Exhibit 99.1
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AGREEMENT AND PLAN OF REORGANIZATION
AMONG
STRATOS LIGHTWAVE, INC.,
POLAR ACQUISITION CORP.,
AND
PARACER, INC.
DATED MARCH 18, 2002
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TABLE OF CONTENTS
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ARTICLE I THE MERGER....................................................... 1
1.1 The Merger......................................................... 1
1.2 Closing............................................................ 1
1.3 Effective Time..................................................... 2
1.4 Effect of the Merger. ............................................. 2
1.5 Certificate of Incorporation....................................... 2
1.6 Bylaws............................................................. 2
1.7 Directors and Officers............................................. 2
ARTICLE II CONVERSION OF SECURITIES........................................ 2
2.1 Certain Definitions................................................ 2
2.2 Conversion of Capital Stock........................................ 3
2.3 Exchange of Certificates........................................... 4
2.4 Escrow............................................................. 6
2.5 Dissenters' Rights................................................. 6
2.6 Certificate Legends................................................ 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARACER...................... 7
3.1 Organization, Power and Qualification.............................. 7
3.2 Paracer Capital Structure.......................................... 8
3.3 Subsidiaries....................................................... 8
3.4 Authority; No Conflicts............................................ 8
3.5 Financial Statements............................................... 9
3.6 Absence of Undisclosed Liabilities................................. 10
3.7 Accounts Receivable................................................ 10
3.8 Inventories........................................................ 10
3.9 Absence of Certain Changes or Events............................... 10
3.10 Taxes.............................................................. 12
3.11 Tangible Assets and Real Property.................................. 13
3.12 Intellectual Property.............................................. 14
3.13 Bank Accounts...................................................... 16
3.14 Material Contracts................................................. 16
3.15 Labor Matters...................................................... 17
3.16 Trade Regulation................................................... 17
3.17 Environmental Matters.............................................. 18
3.18 Employee Benefit Plans............................................. 18
3.19 Legal Compliance................................................... 19
3.20 Employees and Consultants.......................................... 19
3.21 Litigation......................................................... 19
3.22 Governmental Authorization......................................... 20
3.23 Insurance.......................................................... 20
3.24 Interested Party Transactions...................................... 20
3.25 Returns and Warranties............................................. 20
3.26 Customers and Suppliers............................................ 21
3.27 Real Property Holding Corporation.................................. 21
3.28 Corporate Documents................................................ 21
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3.29 Solicitation Statement............................................. 21
3.30 No Misrepresentation............................................... 21
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF STRATOS AND SUB............... 22
4.1 Organization, Power and Qualification.............................. 22
4.2 Authority; No Conflicts............................................ 22
4.3 SEC Filings; Financial Statements.................................. 23
4.4 Stratos Common Stock............................................... 23
4.5 No Material Adverse Change......................................... 23
4.6 No Misrepresentation............................................... 23
ARTICLE V CONDUCT OF BUSINESS.............................................. 24
5.1 Covenants of Paracer............................................... 24
5.2 Cooperation........................................................ 26
ARTICLE VI ADDITIONAL AGREEMENTS........................................... 26
6.1 No Solicitation.................................................... 26
6.2 Consents........................................................... 26
6.3 Access to Information.............................................. 26
6.4 Notification of Certain Matters.................................... 27
6.5 Legal Conditions to Merger......................................... 27
6.6 Public Disclosure.................................................. 27
6.7 Tax-Free Reorganization............................................ 27
6.8 Nasdaq Quotation................................................... 27
6.9 Stockholder Approval............................................... 28
6.10 Form S-3 Registration Statement.................................... 28
6.11 Stock Options...................................................... 31
6.12 Stratos Plans...................................................... 32
6.13 Brokers or Finders................................................. 32
6.14 Additional Agreements; Reasonable Efforts.......................... 32
6.15 Expenses........................................................... 33
6.16 Paracer Warrants................................................... 33
ARTICLE VII CONDITIONS TO MERGER........................................... 33
7.1 Conditions to Each Party's Obligation to Effect the Merger......... 33
7.2 Additional Conditions to Obligations of Stratos and Sub............ 33
7.3 Additional Conditions to Obligations of Paracer.................... 35
ARTICLE VIII TERMINATION AND AMENDMENT..................................... 35
8.1 Termination........................................................ 35
8.2 Effect of Termination.............................................. 36
8.3 Amendment.......................................................... 36
8.4 Extension; Waiver.................................................. 36
ARTICLE IX ESCROW AND INDEMNIFICATION...................................... 36
9.1 Nature and Survival of Representations and Warranties.............. 36
9.2 Indemnification by Paracer Stockholders............................ 36
9.3 Indemnification Procedures......................................... 37
9.4 Defense of Third Party Claims...................................... 38
9.5 Manner of Recovery................................................. 38
9.6 Appointment of Stockholders' Representative........................ 39
ARTICLE X GENERAL PROVISIONS............................................... 40
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10.1 Notices............................................................ 40
10.2 Interpretation..................................................... 41
10.3 Counterparts....................................................... 42
10.4 Severability....................................................... 42
10.5 Entire Agreement................................................... 42
10.6 Assignment......................................................... 42
10.7 Third Party Beneficiaries.......................................... 42
10.8 Waiver of Jury Trial............................................... 42
10.9 Governing Law...................................................... 43
EXHIBITS:
Exhibit A Form of Escrow Agreement
Exhibit B Form of Opinion of Xxxxxxx Phlegler & Xxxxxxxx LLP
Exhibit C Form of Lock-Up Agreement
Exhibit D Form of Opinion of Lord, Bissell & Brook
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AGREEMENT AND PLAN OF REORGANIZATION
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THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of March 18, 2002, by and among Stratos Lightwave, Inc., a
Delaware corporation ("Stratos"), Polar Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Stratos ("Sub"), and Paracer, Inc., a
Delaware corporation ("Paracer").
RECITALS
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WHEREAS, the Boards of Directors of Stratos, Sub and Paracer deem it
advisable and in the best interests of each corporation and its respective
stockholders that Stratos and Paracer combine in order to advance the long-term
business interests of Stratos and Paracer;
WHEREAS, the combination of Stratos and Paracer shall be effected by the
terms of this Agreement through a transaction (the "Merger") in which Sub will
merge with and into Paracer, Paracer will become a wholly-owned subsidiary of
Stratos, and the Paracer stockholders will become stockholders of Stratos; and
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger shall qualify as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
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this Agreement, and in accordance with the Delaware General Corporation Law, as
amended ("DGCL"), at the Effective Time, Sub shall be merged with and into
Paracer, the separate corporate existence of Sub shall thereupon cease and
Paracer shall continue as the surviving corporation and shall succeed to and
assume all of the rights and obligations of Sub in accordance with the DGCL.
Paracer, as the surviving corporation after the consummation of the Merger, is
sometimes hereinafter referred to as the "Surviving Corporation.
1.2 Closing. The closing of the Merger (the "Closing") will take place at
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10:00 a.m., Central time, on a date to be specified by Stratos and Paracer (the
"Closing Date"), which shall be no later than the second business day after
satisfaction of the latest to occur of the conditions set forth in Sections 7.1,
7.2(b) (other than the delivery of the officers' certificate referred to
therein) and 7.3(b) (other than the delivery of the officers' certificate
referred to therein), provided that the other closing conditions set forth in
Article VII have been met or waived as provided in Article VII at or prior to
the Closing, at the offices of Lord, Bissell & Brook, 000 Xxxxx XxXxxxx Xxxxxx,
Xxxxxxx, Xxxxxxxx 00000, unless another date or place is agreed to in writing by
Stratos and Paracer.
1.3 Effective Time. Subject to the provisions of this Agreement, the
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parties shall cause the Merger to be consummated by filing the certificate of
merger of Sub and Paracer (the "Certificate of Merger") with the Secretary of
State of the State of Delaware in such form as required by, and executed in
accordance with, the relevant provisions of the DGCL as soon as practicable on
or before the Closing Date. The Merger shall become effective at such time as
the Certificate of Merger is duly filed with the Secretary of State of the State
of Delaware or at such subsequent date or time as the parties shall agree and
specify in the Certificate of Merger (the date and time the Merger becomes
effective being hereinafter referred to as the "Effective Time").
1.4 Effect of the Merger. At and after the Effective Time, the effect of
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the Merger shall be as provided in this Agreement and the applicable provisions
of the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of Paracer and Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of Paracer and Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.5 Certificate of Incorporation. At and after the Effective Time, and
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without any further action on the part of Paracer and Sub, the amended and
restated certificate of incorporation of Paracer shall be amended to read in its
entirety as the certificate of incorporation of Sub reads as in effect
immediately prior to the Effective Time, until thereafter changed or amended as
provided therein or by applicable law, provided that such certificate of
incorporation shall be amended to reflect Paracer, Inc. as the name of the
Surviving Corporation.
1.6 Bylaws. At the Effective Time, the bylaws of Sub as in effect
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immediately prior to the Effective Time shall be the bylaws of the Surviving
Corporation, until thereafter changed or amended as provided therein or by
applicable law.
1.7 Directors and Officers. The directors and officers of the Surviving
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Corporation, as of the Effective Time, will be the directors and officers of Sub
immediately prior to the Effective Time.
ARTICLE II
CONVERSION OF SECURITIES
2.1 Certain Definitions. For purposes of this Agreement, the following
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terms shall have the meanings set forth below:
(a) "Escrowed Shares" has the meaning set forth in Section 2.4.
(b) "Merger Consideration" shall mean 5,600,000 shares of Stratos Common
Stock.
(c) "Paracer Capital Stock" shall mean, collectively, the Paracer Common
Stock and the Paracer Preferred Stock.
(d) "Paracer Common Stock" shall mean the Common Stock, $0.000001 par
value, of Paracer.
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(e) "Paracer Options" shall mean (i) all outstanding options to purchase
Paracer Common Stock issued under Paracer's 2001 Stock Option Plan not exercised
as of the Effective Time, and (ii) the options to purchase Paracer Common Stock
that Paracer is contractually committed as of the Effective Time to issue after
the Effective Time (including option grants which are contingent upon the
occurrence of specific events), as specified in Section 3.2(b)(ii) of the
Disclosure Schedule.
(f) "Paracer Preferred Stock" shall mean the Paracer Series A Preferred
Stock.
(g) "Paracer Series A Preferred Stock" shall mean the Series A Preferred
Stock, $0.000001 par value, of Paracer.
(h) "Paracer Warrants" shall mean all outstanding warrants to purchase
Paracer Capital Stock at the Effective Time.
(i) "Stratos Common Stock" shall mean the Common Stock, $.01 par value, of
Stratos.
(j) "Stratos Share Price" shall mean the average closing price of the
Stratos Common Stock as reported on the Nasdaq National Market for the fifteen
(15) consecutive trading days ending on the last trading day prior to the
Closing Date.
(j) "Substitute Options" shall mean options to purchase Stratos Common
Stock issued in substitution for the Paracer Options pursuant to Section 6.11.
(k) "Total Paracer Share Equivalents" shall mean the number of shares of
Paracer Common Stock and Preferred Stock outstanding immediately prior to the
Effective Time (including all outstanding shares that are subject to a
repurchase option under any stock purchase agreement or similar agreement), on a
fully-diluted, as converted basis, assuming that all Paracer Options, Paracer
Warrants and any other rights to acquire Paracer Capital Stock outstanding
immediately prior to the Effective Time are converted or exercised.
2.2 Conversion of Capital Stock. As of the Effective Time, by virtue of
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the Merger and without any action on the part of the holder of any shares of
capital stock of Paracer or capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the capital
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stock of Sub shall be converted into and become one fully paid and nonassessable
share of Common Stock, $0.01 par value, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Stratos-Owned Stock. Any shares of
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Paracer Capital Stock that are owned by Paracer as treasury stock and any shares
that are owned by Stratos, Sub or any other wholly-owned Subsidiary of Stratos
shall be cancelled and retired and shall cease to exist and no stock of Stratos
or other consideration shall be delivered in exchange therefor. All shares of
Stratos Common Stock owned by Paracer shall remain unaffected by the Merger.
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(c) Exchange Ratios for Paracer Capital Stock. Subject to Sections 2.3 and
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2.5, and other than shares, if any, to be cancelled in accordance with Section
2.2(b), each issued and outstanding share of Paracer Common Stock and Paracer
Preferred Stock shall be converted into the right to receive that number of
validly issued, fully-paid and nonassessable shares of Stratos Common Stock
equal to the ratio of: (i) the Merger Consideration, over (ii) the Total Paracer
Share Equivalents (the "Exchange Ratio").
(d) Paracer Stock Options. At the Effective Time, all Paracer Options will
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be converted into Substitute Options in accordance with Section 6.11.
2.3 Exchange of Certificates. The procedures for exchanging outstanding
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shares of Paracer Capital Stock for Stratos Common Stock pursuant to the Merger
are as follows:
(a) Exchange Agent. At the Effective Time, Stratos shall cause to be
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deposited with an exchange agent designated by Stratos (the "Exchange Agent"),
for the benefit of the holders of shares of Paracer Capital Stock, for exchange
in accordance with this Section 2.3, through the Exchange Agent, certificates
representing the Stratos Common Stock issuable and payable to the holders of
Paracer Capital Stock pursuant to Section 2.2 (such shares of Stratos Common
Stock deposited with the Exchange Agent, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund"), in exchange for outstanding shares of Paracer Capital Stock.
(b) Exchange Procedures. At the Closing or within ten (10) days
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thereafter, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Paracer Capital Stock (each a "Certificate,"
and collectively, the "Certificates") whose shares were converted pursuant to
Section 2.2 into the right to receive shares of Stratos Common Stock: (i) a
letter of transmittal, which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Stratos and Paracer may reasonably specify, and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for
certificates representing shares of Stratos Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Stratos, together with a duly executed letter of
transmittal, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing the number of whole shares of
Stratos Common Stock which such holder has the right to receive pursuant to the
provisions of Section 2.2(c) and cash in lieu of any fractional share in
accordance with Section 2.3(e), and the Certificate so surrendered shall
immediately be canceled. In the event of a transfer of ownership of Paracer
Capital Stock which is not registered in the transfer records of Paracer, a
certificate representing the shares of Stratos Common Stock to which the holder
is entitled may be issued to a transferee if the Certificate representing such
Paracer Capital Stock is presented to the Exchange Agent accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.3, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the certificates representing shares of Stratos Common Stock and cash
in lieu of any fractional shares of Stratos Common Stock as contemplated by this
Section 2.3.
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(c) Distributions with Respect to Unexchanged Shares. No dividends or
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other distributions declared or made after the Effective Time with respect to
Stratos Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate with respect to the shares of
Stratos Common Stock represented thereby and no cash payment in lieu of any
fractional share payable to any such holder pursuant to subsection (e) below
shall be paid until the holder of record of such Certificate shall surrender
such Certificate. Subject to the effect of applicable laws, following surrender
of any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Stratos Common Stock issued in
exchange therefor, without interest, (i) the amount of any cash payable in lieu
of a fractional share of Stratos Common Stock to which such holder is entitled
pursuant to subsection (e) below and the amount of dividends or other
distributions with a record date after the Effective Time previously paid with
respect to such whole shares of Stratos Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of Stratos
Common Stock.
(d) No Further Ownership Rights in Paracer Capital Stock. All shares of
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Stratos Common Stock issued and paid upon the surrender for exchange of shares
of Paracer Capital Stock in accordance with the terms hereof (and any cash paid
pursuant to subsection (e) of this Section 2.3) shall be deemed to have been
issued and paid in full satisfaction of all rights pertaining to such shares of
Paracer Capital Stock, and there shall be no further registration of transfers
on the stock transfer books of the Surviving Corporation of the shares of
Paracer Capital Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Section 2.3.
(e) No Fractional Shares. No certificate or scrip representing fractional
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shares of Stratos Common Stock shall be issued upon the surrender for exchange
of Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Stratos. Notwithstanding
any other provision of this Agreement, each holder of shares of Paracer Capital
Stock exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Stratos Common Stock (after taking into account
all Certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of
Stratos Common Stock multiplied by the Stratos Share Price.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
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remains undistributed to the stockholders of Paracer after one year after the
Effective Time shall be delivered to Stratos, upon demand, and any stockholders
of Paracer who have not previously complied with this Section 2.3 shall
thereafter look only to Stratos for payment of their claim for Stratos Common
Stock, any cash in lieu of fractional shares of Stratos Common Stock, and any
dividends or distributions with respect to Stratos Common Stock.
(g) No Liability. Neither Stratos nor Paracer shall be liable to any
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holder of shares of Paracer Capital Stock or Stratos Common Stock, as the case
may be, for such shares (or dividends or distributions with respect thereto)
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
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(h) Lost Certificates. In the event any Certificate shall have been lost,
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stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed, Stratos shall issue
in exchange for such lost, stolen or destroyed Certificate the shares of Stratos
Common Stock issuable in exchange therefor pursuant to the provisions of this
Article II, together with cash, if any, in lieu of fractional shares in
accordance with Section 2.3(e) hereof. The Board of Directors of Stratos may in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificate to provide to Stratos an
indemnity agreement or bond against any claim that may be made against Stratos
with respect to the Certificate alleged to have been lost, stolen or destroyed.
(i) Paracer Restricted Stock. Notwithstanding the foregoing, if any shares
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of Paracer Capital Stock subject to a right of repurchase by Paracer ("Paracer
Restricted Stock") are outstanding immediately prior to the Effective Time,
subject to the surrender of the Certificate(s) representing such shares of the
Paracer Restricted Stock in accordance with the foregoing terms of this Section
2.3, the Stratos Common Stock payable in exchange for such shares of Paracer
Restricted Stock shall be held by the Secretary of Stratos until the expiration
of the right of repurchase to which such shares of Paracer Restricted Stock were
subject and Stratos shall cause its Secretary to deliver such shares to the
former holder of Paracer Restricted Stock from time to time and at such time as
such right of repurchase expires pursuant to and in accordance with, the terms
and conditions of the agreement(s) between the former holder and Paracer.
2.4 Escrow.
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(a) At the Closing, the Exchange Agent will deduct from the number of
shares of Stratos Common Stock deliverable to the Stockholders and will deposit
into escrow (the "Escrow") certificates representing ten percent (10%) of the
Merger Consideration, less a number of shares of Stratos Common Stock equal to
the Excess Transaction Expenses divided by the Stratos Share Price (the
"Escrowed Shares"). The shares deposited in the Escrow shall be those subject to
the longest period under the Lock-Up Agreements required by Section 7.2(k)
hereof. The Escrowed Shares shall be held by X.X. Xxxxxx Trust Company, N.A. or
such other financial institution as Stratos and Paracer shall mutually determine
(the "Escrow Agent") in accordance with and subject to the provisions of an
Escrow Agreement substantially in the form of Exhibit A hereto (the "Escrow
Agreement").
(b) As soon as practicable after the one (1) year anniversary of the
Closing Date, the Escrowed Shares shall be released from the Escrow and
distributed to Paracer's former stockholders as provided in the Escrow
Agreement, subject to the provisions of Article IX of this Agreement relating to
indemnification claims.
2.5 Dissenters' Rights. In the event the Merger becomes effective without
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the approval of the holders of 100% of the outstanding shares of Paracer Capital
Stock, any shares of Paracer Capital Stock held by stockholders who properly
exercise and perfect the dissenters' rights set forth in Section 262 of the DGCL
("Dissenting Shares") shall not be converted pursuant to Section 2.2, but shall
instead be converted into the right to receive such consideration as may be
determined to be due with respect to such Dissenting Shares pursuant to the
provisions of the DGCL. Stratos shall have the right to control all negotiations
and proceedings with respect to the determination of the fair value of the
Paracer Capital Stock. In such event,
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Paracer agrees that, without Stratos' prior written consent or as required under
the DGCL, it will not voluntarily make any payment with respect to, or determine
or offer to determine, the fair value of the Paracer Capital Stock. Each holder
of Dissenting Shares (a "Dissenting Stockholder") who, pursuant to the
provisions of the DGCL, becomes entitled to payment of the fair value of Paracer
Capital Stock shall receive payment therefor (but only after the fair value
therefor shall have been agreed upon or finally determined pursuant to the
provisions of the DGCL). In the event that any holder of Paracer Capital Stock
fails to make an effective demand for payment or otherwise loses his, her or its
status as a Dissenting Stockholder, Stratos shall, as of the later of the
Effective Time or the occurrence of such event, issue and deliver, upon
surrender by such Dissenting Stockholder of his, her or its Certificate(s), the
shares of Stratos Common Stock and cash, including any cash payment in lieu of a
fractional share, in each case without interest thereon, to which such
Dissenting Stockholder would have been entitled under Section 2.2.
2.6 Certificate Legends. The shares of Stratos Common Stock to be issued
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pursuant to this Agreement shall not have been registered and shall be
characterized as "restricted securities" under the Securities Act of 1933, as
amended (the "Securities Act"), and under such laws such shares may be resold
without registration under the Securities Act only in certain limited
circumstances. Each certificate evidencing shares of Stratos Common Stock to be
issued pursuant to this Agreement shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED ("THE ACT"). NO SALE OR DISPOSITION
OF SUCH SHARES MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR
UNLESS SOLD PURSUANT TO RULE 144 OF THE ACT."
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARACER
Except as disclosed in the disclosure schedule provided to Stratos on or
before the date of this Agreement (the "Paracer Disclosure Schedule"), Paracer
represents and warrants to Stratos as follows:
3.1 Organization, Power and Qualification. Paracer is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Delaware, has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as currently being
conducted. Paracer is duly qualified to transact business and is in good
standing in the State of California and each other jurisdiction in which the
nature of its operations requires such qualification, except where the failure
to so qualify has not and will not have a Material Adverse Effect (as defined in
Section 10.2(a)) on Paracer. Paracer has delivered true and correct copies of
the amended and restated certificate of incorporation and bylaws of Paracer,
each as amended to date, to Stratos. Paracer is not in violation of any of the
provisions of its amended and restated certificate of incorporation, bylaws or
other charter documents.
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3.2 Paracer Capital Structure.
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(a) The authorized capital stock of Paracer consists of 30,742,268 shares
of Paracer Common Stock and 14,242,268 shares of Paracer Preferred Stock, all of
which are designated as Series A Preferred Stock. As of the date hereof,
7,317,000 shares of Paracer Common Stock, and 13,500,000 shares of Paracer
Series A Preferred Stock are issued and outstanding and held of record by those
persons set forth in the Paracer Disclosure Schedule. All such outstanding
shares of Paracer Capital Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance, in all
material respects, with all applicable federal and state securities laws, and
are not subject to any preemptive rights or rights of first refusal created by
statute, the charter documents of Paracer or any agreement to which Paracer is a
party or by which it is bound. As of the date hereof, 8,931,000 shares of
Paracer Common Stock are reserved for issuance under the Paracer Option Plan, of
which an aggregate of 152,000 shares are subject to outstanding options held by
those persons set forth in the Paracer Disclosure Schedule. As of the date
hereof, 742,268 shares of Series A Preferred Stock are reserved for issuance
upon the exercise of the Paracer Warrants.
(b) Except as set forth in this Section 3.2 or the Paracer Disclosure
Schedule, there are (i) no equity securities of any class of Paracer, or any
securities exchangeable into or exercisable for such equity securities, issued,
reserved for issuance, or outstanding and (ii) no outstanding subscriptions,
options, warrants, puts, calls, rights, or other commitments or agreements of
any character to which Paracer is a party or by which it is bound obligating
Paracer to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any equity securities of Paracer or
obligating Paracer to grant, extend, accelerate the vesting of, change the
exercise price of, or otherwise amend or enter into any such option, warrant,
call, right, commitment or agreement. Except as set forth in the Paracer
Disclosure Schedule, there are no contracts, commitments or agreements relating
to voting, purchase or sale of Paracer's capital stock (i) between or among
Paracer and any of its stockholders or (ii) to Paracer's knowledge, between or
among any of Paracer's stockholders.
3.3 Subsidiaries. Paracer does not, directly or indirectly, own any equity
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or similar interest in, or any interest convertible or exchangeable or
exercisable for any equity or similar interest in, any corporation, partnership,
joint venture or other business association or entity.
3.4 Authority; No Conflicts. (a) Subject to approval of its stockholders,
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Paracer has all requisite corporate power and authority to make, execute and
deliver this Agreement and all other agreements which Paracer is to enter as a
party hereunder, including the Certificate of Merger (collectively, the
"Transaction Documents"), and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the other
Transaction Documents to which Paracer is or will be a party and the
consummation of the transactions contemplated hereby and thereby have been duly
approved and authorized by all necessary corporate action on the part of
Paracer, subject only to the approval of the Merger by Paracer's stockholders as
required by the DGCL. This Agreement and the other Transaction Documents to
which Paracer is a party have been or will be duly executed and delivered by
Paracer and, assuming due authorization, execution and delivery by Stratos and
Sub, constitute or will constitute the valid and binding obligations of Paracer,
enforceable against Paracer in accordance with their respective terms, except as
such enforceability may be limited by (i)
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bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to creditors' rights generally, (ii) rules of law and equity governing specific
performance, injunctive relief and other equitable remedies, and (iii) general
principles of equity.
(b) The execution and delivery by Paracer of this Agreement and the other
Transaction Documents to which it is or will be a party do not, and the
consummation of the transactions contemplated hereby and thereby will not, (i)
conflict with, or result in any violation or breach of any provision of, the
amended and restated certificate of incorporation or bylaws of Paracer, (ii)
result in any violation or breach of or constitute (with or without notice or
lapse of time, or both) a default under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under, any
note, mortgage, indenture, lease, material contract or other material agreement
or obligation to which Paracer is a party or by which Paracer or any of its
properties or assets may be bound, or (iii) assuming all consents, approvals,
authorizations and other filings described in Section 3.4(c) have been obtained
or made, conflict with or violate any permit, concession, franchise, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Paracer
or any of its properties or assets.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") or any
other party is required by or with respect to Paracer in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Certificate of Merger with
the Delaware Secretary of State in accordance with the DGCL, (ii) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws, and (iii)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not have a Material Adverse Effect on Paracer and
would not prevent or materially alter or delay any of the transactions
contemplated by this Agreement.
3.5 Financial Statements.
--------------------
(a) The Paracer Disclosure Schedules include true and correct copies of
the following financial statements: (i) the unaudited balance sheet of Paracer,
together with the related statements of operations, stockholders' equity and
cash flows for the period from November 14, 2000 (inception) to December 31,
2000, (ii) the unaudited balance sheet of Paracer, together with the related
statements of operations and cash flows at and for the twelve (12) month period
ended December 31, 2001, and (iii) the unaudited balance sheet of Paracer,
together with the related statements of operations and cash flows at and for the
two (2) month period ended February 28, 2002 (the "Balance Sheet Date")
(collectively, the "Paracer Financial Statements").
(b) The Paracer Financial Statements were prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved, except that the unaudited Paracer Financial
Statements do not contain footnotes. The Paracer Financial Statements present
fairly the financial position of Paracer as of the respective dates and the
results of its operations and cash flows for the periods indicated, subject, in
the case of unaudited financial statements, to normal year-end audit
adjustments, which adjustments will not be material to such statements either
individually or in the aggregate. Paracer maintains,
9
and until the Effective Time will continue to maintain, a standard system of
accounting established and administered in accordance with GAAP.
3.6 Absence of Undisclosed Liabilities. Paracer does not have any
----------------------------------
liabilities, either accrued or contingent (whether or not required to be
reflected in financial statements in accordance with GAAP), and whether due or
expected to become due, other than (i) liabilities reflected or provided for on
the balance sheet as of the Balance Sheet Date (the "Paracer Balance Sheet")
contained in the Paracer Financial Statements, (ii) liabilities contemplated by
this Agreement or described in the Paracer Disclosure Schedule, and (iii) normal
or recurring liabilities incurred since the Balance Sheet Date in the ordinary
course of business consistent with past practices.
3.7 Accounts Receivable. The accounts receivable shown on the Paracer
-------------------
Balance Sheet arose in the ordinary course of business and have been collected
or are collectible in the book amounts thereof, less an amount not in excess of
the allowance for doubtful accounts and returns provided for in the Paracer
Balance Sheet. The accounts receivable of Paracer arising after the Balance
Sheet Date and prior to the Closing Date arose, or will arise, in the ordinary
course of business and have been collected or will be collectible in the book
amounts thereof, less allowances for doubtful accounts and returns determined in
accordance with GAAP and the past practices of Paracer. None of such accounts
receivable is subject to any claim of offset or recoupment or counterclaim, and
Paracer has no knowledge of any specific facts that would be likely to give rise
to any such claim. No amount of such accounts receivable is contingent upon the
performance by Paracer of any obligation and no agreement for deduction or
discount has been made with respect to any such accounts receivable.
3.8 Inventories. The inventories shown on the Paracer Balance Sheet or
-----------
thereafter acquired by Paracer consist of items of a quantity and quality usable
or salable in the ordinary course of business. Since the Balance Sheet Date,
Paracer has continued to replenish inventories in a normal and customary manner
consistent with past practices. Paracer has not received notice that it will
experience in the foreseeable future any difficulty in obtaining, in the desired
quantity and quality and at a reasonable price and upon reasonable terms and
conditions, the supplies or component products required for the manufacture,
assembly or production of its products. The value at which inventories are
carried reflect the inventory valuation policy of Paracer, which is consistent
with its past practice and in accordance with GAAP. Due provision has been made
on the books of Paracer, consistent with past practices, to provide for all
slow-moving, obsolete, or unusable inventories at their estimated useful or
scrap values, and such inventory reserves are adequate to provide for such
slow-moving, obsolete or unusable inventory and inventory shrinkage.
3.9 Absence of Certain Changes or Events. Since December 31, 2001, Paracer
------------------------------------
has conducted its business in the ordinary course and in a manner consistent
with past practices and, since such date, Paracer has not:
(a) suffered any event or occurrence that has had a Material Adverse
Effect on Paracer;
10
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, having a Material Adverse Effect on Paracer;
(c) granted any increase in the compensation payable or to become
payable by Paracer to its officers or employees;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of its capital stock or
declared any direct or indirect redemption, retirement, purchase or other
acquisition of such shares;
(e) issued any shares of its capital stock or any warrants, rights,
or options for, or entered into any commitment relating to such capital
stock, other than shares of Paracer Common Stock issued upon exercise of
options outstanding under the Paracer Option Plans as of the date of this
Agreement or upon the exercise of Paracer Warrants outstanding on the date
hereof;
(f) made any change in the accounting methods or practices it
follows, whether for general financial or tax purposes, or any change in
depreciation or amortization policies or rates;
(g) sold, leased, abandoned or otherwise disposed of any real
property, machinery, equipment or other operating property other than in
the ordinary course of business;
(h) sold, assigned, licensed or otherwise transferred any patent,
trademark, trade name, brand name, copyright (or pending application for
any patent, trademark or copyright), invention, work of authorship,
process, know-how, formula or trade secret or interest thereunder or other
material intangible asset;
(i) entered into any commitment or transaction (including, without
limitation, any borrowing or capital expenditure) other than in the
ordinary course of business;
(j) incurred any liability, except in the ordinary course of business
and consistent with past practice;
(k) permitted or allowed any of its property or assets to be
subjected to any mortgage, deed of trust, pledge, lien, security interest
or other encumbrance of any kind, except for liens for current taxes not
yet due and purchase money security interests incurred in the ordinary
course of business;
(l) made any capital expenditure or commitment for additions to
property, plant or equipment individually in excess of $25,000, or, in the
aggregate, in excess of $100,000; or
(m) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any agreement or
arrangement with, any of its officers, directors or stockholders or any
affiliate of any of the foregoing, other than
11
employee compensation and benefits and reimbursement of employment related
business expenses incurred in the ordinary course of business.
3.10 Taxes.
-----
(a) For purposes of this Agreement, a "Tax" or, collectively, "Taxes,"
means any and all United States federal, state, local and foreign taxes,
assessments and other charges, duties, impositions and liabilities imposed by
any Governmental Entity or taxing authority, including taxes based upon or
measured by gross receipts, income, profits, sales, use and occupation, and
value added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts and any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity.
(b) Paracer has prepared and timely filed all returns, estimates,
information statements and reports required to be filed with any taxing
authority ("Returns") relating to any and all Taxes concerning or attributable
to Paracer or its operations, such Returns are true and correct in all material
respects and have been completed in all material respects in accordance with
applicable law, and Paracer has disclosed on its Returns all positions taken
therein that could give rise to a substantial understatement penalty within the
meaning of Section 6662 of the Code (or any predecessor provision or comparable
provision of state, local or foreign law).
(c) Paracer, as of the Closing Date, (i) will have paid all Taxes it is
required to pay prior to the Closing Date and (ii) will have withheld with
respect to its employees all Taxes required to be withheld.
(d) Paracer has not been delinquent in the payment of any Tax. There is no
Tax deficiency outstanding or assessed or proposed against Paracer that is not
reflected as a liability on the Paracer Balance Sheet or set forth on the
Paracer Disclosure Schedule, nor has Paracer executed any agreements or waivers
extending any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(e) The amount of Paracer's liability for unpaid Taxes (whether actual or
contingent) for all periods through the date hereof and the Closing Date does
not and will not, in the aggregate, exceed the amount of the current liability
accruals for Taxes (excluding reserves for deferred Taxes) reflected on the
Paracer Balance Sheet (other than Taxes which have accrued after the date of
such Paracer Balance Sheet).
(f) Paracer is not a party to any tax-sharing agreement or similar
arrangement with any other party, and Paracer has not assumed or agreed to pay
any Tax obligations of, or with respect to any transaction relating to, any
other person or agreed to indemnify any other person with respect to any Tax.
(g) Paracer's Returns have never been audited by a government or taxing
authority, nor is any such audit in process or pending, and Paracer has not been
notified of any request for such an audit or other examination.
12
(h) Paracer has never been a member of an affiliated group of corporations
filing a United States consolidated federal income tax return.
(i) Paracer has made available to Stratos copies of all Returns filed for
all periods since its inception.
(j) Paracer has never filed any consent agreement under Section 341(f) of
the Code or agreed to have Section 341(f)(4) apply to any disposition of assets
owned by Paracer.
(k) Paracer is not a party to any contract, agreement, plan or
arrangement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of Paracer that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code by Paracer or
Sub as an expense under applicable law.
(l) Paracer has not constituted either a "distributing corporation" or a
"controlled corporation" in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code (i) in the two years prior to the date
of this Agreement or (ii) in a distribution which could otherwise constitute
part of a "plan" or "series of related transactions" (within the meaning of
Section 355(e) of the Code) in conjunction with the Merger.
(m) Paracer has not agreed to make, nor is it required to make, any
adjustment under Section 481 of the Code by reason of any change in accounting
method.
(n) None of Paracer's assets is treated as "tax-exempt use property,"
within the meaning of Section 168(h) of the Code.
(o) Paracer is not, nor has it been, a "reporting corporation" subject to
the information reporting and record maintenance requirements of Section 6038A
of the Code and the regulations thereunder.
(p) Paracer has never been a party to any joint venture, partnership or
other agreement that could be treated as a partnership for Tax purposes.
(q) There are (and immediately following the Effective Time there will be)
no liens, pledges, charges, claims, restrictions on transfer, mortgages,
security interests or other encumbrances of any sort (collectively, "Liens") on
the assets of Paracer relating to or attributable to Taxes, other than Liens for
Taxes not yet due and payable.
3.11 Tangible Assets and Real Property.
---------------------------------
(a) Paracer owns or leases all tangible assets and properties which are
necessary to the conduct of its business as currently conducted or which are
reflected on the Paracer Balance Sheet or acquired since the Balance Sheet Date
(the "Tangible Assets"). The Paracer Disclosure Schedule lists all Tangible
Assets that are not located at Paracer's facility in Santa Clara, California.
The Tangible Assets are in good operating condition and repair, subject to
ordinary wear and tear. Paracer has good and marketable title to all of the
Tangible Assets that it owns (except properties, interests in properties and
assets sold or otherwise disposed of since the
13
Paracer Balance Sheet Date in the ordinary course of business), free and clear
of all Liens, except for Liens for current taxes not yet due and payable.
Assuming the due execution and delivery thereof by the other parties thereto,
all leases of Tangible Assets to which Paracer is a party are in full force and
effect and valid, binding and enforceable in accordance with their respective
terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to creditors'
rights generally, (ii) rules of law and equity governing specific performance,
injunctive relief and other equitable remedies, and (iii) general principles of
equity. The Paracer Disclosure Schedule sets forth a true and correct list of
all such leases, and true and correct copies of all such leases have been
provided to Stratos.
(b) Paracer owns no real property. The Paracer Disclosure Schedule sets
forth a true and complete list of all real property leased by Paracer. Assuming
the due execution and delivery thereof by the other parties thereto, all such
real property leases are in full force and effect and valid, binding and
enforceable in accordance with their respective terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to creditors' rights generally, (ii) rules of
law and equity governing specific performance, injunctive relief and other
equitable remedies, and (iii) general principles of equity. True and correct
copies all such of real property leases have been provided to Stratos.
3.12 Intellectual Property.
---------------------
(a) Paracer owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service marks,
copyrights and mask works, and any applications for and registrations of such
patents, trademarks, trade names, service marks, copyrights and mask works and
all processes, formulas, methods, schematics, technology, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material that are necessary to conduct the business of Paracer as
currently being conducted, or as currently proposed to be conducted (all of
which are referred to as the "Paracer Intellectual Property Rights"), free and
clear of all Liens. The foregoing representation as it relates to Licensed
Intellectual Property (as defined below) is limited to Paracer's interest
pursuant to licenses from third parties, each of which is in full force and
effect, is valid, binding and enforceable, subject to bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to creditors' rights
generally, and general principles of equity, and grants Paracer such rights to
such intellectual property as are necessary to Paracer's business as currently
conducted or currently proposed to be conducted.
(b) The Paracer Disclosure Schedule contains an accurate and complete list
of (i) all patents, patent applications, trademarks, trade names, service marks
and registered copyrights and applications therefor, included in the Paracer
Intellectual Property Rights, including the jurisdictions in which each such
Paracer Intellectual Property Right has been issued or registered or in which
any such application for such issuance or registration has been filed, (ii) all
licenses, sublicenses, distribution agreements, options, rights (including
marketing rights), and other agreements to which Paracer is a party and pursuant
to which any person is authorized to use any Paracer Intellectual Property
Rights or has the right to manufacture, reproduce, market or exploit any current
product of, or product under development by, Paracer (a "Paracer Product") or
any adaptation, translation or derivative work based on any Paracer Product or
any portion thereof, (iii) all licenses, sublicenses and other agreements to
which Paracer is a party and pursuant to
14
which Paracer is authorized to use any third party technology, trade secret,
know-how, process, patent, trademark or copyright, including software ("Licensed
Intellectual Property"), which is used in the manufacture of, incorporated in or
forms a part of any Paracer Product (other than licenses for standard
off-the-shelf software used in the conduct of Paracer's business), (iv) all
joint development agreements to which Paracer is a party, and (v) all
development or similar agreements with Governmental Entities or other third
parties pursuant to which Paracer has obtained funding for research and
development activities. The Paracer Disclosure Schedule contains an accurate and
complete list of all invention disclosure forms.
(c) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby do not and will not conflict with, or
result in any violation or breach of, or default (with or without notice or
lapse of time or both) or give rise to any right, license or Lien relating to
any Paracer Intellectual Property Rights, or right of termination, cancellation
or acceleration of any Paracer Intellectual Property Rights, or the loss or
encumbrance of any Paracer Intellectual Property Rights or material benefit
related thereto, or result in or require the creation, imposition or extension
of any Lien upon any Paracer Intellectual Property Rights or otherwise impair
the right of Paracer or its customers to use the Paracer Intellectual Property
Rights in the same manner as such Paracer Intellectual Property Rights are
currently being used by Paracer or the customers of Paracer.
(d) All patents and registered trademarks, service marks and copyrights
issued to Paracer which relate to any Paracer Product are valid and subsisting.
The manufacturing, marketing, licensing or sale of any Paracer Product does not
infringe any patent, trademark, trade name, service xxxx, copyright, mask work
right, trade secret or other proprietary right of any third party. Paracer (i)
has not received notice that it has been sued in any suit, action or proceeding
which involves a claim of infringement of any patent, trademark, trade name,
service xxxx, copyright, mask work right, trade secret or other proprietary
right of any third party and (ii) has no knowledge of any claim challenging or
questioning the validity or effectiveness of any license or agreement covering
any Paracer Intellectual Property Rights or Licensed Intellectual Property.
There is no outstanding order, writ, injunction, decree, judgment or stipulation
by or with any court, administrative agency or arbitration panel regarding
patent, copyright, trade secret, trademark, trade name, mask work right or other
claims relating to the Paracer Intellectual Property Rights to which Paracer is
a party or by which it is bound.
(e) All designs, drawings, specifications, source code, object code,
documentation, flow charts and diagrams incorporated, embodied or reflected in
any Paracer Product at any stage of its development were written, developed and
created solely and exclusively by (i) Paracer employees without the assistance
of any third party or (ii) third parties who assigned ownership of their rights
with respect thereto to Paracer by means of valid and enforceable agreements,
which are listed and described in the Paracer Disclosure Schedule and copies of
which have been provided to Stratos. Paracer has at all times used commercially
reasonable efforts to protect its trade secrets. None of the trade secrets of
Paracer have been published or disclosed by Paracer or, to the knowledge of
Paracer, by any other person, to any person except pursuant to licenses or
contracts requiring such other persons to keep such trade secrets confidential.
(f) Paracer is not, and, to Paracer's knowledge, no other party to any
licensing, sublicensing, distributorship or other similar arrangements with
Paracer relating to the Paracer
15
Intellectual Property Rights is, in breach of or default under any material
obligations under such arrangements.
(g) To Paracer's knowledge, no person is infringing on or otherwise
violating any Paracer Intellectual Property Right.
(h) Paracer has not assigned, sold or otherwise transferred ownership of,
or granted an exclusive license or right to use, any patent, patent application,
trademark, mask work right or service xxxx.
(i) Neither Paracer nor any of its officers or employees has any patents
issued or patent applications pending for any device, process, method, design or
invention of any kind now used or needed by Paracer in the furtherance of its
business operations as currently being conducted or as currently proposed to be
conducted by Paracer, which patents or applications have not been assigned to
Paracer with such assignment duly recorded in the United States Patent Office or
with the applicable foreign Governmental Entity.
(j) Each person currently or formerly employed by Paracer (including
consultants and independent contractors, if any) that has or had access to
confidential information of Paracer has executed and delivered to Paracer a
confidentiality and non-disclosure agreement in one of the forms previously
provided to Stratos. To Paracer's knowledge, neither the execution or delivery
of any such agreement by any such person, nor the carrying on by any such
person, as an employee, consultant or independent contractor, of Paracer's
business as currently conducted and as currently proposed to be conducted, has
or will conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such persons is obligated.
3.13 Bank Accounts. The Paracer Disclosure Schedule sets forth the names
-------------
and locations of all banks and other financial institutions at which Paracer
maintains deposit or similar accounts, the type of accounts maintained at each
such institution and the names of all persons authorized to draw thereon or make
withdrawals from such accounts.
3.14 Material Contracts.
------------------
(a) Except as set forth on the Paracer Disclosure Schedule, Paracer is not
a party or subject to any agreement, obligation or commitment, written or oral:
(i) that calls for any fixed or contingent payment or expenditure in
a single payment in excess of $10,000 or any related series of fixed or
contingent payments or expenditures by or to Paracer in excess of $50,000
in the aggregate, other than purchase orders issued in the ordinary course
of business in amounts not in excess of $25,000;
(ii) with agents, advisors, salesmen, sales representatives,
independent contractors or consultants that are not cancelable or
terminable by it on no more than thirty (30) days' notice without
liability, penalty or premium;
(iii) that restricts Paracer from carrying on anywhere in the world
its business or any portion thereof as currently conducted;
16
(iv) to loan funds or to make any investment in any other person or
entity (in the form of a loan, capital contribution or otherwise);
(v) with respect to obligations as guarantor, surety, co-signer,
endorser, co-maker, indemnitor or otherwise in respect of the obligation of
any other person or entity;
(vi) for any line of credit, standby financing, revolving credit or
other similar financing arrangement;
(vii) with any distributor, original equipment manufacturer, value
added remarketer or other person for the distribution of any of the Paracer
Products;
(viii) with any Governmental Entity or involving the provision of
products or services to a Governmental Entity; or
(ix) that is otherwise material to the business of Paracer as
currently being conducted, or as currently proposed to be conducted.
(b) To Paracer's knowledge, no party to any such material contract,
agreement or instrument intends to cancel, withdraw, modify or amend such
contract, agreement or instrument.
(c) Paracer is not in default under or in breach or violation of any
material contract, commitment or restriction to which Paracer is a party or by
which Paracer or any of its properties or assets is bound or affected. To
Paracer's knowledge, no other party is in default under or in breach or
violation of any material contract, commitment, or restriction to which Paracer
is a party or by which Paracer or any of its properties or assets is bound or
affected.
3.15 Labor Matters. Paracer is not engaged in any unfair labor practice or
-------------
in violation of any applicable laws respecting employment, employment practices
or terms and conditions of employment. There is no unfair labor practice
complaint against Paracer pending or, to Paracer's knowledge, threatened before
any Governmental Entity. There is no strike, labor dispute, slowdown, or
stoppage pending or, to Paracer's knowledge, threatened against Paracer. Paracer
is not now and has never been subject to any union organizing activities.
Paracer has not experienced any work stoppage or other labor difficulty. To
Paracer's knowledge, the consummation of the transactions contemplated by this
Agreement will not have a material adverse effect on its relations with Paracer
employees.
3.16 Trade Regulation. Paracer has not terminated its relationship with or
----------------
refused to ship Paracer Products to any dealer, distributor, third party
marketing entity or customer which had theretofore paid or been obligated to pay
Paracer in excess of $10,000 over any consecutive twelve (12) month period. All
of the prices charged by Paracer in connection with the marketing or sale of any
of its products or services have been in compliance, in all material respects,
with all applicable laws and regulations. No claims have been asserted or, to
Paracer's knowledge, threatened against Paracer with respect to the wrongful
termination of any dealer, distributor or any other marketing entity,
discriminatory pricing, price fixing, unfair competition, false advertising, or
any other material violation of any laws or regulations relating to
anti-competitive practices or unfair trade practices of any kind and to
Paracer's knowledge, no specific situation, set of facts, or occurrence provides
any basis for any such claim.
17
3.17 Environmental Matters.
---------------------
(a) As of the date hereof, no material amount of any substance that has
been designated by applicable law or regulation to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment (a "Hazardous
Material"), has been released as a result of the actions or omissions of Paracer
or, to Paracer's knowledge, as a result of any actions or omissions of any third
party or otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water, that Paracer has at any time
owned, operated, occupied or leased. To Paracer's knowledge, no underground
storage tanks are or were present under any property that Paracer has at any
time owned, operated, occupied or leased. Paracer has never notified any
Governmental Entity or third party, nor has Paracer been required under any law,
rule, regulation, order or agreement to notify any Governmental Entity or third
party, of any spill or release of any Hazardous Material.
(b) At all times, Paracer has transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to Hazardous Materials
(collectively, "Hazardous Materials Activities") in material compliance with all
laws, rules, regulations, orders or treaties promulgated by any Governmental
Entity.
(c) Paracer currently holds all environmental approvals, permits,
licenses, clearances and consents (the "Environmental Permits") necessary for
the conduct of its business as such businesses is currently being conducted and
is in material compliance with all such Environmental Permits. Except as set
forth in the Paracer Disclosure Schedule, no environmental report, closure
activity, investigation or assessment, and no notification to or approval,
consent or authorization from, any Governmental Entity with jurisdiction
regarding environmental matters or Hazardous Materials (including, without
limitation, ISRA) is required to be obtained, either before or after the
Effective Time, in connection with any of the transactions contemplated by this
Agreement.
(d) No action, proceeding, writ, injunction or claim is pending or, to the
knowledge of Paracer, threatened concerning any Environmental Permit or any
Hazardous Materials Activity of Paracer. To Paracer's knowledge, there are no
facts or circumstances which could reasonably be expected to involve Paracer in
any environmental litigation or impose upon Paracer any liability concerning
Hazardous Materials Activities.
3.18 Employee Benefit Plans.
----------------------
(a) Paracer has set forth in the Paracer Disclosure Schedule a
description of (i) all employee benefit plans, (ii) all bonus, stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance and other similar employee benefit plans, and (iii) all unexpired
severance agreements, written or otherwise, which are or have been maintained,
contributed to, or required to be contributed to by Paracer or any affiliate of
Paracer, within the meaning of Sections 414(b), (c), (m) or (o) of the Code, for
the benefit of, or relating to, any current or former employee of Paracer or any
such affiliate (individually, a "Paracer Employee Plan," and collectively, the
"Paracer Employee Plans").
18
(b) With respect to each Paracer Employee Plan, Paracer has made
available to Stratos a true and correct copy of (i) such Paracer Employee Plan
and (ii) each trust agreement, group annuity contract and other plan document
relating to such Paracer Employee Plan.
(c) Each Paracer Employee Plan has been established and maintained
in accordance with its terms and in material compliance with all applicable
laws, including the Employee Retirement Income Security Act of 1974, as amended,
and the Code. With respect to the Paracer Employee Plans, individually and in
the aggregate, no event has occurred, and, to Paracer's knowledge, there exists
no condition or set of circumstances in connection with which Paracer could be
subject to any liability which is not properly accrued on the Paracer Balance
Sheet.
(d) With respect to the Paracer Employee Plans, individually and in
the aggregate, there are no funded benefit obligations for which contributions
have not been made or properly accrued and there are no unfunded benefit
obligations which have not been accounted for by reserves, or otherwise properly
footnoted in accordance with GAAP, on the financial statements or books of
Paracer.
(e) Paracer is not a party to any oral or written: (i) union or
collective bargaining agreement, (ii) agreement with any officer or other key
employee of Paracer, the benefits of which are contingent, or the terms of which
are materially altered, upon the occurrence of the transactions contemplated by
this Agreement, (iii) agreement with any officer of Paracer providing any term
of employment or compensation guarantee or for the payment of compensation in
excess of $50,000 per annum, or (iv) agreement or plan, including any stock
option plan, stock appreciation right plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement, in each case, except as described in Section 6.11(c) and in
the Paracer Disclosure Schedule.
3.19 Legal Compliance. Paracer has complied in all material respects
----------------
with, is not in material violation of, and has not received any notices of
violation with respect to, any statute, law or regulation (including, without
limitation, those relating to environmental standards, immigration, wages and
hours, civil rights, and occupational health and safety) applicable to the
ownership or operation of its business.
3.20 Employees and Consultants. The Paracer Disclosure Schedule
-------------------------
contains a list of the names of all employees and consultants of Paracer as of
the date of this Agreement and their salaries or wages, other compensation,
dates of employment and positions.
3.21 Litigation. There is no action, suit, proceeding, claim,
----------
arbitration or investigation pending before any agency, court or tribunal or, to
Paracer's knowledge, threatened against Paracer or any of its properties or
officers or directors (in their capacities as such). There is no judgment,
decree or order against Paracer or, to its knowledge, any of its directors or
officers (in their capacities as such) that could prevent, enjoin or alter or
delay any of the transactions contemplated by this Agreement, or has or could
reasonably be expected to have the effect of prohibiting or impairing any
current or future business practice of Paracer, any acquisition of
19
property by Paracer or the conduct of business by Paracer as currently being
conducted or as currently proposed to be conducted.
3.22 Governmental Authorization. Paracer has obtained each
--------------------------
governmental consent, license, permit, grant or other authorization of a
Governmental Entity that is required for the operation of the business of
Paracer (collectively, the "Paracer Authorizations"), except for those the
absence of which would not have a Material Adverse Effect on Paracer, and all of
such Paracer Authorizations are in full force and effect.
3.23 Insurance. The Paracer Disclosure Schedule contains a list of
---------
all insurance policies to which Paracer is a party. There is no claim pending
under any of such policies as to which coverage has been questioned, denied or
disputed by the underwriters of such policies. All premiums due and payable
under all such policies have been paid, and Paracer is otherwise in compliance
with the terms of such policies. Paracer has no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
3.24 Interested Party Transactions.
-----------------------------
(a) No director, officer or to Paracer's knowledge, stockholder of
Paracer has any interest in (i) any equipment or other property or asset, real
or personal, tangible or intangible, including, without limitation, any of the
Paracer Intellectual Property Rights, used in connection with Paracer's
business, (ii) any creditor, supplier, customer, manufacturer, or distributor of
any of the Paracer Products, (iii) any entity that competes with Paracer, or
with which Paracer is affiliated or has a business relationship, or (iv) any
agreement, obligation or commitment, written or oral, to which Paracer is a
party, except as set forth in the Paracer Disclosure Schedule; provided,
however, that no such person shall be deemed to have such an interest solely by
virtue of ownership of less than one percent (1%) of the outstanding stock or
debt securities of any company whose stock or debt securities are traded on a
recognized stock exchange or quoted on the NNM.
(b) Except as contemplated by the Transaction Documents or otherwise
set forth in the Paracer Disclosure Schedule, Paracer is not a party to any (i)
agreement with any officer or other employee of Paracer the benefits of which
are contingent, or the terms of which are materially altered, upon the
occurrence of the transactions contemplated by this Agreement, or (ii) agreement
or plan, including, without limitation, any stock option plan, stock
appreciation right plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
3.25 Returns and Warranties. Each product manufactured or sold by
----------------------
Paracer has been produced in conformity with all applicable contractual
commitments and specifications with third parties and all applicable express and
implied warranties (collectively, "Warranties"). Except as disclosed in the
Paracer Disclosure Schedule, (i) no Paracer customer has any right to return any
products for credit or refund pursuant to any formal or informal policy or
practice of Paracer, and (ii) Paracer has not given any express or implied
warranties in connection with the sale of any Paracer Product.
20
3.26 Customers and Suppliers. The Paracer Disclosure Schedule sets
-----------------------
forth a separate list of the ten (10) largest customers of Paracer in terms of
sales during the 2001 calendar year, and the ten (10) largest suppliers to
Paracer during the 2001 calendar year, showing in each case the approximate
total sales and purchases by or from each such customer or supplier during such
period.
Since December 31, 2001, there has not been any material adverse change
in the business relationship of Paracer with any such named customer or
supplier, or any other customer or supplier that is material to Paracer's
business, and there are no other customers or suppliers, respectively, who
accounted for more than 5% of sales or purchases, respectively, by Paracer
during the period shown. To Paracer's knowledge, no customer listed on the
Paracer Disclosure Schedule intends to cease purchasing from or dealing with
Stratos or Paracer after the Closing nor intends to alter in any material
respect the amount of such purchases or the extent of dealings with Paracer
after the Closing.
3.27 Real Property Holding Corporation. Paracer is not a "United
---------------------------------
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
3.28 Corporate Documents. Paracer has furnished to Stratos, or its
-------------------
representatives, for its examination (i) its minute book containing the records
all proceedings, consents, actions, and meetings of the stockholders, the Board
of Directors and any committees thereof and (ii) all permits, orders, and
consents issued by any Governmental Entity with respect to Paracer. The
corporate minute books and other corporate records of Paracer are complete and
accurate in all material respects, and the signatures appearing on all documents
contained therein are the true signatures of the persons purporting to have
signed the same. All actions reflected in such books and records were duly and
validly taken in material compliance with the laws of the applicable
jurisdiction. Paracer has delivered or made available to Stratos or its
representatives true and complete copies of all documents which are specifically
listed or referred to in the Paracer Disclosure Schedule.
3.29 Solicitation Statement. The Solicitation Statement to be sent to
----------------------
Paracer's stockholders in connection with the stockholders' meeting to be held
as provided in Section 6.9 hereof shall not, at the date the Solicitation
Statement (or any amendment or supplement thereto) is first mailed to Paracer's
stockholders, and at the time of the stockholders' meeting, contain any
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact, or which omits
to state any material fact necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the stockholders'
meeting which shall have become false or misleading; provided that this
representation shall not apply to any information provided by Stratos for
inclusion therein as contemplated by Section 6.9 hereof. The Solicitation
Statement shall comply in all material respects as to form with the requirements
of the DGCL and applicable law.
3.30 No Misrepresentation. No representation or warranty by Paracer
--------------------
in this Agreement, the Paracer Disclosure Schedules or any statement,
certificate or schedule furnished or to be furnished by or on behalf of Paracer
pursuant to this Agreement, when taken together, contains or shall contain any
untrue statement of a material fact or omits or shall omit to state a
21
material fact required to be stated therein or necessary in order to make such
statements, in light of the circumstances under which they were made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF STRATOS AND SUB
Stratos and Sub, jointly and severally, represent and warrant to
Paracer as follows:
4.1 Organization, Power and Qualification. Each of Stratos and Sub
-------------------------------------
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate power
and authority to own, lease and operate its property and to carry on its
business as now being conducted and as proposed to be conducted. Each of Stratos
and Sub is duly qualified to transact business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have a Material Adverse Effect on Stratos.
4.2 Authority; No Conflicts.
-----------------------
(a) Each of Stratos and Sub has all requisite corporate power and
authority to make, execute and deliver this Agreement and the other Transaction
Documents to which it is or will be a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the other Transaction Documents to which Stratos or Sub is or will be a
party and the consummation of the transactions contemplated hereby and thereby
have been duly approved and authorized by all necessary corporate action on the
part of Stratos and Sub, respectively. This Agreement and the other Transaction
Documents to which Stratos and/or Sub are a party have been or will be duly
executed and delivered by Stratos and/or Sub, as applicable, and constitute or
will constitute the valid and binding obligations of Stratos and/or Sub,
enforceable against Stratos and/or Sub, as the case by be, in accordance with
their respective terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, moratorium or similar laws affecting or relating to
creditors' rights generally, (ii) rules of law and equity governing specific
performance, injunctive relief and other equitable remedies, and (iii) general
principles of equity.
(b) The execution and delivery by each of Stratos and Sub of this
Agreement and the other Transaction Documents to which it is or will be a party
do not, and the consummation of the transactions contemplated hereby and thereby
will not, (i) conflict with, or result in any violation or breach of any
provision of the restated certificate of incorporation or bylaws of Stratos or
the certificate of incorporation or bylaws of Sub, (ii) result in any violation
or breach of, or constitute (with or without notice or lapse of time, or both) a
default under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or loss of any benefit under, any note,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Stratos or Sub is a party or by which it or any of its
properties or assets may be bound, or (iii) conflict with or violate any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to either Stratos or Sub or any of its
properties or assets.
22
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or other party
is required by or with respect to Stratos or any of its Subsidiaries in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger with the Delaware Secretary of State in accordance with
the DGCL, (ii) the filing of a report on Form 8-K with the Securities and
Exchange Commission (the "SEC"), (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws, and (iv) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not prevent or materially alter or delay any of the transactions
contemplated by this Agreement or be reasonably likely to have a Material
Adverse Effect on Stratos.
4.3 SEC Filings; Financial Statements.
---------------------------------
(a) Stratos has timely filed and made available to Paracer all
forms, reports and documents required to be filed by Stratos with the SEC since
April 30, 2001, other than registration statements on Form S-8 (collectively,
the "Stratos SEC Reports"). Each of the Stratos SEC Reports: (i) at the time it
was filed, complied in all material respects with the applicable requirements of
the Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as the case may be, and (ii) did not at the time it was filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated in such Stratos SEC
Report or necessary in order to make the statements in such Stratos SEC Report,
in the light of the circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in
each case, any related notes) contained in the Stratos SEC Reports, including
any Stratos SEC Reports filed after the date of this Agreement until the
Closing, complied or will comply as to form in all material respects with the
applicable published rules and regulations of the SEC with respect thereto, was
or will be prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to such
financial statements or, in the case of unaudited statements, as permitted by
Form 10-Q promulgated by the SEC) and presented fairly or will present fairly,
in all material respects, the consolidated financial position of Stratos and its
Subsidiaries as of the respective dates, and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments.
4.4 Stratos Common Stock. The shares of Stratos Common Stock to be
--------------------
issued pursuant to the Merger, when issued in accordance with the terms of this
Agreement, will be duly authorized, validly issued, fully-paid and
nonassessable, and will have been issued in compliance, in all material
respects, with all applicable federal and state securities laws.
4.5 No Material Adverse Change. Since the date of the last Stratos
--------------------------
SEC Report, there has not been any Material Adverse Effect on Stratos.
4.6 No Misrepresentation. No representation or warranty by Stratos
--------------------
or Sub in this Agreement, or any statement, certificate or schedule furnished or
to be furnished by or on behalf
23
of Stratos pursuant to this Agreement, when taken together, contains or shall
contain any untrue statement of a material fact or omits or shall omit to state
a material fact required to be stated therein or necessary in order to make such
statements, in light of the circumstances under which they were made, not
misleading.
ARTICLE V
CONDUCT OF BUSINESS
5.1 Covenants of Paracer. During the period from the date of this
-------------------
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Paracer agrees (except to the extent that Stratos shall
otherwise consent in writing), to carry on its business in the usual, regular
and ordinary course in substantially the same manner as previously conducted, to
pay its debts and Taxes when due, to pay or perform its other obligations when
due (subject to good faith disputes with respect to such obligations), and, to
the extent consistent with such business, to use all commercially reasonable
efforts consistent with past practices and policies to (i) preserve intact its
present business organization, (ii) keep available the services of its present
officers and key employees and (iii) preserve its relationships with customers,
suppliers, distributors, licensors, licensees and others having material
business dealings with it.
Without limiting the generality of the foregoing, except as expressly
contemplated by this Agreement, or set forth on the Paracer Disclosure Schedule,
during the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, Paracer
shall not, without Stratos' prior written consent:
(a) Grant or accelerate, amend or change the period of vesting or
exercisability of options, stock appreciation rights, stock purchase rights or
restricted stock granted under any employee stock plan of Paracer or authorize
cash payments in exchange for, or in settlement of, any options or other rights
granted under any of such plans except as required by the terms of such plans or
any related agreements in effect as of the date of this Agreement;
(b) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights of third parties in or to the Paracer Intellectual
Property Rights;
(c) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service by such
party;
(d) Issue, deliver or sell or authorize the issuance, delivery or
sale of, any shares of its capital stock or securities convertible into shares
of its capital stock, or subscriptions, rights, warrants or options to acquire,
or other agreements or commitments of any character obligating it to issue any
such shares or other convertible securities, other than the issuance of shares
of Paracer Series A Preferred Stock upon the exercise of the Paracer Warrants;
24
(e) Acquire or agree to acquire by merging or consolidating with, or by
purchasing an equity interest in or a portion of the assets of, or by any other
manner, any business or any corporation, partnership or other business
organization or division, or otherwise acquire or agree to acquire any assets
outside the ordinary course of business;
(f) Sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the business
of Paracer, except for transactions entered into in the ordinary course of
business;
(g) Commit to: (i) increase or agree to increase the compensation
payable or to become payable to its officers or employees, (ii) grant any
additional severance or termination pay to, or enter into any employment or
severance agreements with, any officers, (iii) grant any severance or
termination pay to, or enter into any employment or severance agreement, with
any non-officer employee, except in accordance with past practices, (iv) enter
into any collective bargaining agreement, or (v) establish, adopt, enter into or
amend in any material respect any bonus, profit sharing, thrift, compensation,
stock option, restricted stock, stock appreciation right, pension, retirement,
deferred compensation, employment, termination, severance or other plan, trust,
fund, policy or arrangement for the benefit of any directors, officers or
employees;
(h) Revalue any of its assets in any material respect, including
writing down the value of inventory or writing off notes or accounts receivable,
other than in the ordinary course of business;
(i) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others, other
than indebtedness incurred under outstanding lines of credit consistent with
past practice;
(j) Amend or agree to amend its amended and restated certificate of
incorporation or bylaws, except as contemplated by this Agreement;
(k) Incur or commit to incur any individual capital expenditure in
excess of $25,000 or aggregate capital expenditures in excess of $50,000, other
than existing commitments set forth in the Paracer Disclosure Schedule;
(l) Enter into or amend any agreements or amendments to existing
agreements pursuant to which any third party is granted exclusive marketing or
distribution rights with respect to any Paracer Product;
(m) Amend or terminate any material contract, agreement or license to
which it is a party, except in the ordinary course of business;
(n) Waive or release any material right or claim, except in the
ordinary course of business;
(o) Make, change or revoke any other material election with respect to
Taxes or enter into or amend any material agreement or settlement with any
taxing authority;
25
(p) Initiate any litigation or arbitration proceeding; or
(q) Agree, in writing or otherwise, to take any of the actions
described in paragraphs (a) through (p) above.
5.2 Cooperation. Subject to compliance with applicable law, from the
-----------
date hereof until the earlier of the termination of this Agreement or the
Effective Time, each of Stratos and Paracer shall, upon reasonable request,
confer on a regular basis during normal business hours with one or more
representatives of the other party to report operational matters of materiality
and the general status of ongoing operations and shall promptly provide the
other party or its counsel with copies of all filings made by such party with
any Governmental Entity in connection with this Agreement, the Merger and the
transactions contemplated hereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 No Solicitation.
---------------
(a) During the period from the date of this Agreement until the earlier
of the termination of this Agreement or the Effective Time, Paracer shall not,
directly or indirectly, through any officer, director, employee, representative
or agent, (i) take any action to solicit, initiate, encourage or support any
inquiries or proposals that constitute, or could reasonably be expected to lead
to, a proposal or offer for a merger, consolidation, business combination, sale
of assets, sale of shares of capital stock (including without limitation by way
of a tender offer) or similar transactions involving Paracer, other than the
transactions contemplated or expressly permitted by this Agreement (any of the
foregoing inquiries or proposals being referred to in this Agreement as a
"Paracer Acquisition Proposal"), (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Paracer Acquisition Proposal, or (iii) agree to, approve or
recommend any Paracer Acquisition Proposal.
(b) Paracer shall notify Stratos no later than twenty-four (24) hours
after receipt by Paracer of any Paracer Acquisition Proposal or any request for
nonpublic information in connection with a Paracer Acquisition Proposal or for
access to the properties, books or records of Paracer by any person or entity
that informs Paracer that it is considering making, or has made, a Paracer
Acquisition Proposal. Such notice shall be made orally and in writing and shall
indicate, subject to compliance with non-disclosure obligations, in reasonable
detail the identity of the offeror and the terms and conditions of such
proposal, inquiry or contact.
6.2 Consents. Each of Stratos and Paracer shall use all reasonable
--------
efforts to obtain all necessary consents, waivers and approvals under any of
Stratos' or Paracer's material agreements, contracts, licenses or leases as may
be a condition to consummate the Merger and the other transactions contemplated
by this Agreement.
6.3 Access to Information. Upon reasonable notice, Paracer shall afford
---------------------
to the officers, employees, accountants, counsel and other representatives of
Stratos, reasonable access, during normal business hours during the period from
the date hereof to the earlier of the termination of this Agreement or the
Effective Time, to all its properties, books, contracts,
26
commitments and records and, during such period, Paracer shall furnish promptly
to Stratos or its representatives all other information concerning its business,
properties and personnel as such other party may reasonably request, subject to
compliance with applicable laws. Unless otherwise required by law, the parties
will treat any such information which is nonpublic in confidence in accordance
with the Bi-Lateral Non-Disclosure Agreement dated as of October 2001 (the
"Confidentiality Agreement") between Stratos and Paracer, which Confidentiality
Agreement shall continue in full force and effect in accordance with its terms.
No information or knowledge obtained in any investigation pursuant to this
Section 6.3 shall affect or be deemed to modify any representation or warranty
contained in this Agreement or the conditions to the obligations of the parties
to consummate the Merger.
6.4 Notification of Certain Matters. Paracer shall give prompt notice
-------------------------------
to Stratos, and Stratos shall give prompt notice to Paracer, of the occurrence
(or non-occurrence) of any event of which Paracer or Stratos, respectively, has
knowledge, the occurrence (or non-occurrence) of which would result in any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect and of the occurrence of any material failure
of either party to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder, provided, however, that (i)
delivery of any notice pursuant to this Section 6.4 shall not limit or otherwise
affect the remedies available to either party hereunder and (ii) shall not
constitute an admission by the party delivering such notice that any such
representation, warranty, covenant, agreement or condition has been breached or
not complied with or satisfied. No disclosure by Paracer pursuant to this
Section 6.4, however, shall be deemed to amend or supplement the Paracer
Disclosure Schedule or prevent or cure or prevent the cure of any
misrepresentations, breach of warranty of breach of contract.
6.5 Legal Conditions to Merger. Each of Stratos, Sub and Paracer will
--------------------------
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on itself with respect to the Merger (which
actions shall include, without limitation, furnishing all information in
connection with approvals of or filings with any Governmental Entity) and will
promptly cooperate with and furnish information to each other in connection with
any such requirements imposed upon any of them in connection with the Merger.
6.6 Public Disclosure. Stratos and Paracer shall consult with each
-----------------
other before issuing any press release or otherwise making any public statement
with respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or by the rules or regulations of the SEC or the NNM.
6.7 Tax-Free Reorganization. Stratos and Paracer each intend that the
-----------------------
Merger shall qualify for treatment as a reorganization within the meaning of
Section 368(a) of the Code. Stratos and Paracer each agree to refrain from
taking any action inconsistent with such intended treatment.
6.8 Nasdaq Quotation. Stratos shall use its best efforts to cause the
----------------
shares of Stratos Common Stock to be issued in the Merger to be approved for
quotation on the NNM, subject to official notice of issuance, prior to the
Closing Date.
27
6.9 Stockholder Approval.
--------------------
(a) Paracer shall take all necessary action in accordance with
applicable law and its amended and restated certificate of incorporation and
bylaws to convene, a meeting of its stockholders or solicit the written consent
of its stockholders, as promptly as practicable to consider and vote upon the
approval of this Agreement and the Merger. Paracer shall use its best efforts to
solicit and obtain the approval of the Paracer stockholders of this Agreement
and the Merger and to enable the Closing to occur as promptly as practicable
and, in any event, on or before March 29, 2002. Paracer shall use its best
efforts to solicit from its stockholders proxies or consents in favor of the
approval and adoption of this Agreement and the Merger and to secure the vote or
consent of stockholders required by the DGCL and its amended and restated
certificate of incorporation and bylaws to approve and adopt this Agreement and
the Merger.
(b) Prior to or at the time of the initial solicitation of Paracer's
stockholders, Paracer shall prepare and provide to its stockholders a
solicitation statement ("Solicitation Statement") describing this Agreement and
the transactions contemplated hereby and thereby for the purpose of soliciting
the approval of Paracer stockholders of this Agreement and the Merger. The
Solicitation Statement shall constitute a disclosure document for the offer and
issuance of shares of Stratos Common Stock to be received by the holders of
Paracer Capital Stock in the Merger. Stratos and Paracer shall each use
reasonable commercial efforts to cause the Solicitation Statement to comply with
applicable federal and state securities laws requirements. Each of Stratos and
Paracer will reasonably cooperate with the other in connection with the
preparation of the Solicitation Statement and Stratos agrees to provide promptly
to Paracer such information concerning its business and financial statements and
affairs as, in the reasonable judgment of Stratos or its counsel, may be
required or appropriate for inclusion in the Solicitation Statement or in any
amendments or supplements thereto, which information shall be true and correct
in all material respects without the omission of any material fact which is
required to make such information not false or misleading. Paracer will promptly
advise Stratos, and Stratos will promptly advise Paracer, in writing if at any
time prior to the earlier of the termination of this Agreement or the Effective
Time either Paracer or Stratos shall obtain knowledge of any facts that might
make it necessary or appropriate to amend or supplement the Solicitation
Statement in order to make the statements contained or incorporated by reference
therein not misleading or to comply with applicable law. The Solicitation
Statement shall contain the unanimous recommendation of the Board of Directors
of Paracer that the Paracer stockholders approve the Merger and this Agreement
and the unanimous conclusion of the Board of Directors of Paracer that the terms
and conditions of the Merger are fair and reasonable to the Paracer
stockholders. Anything to the contrary contained herein notwithstanding, Paracer
shall not include in the Solicitation Statement any information with respect to
Stratos or its affiliates or associates, the form and content of which
information shall not have been approved by Stratos or its counsel prior to such
inclusion. Stratos and its counsel shall respond to requests by Paracer for
approval of such information within two (2) business days of their receipt. If
no objection to such information is received by Paracer or its counsel within
said two-day period, the information shall be deemed approved.
6.10 Form S-3 Registration Statement
-------------------------------
28
(a) Stratos shall use its best efforts to cause the shares of Stratos
Common Stock issued in the Merger (the "Registrable Securities") to be
registered under the Securities Act so as to permit the resale thereof and in
connection therewith shall prepare and file with the SEC within thirty (30) days
following the Closing Date, and shall use its best efforts to cause to become
effective as promptly as practicable and, in any event, no later than ninety
(90) days thereafter, a registration statement (the "Registration Statement") on
Form S-3 or on such other form as is then available under the Securities Act
covering the Registrable Securities. Each holder of Registrable Securities
immediately after the Closing Date ("Holder") shall provide all such information
and materials to Stratos and take all such action as may be required in order to
permit Stratos to comply with all applicable requirements of the SEC and to
obtain any desired acceleration of the effective date of such Registration
Statement. Such provision of information and materials is a condition precedent
to the obligations of Stratos to cause shares of Stratos Common Stock issued in
the Merger to such Holder to be included in the Registration Statement pursuant
to this Section 6.10. Stratos shall not be required to effect more than one (1)
registration under this Section 6.10. The offering made pursuant to such
registration shall not be underwritten.
(b) Notwithstanding Section 6.10(a), Stratos shall be entitled to
postpone the declaration of effectiveness of the Registration Statement for a
reasonable period of time up to sixty (60) days, but in no event shall the
postponement of effectiveness extend beyond 105 days after the Closing Date, if
Stratos reasonably determines after consultation with counsel that there exists
material nonpublic information about Stratos which would be required by the
Securities Act to be disclosed in the Registration Statement, the disclosure of
which, in the good faith determination of Stratos' board of directors, would be
materially detrimental to Stratos.
(c) Subject to the limitations of Section 6.10(b), Stratos shall: (i)
prepare and file the Registration Statement with the SEC in accordance with
Section 6.10(a) with respect to the Registrable Securities and shall use its
best efforts to cause the Registration Statement to become effective as promptly
as practicable after filing and to keep the Registration Statement effective
until two (2) years after the Closing Date; (ii) prepare and file with the SEC
such amendments and supplements to the Registration Statement and the prospectus
used in connection therewith as may be necessary, and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all securities proposed to be registered in the Registration Statement until
two (2) years after the Closing Date; and (iii) furnish to each Holder such
number of copies of any prospectus (including any preliminary prospectus and any
amended or supplemented prospectus) in conformity with the requirements of the
Securities Act, and such other documents, as each Holder may reasonably request
in order to effect the offering and sale of the Registrable Securities to be
offered and sold.
(d) Notwithstanding any other provision of this Section 6.10, Stratos
shall have the right at any time to require that all Holders suspend further
open market offers and sales of Registrable Securities pursuant to the
Registration Statement whenever, and for so long as, in Stratos' reasonable
judgment, exercised in good faith after consultation with counsel, there exists
material undisclosed information or events with respect to Stratos (the
"Suspension Right"). In the event Stratos exercises the Suspension Right, such
suspension will continue for the period of time reasonably necessary for
disclosure to occur at a time that is not materially detrimental to Stratos and
its stockholders or until such time as the information or event is no longer
material,
29
each as determined by Stratos in good faith after consultation with counsel,
provided that Stratos will not exercise the Suspension Rights for more than 18
trading days out of any 30 consecutive trading days and for more than an
aggregate of 50 trading days over any 12 month period. Stratos agrees to notify
the Stockholders' Representative promptly upon the implementation and
termination of the suspension.
(e) Stratos will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act against all expenses, claims,
losses, damages or liabilities (or actions an respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, preliminary
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any registration, qualification or compliance effected
pursuant to this Section 6.10, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation or any alleged violation by Stratos of any rule
or regulation promulgated under the Securities Act or the Exchange Act in
connection with any such registration, qualification or compliance, and Stratos
will reimburse each such Holder, each of its officers and directors, and each
person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, as such expenses are incurred,
provided that Stratos will not be liable to any particular Holder in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to Stratos by such Holder or controlling person and
specifically for use therein.
(f) It shall be a condition to Stratos' obligations hereunder to
register the Registrable Securities of any Holder that such Holder agrees to
indemnify Stratos, each of Stratos' directors and officers, each person who
controls Stratos within the meaning of Section 15 of the Securities Act, and
each other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
Stratos, such other Holders, directors, officers, persons or control persons for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, as
such expenses are incurred, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to Stratos by such Holder specifically for use therein.
30
(g) Each party entitled to indemnification under Section 6.10(e) or
6.10(f) (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense; provided, however, that an Indemnified Party
(together with all other Indemnified Parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the Indemnifying Party, if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to differing or potentially
differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding. The failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under Section 6.8(e) or 6.8(f) unless the failure to give
such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(h) Promptly after the Closing, Stratos and its counsel will instruct
in writing Stratos' transfer agent to permit the sale or transfer of the
Registrable Securities by any Holders notwithstanding the legend required
pursuant to Section 2.6 hereof (and without the legend) to the extent that: (i)
the shares proposed to be sold or transferred: (A) are outside the applicable
Lock-Up period, (B) the shares are not subject any right of repurchase by
Stratos or Paracer as provided in Section 2.4(i) hereof, and (C) are being sold
or transferred by the Holder pursuant to and in accordance with the Registration
Statement, and (ii) the Suspension Right is not then in effect. Stratos agrees
to promptly notify its transfer agent of the implementation and termination of
any Suspension Right then in effect. If a request for sale or transfer or
release of legends is made by or on behalf of a Holder or by Stratos' transfer
agent, Stratos or its counsel shall respond promptly to such request, and in any
event within two (2) business days of receipt of the request by Stratos'
counsel, and will approve the sale, transfer or release of the legends, as
appropriate, if the above conditions are satisfied.
6.11 Stock Options.
-------------
(a) At the Effective Time, each Paracer Option which has not been
exercised prior to the Closing, whether vested or unvested, shall be substituted
for an option (a "Substitute Option") to acquire such number of shares of
Stratos Common Stock which the holder of such Paracer Option would have been
entitled to receive pursuant to the Merger at the Exchange Ratio had such holder
exercised such option in full immediately prior to the Effective Time (rounded
to the nearest whole share), at a price per share (rounded to the nearest whole
cent) equal to (i) the exercise price of the Paracer Common Stock purchasable
pursuant to such Paracer Option immediately prior to the Effective Time divided
by (ii) the Exchange Ratio. Each Substitute Option will be granted on
substantially the same terms as the Stratos 2002 Stock Plan for
31
Acquired Companies, except that the vesting schedule of each Substitute Option
shall be the same as the vesting schedule set forth in the option agreement for
each Paracer Option.
(b) Each Substitute Option shall be evidenced by a written stock
option agreement reflecting the terms set forth in Section 6.11(a) and delivered
to the former holders of Paracer Options as soon as practicable following the
Effective Time. Stratos shall take such actions as may be appropriate under the
Code and the regulations thereunder to cause the Substitute Options granted for
Paracer Options which qualified as incentive stock options immediately prior the
Effective Time to qualify as incentive stock options, to the extent permitted
under the Code and the regulations thereunder.
(c) In addition, Stratos shall grant within five (5) days after the
Closing an aggregate of 500,000 options to acquire Stratos Common Stock to
Paracer employees who remain employed at the Closing under a stock option plan
substantially similar to Stratos' 2002 Stock Plan for Acquired Companies (the
"Additional Options").
(d) Stratos shall prepare and file with the SEC and shall use its best
efforts to cause to become effective no later than thirty (30) days after the
Effective Time, a registration statement on Form S-8 covering the shares of
Stratos Common Stock issued upon exercise of the Substitute Options and the
Additional Options will use its best efforts to keep said registration statement
effective for so long as such Substitute Options and Additional Options remain
outstanding and will reserve a sufficient number of shares of Stratos Common
Stock for issuance upon exercise thereof.
6.12 Stratos Plans. All Paracer employees who remain employees of
-------------
Stratos, Paracer or any other Subsidiary of Stratos following the Effective Time
shall be entitled to participate in all employee benefit plans and programs (the
"Stratos Plans") that are available to other Stratos employees holding
comparable positions. To the extent permitted by the Stratos Plans, each
participant shall be given full credit for such participant's period of
continuous service with Paracer prior to the Effective Time. In the case of
medical and health insurance coverage, Stratos shall cause the Surviving
Corporation to continue to insure Paracer employees under Paracer's existing
insurance plans or provide them with the opportunity to participate in Stratos
Plans providing generally comparable medical and health insurance coverage.
6.13 Brokers or Finders. Each of Stratos and Paracer represents, as to
------------------
itself, its Subsidiaries and its Affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement, except for such
fees owed to U.S. Bancorp Xxxxx Xxxxxxx, Inc., financial advisor to Stratos,
which shall be paid by Stratos. Subject to Section 6.15, each of Stratos and
Paracer agrees to indemnify and hold the other harmless from and against any and
all claims, liabilities or obligations with respect to any other fees,
commissions or expenses asserted by any person on the basis of any act or
statement alleged to have been made by such party or its Affiliate.
6.14 Additional Agreements; Reasonable Efforts. Subject to the terms
---------------------
and conditions of this Agreement, until the earlier of the termination of this
Agreement or the Effective Time, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all reasonable
32
action and to do, or cause to be done, all things reasonably necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including cooperating
fully with the other party, including by provision of information.
6.15 Expenses. The parties shall each pay their own accounting,
--------
financial advisory and legal fees and other out-of-pocket expenses related to
the negotiation, preparation and carrying out of this Agreement and the
transactions herein contemplated. All of the legal and accounting fees and
expenses incurred by Paracer (whether paid or accrued) relating to the
negotiation, preparation and carrying out of this Agreement and the transactions
contemplated hereby (the "Paracer Transaction Expenses") shall be paid by
Paracer before or at Closing. In the event that the amount of the Paracer
Transaction Expenses exceeds $125,000, such excess (the "Excess Transaction
Expenses") shall be recovered by Stratos through a reduction in the Escrowed
Shares as provided in Section 2.4 hereof.
6.16 Paracer Warrants. Paracer shall exercise commercially reasonable
----------------
efforts to cause all Paracer Warrants that are outstanding as of the date hereof
to be exercised in full prior to the Effective Time, and shall cause the cash
exercise price therefor, if any, to be paid to Paracer.
ARTICLE VII
CONDITIONS TO MERGER
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction on or prior to the Closing Date of the
following conditions:
(a) This Agreement and the Merger shall have been approved and adopted
by the affirmative vote of the holders of the requisite number of outstanding
shares of Paracer Common Stock and Paracer Preferred Stock.
(b) All other authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by, any
Governmental Entity the failure of which to obtain or comply with would be
reasonably likely to have a Material Adverse Effect on Stratos or Paracer or a
material adverse effect on the consummation of the transactions contemplated
hereby shall have been filed, occurred or been obtained.
(c) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal or regulatory restraint or prohibition preventing the consummation of the
Merger or limiting or restricting Stratos' conduct or operation of the business
of Stratos or Paracer after the Merger shall have been issued, nor shall any
proceeding brought by any Governmental Entity seeking any of the foregoing be
pending; nor shall there be any action taken, or any statute, rule, regulation
or order enacted, entered, enforced or deemed applicable to the Merger which
makes the consummation of the Merger illegal.
7.2 Additional Conditions to Obligations of Stratos and Sub. The
-------------------------------------------------------
obligation of Stratos and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Stratos:
33
(a) The representations and warranties of Paracer set forth in this
Agreement, including the Paracer Disclosure Schedule, shall be true and correct
in all material respects as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date, except (i) for changes
contemplated by this Agreement, and (ii) that representations and warranties
which specifically relate to a particular date or period shall be true and
correct in all material respects as of such date or for such period; and Stratos
shall have received a certificate to such effect signed on behalf of Paracer by
the chief executive officer of Paracer.
(b) Paracer shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and Stratos shall have received a certificate to such effect
signed on behalf of Paracer by the chief executive officer of Paracer.
(c) Stratos shall have received from Paracer written evidence that the
execution, delivery and performance of Paracer's obligations under this
Agreement have been duly and validly approved and authorized by the Board of
Directors and the stockholders of Paracer.
(d) From the date of this Agreement through the Effective Time, there
shall not have been any event or development which results in a Material Adverse
Effect on Paracer.
(e) Stratos shall have been furnished with evidence reasonably
satisfactory to it of the consent or approval of those persons whose consent or
approval shall be required in connection with the Merger under the material
contracts of Paracer set forth on Schedule 7.2(e) hereto.
(f) Stratos shall have received reasonably satisfactory assurance, as
determined by Stratos in good faith, that at least 85% of the Paracer employees
listed on Schedule 3.9 will remain employed by Paracer after the Merger.
(g) The Merger shall have been approved by the affirmative vote of the
holders of not less than 90% of the outstanding shares of Paracer Common Stock
and Paracer Preferred Stock.
(h) Stratos shall have received a legal opinion from Xxxxxxx Xxxxxxx &
Xxxxxxxx LLP, counsel to Paracer, substantially in the form of Exhibit B hereto.
(i) The Escrow Agreement shall have been executed and delivered by the
Stockholders' Representative (as defined in Section 9.6) and the Escrow Agent.
(j) Stratos shall have received from the holders of at least ninety
percent (90%) of the holders of shares of Stratos Common Stock to be issued in
the Merger an executed Lock-Up Agreement substantially in the form attached as
Exhibit C hereto.
(k) All Paracer Warrants shall have been duly exercised and duly
converted into Paracer Capital Stock.
(l) Stratos shall have determined in its reasonable discretion that the
issuance of the Stratos Common Stock to the Paracer stockholders shall be exempt
from registration under applicable federal and state securities laws.
34
7.3 Additional Conditions to Obligations of Paracer. The obligation of
-----------------------------------------------
Paracer to effect the Merger is subject to the satisfaction of each of the
following conditions, any of which may be waived, in writing, exclusively by
Paracer:
(a) The representations and warranties of Stratos and Sub set forth in
this Agreement shall be true and correct in all material respects as of the date
of this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except (i) for changes contemplated by this Agreement, and (ii)
that representations and warranties which specifically relate to a particular
date or period shall be true and correct in all material respects as of such
date or for such period; and Paracer shall have received a certificate to such
effect signed on behalf of Stratos by the chief financial officer of Stratos.
(b) Stratos and Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and Paracer shall have received a certificate to such effect
signed on behalf of Stratos by the chief financial officer of Stratos.
(c) Paracer shall have received from Stratos and Sub written evidence
that the execution, delivery and performance of Stratos' obligations under this
Agreement have been duly and validly approved and authorized by the Boards of
Directors of Stratos and Sub.
(d) Paracer shall have received a legal opinion from Lord, Bissell &
Brook, counsel to Stratos, substantially in the form of Exhibit D hereto.
(e) The Escrow Agreement shall have been executed and delivered by
Stratos and the Escrow Agent.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Time (with respect to Sections 8.1(b) through 8.1(e), by written
notice by the terminating party to the other party):
(a) by the mutual written consent of Stratos and Paracer;
(b) by either Stratos or Paracer if the Merger shall not have been
consummated by April 15, 2002; provided, however, that the right to terminate
this Agreement under this Section 8.1(b) shall not be available to any party who
breached any obligation under this Agreement and such breach has been the cause
of or resulted in the failure of the Merger to occur on or before such date;
(c) by either Stratos or Paracer if a court of competent jurisdiction
or other Governmental Entity shall have issued a nonappealable final order,
decree or ruling or taken any other action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger, except,
if the party relying on such order, decree or ruling or other action has not
complied with its obligations under Section 6.5 of this Agreement; or
35
(d) by Stratos or Paracer, if there has been a material breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement, which breach (i) causes the conditions set forth in
Section 7.2(a) or (b) (in the case of termination by Stratos) or 7.3(a) or (b)
(in the case of termination by Paracer) not to be satisfied and (ii) shall not
have been cured within ten (10) business days following receipt by the breaching
party of written notice of such breach from the other party.
8.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 8.1, there shall be no liability or obligation
on the part of Stratos or Paracer or their respective officers, directors,
stockholders or Affiliates; provided that the provisions of Sections 6.13 and
6.15 of this Agreement, the confidentiality provisions set forth herein and in
Confidentiality Agreement shall remain in full force and effect and survive any
termination of this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto, by
---------
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the stockholders of Paracer, but, after any such approval, no amendment shall
be made which by law requires further approval by such stockholders without such
further approval. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, the
-----------------
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE IX
ESCROW AND INDEMNIFICATION
9.1 Nature and Survival of Representations and Warranties. All
-----------------------------------------------------
representations and warranties of Paracer contained in this Agreement shall
survive the Closing as provided herein, regardless of any investigation made by
or on behalf of Stratos. If the Merger occurs, all of the representations and
warranties contained in this Agreement shall survive the Closing for a period of
one (1) year after the Closing Date, provided, however, that if, at any time
prior to the first anniversary of the Closing Date, any Indemnitee makes an
Indemnification Claim under Section 9.2(a)(i) in compliance with Section 9.3
hereof, then such claim shall survive the first anniversary date of the Closing
Date until such time as such claim is fully and finally resolved. No action may
be brought with respect to this Agreement or the transactions contemplated
hereby: (i) unless an Indemnification Claim is made in compliance with Section
9.3 on or before the date that is one year (1) year following the Closing Date
(the "Termination Date") or (ii) except for claims under Section 9.2(d), to the
extent such claims are allowed by law.
9.2 Indemnification by Paracer Stockholders.
---------------------------------------
36
(a) Subject to the terms and conditions contained herein, Stratos, its
officers, directors, employees and attorneys, all Subsidiaries and Affiliates of
Stratos, and the respective officers, directors, employees and attorneys of such
entities (all such persons and entities being collectively referred to as the
"Stratos Group") shall be entitled to recover from the Escrow any and all
losses, damages, costs and expenses (including reasonable legal fees and
expenses) which any member of the Stratos Group sustains or incurs which are
caused by or arise out of (i) any inaccuracy in or breach of any of the
representations, warranties or covenants made by Paracer in this Agreement,
including the Paracer Disclosure Schedule, or (ii) any breach of this Article IX
or the Escrow Agreement (collectively, "Stratos Losses").
(b) No member of the Stratos Group shall be entitled to recover for any
Stratos Losses until the aggregate amount of all Stratos Losses under all claims
shall exceed $75,000 (the "Threshold Amount"), at which time the Stratos Losses
shall be recoverable in full.
(c) The right of any member of the Stratos Group to recover Stratos
Losses under this Article IX is subject to the condition that the Stockholders'
Representative (as defined in Section 9.6) shall have received written notice of
an Indemnification Claim (as defined in Section 9.3) for such Stratos Loss on or
before the Termination Date.
(d) The provisions of Article IX shall not limit, in any manner, any
remedy at law or in equity to which any member of the Stratos Group shall be
entitled against Paracer or any director, officer or stockholder of Paracer as a
result of willful fraud or intentional misrepresentation by such parties or any
of their respective representatives.
(e) Except as specifically provided in Section 9.2(d), (i) recovery
against the Escrow shall be the sole and exclusive remedy for Indemnification
Claims or other claims or actions by the Stratos Group, including any claims for
breach of this Article IX or the Escrow Agreement, and (ii) the aggregate
liability of the former Paracer stockholders shall not exceed the amount of the
Escrowed Shares then available.
9.3 Indemnification Procedures.
--------------------------
(a) As used in this Article IX, the term "Indemnitee" means the member
or members of the Stratos Group seeking recovery from the Escrow.
(b) A claim for recovery from the Escrow (an "Indemnification Claim")
shall be made by Indemnitee by delivery of a written notice to the Stockholders'
Representative and the Escrow Agent requesting indemnification and specifying in
reasonable detail the basis on which indemnification is sought (and shall
include relevant documentation related to the Indemnification Claim), the amount
of the asserted Stratos Losses and, in the case of a Third Party Claim (as
defined in Section 9.4), containing (by attachment or otherwise) such other
information as Indemnitee shall have concerning such Third Party Claim.
(c) If the Indemnification Claim involves a Third Party Claim, the
procedures set forth in Section 9.4 hereof shall be observed by Indemnitee and
the Stockholders' Representative.
37
9.4 Defense of Third Party Claims. Should any claim be made or suit or
-----------------------------
proceeding be instituted against an Indemnitee which, if prosecuted
successfully, would be a matter for which such Indemnitee may be entitled to
indemnification under this Article IX (a "Third Party Claim"), the obligations
and liabilities of the parties hereunder with respect to such Third Party Claim
shall be subject to the following terms and conditions:
(a) Indemnitee shall give the Stockholders' Representative and the
Escrow Agent written notice of any such Third Party Claim promptly after receipt
by Indemnitee of notice thereof, but in any event within thirty (30) days. If
the Escrow Shares are sufficient to satisfy the full amount of the Third Party
Claim and such claim is for money damages only, then the Stockholders'
Representative may undertake control of the defense thereof by counsel of his
own choosing reasonably acceptable to Indemnity by giving written notice
thereof, provided that the Stockholders' Representative agrees in writing that
Indemnitee is entitled to indemnification under this Agreement with respect to
such claim and the Escrowed Shares are sufficient to satisfy the full amount of
such Third Party Claim. Indemnitee may participate in the defense through its
own counsel at its own expense. If, however, the Stockholders' Representative
fails or refuses to undertake the defense of such Third Party Claim as provided
above within thirty (30) days after written notice of such claim has been
delivered to the Stockholders' Representative by Indemnitee, Indemnitee shall
have the right to undertake the defense, compromise and, subject to Section 9.5,
settlement of such Third Party Claim with counsel of its own choosing and the
Stockholders' Representative may participate in the defense through its own
counsel at its own expense. Failure of Indemnitee to furnish written notice to
the Stockholders' Representative or the Escrow Agent of a Third Party Claim as
provided above shall not release the Paracer Stockholders from their obligations
hereunder, except to the extent they are prejudiced by such failure.
(b) Indemnitee and the Stockholders' Representative shall cooperate
with each other in all reasonable respects in connection with the defense of any
Third Party Claim, including making available records relating to such claim and
furnishing employees of Indemnitee as may be reasonably necessary for the
preparation of the defense of any such Third Party Claim or for testimony as
witness in any proceeding relating to such claim.
(c) No settlement by Indemnitee of a Third Party Claim shall be made
without the prior written consent by or on behalf of the Stockholders'
Representative, which consent shall not be unreasonably withheld or delayed. If
the Stockholders' Representative has assumed the defense of a Third Party Claim
as contemplated by this Section 9.4, no settlement of such Third Party Claim may
be made by the Stockholders' Representative without the prior written consent by
or on behalf of Indemnitee, which consent shall not be unreasonably withheld or
delayed, unless such claim is paid entirely from the Escrow. In the event that
the Stockholders' Representative has consented to the specific terms of any such
settlement, including but not limited to, the dollar amount of such settlement,
neither the Paracer Stockholders nor the Stockholders' Representative shall have
any power or authority to object under the objection procedures set forth in the
Escrow Agreement or any provision of this Agreement to the amount of any claim
by Stratos for indemnity to the extent it is consistent with the specific terms
of such settlement to which the Stockholders' Representative has consented.
9.5 Manner of Recovery.
------------------
38
(a) The Escrow Shares deposited into Escrow pursuant to the Escrow
Agreement in accordance with the provisions of Section 2.4 shall provide a fund
against which members of the Stratos Group must assert claims of indemnification
and other claims under this Article IX.
(b) Each Indemnification Claim asserted pursuant to this Article IX
shall be made only in accordance with the procedures set forth herein and in the
Escrow Agreement, subject to the provisions of Section 9.2(d) hereof.
9.6 Appointment of Stockholders' Representative. For purposes of this
-------------------------------------------
Agreement, the Paracer Stockholders hereby consent to the appointment of Xxxxxxx
X. Xxxxxx as the representative and attorney-in-fact for and on behalf of the
Paracer Stockholders (the "Stockholders' Representative"), and to the taking by
the Stockholders' Representative of any and all actions and the making of any
decisions required or permitted to be taken by him under this Agreement or the
Escrow Agreement, including, without limitation, the exercise of the power to:
(i) execute the Escrow Agreement on behalf of the Paracer Stockholders, (ii)
authorize delivery to Stratos of Escrow Shares in satisfaction of
Indemnification Claims, (iii) agree to, negotiate, enter into settlements and
compromises of and comply with orders of courts and awards of arbitrators with
respect to such Indemnification Claims, (iv) resolve any Indemnification Claims
and (v) take all actions necessary in the judgment of the Stockholders'
Representative for the accomplishment of the foregoing and all of the other
terms, conditions and limitations of this Agreement and the Escrow Agreement.
Accordingly, the Stockholders' Representative has unlimited authority and power
to act on behalf of each Paracer Stockholder with respect to this Agreement and
the disposition, settlement or other handling of all Indemnification Claims.
With respect to any interest in the Escrow, the Paracer Stockholders will be
bound by all actions taken by the Stockholders' Representative in connection
with all Indemnification Claims, and Stratos shall be entitled to rely on any
action or decision of the Stockholders' Representative. The Stockholders'
Representative will incur no liability with respect to any action taken or
suffered by him in reliance upon any notice, direction, instruction, consent,
statement or other document believed by him to be genuine and to have been
signed by the proper person (and shall have no responsibility to determine the
authenticity thereof), nor for any other action or inaction, except his own
willful misconduct or bad faith. In all questions arising under this Agreement
or the Escrow Agreement, the Stockholders' Representative may rely on the advice
of counsel, and the Stockholders' Representative will not be liable to anyone
for anything done, omitted or suffered in good faith by the Stockholders'
Representative based on such advice. Except as expressly provided herein, the
Stockholders' Representative will not be required to take any action involving
any expense unless the payment of such expense is made or provided for in a
manner satisfactory to him. The former Paracer Stockholders on whose behalf the
Escrow Shares were contributed to the Escrow shall severally indemnify the
Stockholders' Representative and hold the Stockholders' Representative harmless
against any loss, liability or expense incurred without gross negligence or bad
faith on the part of the Stockholders' Representative and arising out of or in
connection with the acceptance or administration of the Stockholders'
Representative's duties hereunder, including the reasonable fees and expenses of
any legal counsel retained by the Stockholders' Representative. At any time
during the term of the Escrow Agreement, the holders of a majority of the shares
in the Escrow may, by written consent, appoint a new representative as the
Stockholders' Representative by sending notice and a copy of the written consent
appointing such new representative signed by the holders of a majority of the
Escrow Shares to Stratos and the Escrow
39
Agent. Such appointment will be effective upon the later of the date indicated
in the consent or the date such consent is received by Stratos and the Escrow
Agent.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given: (i) upon delivery, if delivered personally
or by commercial delivery service, (ii) three (3) business days after being
mailed, if sent by registered or certified mail (return receipt requested) or
(iii) the next business day, if sent by overnight delivery or via facsimile
(with confirmation of receipt) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Stratos, to: Stratos Lightwave, Inc.
0000 Xxxx Xxxxxx Xxxxxx
Xxxxxxx, XX 00000-0000
Attention: Chief Financial Officer
Fax: (000) 000-0000
Tel: (000) 000-0000
with a copy to: Lord, Bissell & Brook
000 X. XxXxxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxx Xx., Esq.
Fax: (000) 000-0000
Tel: (000) 000-0000
(b) if to Paracer, to: Paracer, Inc.
0000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxx Xxxxx, XX 00000
Attention: Xxxx Xxxx, Esq.
Fax: (000) 000-0000
Tel: (000) 000-0000 Ext. 19
with a copy to: Xxxxxxx, Phleger & Xxxxxxxx LLP
0000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxxxxxx, Esq.
Fax: (000) 000-0000
Tel: (000) 000-0000
(c) if to the Stockholders' Representative, to:
Xx. Xxxxxxx X. Xxxxxx
Sierra Ventures
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
00
Xxxxx Xxxx, XX 00000
Fax: (000) 000-0000
Tel: (000) 000-0000
10.2 Interpretation.
--------------
(a) For purposes of this Agreement
(i) When reference is made to an Article or Section, such
reference shall be to an Article or Section of this Agreement unless
otherwise indicated;
(ii) The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words
"without limitation;"
(iii) The phrase "made available" in this Agreement shall mean
that the information referred to has been made available if requested
by the party to whom such information is to be made available;
(iv) The phrases "the date of this Agreement," "the date
hereof," and terms of similar import, unless the context otherwise
requires, shall be deemed to refer to March 18, 2002;
(v) Any reference to a "Material Adverse Effect" with respect
to any entity or group of entities means a material adverse effect on
the business, assets (including intangible assets), financial
condition, prospects, or results of operations of such entity and its
Subsidiaries, taken as a whole;
(vi) Any reference to a party's "knowledge" means such party's
actual knowledge after reasonable inquiry of its directors, officers,
and other management level employees reasonably believed to have
knowledge of such matters;
(vii) Any reference to the "prospects" of Paracer or its
business, or to Paracer's business "as currently proposed to be
conducted," means such prospects or business without taking into
account the effects of the Merger or any changes to Paracer's business
that are initiated by Stratos thereafter;
(viii) The word "Subsidiary" means, with respect to any party, any
corporation or other organization, whether incorporated or
unincorporated, of which (i) such party or any other Subsidiary of such
party is a general partner (excluding partnerships, the general
partnership interests of which held by such party or any Subsidiary of
such party do not have a majority of the voting interest in such
partnership) or (ii) at least a majority of the securities or other
interests having ordinary voting power to elect a majority of the board
of directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned
or controlled by such party or by any one or more of its Subsidiaries,
or by such party and one or more of its Subsidiaries; and
41
(ix) The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement.
(b) This Agreement has been negotiated by the respective parties hereto
and their attorneys and the language hereof shall not be construed for or
against any party.
10.3 Counterparts. For the convenience of the parties hereto, this
------------
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original instrument, and all of which shall be considered one and the
same agreement.
10.4 Severability. In the event that any provision of this Agreement, or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.5 Entire Agreement. This Agreement (including the schedules and
----------------
exhibits hereto and the other documents delivered pursuant hereto) constitutes
the entire agreement among the parties concerning the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, other than the
Confidentiality Agreement.
10.6 Assignment. 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 will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
10.7 Third Party Beneficiaries. Nothing contained in this Agreement is
-------------------------
intended to confer upon any person other than the parties hereto and their
respective successors and permitted assigns, any rights, remedies or obligations
under, or by reason of this Agreement, except that (i) the persons who are
stockholders of Paracer immediately prior to the Effective Time (and their
successors and assigns) are express intended third party beneficiaries of
Articles I, II and IX, (ii) the persons who hold Paracer Options immediately
prior to the Effective Time are express intended third party beneficiaries of
Section 6.11, and (iii) each of the foregoing persons is an express intended
third party beneficiary of Article X, to the extent relevant to any of the
foregoing, and as such are entitled to rely on the provisions hereof as if a
party hereto.
10.8 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
--------------------
AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN CONNECTION
WITH ANY LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE MERGER OR
ANY OF THE OTHER TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
42
10.9 Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law principles.
[SIGNATURE PAGE FOLLOWS]
43
IN WITNESS WHEREOF, Stratos, Sub and Paracer have caused this Agreement
to be signed by their respective officers thereunto duly authorized, as of the
date first written above.
PARACER, INC. STRATOS LIGHTWAVE, INC.
By: /s/ Xxx X. Xx By: /s/ Xxxxx X. XxXxxxxx
----------------------------- -------------------------------------
Xxx X. Xx Xxxxx X. XxXxxxxx
President and Chief Executive President and Chief Executive Officer
Executive Officer
POLAR ACQUISITION CORP.
By: /s/ Xxxxx X. XxXxxxxx
-------------------------------------
Xxxxx X. XxXxxxxx
Chief Executive Officer
44
