under Section 9 to any person who acquires from Grantee any Option
Shares; provided, however, that Grantee may assign any of its rights, interests
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or obligations under this Agreement to Parent or any Affiliate of Parent without
the consent of the Issuer, but no such assignment shall relieve Grantee of its
obligations hereunder. Any purported assignment in violation of the preceding
sentence will be void. Subject to the first and second sentences of this
Section 12(g), this Agreement will be binding upon, inure to the benefit of, and
be enforceable by, the parties and their respective successors and permitted
assigns.
(h) Further Assurances. In the event of any exercise of the Option
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by Grantee, Issuer and Grantee will execute and deliver all other documents and
instruments and take all other actions that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
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(i) Enforcement. The parties agree that irreparable damage would
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occur and that the parties would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Delaware state court or any
Federal court located in the State of Delaware, the foregoing being in addition
to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (i) consents to submit itself to the
personal jurisdiction of any Delaware state court or any Federal court located
in the State of Delaware in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement, (ii) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, (iii) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than any Delaware state court or any Federal
court sitting in the State of Delaware and (iv) waives any right to trial by
jury with respect to any action related to or arising out of this Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have duly executed this
Agreement, all as of the day and year first written above.
FORE SYSTEMS, INC.,
by
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Name:
Title:
GEC ACQUISITION CORP.,
by
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Name:
Title:
