-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q0RyrPjNJ3MfrUsh3wGvh1exoudn9xqEdWzn99kpY4+OmksKPkZWWRHxHald9v18 e74FRRNdACR5AINxifat3A== 0000950148-99-001170.txt : 19990517 0000950148-99-001170.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950148-99-001170 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990507 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEKELEC CENTRAL INDEX KEY: 0000790705 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 952746131 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-15135 FILM NUMBER: 99624643 BUSINESS ADDRESS: STREET 1: 26580 W AGOURA RD CITY: CALABASAS STATE: CA ZIP: 91302 BUSINESS PHONE: 8188805656 MAIL ADDRESS: STREET 1: 26580 W AGOURA RD CITY: CALABASAS STATE: CA ZIP: 91302 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported): May 7, 1999 TEKELEC ---------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) California -------------------------------------------- (State or Other Jurisdiction of Incorporation) 000-15135 95-2746131 ---------------------- ------------------------------------- (Commission File Number) (I.R.S. Employer Identification Number) 26580 West Agoura Road, Calabasas, CA 91302 ------------------------------------------- (Address of Principal Executive Offices) (818) 880-5656 -------------------------------------------------- (Registrant's Telephone Number, Including Area Code) 2 TEKELEC FORM 8-K TABLE OF CONTENTS
PAGE ---- ITEM 2: Acquisition or Disposition of Assets.................................... 3 ITEM 7: Financial Statements and Exhibits....................................... 5 SIGNATURES
2 3 ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS IEX Corporation Acquisition On May 7, 1999, Tekelec, a California corporation, acquired all the stock of privately held IEX Corporation, a Nevada corporation ("IEX") in exchange for cash and, for certain IEX stockholders, secured promissory notes ("Notes"). The acquisition was effected through a statutory merger (the "Merger") in which Eagle Lonestar Corporation, a Delaware corporation and a wholly-owned subsidiary of Tekelec ("Sub"), was merged into IEX, with IEX surviving the Merger. As a result of the Merger, IEX became a wholly-owned subsidiary of Tekelec. The Merger was approved by Tekelec's Board of Directors at a special meeting held on April 18, 1999. The Merger was consummated pursuant to an Agreement and Plan of Reorganization dated as of April 20, 1999 (the "Plan") entered into by Tekelec, Sub, IEX and IEX Partners, Teknekron Partners II, Gary Crockett and Stephen Lynn (IEX Partners, Teknekron Partners II and Messrs. Crocket and Lynn were affiliates and principal stockholders of IEX prior to the Merger). The executive officers of IEX were not changed as a result of the Merger, except that Stephen Lynn resigned as Executive Vice President and Chief Operating Officer of IEX in connection with the Merger. IEX develops products and creates solutions for telecommunications carriers, call centers and private networks. IEX's revenues are derived primarily from two divisions: Intelligent Network Products and Call Center Products. Intelligent network products, including the Da Vinci(TM) Service Control Point, Service Node, VoX Call Server and Network Switch, enable telecommunications carriers to provide enhanced network services such as caller ID, 800 number calling and prepaid telephony. IEX's call center products include TotalView(TM), a workforce management solution, and TotalNet(TM), a call routing solution. IEX customers include telecommunications product manufacturers, competitive local exchange carriers, interexchange carriers, and organizations in various industries with significant call center operations. Under the terms of the Plan, the shares of IEX common stock that were outstanding prior to the Merger were converted into the right to receive (a) for each share of IEX common stock owned by an IEX stockholder who was not a Significant Stockholder (as defined below), cash in the amount of $8.28, and (b) for each share of IEX common stock owned by an IEX stockholder owning or having the right to purchase at least 150,000 shares of IEX common stock (a "Significant Stockholder"), $2.52 in cash and $5.76 payable by Note, in each case subject to certain deductions disclosed and agreed to by IEX stockholders. To the extent that any options to purchase IEX common stock were outstanding immediately prior to the Merger, the holder thereof was entitled to receive per share consideration in the same amounts, subject to reduction for the exercise price and applicable tax withholding liabilities. The aggregate consideration payable by Tekelec to IEX stock and option holders under the Plan was $163,000,000, comprised of $63,000,000 in cash and $100,000,000 aggregate principal amount of Notes issued to the Significant Stockholders by Tekelec and IEX, as the surviving corporation in the Merger, subject to certain deductions with respect to amounts payable by the stock or option holders to IEX of 3 4 approximately $2,682,000 in the aggregate. Such consideration was negotiated and determined on the basis of (a) negotiations with IEX and (b) the value of IEX, as determined by Tekelec's management following its review and analysis of IEX's business and financial position and its discussions with Tekelec's advisors and IEX's management and advisors. The sources of funds used by Tekelec to purchase IEX common stock and options under the Plan were existing cash reserves and cash equivalents of Tekelec. Tekelec has not obtained any bank loans as of the date hereof in connection with the Merger, and it currently expects to refinance the indebtedness under the Notes subject to market conditions and other factors. The Notes issued to the Significant Stockholders are dated as of May 7, 1999 and will bear interest at an initial rate of 7%, compounded quarterly, with an initial maturity date of November 7, 1999; provided, however, the maturity date may be extended by Tekelec and IEX for four additional periods of three months each if Tekelec or IEX pays a minimum of $20,000,000 of aggregate principal on the Notes prior to each extension. Immediately following the initial maturity date, the interest rate will increase to 12% per annum, which rate will thereafter increase by 2% during each subsequent three month extension. The Notes are subordinated to certain senior indebtedness of Tekelec, which subordination will not exceed an amount equal to $150,000,000, less the then outstanding principal amount of the Notes. The Notes are secured by all of the common stock of IEX and all of the IEX assets. In the event of default, the Significant Stockholders will have the right to exercise such rights and remedies as are described in the Note and Security Agreement dated as of May 7, 1999 between Tekelec, IEX and the Significant Stockholders (the "Note Agreement") that governs the Notes. Pursuant to the terms of the Plan, Tekelec, certain representatives of the Significant Stockholders of IEX and an escrow agent entered into an Escrow Agreement, under which 10% of the gross consideration payable to each Significant Stockholder (approximately $14,388,056 for all Significant Stockholders) in the Merger has been placed in an escrow account in the form of Notes to secure and collateralize certain indemnification obligations of the Significant Stockholders to Tekelec. Contemporaneously with the Merger, (a) certain employees of IEX entered into Employment Agreements with IEX, as the surviving corporation in the Merger, providing for, among other things, certain terms of employment at a specified minimum salary, (b) each of the Significant Stockholders and Harvey Wagner (an affiliate of IEX Partners and Teknekron Partners II) entered into a Non-Competition Agreement with Tekelec and IEX providing, among other things, that such person will not engage in certain activities competitive with IEX's business for a period of up to three years; and (c) Tekelec, IEX and the Significant Stockholders entered into the Note Agreement governing the Notes. 4 5
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of IEX Corporation. o Report of Independent Auditors................................................... 7 o Balance Sheets as of December 31, 1998 and 1997.................................. 8 o Statements of Income for each of the three years in the period ended December 31, 1998................................................................ 9 o Statements of Changes in Shareholders' Equity for each of the three years in the period ended December 31, 1998...................................... 10 o Statements of Cash Flows for each of the three years in the period ended December 31, 1998.......................................................... 11 o Notes to Financial Statements.................................................... 12 (b) Unaudited Pro forma Condensed Financial Information. o Unaudited Pro forma Condensed Combining Statements of Operations................. 28 o Unaudited Pro forma Condensed Combining Balance Sheets........................... 29 o Notes to Unaudited Pro forma Condensed Combining Financial Information........... 30
(c) Exhibits. The following exhibits are filed herewith: 2.01 Agreement and Plan of Reorganization dated as of April 20, 1999 by and among Tekelec, Eagle Lonestar Corporation, IEX Corporation, IEX Partners, Teknekron Partners II, Gary Crockett and Stephen Lynn. (Pursuant to Item 601(b)(2) of Regulation S-K, certain exhibits and schedules have been omitted but will be furnished supplementally to the Commission upon request). 4.01 Note and Security Agreement dated as of May 7, 1999 by and among Tekelec, IEX Corporation and the Significant Stockholders of IEX Corporation. 4.02 Secured Promissory Notes dated as of May 7, 1999 made by Tekelec and IEX Corporation in favor of each of the Significant Stockholders of IEX Corporation. 23.1 Consent of Ernst & Young LLP 5 6 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: May 14, 1999 TEKELEC By: /s/ Michael L. Margolis ----------------------------------- President and Chief Executive Officer 6 7 Report of Independent Auditors Board of Directors and Shareholders IEX Corporation We have audited the accompanying balance sheets of IEX Corporation as of December 31, 1998 and 1997, and the related statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IEX Corporation at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Dallas, Texas February 23, 1999 7 8 IEX Corporation Balance Sheets
DECEMBER 31, 1998 1997 ---------------------------------- (In thousands, except share amounts) ASSETS Current assets: Cash and cash equivalents $ 6,977 $ 6,403 Receivables (net of allowance for doubtful accounts of $505,000 in 1998 and $724,000 in 1997) 14,887 18,279 Inventory 4,619 2,345 Marketable securities 7,173 1,620 Deferred income taxes 1,161 1,157 Prepaid expenses and other current assets 517 483 ------------ ------------ Total current assets 35,334 30,287 Property and equipment, net 3,505 3,266 Marketable securities 3,192 2,325 Deferred income taxes 169 158 ------------ ------------ Total assets $ 42,200 $ 36,036 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,737 $ 1,566 Accrued salaries and benefits 5,130 3,774 Other accrued liabilities 347 946 Deferred revenue 11,821 10,965 Income taxes payable 786 1,097 ------------ ------------ Total current liabilities 20,821 18,348 Commitments and contingencies Shareholders' equity: Common stock, $.01 par value: Authorized shares - 20,000,000 Issued and outstanding shares - 17,061,065 in 1998 and 16,520,015 in 1997 171 165 Additional paid-in capital 1,452 479 Receivables from employee stock purchases (668) -- Unearned compensation (114) -- Retained earnings 20,538 17,044 ------------ ------------ Total shareholders' equity 21,379 17,688 ------------ ------------ Total liabilities and shareholders' equity $ 42,200 $ 36,036 ============ ============
See accompanying notes. 8 9 IEX Corporation Statements of Income
YEAR ENDED DECEMBER 31, 1998 1997 1996 ------------------------------------------- (In thousands) Revenue: Products and software license fees $ 31,051 $ 24,829 $ 12,741 Customer support and other services 18,230 18,078 16,408 -------- -------- -------- Total revenue 49,281 42,907 29,149 Cost of revenue: Products and software license fees 8,183 5,956 2,840 Customer support and other services 10,872 10,916 10,799 -------- -------- -------- Total cost of revenue 19,055 16,872 13,639 -------- -------- -------- Gross margin 30,226 26,035 15,510 Operating expenses: Product development and enhancements 6,852 4,630 3,820 Marketing and selling 6,293 4,390 2,188 General and administrative 12,270 10,310 6,037 -------- -------- -------- 25,415 19,330 12,045 -------- -------- -------- Operating income 4,811 6,705 3,465 Interest income 477 440 336 Other income (expense) 35 (956) 210 -------- -------- -------- Income before taxes 5,323 6,189 4,011 Income tax provision 1,829 2,078 1,233 -------- -------- -------- Net income $ 3,494 $ 4,111 $ 2,778 ======== ======== ========
See accompanying notes. 9 10 IEX Corporation Statements of Changes in Shareholders' Equity
COMMON STOCK ------------------------- RECEIVABLES EMPLOYEE ADDITIONAL FROM NUMBER OF PAID-IN STOCK UNEARNED RETAINED SHARES AMOUNT CAPITAL PURCHASES COMPENSATION EARNINGS TOTAL ----------- ----------- ----------- ----------- ------------ ----------- ----------- (In thousands, except share amounts) Balance at December 31, 1995 16,343,770 $ 163 $ 337 $ -- $ -- $ 10,155 $ 10,655 Repurchase and retirement of common stock (51,240) -- (36) -- -- -- (36) Issuance of stock to employees: Stock options exercised 130,985 1 99 -- -- -- 100 Stock purchases -- -- Net and comprehensive income -- -- -- -- -- 2,778 2,778 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 1996 16,423,515 164 400 -- -- 12,933 13,497 Repurchase and retirement of common stock (92,000) (1) (88) -- -- -- (89) Issuance of stock to employees: Stock options exercised 13,250 -- 9 -- -- -- 9 Stock purchases 175,250 2 158 -- -- -- 160 Net and comprehensive income -- -- -- -- -- 4,111 4,111 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 1997 16,520,015 165 479 -- -- 17,044 17,688 Repurchase and retirement of common stock (208,350) (2) (227) -- -- -- (229) Issuance of stock to employees: Stock options exercised 64,100 1 49 (25) -- -- 25 Stock purchases 685,300 7 786 (643) -- -- 150 Stock option compensation -- -- 365 -- (114) -- 251 Net and comprehensive income -- -- -- -- -- 3,494 3,494 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance at December 31, 1998 17,061,065 $ 171 $ 1,452 $ (668) $ (114) $ 20,538 $ 21,379 =========== =========== =========== =========== =========== =========== ===========
See accompanying notes. 10 11 IEX Corporation Statements of Cash Flows
YEAR ENDED DECEMBER 31, 1998 1997 1996 ---------------------------------- (in thousands) OPERATING ACTIVITIES Net income $ 3,494 $ 4,111 $ 2,778 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,150 1,436 874 Stock option compensation 251 -- -- Deferred income taxes (15) (450) (283) Other (372) 333 5 Changes in operating assets and liabilities: Receivables 3,610 (4,163) (7,105) Inventory (2,275) (1,516) (203) Prepaid expenses and other current assets (33) (110) 128 Accounts payable 1,171 19 857 Accrued liabilities 756 1,407 869 Deferred revenue 856 3,665 3,046 Income taxes payable (310) 636 1,268 -------- -------- -------- Net cash provided by operating activities 9,283 5,368 2,234 INVESTING ACTIVITIES Additions to property and equipment (2,235) (2,425) (2,095) Sales and maturities of marketable securities 4,147 5,010 3,870 Purchases of marketable securities (10,567) (4,830) (5,170) -------- -------- -------- Net cash used in investing activities (8,655) (2,245) (3,395) FINANCING ACTIVITIES Proceeds from issuance of common stock 175 169 100 Repurchase of common stock (229) (89) (36) -------- -------- -------- Net cash provided by (used in) financing activities (54) 80 64 Net increase (decrease) in cash and cash equivalents 574 3,203 (1,097) Cash and cash equivalents at beginning of year 6,403 3,200 4,297 -------- -------- -------- Cash and cash equivalents at end of year $ 6,977 $ 6,403 $ 3,200 ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for income taxes $ 2,175 $ 2,005 $ 902 ======== ======== ========
See accompanying notes. 11 12 IEX Corporation Notes to Financial Statements December 31, 1998 1. DESCRIPTION OF BUSINESS IEX Corporation (IEX or the Company) was founded in 1988 and incorporated in the state of Nevada. IEX develops products and creates solutions for call centers, telecommunications carriers, and private networks. Revenue is derived from products and software license fees, customer support, and other services (engineering and product development services). The Company's customers include telecommunications product manufacturers, competitive local exchange carriers, interexchange carriers, and organizations in various industries with significant call center operations. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION In October 1997, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2). The Company adopted SOP 97-2 for transactions entered into beginning January 1, 1998. SOP 97-2 did not have a material effect on the Company's 1998 financial statements as compared to prior years presented. The Company recognizes revenue from standard products (hardware and software) and software license fees when the products are delivered, provided no future vendor obligations exist and collection is probable. Revenue from products involving installation or other services is recognized as the services are performed. In software arrangements that include rights to multiple software products, specified upgrades, customer support services, or other services, the Company allocates the total arrangement fee among each deliverable based on the relative fair value of each of the deliverables based on the Company's pricing policies and historical revenues generated from similar arrangements. If product and software license fee transactions include the right to receive specified future products, a portion of the fee is deferred and recognized as these products are delivered. The Company recognizes revenue on its contracts involving significant production or customization based on the percentage-of-completion method of contract accounting. Percentage-of-completion is measured either by designated milestones of work performed or input measures, such as hours or costs incurred compared to total estimated hours or costs. Provisions for losses are recorded on contracts as soon as it is estimated that contract costs will exceed contract revenue. 12 13 IEX Corporation Notes to Financial Statements (Continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION (CONTINUED) Customer support contracts allow customers to receive updated versions of the Company's products when and if they become available, as well as technical support for the product. Revenue from customer support contracts, including customer support included in initial licensing fees, is recognized ratably over the support contract period. All significant costs and expenses associated with customer support contracts are expensed ratably over the support contract period. When products and software license fees, customer support and other services are billed prior to the time the related revenue is recognized, deferred revenue is recorded and related costs paid in advance are deferred. In December, 1998, Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions" ("SOP 98-9") was released. SOP 98-9 amends SOP 97-2 to require than an entity recognize revenue for multiple element arrangements by means of the "residual method" when (1) there is vendor-specific objective evidence ("VSOE") of the fair value of all of the undelivered elements that are not accounted for by means of long-term contract accounting, (2) VSOE of fair value does not exist for one or more of the delivered elements and (3) all revenue recognition criteria of SOP 97-2 (other than the requirement for VSOE of the fair value of each delivered element) are satisfied. The provisions of SOP 98-9 that extend the deferral of certain passages of SOP 97-2 became effective December 15, 1998. All other provisions of SOP 98-9 will be effective for transactions that are entered into in fiscal years beginning after March 15, 1999. The Company is currently evaluating the requirements of SOP 98-9 and the effects, if any, it may have on the Company's current revenue recognition policies. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of financial instruments and marketable securities with maturities of three months or less when purchased. MARKETABLE SECURITIES The Company's marketable securities primarily consist of interest-bearing municipal bonds. All marketable securities are classified as available-for-sale. Marketable securities are carried at fair value, with material unrealized gains and losses reported as a separate component of shareholders' equity. The fair value of marketable securities is determined based upon quoted market prices. Realized and unrealized gains and losses on marketable securities were not material during 1998, 1997 and 1996. 13 14 IEX Corporation Notes to Financial Statements (Continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVENTORY Inventories are stated at the lower of cost or market and consist primarily of components of the Company's DaVinci service node products which have not been fully assembled and shipped at year end. The cost of all inventory is based on the purchase price of the specific inventory item. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is provided on a straight-line basis using the following useful lives: Computer equipment 3-7 years Furniture and fixtures 3-5 years Leasehold improvements 5 years
PRODUCT DEVELOPMENT AND ENHANCEMENTS Costs of internally developed software products and substantial enhancements to existing software products are expensed until technological feasibility is established, at which time any additional costs would be capitalized in accordance with Statement of Financial Accounting Standards (SFAS) No. 86. Because the Company believes its current process for developing software is essentially completed concurrently with the establishment of technological feasibility, no costs have been capitalized to date. ADVERTISING COSTS The Company expenses advertising costs as incurred. Advertising expenses totaled approximately $981,000, $631,000 and $386,000 in 1998, 1997 and 1996, respectively. RISK CONCENTRATIONS Financial instruments that potentially subject the Company to concentrations of credit risk are marketable securities and accounts receivable. Marketable securities consist primarily of high quality municipal bonds. A significant portion of accounts receivable is with large customers throughout the United States. The Company continuously evaluates the creditworthiness of its customers' and generally does not require collateral. 14 15 IEX Corporation Notes to Financial Statements (Continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. STOCK-BASED COMPENSATION The Company accounts for its stock-based compensation in accordance with provisions of the Accounting Principles Board's Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to Employees." COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), which requires disclosure of total comprehensive income. The adoption of this Statement had no impact on the Company's financial statements as net income was the only component of comprehensive income during 1998, 1997 and 1996. RECENT ACCOUNTING PRONOUNCEMENT In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1), which is effective for fiscal years beginning after December 15, 1998. The Company expects to adopt the standard in fiscal 1999. The effect of adoption is not expected to be material to the Company's financial position or results of operations. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to current year presentations. 15 16 IEX Corporation Notes to Financial Statements (Continued) 3. RECEIVABLES Receivables consist of the following as of December 31:
1998 1997 ---------------------- (In thousands) Trade accounts receivable $13,009 $17,653 Unbilled receivables 2,383 1,350 ------- ------- 15,392 19,003 Less: Allowance for doubtful accounts 505 724 ------- ------- $14,887 $18,279 ======= =======
4. MARKETABLE SECURITIES The estimated fair value of debt securities at December 31, 1998, by contractual maturity, are shown below. Expected maturities can differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
ESTIMATED FAIR VALUE ---------------- (In thousands) Due in three months or less $ 875 Due after three months through one year 7,173 Due after one year through two years 3,192 ------- $11,240 =======
5. PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31:
1998 1997 ---------------------- (In thousands) At cost: Computer equipment $6,227 $7,236 Furniture and fixtures 389 358 Leasehold improvements 916 488 ------ ------ 7,532 8,082 Less: Accumulated depreciation 4,027 4,816 ------ ------ $3,505 $3,266 ====== ======
16 17 IEX Corporation Notes to Financial Statements (Continued) 6. INCOME TAXES The income tax provision (benefit) for the years ended December 31 is as follows:
1998 1997 1996 --------------------------------- (In thousands) Federal income taxes: Current $ 1,769 $ 2,449 $ 1,467 Deferred (15) (450) (283) ------- ------- ------- Total federal income tax provision 1,754 1,999 1,184 State income taxes 75 79 49 ------- ------- ------- Total income tax provision $ 1,829 $ 2,078 $ 1,233 ======= ======= =======
The deferred income tax assets at December 31 are as follows:
1998 1997 -------------------- (In thousands) Current deferred income tax assets: Accrued employee benefits $ 773 $ 789 Other 388 368 ------ ------ 1,161 1,157 Noncurrent deferred income tax assets: Property and equipment 169 158 ------ ------ Total deferred income tax assets $1,330 $1,315 ====== ======
The following reconciling items account for the difference between the Company's effective tax rate on pretax income and the U.S. federal income tax statutory rate for the years ended December 31:
1998 1997 1996 ------------------------------- (In thousands) Federal income tax at statutory rate $ 1,810 $ 2,104 $ 1,364 Nontaxable items (21) (79) (70) Effect of state income taxes, net of federal benefit 50 53 32 Other (10) -- (93) ------- ------- ------- $ 1,829 $ 2,078 $ 1,233 ======= ======= =======
17 18 IEX Corporation Notes to Financial Statements (Continued) 7. SIGNIFICANT CUSTOMERS During 1998, 1997 and 1996, individual customers which generated revenues in excess of 10% of total company revenues in each year were as follows:
1998 1997 1996 ---- ---- ---- Manufacturing customer * 18% 19% Telecommunications customer * * 13% Transportation customer 14% * *
* Revenues did not exceed 10% of total revenues. 8. RELATED PARTY TRANSACTIONS Under the terms of a 1988 management stock agreement with an affiliate, the Company has granted to this affiliate the right to purchase 3 1/2% of the Company's authorized common stock for $10,500 ($.015 per share) upon the occurrence of certain events. The Company also participates in a management contract with this affiliate for certain administrative services. The cost of such services totaled $900,000, $900,000 and $856,000 for the years ended December 31, 1998, 1997 and 1996, respectively, and is included in general and administrative expenses in the accompanying statements of income. At December 31, 1998 and 1997, $150,000 and $0 were payable to this affiliate. 9. EMPLOYEE BENEFIT PLANS During 1997 and 1996, the Company and its employees participated in a profit sharing and savings plan which was established and administered by an affiliate and covered substantially all employees of the Company and certain other affiliates. Effective December 31, 1997, the Company discontinued its participation in this plan and adopted its own plan, which provides substantially the same benefits. All full-time and certain part-time employees of the Company are eligible to participate in the plan upon six months service at designated enrollment dates. The Board of Directors may authorize discretionary matching and profit sharing contributions each year based on a percentage of eligible compensation. 18 19 IEX Corporation Notes to Financial Statements (Continued) 9. EMPLOYEE BENEFIT PLANS (CONTINUED) Company matching contributions vest immediately and profit sharing contributions vest over a period of five years. Plan expenses in 1998, 1997 and 1996 were approximately $1,210,000, $963,000 and $757,000, respectively. During 1997 and 1996, the Company participated in a health and welfare benefit trust which was administered by an affiliate. This trust provided benefits for death, sickness, accident, and disability. Effective December 31, 1997, the Company discontinued its participation in the trust and adopted its own plan which provides substantially the same benefits. Health and welfare expenses were approximately $1,548,000, $1,039,000 and $878,000 in 1998, 1997 and 1996, respectively. 10. EQUITY AND COMMON STOCK The Company provides a stock purchase program to substantially all of its employees. On a periodic basis, generally annually, offers are made to eligible employees to purchase common stock of the Company. Employee offers are determined at the sole discretion of the Company's Board of Directors. The purchase price for the offers is designated as the book value of the Company's common stock as of the quarter end immediately preceding the stock purchase offer date. Employees may purchase stock with cash or issuance of a recourse note to the Company. Under separate agreements between the Company and certain of its employee shareholders, the Company has the right of first refusal (upon certain events, including the termination of employment by the employee shareholder) to repurchase the outstanding common stock of these shareholders based upon a formula price ($1.25 per share at December 31, 1998). In 1996, the Company's Board of Directors adopted the 1996 Stock Incentive Plan (the Stock Option Plan). SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, companies to record compensation cost for stock option plans at fair value. The Company has elected to continue to account for stock-based compensation using the intrinsic value method prescribed in APB No. 25 and related interpretations. 19 20 IEX Corporation Notes to Financial Statements (Continued) 10. EQUITY AND COMMON STOCK (CONTINUED) Accordingly, compensation expense for stock options is measured as the excess, if any, of the market price of the Company's underlying stock at the date of the grant over the amount an employee must pay to acquire the stock. Compensation cost is recorded annually based on the market price of the Company's stock at the end of the period. The Company's Board of Directors authorized the granting of options covering up to 2,000,000 shares of the Company's common stock under the Stock Option Plan. All options granted have seven-year terms and vest in five equal installments on the first, second, third, fourth, and fifth anniversaries of the date of grant. Pro forma information is required by SFAS No. 123 has been determined as if the Company had accounted for its stock options under the fair value method. The fair value of the options was estimated at the date of the grant using the Black Scholes method option pricing model assuming a weighted-average expected life of an option of five years, no dividend yields, and a volatility of .01. Risk-free interest rates of 6% and 5% were used for 1997 and 1996, respectively. The weighted-average grant-date values for options granted in 1997 and 1996 were $0.31 and $.20, respectively. The effect of applying SFAS No. 123's fair value method to the Company's stock options results in net income that is not materially different from the amounts reported in 1998, 1997, and 1996. A summary of the Company's stock option activity and related information follows: 20 21 IEX Corporation Notes to Financial Statements (Continued) 10. EQUITY AND COMMON STOCK (CONTINUED)
NUMBER OF EXERCISE PRICE/ SHARES WEIGHTED AVG. PRICE --------- ------------------- Options outstanding at December 31, 1995 -- $ -- Options granted 418,000 0.75 Options exercised -- -- Options canceled (5,500) 0.75 -------- ----- Options outstanding at December 31, 1996 412,500 0.75 Options granted 569,000 0.90 Options exercised (13,250) 0.75 Options canceled (40,750) 0.83 -------- ----- Options outstanding at December 31, 1997 927,500 0.84 Options granted -- -- Options exercised (64,100) 0.77 Options canceled (52,650) 0.84 -------- ----- Options outstanding at December 31, 1998 810,750 $0.85 ======== =====
Options outstanding at December 31, 1998, had exercise prices ranging from $0.75 to $0.90 and a weighted-average remaining contractual life of 5.2 years. Of the total outstanding options, 174,950 were exercisable at December 31, 1998, at a weighted-average exercise price of $0.84 per share. 11. COMMITMENTS AND CONTINGENCIES The Company rents all of its facilities under operating leases. Rent expenses for all operating leases for the years ended December 31, 1998, 1997 and 1996, were approximately $1,010,000, $821,000 and $551,000, respectively. Future minimum lease payments at December 31, 1998, related to the Company's noncancelable leases are as follows (in thousands): 1999 $1,060 2000 1,050 2001 1,055 2002 1,060 2003 442 ------ $4,667 ======
21 22 IEX Corporation Notes to Financial Statements (Continued) 11. COMMITMENTS AND CONTINGENCIES (CONTINUED) The Company has certain contingent liabilities resulting from litigation, claims, commitments, and other matters incident to the ordinary course of business. Management believes that the ultimate resolution of such contingencies will not have a material adverse effect on the financial position or results of operations of the Company. 12. OPERATING SEGMENT INFORMATION The Company's operating segments are strategic operating units that are managed separately due to differences in products, services or customer applications. The Intelligent Network Products segment develops and supplies the Company's DaVinci Service Node Products, which enable enhanced services through Service Control Point, Service Switching Point and Interactive Voice Response network elements. The Call Center products segment develops and supplies the Company's TotalView and TotalNet software products. These products provide workforce management and intelligent call routing systems for single and multiple site call centers. The Applied Technology segment performs systems integration, consulting and customized application development for original equipment manufacturer product and joint research and development projects. This segment includes the sale of customized equipment, professional services and maintenance to two customers under long-term contracts. The Other operating segment consists of special project professional services performed for a limited number of customers and certain development expenses incurred by the Company which are not attributable to the operating segments. Substantially all revenues are generated from customers located in North America. In addition, substantially all of the Company's assets are located in North America. Transfers between operating segments are immaterial. All corporate overhead expenses, such as information systems costs and general and administrative salaries and benefits, incurred by the Company are allocated to the operating segments for purposes of management's review of profitability by segment. 22 23 IEX Corporation Notes to Financial Statements (Continued) 12. OPERATING SEGMENT INFORMATION (CONTINUED) The Company's operating segment information is as follows (in thousands):
Net Revenues: 1998 1997 1996 ------- ------- ------- Intelligent Network Products $16,903 $14,321 $ 7,025 Call Center Products 22,501 15,280 11,074 Applied Technology 8,001 10,705 8,566 Other 1,876 2,601 2,484 ------- ------- ------- Total Net Revenues $49,281 $42,907 $29,149 ======= ======= ======= Operating Income (Loss): 1998 1997 1996 ------- ------- ------- Intelligent Network Products $ 47 $ 1,016 $ (133) Call Center Products 5,131 3,084 2,784 Applied Technology (99) 2,137 605 Other (268) 468 209 ------- ------- ------- Total Operating Income (Loss) $ 4,811 $ 6,705 $ 3,465 ======= ======= =======
23 24 IEX Corporation Notes to Financial Statements (Continued) 13. YEAR 2000 ISSUE (UNAUDITED) General Description of the Year 2000 Issue The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of normal business activities. The Company has been and is continuing to assess these issues in relation to the Company's products, its significant internal systems and significant third party relationships. The Company has formed a task force to address the Year 2000 issue. The task force's plan to resolve the Year 2000 issue involves five phases: Awareness, Assessment, Renovation, Validation and Implementation. The results of the activities performed to date and the expectation regarding required activities are discussed below. IEX Products The Company has completed a Year 2000 analysis of its products. The analysis included internal testing. However, the Company does not plan to have its products tested by an independent third party. The Company believes the current versions of its products are Year 2000 compliant. The Company has already provided its Year 2000 compliant versions of these products to many of its customers through its normal process for distributing new versions of its products to customers participating in the Company's customer support services programs. The Company is working with its customers to migrate to Year 2000 compliant versions of its products and expects to complete these activities before December 31, 1999. Accordingly, the Company estimates it is 100% complete regarding the Awareness, Assessment and Renovation Phases; approximately 75% complete regarding the Validation Phase; and 50% complete in terms of the Implementation Phase. 24 25 IEX Corporation Notes to Financial Statements (Continued) 13. YEAR 2000 ISSUE (UNAUDITED) (CONTINUED) Some of the Company's products include hardware and software components provided by third parties. The Company believes that current versions of significant third party components are Year 2000 compliant based on representations from its vendors or the results of internal testing of these components. The Company is working with its customers to migrate to the Year 2000 compliant versions of these components. However, since the Assessment Phase with respect to third party-provided components included in the Company's products is not complete, and the Company cannot ensure that customers migrate their third party components to Year 2000 compliant versions, there can be no assurance that all Year 2000 compliant versions of these components will be available and implemented before December 31, 1999. Certain customers may be operating non-compliant versions of products where the Company's agreed-upon product support and warranty periods have expired. The Company has not analyzed these customers to determine whether they are taking appropriate steps to address any Year 2000 issues. The Company does not expect customers who purchase or migrate to Year 2000 compliant versions of its products to experience any Year 2000 failures caused by such products. Also, the Company believes its license and support agreements contain customary and appropriate limitations with regard to the Company's obligations for any Year 2000 failures that may be caused by its current or former products. However, since there can be no assurance that the Company's products will not experience Year 2000 issue-related failures, there can also be no assurances that the business, financial, condition, or results of operations of the Company will not be materially adversely impacted by losses associated with the failures. The Company has not incurred and does not expect to incur any significant incremental expenses in addressing the Year 2000 issue with regard to its products. Development activities to resolve issues were not significant and were performed in the normal development and testing process, and remaining implementation activities are not expected to result in significant costs to the Company. Some incremental people costs may be incurred in order to provide an increased level of customer support staffing during the period immediately preceding and immediately after the new year; however, in the aggregate these incremental costs are not expected to be material. 25 26 IEX Corporation Notes to Financial Statements (Continued) 13. YEAR 2000 ISSUE (UNAUDITED) (CONTINUED) Significant Internal Systems The Company is approximately 50% complete with its assessment (Assessment Phase) of significant internal systems with respect to Year 2000 compliance. The Company has identified significant internal systems that are not Year 2000 compliant such as its general accounting software and its facility security system. As part of this analysis, the Company is requesting suppliers of significant third party systems to summarize their level of Year 2000 compliance. The Company expects to complete the Assessment Phase by April 30, 1999. The Company believes its significant internal systems will be Year 2000 compliant by December 31, 1999; however, there can be no assurances that all significant internal systems will not experience any Year 2000 failures. The Company expects a large percentage of its hardware and software relating to significant internal systems to be made Year 2000 compliant with minimal cost to the Company because of vendor obligations to the Company through various support arrangements or vendor programs to provide Year 2000 compliant versions. The total estimated costs to the Company to migrate significant internal systems not covered under current support agreements to Year 2000 compliant versions is not yet available as the Assessment Phase is not yet complete. However, the Company has already received cost estimates from third parties to migrate certain systems known to be non-compliant, totaling approximately $50,000. Other direct costs associated with this effort, namely people-related costs, are estimated to be $100,000. If the Company experiences failures with significant internal systems resulting from Year 2000 issues, operations may be significantly adversely effected, including not being able to process orders, invoice customers, perform standard voice and data communications or support its customers. If any of these failures occur, the Company's business, financial condition and results of operations may be materially adversely impacted, including losses associated with a material adverse outcome in a Year 2000 claim or lawsuit. As part of the Company's Year 2000 analysis, a contingency plan designed to mitigate the impact of Year 2000-related failures will be developed before December 31, 1999. However, if Year 2000 failures occur and the contingency plan is implemented, there can be no assurance that the plan will enable the Company to avoid the potentially material adverse impact to its business, financial condition and results of operations. 26 27 ITEM 7(b): UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION The following unaudited pro forma condensed combining statements of operations for the twelve months ended December 31, 1998, are set forth herein to give effect to the acquisition of IEX Corporation by Tekelec for $163 million comprised of $63 million in cash and $100 million in collateralized promissory notes, as if the acquisition had occurred on January 1, 1998. The acquisition was accounted for as a purchase, and resulted in the Company recording intangible assets amounting to $170.3 million, of which $6.0 million has been allocated to in-process research and development. The unaudited pro forma condensed combining balance sheet data gives effect to the acquisition of IEX Corporation by Tekelec as if such acquisition had occurred on December 31, 1998. The unaudited pro forma adjustments and assumptions are based on estimates, evaluations and other data currently available. The unaudited pro forma condensed combining statements of operations are provided for illustrative purposes only and are not necessarily indicative of the combined results of operations that would have been reported had the acquisition occurred on January 1, 1998, nor does it represent a forecast of the combined future results of operations for any future periods. All information contained herein should be read in conjunction with the Consolidated Financial Statements and notes thereto and the "Management's Discussion and Analysis of Financial Results of Operations" included in the Company's report on Form 10-K for the year ended December 31, 1998, the financial statements and notes thereto of IEX Corporation included in this report on Form 8-K and the notes to the Unaudited Pro forma Condensed Combining Financial Information. 27 28 TEKELEC AND IEX CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 --------------------------------------------------------- PRO PRO FORMA FORMA TEKELEC IEX ADJUSTMENTS COMBINED --------- --------- ----------- -------- Revenues....................................... $ 176,669 $ 49,281 $ -- $ 225,950 Costs and expenses: Cost of goods sold......................... 58,902 19,055 -- 77,957 Research and development................... 26,371 6,852 -- 33,223 Selling, general and administrative........ 40,458 18,563 -- 59,021 Other acquisition costs, including amortization of goodwill and other purchased intangibles.................... -- -- 34,849(a) 34,849 --------- --------- --------- --------- Total costs and expenses............... 125,731 44,470 34,849 205,050 --------- --------- --------- --------- Income from operations......................... 50,938 4,811 (34,849) 20,900 Other income (expense) Interest, net.............................. 4,785 477 (12,645)(b) (7,383) Other, net................................. (172) 35 -- (137) --------- --------- --------- --------- Total other income (expense)........... 4,613 512 (12,645) (7,520) --------- --------- --------- --------- Income before provision for income taxes....... 55,551 5,323 (47,494) 13,380 Provision for (benefit from) income taxes.. 16,342 1,829 (10,749)(c) 7,422 --------- --------- --------- --------- Net income............................. $ 39,209 $ 3,494 $ (36,745) $ 5,958 ========= ========= ========= ========= Earnings per share: Basic...................................... $ 0.73 $ 0.11 Diluted.................................... 0.67 0.10 Weighted average number of shares outstanding: Basic...................................... 53,518 53,518 Diluted.................................... 58,708 311(g) 59,019
See Notes to Unaudited Pro forma Condensed Combining Financial Information 28 29 TEKELEC AND IEX CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEETS
FOR THE YEAR ENDED DECEMBER 31, 1998 --------------------------------------------------------- PRO PRO FORMA FORMA TEKELEC IEX ADJUSTMENTS COMBINED --------- --------- ----------- --------- Assets: Cash and cash equivalents........................... $ 31,932 $ 6,977 $(20,000)(d) $ 18,909 Short-term investments, at fair value............... 37,704 7,173 (13,000)(d) 31,877 Accounts and notes receivable....................... 56,502 14,887 -- 71,389 Inventories......................................... 12,872 4,619 -- 17,491 Prepaid expenses and other current assets........... 11,965 1,678 -- 13,643 --------- -------- -------- -------- Total Current Assets............................ 150,975 35,334 (33,000) 153,309 Long-term investments, at fair value................ 44,138 3,192 (30,000)(d) 17,330 Property and Equipment, net......................... 12,859 3,505 -- 16,364 Other Assets........................................ 2,270 169 -- 2,439 Intangibles from IEX Acquisition.................... -- -- 164,246(d)(e) 164,246 --------- -------- -------- -------- Total Assets.................................... $ 210,242 $ 42,200 $101,246 $353,688 ========= ======== ======== ======== Liabilities: Notes Payable....................................... $ -- $ -- $100,000 $100,000 Trade accounts payable.............................. 10,904 2,737 -- 13,641 Accrued liabilities................................. 16,592 5,477 2,000(d) 24,069 Other current liabilities........................... 14,717 12,607 -- 27,324 --------- -------- -------- -------- Total current liabilities....................... 42,213 20,821 102,000 165,034 Deferred income taxes............................... -- -- 26,625(d) 26,625 Other............................................... 2,252 -- -- 2,252 --------- -------- -------- -------- Total Liabilities............................... 44,465 20,821 128,625 193,911 --------- -------- -------- -------- Shareholders' equity: Common stock........................................ 92,803 841 (841)(f) 92,803 Retained earnings................................... 72,084 20,538 (26,538)(e)(f) 66,084 Translation Adjustment.............................. 890 -- -- 890 --------- -------- -------- -------- Total shareholders' equity...................... 165,777 21,379 (27,379) 159,777 --------- -------- -------- -------- Total liabilities and shareholders' equity...... $ 210,242 $ 42,200 $101,246 $353,688 ========= ======== ======== ========
See Notes to Unaudited Pro forma Condensed Combining Financial Information 29 30 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION Note 1. The unaudited pro forma condensed combining statement of operations for Tekelec and IEX for the twelve months ended December 31, 1998 have been prepared as if the acquisition, which has been accounted for as a purchase, was completed on January 1, 1998. The unaudited pro forma combined diluted earnings per share is based on the weighted average number of common shares of Tekelec Common Stock and dilutive common stock equivalents outstanding during the period, adjusted to give effect to the dilutive effect of approximately 1.8 million options to purchase Tekelec Common Stock granted to IEX employees in connection with the acquisition. Note 2. The unaudited pro forma condensed combining balance sheet of Tekelec and IEX has been prepared as if the acquisition, which has been accounted for as a purchase, was completed on December 31, 1998. Aggregate consideration of $163.0 million, $2.0 million of estimated acquisition costs and approximately $47.5 million in liabilities assumed, which include deferred tax liabilities of $26.6 million recorded in connection with the transaction, resulted in approximately $170.3 million in intangible assets. The allocation of the purchase price among identifiable tangible and intangible assets was based on an appraisal of the fair market value of those assets. Specifically, purchased in-process research and development was identified and valued through interviews concerning each IEX development project. Expected future cash flows of each development project were discounted to present value taking into account risks associated with the inherent difficulties and uncertainties in competing the project, and thereby achieving technological feasibility, and risks related to the viability of and potential changes in future target markets. The above analysis and valuation resulted in approximately $6.0 million of purchased in-process research and development which has not yet reached technological feasibility and does not have alternative future uses. Therefore, in accordance with generally accepted accounting principles, this amount was written off at the time of acquisition. A value of $57.0 million was allocated to developed and existing technology. 30 31 Using the same methodology, other intangibles were identified and valued. Expected future cash flows associated with these intangibles were discounted to present value taking into consideration risks related to the characteristics of each item. The amounts identified as intangible assets as well as goodwill arising from the transaction are expected to be amortized over estimated useful lives ranging from three to five years. Intangibles were categorized as follows:
Allocated Category Value ($000) ------------------------------------ ------------ In-process research and development $ 6,000 Developed and existing technology 57,000 Other intangibles 14,000 Goodwill 93,246 -------- Total intangibles $170,246 ========
Note 3. The unaudited pro forma condensed combining statements of operations for Tekelec and IEX do not include the $6.0 million charge for purchased in-process research and development resulting from the acquisition, as it is a material non-recurring charge. Note 4. The following pro forma adjustments are reflected in the unaudited pro forma condensed combining financial information: (a) Reflects the amortization of intangibles associated with the purchase of IEX as if the acquisition was completed on January 1, 1998. Amortization is recognized over the estimated useful lives of the assets acquired, generally from three and five years. The unaudited pro forma statement of operations excludes the write-off of $6.0 million of purchased in-process research and development due to its non-recurring nature. (b) Reflects the estimated interest income foregone based on the $63 million of cash consideration paid and interest expense incurred on the $100 million promissory notes issued as if the acquisition had been completed on January 1, 1998. (c) Reflects the tax effect of the pro forma adjustments. (d) Reflects the allocation of the purchase price based on fair market values to the historical balance sheet and the related tax effects. (e) Reflects the write-off of purchased in-process research and development identified in the purchase price allocation. (f) Reflects the elimination of IEX's equity accounts. (g) Reflects the dilutive effect of approximately 1.8 million options to purchase Tekelec Common Stock granted to IEX employees in connection with the acquisition, assuming the grant had taken place as of January 1, 1998, using a fair market value at date of grant of $16.22 and an average fair market value for the year of $19.51. 31 32 INDEX TO EXHIBITS
Exhibit Number Description of Exhibit ------- ---------------------- 2.01 Agreement and Plan of Reorganization dated as of April 20, 1999 by and among Tekelec, Eagle Lonestar Corporation, IEX Corporation, IEX Partners, Teknekron Partners II, Gary Crockett and Stephen Lynn. (Pursuant to Item 601(b)(2) of Regulation S-K, certain exhibits and schedules have been omitted but will be furnished supplementally to the Commission upon request). 4.01 Note and Security Agreement dated as of May 7, 1999 by and among Tekelec, IEX Corporation and the Significant Stockholders of IEX Corporation. 4.02 Secured Promissory Notes dated as of May 7, 1999 made by Tekelec and IEX Corporation in favor of each of the Significant Stockholders of IEX Corporation. 23.1 Consent of Ernst & Young LLP
EX-2.01 2 EXHIBIT 2.01 1 EXHIBIT 2.01 AGREEMENT AND PLAN OF REORGANIZATION DATED AS OF APRIL 20, 1999 by and among Tekelec, Eagle Lonestar Corporation, IEX Corporation, IEX Partners, Teknekron Partners II, Gary Crockett and Stephen Lynn 2 The following Exhibits and Schedules to the Plan have not been filed and shall be furnished to the Commission upon request: o Exhibit A (Form of Articles of Merger) sets forth terms for possible inclusion in any Articles of Merger or similar document required to be filed under applicable state law to effect the Merger; o Exhibit B (Form of Notes) is included as Exhibit A to the Note and Security Agreement set forth in Exhibit 4.01 to this Form 8-K; o Exhibit C (Form of Voting Agreement) is an agreement entered into by Tekelec and each of the Significant Stockholders providing, in part, that each Significant Stockholder vote in favor of the Merger; o Exhibit D (Form of Escrow Agreement), as entered into by parties thereto, is described in Item 2 of this Form 8-K; o Exhibit E (Form of Non-Competition Agreement), as entered into by parties thereto, is described in Item 2 of this Form 8-K; o Exhibit F (Form of Note and Security Agreement), as entered into by parties thereto, is included as Exhibit 4.01 to this Form 8-K; and o Schedules 7.7 and 8.5 (Forms of Opinions of Counsel) set forth matters for possible inclusion in legal opinions to be rendered by counsel for parties to the Plan. 3 [EXECUTION COPY] - -------------------------------------------------------------------------------- AGREEMENT AND PLAN OF REORGANIZATION AMONG TEKELEC, IEX CORPORATION, EAGLE LONESTAR CORPORATION AND STOCKHOLDERS OF IEX CORPORATION APRIL 20, 1999 - -------------------------------------------------------------------------------- 4 TABLE OF CONTENTS
Page ---- 1. PLAN OF REORGANIZATION...............................................................2 1.1 The Merger....................................................................2 1.2 Effective Time of the Merger..................................................2 1.3 Merger Consideration..........................................................2 1.4 Company Dissenting Shares.....................................................4 1.5 Surrender of Certificates and Establishment of Escrow.........................5 1.6 No Further Ownership Rights in Company Common Stock...........................6 1.7 Lost, Stolen or Destroyed Certificates........................................6 1.8 Stockholder Representatives...................................................6 1.9 Additional Effects of the Merger..............................................7 1.10 Further Assurances............................................................7 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.....................................................................8 2.1 Organization and Good Standing; Title.........................................8 2.2 Power, Authorization and Validity.............................................9 2.3 Capitalization................................................................9 2.4 Subsidiaries.................................................................10 2.5 No Conflict..................................................................10 2.6 Proceedings; Orders..........................................................11 2.7 Company Financial Statements.................................................12 2.8 Taxes........................................................................13 2.9 Title to Properties..........................................................14 2.10 Absence of Certain Changes...................................................14 2.11 Agreements and Commitments...................................................16 2.12 No Default; No Consent Required; No Restrictions.............................17 2.13 Intellectual Property........................................................18 2.14 Compliance with Laws.........................................................21 2.15 Certain Transactions and Agreements..........................................22 2.16 Employees....................................................................22 2.17 Corporate Documents..........................................................25 2.18 No Brokers...................................................................25 2.19 Bank Accounts................................................................25 2.20 Insurance....................................................................25 2.21 Environmental Matters........................................................25 2.22 Customers....................................................................26 2.23 Accounts Receivable; Accounts Payable........................................27 2.24 Voting Agreement; Proxies....................................................27 2.25 Vote Required................................................................27
i 5 TABLE OF CONTENTS (CONT'D) 2.26 Board Approval...............................................................27 2.27 No Existing Discussions......................................................27 2.28 Year 2000 Compliance.........................................................27 2.29 Disclosure...................................................................28 2.30 Knowledge....................................................................28 2.31 Material Adverse Effect......................................................28 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO..................................28 3.1 Organization and Good Standing...............................................29 3.2 Power, Authorization and Validity............................................29 3.3 No Conflict..................................................................30 3.4 SEC Filings..................................................................30 3.5 Proceedings; Orders..........................................................30 3.6 No Material Adverse Change...................................................31 3.7 No Brokers...................................................................31 3.8 Disclosure...................................................................31 3.9 Material Adverse Effect......................................................31 3.10 Knowledge of Parent..........................................................31 4. PRE-CLOSING COVENANTS OF THE COMPANY................................................31 4.1 Advice of Changes............................................................31 4.2 Maintenance of Business......................................................32 4.3 Conduct of Business..........................................................32 4.4 Approval of the Company's Stockholders.......................................34 4.5 Proxy Statement..............................................................34 4.6 Regulatory Approvals.........................................................35 4.7 Acceleration of Company Options..............................................35 4.8 Necessary Consents...........................................................35 4.9 Proceedings and Orders.......................................................35 4.10 No Other Negotiations........................................................35 4.11 Access to Information........................................................36 4.12 Satisfaction of Conditions Precedent.........................................36 4.13 Securities Laws..............................................................36 4.14 Notification of Employee Problems............................................36 4.15 Company Dissenting Shares....................................................37 4.16 Termination of Registration and Voting Rights................................37 4.17 Invention Assignment and Confidentiality Agreements..........................37 4.18 Company Employee Plans and Benefit Arrangements..............................37 4.19 Takeover Statutes............................................................37 4.20 Closing of Merger............................................................37 4.21 Termination of Management Agreement..........................................38
ii 6 TABLE OF CONTENTS (CONT'D) 5. COVENANTS OF PARENT.................................................................38 5.1 Advice of Changes............................................................38 5.2 Satisfaction of Conditions Precedent.........................................38 5.3 Regulatory Approvals.........................................................38 6. CLOSING MATTERS.....................................................................38 6.1 The Closing..................................................................38 7. CONDITIONS TO OBLIGATIONS OF THE COMPANY............................................39 7.1 Accuracy of Representations and Warranties...................................39 7.2 Covenants....................................................................39 7.3 Requisite Approvals..........................................................39 7.4 Compliance with Law; No Legal Restraints; No Litigation......................39 7.5 Government Consents; HSR Act Compliance......................................39 7.6 Documents....................................................................40 7.7 Opinion of Parent's Counsel..................................................40 7.8 Agreements...................................................................40 7.9 No Material Adverse Change...................................................40 8. CONDITIONS TO OBLIGATIONS OF PARENT AND NEWCO.......................................40 8.1 Accuracy of Representations and Warranties...................................40 8.2 Covenants; No Material Adverse Change........................................40 8.3 Compliance with Law; No Legal Restraints; No Litigation......................40 8.4 Government Consents; HSR Act Compliance......................................41 8.5 Opinion of the Company's Counsel.............................................41 8.6 Requisite Approvals..........................................................41 8.7 Restriction on Dissenting Shares.............................................41 8.8 Documents....................................................................41 8.9 Escrow Agreement.............................................................41 8.10 Non-Competition Agreements...................................................41 8.11 Continued Employment of Certain Personnel....................................41 8.12 Resignation of Directors.....................................................42 8.13 Due Diligence................................................................42 9. TERMINATION.........................................................................42 9.1 Termination..................................................................42 9.2 Effect of Termination........................................................43 9.3 Termination Fee..............................................................44 9.4 Non-Exclusivity of Termination Rights........................................44 10. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING COVENANTS................................................................44 10.1 Survival.....................................................................44
iii 7 TABLE OF CONTENTS (CONT'D) 10.2 Indemnification by Significant Stockholders..................................45 10.3 Indemnification by Parent....................................................46 10.4 Procedures...................................................................46 10.5 Third-Party Claims...........................................................47 10.6 Resolution of Conflicts: Arbitration.........................................48 10.7 Other Indemnification Provisions.............................................49 11. MISCELLANEOUS.......................................................................49 11.1 Governing Law................................................................50 11.2 Assignment; Successors and Assigns...........................................50 11.3 Severability.................................................................50 11.4 Counterparts.................................................................50 11.5 Other Remedies...............................................................50 11.6 Amendment and Waivers........................................................50 11.7 No Waiver....................................................................50 11.8 Expenses.....................................................................50 11.9 Attorneys' Fees..............................................................51 11.10 Notices......................................................................51 11.11 Construction of Agreement....................................................51 11.12 No Joint Venture.............................................................52 11.13 Further Assurances...........................................................52 11.14 Absence of Third Party Beneficiary Rights....................................52 11.15 Public Announcement..........................................................52 11.16 Confidentiality..............................................................52 11.17 Time is of the Essence.......................................................52 11.18 Disclosure Letter............................................................53 11.19 Entire Agreement.............................................................53 11.20 Submission to Jurisdiction; Waiver of Jury Trial.............................53
iv 8 Exhibits Exhibit A Form of Articles of Merger Exhibit B Form of Notes Exhibit C Form of Voting Agreement Exhibit D Form of Escrow Agreement Exhibit E Form of Non-Competition Agreement Exhibit F Form of Note and Security Agreement Schedule 1.3 Significant Stockholders Schedule 2.30 Knowledge of the Company and/or the Stockholders Schedule 7.7 Form of Opinion of Counsel to Parent and Newco Schedule 8.5 Form of Opinion of Counsel to the Company and the Stockholders Schedule 8.10 List of Parties Required to Enter into Non-Competition Agreements Schedule 8.11 List of Company Employees Entering into Employment Agreements with Company v 9 AGREEMENT AND PLAN OF REORGANIZATION This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered into as of April 20, 1999 (the "Agreement Date"), by and among Tekelec, a California corporation ("Parent"), Eagle Lonestar Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent ("Newco"), IEX Corporation, a Nevada corporation (the "Company"), and Teknekron Partners II, IEX Partners, Gary Crockett, and Stephen Lynn (collectively, the "Stockholders"). RECITALS A. The parties intend that Newco, a new Delaware corporation that will be organized as a wholly-owned subsidiary of Parent, will merge with and into the Company in a reverse triangular merger (the "Merger"), with the Company to be the surviving corporation of the Merger, all pursuant to the terms and conditions of this Agreement, the Articles of Merger substantially in the form of Exhibit A (the "Articles of Merger") and the provisions of applicable law. Upon the effectiveness of the Merger, all the shares of common stock of the Company ("Company Common Stock") that are outstanding immediately prior to the effectiveness of the Merger, together with all outstanding unexercised Company Options (as defined herein), will be converted into the right to receive an amount of cash from Parent and, in certain circumstances, short term subordinated notes issued by Parent in the form of Exhibit B (the "Notes") on the basis determined herein and as provided in the Articles of Merger. B. The Board of Directors of the Company has approved the Merger, this Agreement, the Articles of Merger and the transactions provided for herein and therein. C. Each of the Significant Stockholders (as defined herein) is agreeing to vote its shares in favor of the Merger, this Agreement, the Articles of Merger and the transactions provided for herein and therein in a Voting Agreement in substantially the form of Exhibit C hereto (the "Voting Agreement"). The Significant Stockholders collectively own in excess of eighty percent (80%) of the issued and outstanding capital stock of the Company. D. At or prior to the closing of the Merger and the transactions contemplated herein (the "Closing"), 1. Parent, the Representatives (as defined herein) and the Escrow Agent (as defined herein) will enter into an Escrow Agreement in substantially the form of Exhibit D hereto (the "Escrow Agreement"); 2. Parent, the Significant Stockholders and Harvey Wagner will enter into Non-Competition Agreements in substantially the form of Exhibit E hereto (the "Non-Competition Agreements"); 3. Company and certain employees of the Company will enter into employment agreements; and 4. Parent and the Significant Stockholders will enter into the Note and Security Agreement in substantially the form of Exhibit F hereto. 10 In consideration of the foregoing and the representations, warranties, covenants and agreements set forth in this Agreement, the parties hereto agree as follows: 1. PLAN OF REORGANIZATION 1.1 The Merger. Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 1.2), Newco shall be merged with and into the Company (the "Merger"), the Company shall be the surviving corporation (the "Surviving Corporation"), and the separate existence of Newco shall thereupon cease. The Merger shall have the effect set forth in applicable provisions of the Nevada Revised Statutes ("Nevada Law") and the Delaware General Corporation Law ("Delaware Law"). Without limiting the generality of the foregoing, at and after the Effective Time, the Surviving Corporation shall possess the title to all real and other property owned by each merging constituent entity; and be subject to all of the liabilities of each of the constituent corporations in the Merger. 1.2 Effective Time of the Merger. The Merger shall become effective when properly executed Articles of Merger, in substantially the form attached hereto as Exhibit A, or as otherwise agreed by the parties hereto and as required by the relevant provisions of Nevada Law and Delaware Law, is duly filed with the Secretaries of States of the States of Nevada and Delaware, which filing shall be made in connection with the Closing of the transactions contemplated herein in accordance with Article 6 upon satisfaction or waiver of the conditions set forth in Articles 7 and 8. When used in this Agreement, the term "Effective Time" shall mean the date and time at which such Articles of Merger has been so filed or such later date as provided in the Articles of Merger. 1.3 Merger Consideration. The consideration to be paid by Parent in exchange for the acquisition by Parent at the Effective Time of (i) all outstanding Company Common Stock (including Dissenting Shares), (ii) that certain option dated February 1, 1999 to purchase 700,000 shares of the Company's Common Stock held by Teknekron Corporation (the "Teknekron Option"; the maximum number of shares for which such option is exercisable to be known as the "Teknekron Shares") and (iii) all other outstanding Company Options (as defined below) shall not exceed an amount equal to the Aggregate Merger Consideration (as defined below) reduced by the aggregate exercise price of Company Options bought out by Parent under Section 1.3(b). Subject to the terms and conditions of this Agreement, as of the Effective Time, by virtue of the Merger and without any action on the part of Newco, the Company, or the holder of any shares of the Company Common Stock or the holder of any Company Options, the following shall occur: (a) Consideration for Company Common Stock. Upon the terms and subject to the conditions set forth below and throughout this Agreement, including, without limitation, the escrow provisions set forth in Section 1.5 and Article 10 hereof, each share of Company Common Stock issued and outstanding immediately prior to the Closing other than any Company Dissenting Shares (as defined and to the extent provided in Section 1.4) will be canceled and extinguished and be converted automatically into the right to receive upon surrender of the certificate representing such share of Company Common Stock in the manner provided in Section 1.5, without interest: (i) for each share of Company Common Stock owned by a Company stockholder who is not a Significant Stockholder (as defined below), cash in the 2 11 amount of the Per Share Payment, as defined below (the aggregate consideration paid under this Section 1.3(a)(i) to all holders of Company Common Stock (other than Significant Stockholders) plus the amount payable to such holders who hold Company Dissenting Shares, is herein referred to as the "Minority Consideration"); or (ii) for each share of Company Common Stock owned by a Company stockholder listed in Schedule 1.3 (a "Significant Stockholder"), the sum of (A) the Per Share Note Amount (as defined below) payable by Note, and (B) cash (the "Significant Stockholder Per Share Cash Amount") equal to the quotient obtained by dividing the remainder of the Aggregate Cash Amount less (i) the Minority Consideration and (ii) the amount of the Option Payment allocated to holders of Company Common Stock (other than Significant Stockholders), by the aggregate number of shares of Company Common Stock or subject to Company Options (including Teknekron Options) which are bought out by Parent under Section 1.3(b) held or owned by the Significant Stockholders, with such sum of (A) and (B) to be subject to reduction by the Escrow Amount attributable to such Significant Stockholder as provided in Section 1.5; and (iii) for each share of Company Common Stock owned by any Company stockholder, which share was purchased by a promissory note ("Promissory Note") from such Company stockholder to the Company, the Parent may reduce the per share amount payable to such stockholder by an amount equal to the quotient of (A) the amount, if any, outstanding as of the Closing under such Promissory Note and (B) the number of shares of Company Common Stock purchased with such Promissory Note, and the Parent shall pay the Company the amount of such reduction in order to pay down the Promissory Note on behalf of such stockholder. (b) Treatment of Stock Options. To the extent any option (including the Teknekron Option) or other right to purchase shares of Company Common Stock (each such option, including the Teknekron Option, is herein referred to as a "Company Option") then outstanding either under the Company's 1996 Stock Incentive Plan (the "Option Plan") or otherwise has not been exercised in full and is outstanding immediately prior to the Closing, Parent will buy out and cancel such Company Option at the Closing by paying, with respect to each share of Company Common Stock for which such Company Option is exercisable: (i) if such Company Option is held by a Significant Stockholder, an amount equal to the sum of (x) the Per Share Note Amount plus (y) the Significant Stockholder Per Share Cash Amount less the per share exercise price payable with respect to such Company Option; and (ii) if such Company Option is not held by a Significant Stockholder, an amount equal to the Per Share Payment less the per share exercise price payable with respect to such Company Option. The Company shall notify the Parent of the amount of the Option Payment and provide such other information requested by the Parent with respect thereto on or before the Closing. (c) Conversion of Newco Shares. Each share of Newco Common Stock, par value $0.001 per share ("Newco Common Stock"), that is issued and outstanding immediately prior to the Effective Time will, by virtue of the Merger and without further action on the part of the sole stockholder of Newco, be converted into and become one share of Company Common Stock that is issued and outstanding immediately after the Effective Time, and the shares of Company Common Stock into which the shares of Newco Common Stock are 3 12 so converted shall be the only shares of Company Common Stock that are issued and outstanding immediately after the Effective Time. (d) Adjustments to Consideration. Any payment made under this Section 1.3 shall be adjusted proportionally to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Company Common Stock), reorganization, capitalization or other like change with respect to Company Common Stock occurring after the Agreement Date and prior to the Effective Time. (e) Definitions. (i) "Aggregate Cash Amount" means $63,000,000. (ii) "Aggregate Note Amount" means $100,000,000. (iii) "Aggregate Merger Consideration" means the sum of the Aggregate Cash Amount and the Aggregate Note Amount. (iv) "Option Payment" means that amount equal to the number of shares of Company Common Stock subject to Company Options which are bought out by Parent under Section 1.3(b) multiplied by the Per Share Payment. (v) "Per Share Note Amount" means the quotient obtained by dividing the Aggregate Note Amount by the sum of (A) the shares of Common Stock owned by the Significant Stockholders immediately prior to the Closing, and (B) the number of shares of Company Common Stock (including the Teknekron Shares) subject to Company Options held by Significant Stockholders which are bought out by Parent under Section 1.3(b). (vi) "Per Share Payment" means the quotient obtained by dividing the Aggregate Merger Consideration by the sum of (A) the number of shares of Company Common Stock outstanding immediately prior to the Closing that are held by all stockholders of the Company, and (B) the number of shares of Company Common Stock (including the Teknekron Shares) subject to Company Options bought out by Parent under Section 1.3(b). To determine the amount of consideration payable to a particular stockholder or option holder under this Section 1.3, the Per Share Payment shall be multiplied by the number of shares of Company Common Stock held by such stockholder or subject to an unexercised Company Option, as the case may be, and in the case of Company Common Stock that has been purchased by such stockholder with a Promissory Note, reduced by the amount the Parent pays down the outstanding balance of such Promissory Note under Section 1.3(a)(iii) on behalf of such stockholder and in the case of unexercised Company Option reduced by the aggregate exercise price payable with respect to such Company Option and then rounded to the nearest whole cent. 1.4 Company Dissenting Shares. Holders of Company Dissenting Shares (if any) will be entitled to their appraisal rights under Section 92A.300 et seq. of Nevada Law with respect to such Company Dissenting Shares and such Company Dissenting Shares will not be converted into the right to receive consideration in the Merger as provided in Section 1.3; provided, however, that nothing in this Section 1.4 is intended to remove, release, waive, alter or affect any of the conditions to Parent's and Newco's obligations to consummate the Merger set forth in Sections 8.6 and 8.7, or any other provision of this Agreement relating to Company 4 13 Dissenting Shares. Shares of the capital stock of the Company that are outstanding immediately prior to the Effective Time and with respect to which dissenting stockholders' rights of appraisal under Nevada Law have either (a) not been properly exercised and perfected or (b) with the consent of the Company and Parent, been withdrawn, will, when such dissenting stockholders' rights can no longer be legally exercised under Nevada Law, be converted into the right to receive the Merger consideration as provided in Section 1.3. "Company Dissenting Shares" means any shares of any capital stock of the Company that (i) are outstanding immediately prior to the Effective Time and (ii) with respect to which dissenter's rights to obtain payment for such dissenting shares in accordance with Section 9A.300 et seq. of Nevada Law have been duly and properly exercised and perfected in connection with the Merger. 1.5 Surrender of Certificates and Establishment of Escrow. (a) Escrow Agent. Prior to the Effective Time, Parent shall designate State Street Bank and Trust Company of California, N.A. to act as escrow agent ( the "Escrow Agent") in the Merger. (b) Establishment of Escrow. On the business day in which the Closing occurs, Parent shall withhold and deposit into an escrow account Notes (the "Escrow Notes") in the aggregate principal amount equal to ten percent (10%) of the gross amount payable (before any reduction or offset for Escrow Amount, Promissory Notes paid down by the Parent under Section 1.3(a)(iii) or exercise price of Company Options which are bought out by Parent under Section 1.3(b), to the extent applicable to the Significant Stockholders) to the Significant Stockholders under Section 1.3 (the "Escrow Amount"). Pursuant to the Escrow Agreement, Parent will deduct from the amounts otherwise deliverable to each Significant Stockholder and deposit with the Escrow Agent the Escrow Amount solely from the consideration payable to the Significant Stockholders, allocated proportionately according to the gross consideration payable to each Significant Stockholder under Section 1.3 in exchange for (i) outstanding shares of Company Common Stock and (ii) unexercised Company Options held by such Significant Stockholder. The Escrow Amount shall be administered in accordance with the provisions of Article 10 and the Escrow Agreement. (c) Exchange Procedures. Prior to the Closing, Parent shall cause to be delivered to each Company stockholder (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Company stock or option certificates ("Certificates") owned by such holder shall pass, only upon delivery of the Certificates owned by such holder to Parent, and shall be in such form and have such other provisions as Parent may reasonably specify), and (ii) instructions for use in effecting the surrender of such holder's Certificates in exchange for the consideration payable under Section 1.3. Upon surrender of a Certificate for cancellation to Parent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive in exchange therefor, at the Closing, the consideration (subject to the escrow provisions hereof and in Article 10), to which such holder is entitled pursuant to Section 1.3, and the Certificate so surrendered shall forthwith be canceled. Payments of cash to stockholders pursuant to this Section 1.5 shall be made by wire transfer of immediately available funds to a single disbursing agent to be designated by the Representatives not less than three (3) business days prior to the Closing. Notwithstanding any other provision of this Agreement, any payment due under Section 1.3 may be reduced to the extent of any withholding taxes. 5 14 (d) Payments With Respect to Unexchanged Shares. No interest shall accrue or be payable with respect to the Merger consideration payable on any unexchanged shares of Company Common Stock. (e) No Liability. Notwithstanding anything to the contrary in this Section 1.5, none of the Parent, the Surviving Corporation or any party hereto shall be liable to a holder of a Certificate for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. 1.6 No Further Ownership Rights in Company Common Stock. All amounts paid upon the surrender for exchange of shares of Company Common Stock and Company Options in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Common Stock and Company Options and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Company Common Stock or Company Options which were outstanding immediately prior to the Effective Time. Until so surrendered, each outstanding Certificate that, prior to the Effective Time, represented shares of Company Common Stock or Company Options will be deemed from and after the Effective Time, for all corporate purposes, to evidence only the right to receive the consideration payable under Section 1.3 in respect of each such share or option, as the case may be, (subject to the escrow provisions set forth in Section 1.5 and Article 10 hereof). If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and the consideration payable under Section 1.3 shall be delivered to the person entitled thereto (subject to the escrow provisions set forth in Section 1.5 and Article 10 hereof). 1.7 Lost, Stolen or Destroyed Certificates. In the event any Certificates shall have been lost, stolen or destroyed, Parent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, such amount of cash and Notes as may be required pursuant to Section 1.3; provided, however, that Parent may, in its reasonable discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificates to deliver a bond in such sum or provide such other assurances as it may reasonably direct as indemnity against any claim that may be made against Parent with respect to the Certificates alleged to have been lost, stolen or destroyed. 1.8 Stockholder Representatives. By their approval of the Merger, the Significant Stockholders will be conclusively and irrevocably deemed to have consented to, approved and agreed to be personally bound by: (i) the indemnification provisions of Article 10; (ii) the Escrow Agreement; (iii) the appointment of Thomas S. Loo and Gary Crockett as the representatives of the Significant Stockholders (the "Representatives") under the Escrow Agreement and as the attorney-in-fact and agent for and on behalf of each Significant Stockholder as provided in the Escrow Agreement; and (iv) the taking by the Representatives of any and all actions and the making of any decisions required or permitted to be taken by the Representatives under this Agreement and/or the Escrow Agreement, including, without limitation, the exercise of the power to: (a) authorize delivery to Parent of all or some of the Escrow Amount in satisfaction of indemnity claims by Parent or any other Indemnified Party (as defined in Section 10.2) pursuant to Article 10 and/or the Escrow Agreement; (b) agree to, negotiate, enter into settlements and compromises of, demand arbitration of, and comply with 6 15 orders of courts and awards of arbitrators with respect to, such claims; (c) arbitrate, resolve, settle or compromise any claim for indemnity made pursuant to Article 10; and (d) take all actions necessary in the judgment of the Representatives for the accomplishment of the foregoing. Parent shall, at its sole option and discretion, be entitled to condition the issuance of any of the Escrow Amount to a Significant Stockholder pursuant to Section 1.3 on its receipt of a written instrument executed by such Significant Stockholder, customary in form and substance and reasonably acceptable to Parent, acknowledging and agreeing to the foregoing. The Representatives will have authority and power to act on behalf of each Significant Stockholder with respect to the Escrow Agreement and the disposition, settlement or other handling of all claims under Article 10 hereof or governed by the Escrow Agreement, and all rights or obligations arising under the Escrow Agreement so long as all Significant Stockholders are treated in the same manner. The Significant Stockholders will be bound by all actions taken and documents executed by the Representatives in connection with the Escrow Agreement, and Parent will be entitled to rely on any action or decision of the Representatives. In the event of a disagreement between the Representatives, they shall act in accordance with the vote of a Majority In Interest of the Significant Stockholders. A "Majority In Interest" of the Significant Stockholders means Significant Stockholders holding greater than fifty percent (50%) of the Company Common Stock and Company Options, or securities convertible therefor, immediately prior to the Effective Time. In performing the functions specified in this Agreement and the Escrow Agreement, the Representatives will not be liable to any Significant Stockholder in the absence of gross negligence or willful misconduct on the part of either of the Representatives. Any out-of-pocket costs and expenses reasonably incurred by the Representatives in connection with actions taken pursuant to the terms of the Escrow Agreement will be paid by the Significant Stockholders to the Representatives, first, out of the interest accrued on the Escrow Notes and second, out of the Escrow Amount pro rata in proportion to their respective percentage interests in the Escrow Amount, but only to the extent that any of the Escrow Amount remains available for distribution to the Significant Stockholders following expiration of the Escrow Period and satisfaction of all claims made or asserted by Parent or any Indemnified Person under Article 10 or the Escrow Agreement, in all cases subject to Parent's rights in and to the Escrow Amount. 1.9 Additional Effects of the Merger. At and subject to and upon the Effective Time: (a) the Articles of Incorporation and Bylaws of the Company will be amended and restated (in a form to be delivered to the Company prior to the Effective Time) immediately after the Effective Time until duly amended in accordance with the terms thereof and applicable law; and (b) the Board of Directors and executive officers of Parent will remain unchanged, the sole director of Newco immediately prior to the Effective Time will become the sole director of the Surviving Corporation and the officers of Newco immediately prior to the Effective Time will become the officers of the Surviving Corporation. 1.10 Further Assurances. The Company agrees that if, at any time after the Effective Time, Parent considers or is advised that any further instruments, deeds, assignments or assurances are reasonably necessary or desirable to vest, perfect or confirm in the Surviving Corporation title to any property or rights of the Company as provided herein, then Parent, the Surviving Corporation and their respective officers and directors are hereby authorized by the Company to execute and deliver all such proper instruments, deeds, assignments and assurances and do all other things necessary or desirable to vest, perfect or confirm title to such property or 7 16 rights in Parent and otherwise to carry out the purposes of this Agreement, in the name of the Company or otherwise. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS The Company and the Stockholders hereby severally represent and warrant to Parent and Newco that, except as set forth in the Company disclosure letter delivered by the Company to Parent prior to the execution of this Agreement (the "Company Disclosure Letter"; for all purposes of this Agreement, the statements contained in the Company Disclosure Letter shall also be deemed to be representations and warranties made and given by the Company and the Stockholders under Article 2 of this Agreement), including items in the Company Disclosure Letter referred to as "Items" below, each of the following representations, warranties and statements in this Article 2 are true and accurate as of the Agreement Date and will be true and accurate as of the Closing Date: 2.1 Organization and Good Standing; Title. 2.1.1 Organization and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under Nevada Law, has the requisite corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted and is duly qualified or licensed as a foreign corporation in each jurisdiction listed on Item 2.1.1, which is each jurisdiction in which the failure to so qualify would have a Material Adverse Effect on the Company. The Company has no subsidiaries and has never had any subsidiaries. The Company has never conducted directly or through any subsidiary any business under or otherwise used, for any purpose or in any jurisdiction, any fictitious name, assumed name, trade or other name. The Company has heretofore delivered to Parent true and complete copies of its Articles of Incorporation and Bylaws. The Company is not in violation of any of the provisions of the Articles of Incorporation or Bylaws of the Company or of any resolution adopted by the stockholders of the Company or the Boards of Directors of the Company, and to the best knowledge of the Company, no event has occurred, and no condition or circumstance exists, that likely would (with or without notice or lapse of time) constitute or result directly or indirectly in such a violation. 2.1.2 Board of Directors and Officers. Item 2.1.2 accurately sets forth (i) the names of the members of the Company's Board of Directors, (ii) the names and titles of the Company's officers and (iii) the names of the members of the committees of the Company's Board of Directors. 2.1.3 No Cessation of Business. There is no proceeding pending or any election or action contemplating, the dissolution or liquidation of the Company or the winding up or cessation of the Company's business or affairs. 2.1.4 Title. Except as set forth in Item 2.1.4, each Company stockholder owns and holds good and valid title to such Company stockholder's Company Common Stock to be exchanged in the Merger, free and clear of any pledges, claims, liens, charges, encumbrances, security interests of any kind or nature whatsoever and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such Company Common Stock). No Company stockholder has any interest or right in the equity or assets of the 8 17 Company other than the Company Common Stock owned by such Company stockholder to be exchanged in the Merger. 2.2 Power, Authorization and Validity. 2.2.1 Power and Authority. The Company has the corporate right, power and authority to enter into and perform its obligations under this Agreement and all agreements to which the Company is or will be a party that are required to be executed pursuant to this Agreement (the "Company Ancillary Agreements") and the transactions contemplated hereby and thereby. This Agreement and the Company Ancillary Agreements have been duly and validly authorized by all necessary corporate action on the part of the Company, subject to obtaining the requisite approval of the Company's stockholders in connection with the consummation of the Merger. Each Stockholder has the legal power and capacity to enter into and perform its obligations under this Agreement and all agreements to which such Stockholder is or will be a party that are required to be executed pursuant to this Agreement (the "Stockholder Ancillary Agreements") and the transactions contemplated hereby and thereby. 2.2.2 No Consents. No filing, authorization, approval or consent, governmental or otherwise, is necessary to enable the Company or the Stockholders to enter into, and to perform their respective obligations under, this Agreement, the Company Ancillary Agreements and the Stockholder Ancillary Agreements, except for (a) the filing of the Articles of Merger with the Secretaries of State of the States of Nevada and Delaware, the filing of such officers' certificates and other documents as are required to effectuate the Merger under Nevada Law and Delaware Law and the filing of appropriate documents with the relevant authorities of the states in which the Company is qualified or licensed to do business, (b) such filings as may be required to comply with federal and state securities laws, (c) filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the "HSR Act") and the expiration of applicable waiting periods under the HSR Act and (d) consents required under agreements set forth in Item 2.5 as exceptions to the representation made in the second sentence of Section 2.5. 2.2.3 Enforceability. This Agreement and the Company Ancillary Agreements are, or when executed and delivered by the Company and the other parties thereto will be, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as to the effect, if any, of (a) applicable bankruptcy and other similar laws affecting the rights of creditors generally and (b) rules of law governing specific performance, injunctive relief and other equitable remedies; provided, however, that the Company Ancillary Agreements will not be effective until the earlier of the Effective Time or the date provided for therein. This Agreement and the Stockholder Ancillary Agreements are, or when executed and delivered by the respective Stockholders and the other parties thereto will be, valid and binding obligations of such Stockholders enforceable against such Stockholders in accordance with their respective terms, except as to the effect, if any, of (a) applicable bankruptcy and other similar laws affecting the rights of creditors generally and (b) rules of law governing specific performance, injunctive relief and other equitable remedies; provided, however, that the Stockholder Ancillary Agreements will not be effective until the earlier of the Effective Time or the date provided for therein. 9 18 2.3 Capitalization. 2.3.1. Authorized/Outstanding Capital Stock. Set forth in Item 2.3.1 is the authorized capital stock of the Company and the shares of Company Common Stock issued and outstanding as of the Agreement Date and updated as of the Closing Date. No fractional shares of Company Common Stock are issued or outstanding and the Company holds no treasury shares. All issued and outstanding shares of the Company's capital stock have been duly authorized and validly issued, are fully paid and nonassessable, are not subject to any claim, lien, security interest, preemptive right, right of first refusal, right of first offer or right of rescission, and have been offered, issued, sold and delivered by the Company in compliance with all registration or qualification requirements (or applicable exemptions therefrom) of all applicable federal and state securities laws. A true and complete list of all holders of the Company's outstanding capital stock, and the total number of shares of Company Common Stock owned by each such holder as of the Agreement Date and updated as of the Closing Date is set forth in Item 2.3.1. Except as set forth in Item 2.3.1, no stockholder of the Company owes the Company any money or other consideration representing any part of the purchase price of any outstanding shares of the Company's capital stock, including without limitation any money due under a promissory note payable to the Company. The Company has no liability to any stockholder for any dividends that have been declared or accrued. 2.3.2 Options/Rights. The Company Options each set forth on Section 2.3.2, were each duly authorized and validly issued and, with respect to all the Company Options (other than the Teknekron Option) validly issued under the Option Plan. A true and complete list of all holders of Company Options that are outstanding on the Agreement Date, the number of Company Options held by each such holder, the exercise price and vesting schedule of each Company Option held by each such person and the name of the Stock Plan under which each such option was granted is set forth in Item 2.3.2. All Company Options shall be duly and validly accelerated prior to the Effective Time. Except for the Company Options as of the date of the Agreement, there are no other stock appreciation rights, options, warrants, convertible securities or other securities, calls, commitments, conversion privileges or preemptive or other rights or agreements outstanding to purchase or otherwise acquire (whether directly or indirectly) any of the Company's authorized but unissued capital stock; and there are no stock appreciation rights, options, warrants, convertible securities or other securities, calls, commitments, conversion privileges or preemptive or other rights or agreements to which the Company is a party involving the purchase or other acquisition (whether directly or indirectly) of any shares of the Company's capital stock. The Company has no liability for dividends accrued but unpaid and there are no voting agreements, voting trusts, registration rights, rights of first refusal or other restrictions (other than normal restrictions on transfer under applicable federal and state securities laws) applicable to any of the Company's outstanding securities. There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote. 2.4 Subsidiaries. The Company has no subsidiaries. Except as set forth in Item 2.4, the Company does not own, directly or indirectly, any equity interest in any corporation, partnership, joint venture or other business entity. 10 19 2.5 No Conflict. Neither the execution and delivery of this Agreement, any Company Ancillary Agreement or any Stockholder Ancillary Agreement, nor the consummation of the transactions provided for herein or therein, will conflict with, or (with or without notice or lapse of time, or both) result in a termination, breach, impairment or violation of, (a) any provision of the Articles of Incorporation or Bylaws of the Company as currently in effect, (b) any note, bond, lease, mortgage, indenture, license, franchise, permit, agreement, Contract (as defined in Section 2.11) or other instrument or obligation (whether oral or in writing) to which the Company or a Stockholder is a party or by which the Company or a Stockholder is bound or affected which termination, breach, impairment or violation would have a Material Adverse Effect on the Company or (c) any federal, state, local or foreign Order (as defined in Section 2.6.2), statute, rule, regulation or ordinance applicable to the Company or any of their respective assets or properties. The consummation of the Merger by the Company will not require any consent, release, waiver or approval other than (i) the approval of the Company's stockholders and (ii) the expiration of any applicable waiting periods regarding the Merger under the HSR Act, and will not materially adversely affect any of the rights, licenses, permits, franchises, leases, agreements or Contracts of the Company set forth in Item 2.11 pursuant to their terms other than as set forth in Item 2.5. Neither the Company's nor the Stockholders' entering into this Agreement nor the consummation of the Merger will give rise to or trigger the application of, any right of any third party that has not been waived by such third party in a writing signed by it. 2.6 Proceedings; Orders. 2.6.1 Except as set forth in Item 2.6, there is no pending action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding and any informal proceeding), prosecution, contest, hearing, inquiry, inquest, audit, examination or investigation, commenced, brought, conducted or heard by or before, or that otherwise has involved, any Governmental Body, arbitrator, arbitration panel or mediator ("Proceeding"), and to the best knowledge of the Company, no person or entity has threatened to commence any Proceeding: (i) that involves the Company or that otherwise relates to or likely would affect the Company's businesses or any of the assets or properties owned or used by the Company (whether or not the Company is named as a party thereto), except in each case for threatened Proceedings that would not, individually or in the aggregate, have a Material Adverse Effect on the Company; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions that are provided for in this Agreement, the Articles of Merger, the Company Ancillary Agreements, the Stockholder Ancillary Agreements, the Parent Ancillary Agreements (as defined below) or the Newco Ancillary Agreements (as defined below) (all such transactions, the "Transactions"). For purposes of this Agreement, "Parent Ancillary Agreements" shall mean all agreements to which Parent is or will be a party that are required to be executed pursuant to this Agreement, and "Newco Ancillary Agreements" shall mean all agreements to which Newco is or will be a party that are required to be executed pursuant to this Agreement. The Company has delivered to Parent true and complete copies of all pleadings, material correspondence and other written materials to which the Company has access that relate to the Proceedings identified in Item 2.6. "Governmental Body" shall mean any: (a) nation, principality, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; (c) governmental or quasi-governmental authority of 11 20 any nature (including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, board, instrumentality, officer, official, representative, organization, unit, body or entity and any court or other tribunal); (d) multinational organization or body; or (e) individual, entity or body exercising, or entitled to exercise, any executive, legislative, judicial, administrative, regulatory, police, military or taxing authority or power of any nature. 2.6.2 There is no order, judgment, injunction, edict, decree, ruling, pronouncement, determination, decision, opinion, verdict, sentence, subpoena, writ or award that is or has been issued, made, entered, rendered or otherwise put into effect by or under the authority of any court, administrative agency or Governmental Body, arbitrator, arbitration panel or mediator ("Order"), or proposed Order, expressly applicable to the Company or any of the assets or properties owned or used by the Company that (i) likely would have a Material Adverse Effect on the Company, or adversely affect the ability of the Company to comply with or perform any covenant or obligation under this Agreement, the Articles of Merger, the Company Ancillary Agreements, the Stockholder Ancillary Agreements, the Parent Ancillary Agreements or the Newco Ancillary Agreements (the "Transactional Agreements"); or (ii) may have the effect of preventing, delaying, making illegal or otherwise interfering with any of the Transactions. 2.6.3 To the best knowledge of the Company, no officer or employee of the Company is subject to any Order that prohibits such officer or employee from engaging in or continuing any conduct, activity or practice relating to the Company's business. 2.6.4 Except as set forth in Item 2.6.4, to the best knowledge of the Company, no event has occurred, and no claim, dispute or other condition or circumstance exists, that would reasonably be expected to cause or provide a basis for a director, officer, employee or other representative of the Company to seek indemnification from, or commence a Proceeding against or involving the Company. 2.7 Company Financial Statements. The Company has delivered to Parent the Company's audited balance sheet as of December 31, 1998 (the "Balance Sheet Date"), unaudited balance sheet as of March 31, 1999, and related statement of operations, statement of stockholders' equity and statement of cash flows for the year ended December 31, 1998 and for the quarter ended March 31, 1999 (collectively, the "Company Financial Statements"). Except as set forth in Item 2.7, each of the Company Financial Statements is derived from and in accordance with the books and records of the Company and has been prepared in conformity with GAAP consistent with prior periods, except as indicated in the notes thereto, except that unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end audit adjustments. The balance sheet as of the Balance Sheet Date presents fairly and accurately in all material respects the position of the Company at such date, and the related statements of the Company for the specified period then ended present fairly and accurately in all respects the results of operations and cash flows of the Company for such period. For the purposes of this Agreement, all Company Financial Statements referred to in this paragraph shall include any notes or schedules to such Company Financial Statements. Except as set forth in Item 2.7, at the Agreement Date the Company has no debt, liability or obligation of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, that is in excess of $50,000 in any one case or $250,000 in the aggregate, that is not reflected, reserved 12 21 against or disclosed in the Company Financial Statements. All reserves established by the Company and set forth in or reflected in the Company Financial Statements were adequate as of the date thereof, and to the best knowledge of the Company, are adequate. At the Balance Sheet Date, there were no material loss contingencies (as such term is used in Statement of Financial Accounting Standards No. 5 issued by the Financial Accounting Standards Board in March 1975) that are not adequately provided for in the Company Financial Statements as required by said Statement No. 5. 2.8 Taxes. The Company has filed all federal, state, local and foreign Tax and information returns and reports required to be filed prior to the Agreement Date, has paid all Taxes required to be paid in respect of all periods prior to the Agreement Date for which returns have been filed, has made all necessary estimated Tax payments, and has no liability for Taxes in excess of the amounts so paid, except to the extent adequate reserves have been established in the Company Financial Statements. All such returns and reports filed by the Company were accurate in all material respects as of their respective dates. True and complete copies of all Tax and information returns and reports filed by the Company for the last three years have been provided or made available by the Company to Parent. The Company is not delinquent in the payment of any Tax or in the filing of any Tax returns or reports, and no deficiencies for any Tax have been threatened, claimed, proposed or assessed that have not been settled or paid. Except as set forth in Item 2.8, no Tax return of the Company has ever been audited by the Internal Revenue Service or any Governmental Body or state or other national taxing agency or authority. The Company has made (A) accruals for Taxes on the balance sheet as of the Balance Sheet Date and (B) with respect to periods after the Balance Sheet Date, provisions on a periodic basis consistent with past practice on the Company's books and records or financial statements, in each case which are adequate to cover any Tax liability of the Company determined in accordance with GAAP through the Balance Sheet Date or the date of the provision, as the case may be, except where failures to make such accruals or provisions could not reasonably be expected to have, individually or in the aggregate, a material Adverse Effect on the Company. The Company is not a party to any agreement with a party other than the Company or providing for the allocation or payment of Tax liabilities or payment for Tax benefits with respect to a consolidated, combined or unitary return which return includes or included the Company. The Company has never been a member of an affiliated group of corporations within the meaning of Section 1504 of the Code. The Company has not agreed to make nor is it required to make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise. The Company is not, and has not at any time been, a "United States Real Property Holding Corporation" within the meaning of Section 897(c)(2) of the Code. The Company has not made any payments, is not obligated to make any payments, is not a party to any agreement that under certain circumstances could obligate it to make any payments, and has not entered into any transaction, including but not limited to the acceleration of Company options, that will not be deductible under Section 280G of the Code or would subject the Company to an excise tax under Section 280G of the Code, except for payments which will be cured by stockholder approval and are set forth in Item 2.8. The Company has no current or deferred federal income Tax liabilities, other than as disclosed in the Company Financial Statements, and will not as a result of the Merger become liable for any income Tax not adequately reserved against on the Company Financial Statements. The Company has not filed a consent pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subSection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the Company. The Company has 13 22 not executed or requested any waiver of any statute of limitation, or extending the period for, the collection or assessment of any Tax. If the Company becomes subject to an audit by the Internal Revenue Service or any state or other national taxing agency or authority for tax years or periods prior to the Effective Time (including, but not limited to, any short tax year resulting from the Merger), the Stockholders will be responsible for such audit(s) and shall resolve all such audits in a manner consistent with the intentions of the Company and Parent as expressed in this Agreement, provided Parent shall provide notice of any such audit and access to all relevant books and records and shall cooperate fully and in good faith with the Stockholders in connection with such audits. The terms "Tax" and "Taxes" include all federal, state, local and foreign income, gains, franchise, excise, property, sales, use, employment, license, payroll, occupation, recording, value added or transfer taxes, governmental charges, fees, levies or assessments (whether payable directly or by withholding), and, with respect to such taxes, any estimated tax, interest and penalties or additions to tax and interest on such penalties and additions to tax. 2.9 Title to Properties. Item 2.9 sets forth a true and complete list and brief description of each item of real and personal property owned or leased by the Company having a value in excess of $2,500. The Company has good and marketable title to, or a valid leasehold interest in, as applicable, all of the assets reflected on the Company Financial Statements, free and clear of all liens, security interests, mortgages, pledges, claims, charges, interests, or encumbrances of any kind other than as set forth on Item 2.9 or assets that are subject to capitalized leases. Except as set forth in Item 2.9, there are no UCC or other financing statements, mortgages, assignments or other documents or instruments on record with the State of Nevada or any other Governmental Body or authority naming the Company or any of its subsidiaries as debtor. Such assets and those set forth in Item 2.13.6 (A) are in all material respects in good operating condition and repair, normal wear and tear excepted, and (B) constitute all material properties, interests, assets and rights held for use or used in connection with the business of the Company and constitute all those necessary to continue to operate the business of the Company consistent with current practice. All leases of real or personal property to which the Company is a party are in full force and effect and afford the Company or such subsidiary peaceful and undisturbed possession of the subject matter of the lease. The Company does not own any real property. The Company is not in violation of any material zoning, building, safety or environmental ordinance, regulation or requirement or other law or regulation applicable to the operation of owned or leased properties, and the Company has not received any notice of such violation with which it has not complied or had waived. 2.10 Absence of Certain Changes. Since the Balance Sheet Date, the Company has carried on its business in the ordinary course in accordance with the procedures and practices in effect on the Balance Sheet Date, and except as set forth in Item 2.10, since the Balance Sheet Date there has not been with respect to the Company any: (a) material adverse change in the financial condition, properties, assets, liabilities, customer contracts or other customer arrangements, business, financial performance, results of operations or prospects; (b) debt, obligation, liability or indebtedness for borrowed money (whether absolute, accrued, contingent or otherwise, and whether due or to become due), including without limitation customer contracts and current obligations, incurred other than in 14 23 the ordinary course of business that exceeds $50,000 in any one case or $250,000 in the aggregate; (c) debt, obligation or liability incurred by the Company to any of its officers, directors, stockholders or affiliates, or any loans or advances made to any of its officers, directors, stockholders or affiliates, except normal compensation and expense allowances payable to officers; (d) payment, discharge or satisfaction of a lien or liability, which lien or liability was not either (i) shown on the balance sheet as of the Balance Sheet Date or (ii) incurred in the ordinary course of business after the Balance Sheet Date; (e) contingent liability incurred as guarantor or surety with respect to the debts, liabilities or obligations of others; (f) mortgage, deed of trust, security interest, pledge, lien, title retention device, collateral assignment, claim, interest, charge, restriction or other encumbrance of any kind on any of the assets or properties of the Company; (g) issuance or sale of any debt or equity securities of the Company, or any options, warrants or other rights to acquire from the Company, directly or indirectly, any debt or equity securities of the Company; (h) purchase, lease, license, assignment, sale or other disposition or transfer, or any agreement or other arrangement for the purchase, lease, license, assignment, sale or other disposition or transfer, of any of its properties or assets other than in the ordinary course of business ; (i) damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting its properties, assets or business; (j) cancellation of any debts to or claims of the Company, or any amendment, modification, termination or waiver of any rights of value to the Company in excess of $50,000 in any one case or $250,000 in the aggregate; (k) declaration, setting aside or payment of any dividend on, or the making of any other distribution in respect of, the capital stock of the Company, any split, subdivision, stock dividend, combination or recapitalization of the capital stock of the Company or any direct or indirect redemption, purchase or other acquisition by the Company of the capital stock of the Company; (l) labor dispute or claim of unfair labor practices, any change in the compensation payable or to become payable to any of the Company's officers, employees or agents, or any bonus payment or compensation arrangement made to or with any of such officers, employees or agents (except as previously disclosed in writing to and approved in writing by Parent) other than normal bonuses or compensation increases noted on Item 2.10(l); (m) termination of employment with respect to its management, supervisory, development or other key personnel (a true and complete list of all management, 15 24 supervisory, development and other key personnel of the Company as of the Agreement Date has been provided to Parent); (n) amendment or change in the Articles of Incorporation or Bylaws or equivalent charter documents of the Company; (o) entering into, amendment, modification, waiver, relinquishment, termination or non-renewal by the Company of any Contract (as defined in Section 2.11) other than in the ordinary course of its business or any written or oral indication or assertion by the other party thereto of any material problems with the Company's services or performance under such Contract or of such other party's demand to amend, modify, terminate or not renew any such Contract; (p) material change in the manner in which the Company extends discounts, credits or warranties to customers or otherwise deals with its customers; (q) entering into by the Company of any Contract (i) that requires or contemplates a current and/or future financial commitment, expense or obligation on the part of the Company involving in excess of $100,000, or (ii) that is not entered into in the ordinary course of the Company's business and is in an amount involving in excess of $10,000 individually or $100,000 in the aggregate; (r) license, transfer or grant of a right with respect to Company Intellectual Property (as defined in Section 2.13), other than those licensed, transferred or granted in the ordinary course of the Company's business consistent with its past practices; (s) the Company has not (i) received any Acquisition Proposal (as defined in Section 4.9), or (ii) solicited, initiated, encouraged or induced, or provided any nonpublic information to or entered into any discussions with any person or entity for the purpose of soliciting, initiating, encouraging or inducing, the making or submission of any Acquisition Proposal; (t) the Company has not formed any subsidiary or acquired any equity interest or other interest in any other entity; (u) the Company has not made any capital expenditures outside the ordinary course of business, except for such capital expenditures as in the aggregate, measured by invoice amount, do not exceed $100,000 or were consented to by Parent in writing; or (v) agreement, whether in writing or otherwise, to take any of the actions specified in the foregoing items (a) through (u). 2.11 Agreements and Commitments. Except as set forth in Item 2.11, or otherwise provided to Parent in its due diligence review of the Company, the Company is not a party or subject to any oral or written agreement, contract, lease, license, assignment, mortgage, instrument, transaction, quotation, obligation or commitment ("Contract"), including but not limited to the following: 16 25 (a) any Contract entered into after January 1, 1997 providing for payments (whether fixed, contingent or otherwise) by or to the Company in an aggregate amount of $250,000 or more under which the Company currently has any executory obligations (other than the Company's standard form indemnity or warranty obligations); (b) any material Contract entered into by the Company with respect to the grant, purchase, sale, license, transfer or encumbrance of Intellectual Property Rights (as defined in Section 2.13) of any kind, including but not limited to the Company Intellectual Property, except for "shrink wrap" licenses (all forms of which have been provided to Parent); (c) any Contract for the purchase, sale, lease, license or transfer of real or personal property providing for payments (whether fixed, contingent or otherwise) in excess of $50,000 per year other than purchase orders entered into in the ordinary course of business; (d) any dealer, distributor, sales representative, original equipment manufacturer (OEM), value added remarketer or other Contract for the production, distribution or marketing of the Company's products or services; (e) any franchise agreement, financing statement, mortgage or security agreement; (f) any Contract with respect to the redemption or purchase of the Company's capital stock other than purchase agreements relating to Company Options or Company Common Stock issued under stock plans; (g) any joint venture agreement or arrangement or any other Contract that involves a sharing of profits with, or the payment of royalties to, any other person or entity in an aggregate amount of $75,000 or more; (h) any instrument evidencing indebtedness for borrowed money by way of direct loan, sale of debt securities, purchase money obligation, conditional sale, guarantee or otherwise, except for trade indebtedness of the Company incurred or made in the ordinary course of business, and except as disclosed in the Company Financial Statements; (i) any Contract containing covenants limiting or purporting to limit the Company's freedom to compete at any time in any line of business in any geographic area; (j) any Contract relating to the employment or compensation of any director, officer, employee, consultant or other agent of the Company; (k) any Contract between the Company and any Stockholder or affiliate; or (l) any Contract that is otherwise material to the Company, or entered into other than in the ordinary course of business and involving a payment of more than $50,000. The Company has provided Parent with true and complete copies of each of the Contracts set forth in Item 2.11 (collectively, the "Company Agreements"), which Item 2.11 is 17 26 true and complete. All Company Agreements are valid, binding and enforceable against the parties thereto and in full force and effect. 2.12 No Default; No Consent Required; No Restrictions. The Company is not in any respect in breach of or default under any Company Agreement which breach or default would have a Material Adverse Effect on the Company. Except as set forth in Item 2.12, the Company has not received any notice or other communication regarding any such actual or possible breach of, or default under, any Company Agreement. The Company does not have any liability for renegotiations of government Contracts or subcontracts. Except as set forth in Item 2.12, no consent, waiver, or approval of any third party is required to ensure that, following the Effective Time, any Company Agreement will continue to be in full force and effect without any breach, default or violation thereof caused by virtue of the Merger or by any of the Transactions or Transactional Agreements. Except as set forth in Item 2.12, the Company is not a party to, and no asset or property of the Company is bound or affected by, any Order, Contract, covenant or agreement (noncompete or otherwise) that restricts or prohibits (or purports to restrict or prohibit) the Company from making material acquisitions of property or freely engaging at any time in any business now conducted by any of them or from competing anywhere in the world (including without limitation any Orders, Contracts, covenants or agreements restricting the geographic area in which the Company may sell, license, market, distribute or support any products or technology or provide services, or restricting the markets, customers or industries that the Company may address in operating their respective businesses), or includes any grants by the Company of exclusive licenses. 2.13 Intellectual Property. 2.13.1 The Company owns, or has the valid right or license to use, possess, sell or license, all Intellectual Property Rights necessary or required for the conduct of the business of the Company as presently conducted and as presently proposed to be conducted (such Intellectual Property Rights being hereinafter collectively referred to as the "Company Intellectual Property"), and such Intellectual Property Rights to use, possess, sell or license are sufficient for such conduct of such business as presently conducted. As used herein, the term "Intellectual Property Rights" means, collectively, all worldwide industrial and intellectual property rights, including, without limitation, patents, patent applications, patent rights, trademarks, trademark registrations and applications therefor, trade dress rights, trade names, service marks, service mark registrations and applications therefor, copyrights, copyright registrations and applications therefor, mask work rights, mask work registrations and applications therefor, inventions, trade secrets, know-how, customer lists, supplier lists, proprietary processes and formulae, software source and object code, algorithms, architectures, structures, screen displays, layouts, inventions, development tools, designs, blueprints, specifications, technical drawings (or similar information in electronic format) and all documentation and media constituting, describing or relating to the above, including, without limitation, manuals, programmers' notes, memoranda and records. 2.13.2 Except for required consents disclosed in Item 2.13.2, the execution, delivery and performance of this Agreement, the Articles of Merger and the consummation of the Merger and the other Transactions contemplated hereby and/or by the Company Ancillary Agreements will not constitute a material breach of or default under any Contract, license or other agreement governing any Company Intellectual Property to which the 18 27 Company is a party (collectively, the "Company Intellectual Property Agreements"), will not cause the forfeiture or termination of, or give rise to a right of forfeiture or termination of, any Company Intellectual Property or materially impair the right of the Company, Parent or the Surviving Corporation to use, possess, sell or license any Company Intellectual Property or portion thereof. There are no royalties, honoraria, fees or other payments payable by the Company to any third person by reason of the ownership, use, possession, license, sale or disposition of any Company Intellectual Property by the Company and none will become payable as a result of the consummation of the transactions contemplated by this Agreement. 2.13.3 Neither the manufacture, marketing, license, sale, furnishing or intended use of any product or service currently licensed, utilized, sold, provided or furnished by the Company or currently under development by the Company violates any license or Contract between the Company and any third party or infringes or misappropriates any Intellectual Property Right of any other party; and there is no pending or, to the knowledge of the Company, threatened claim or litigation contesting the validity, ownership or right of the Company to use, possess, sell, license or dispose of any Company Intellectual Property nor, to the knowledge of the Company, is there any basis for any such claim, nor has the Company received any notice asserting that any Company Intellectual Property or the proposed use, sale, license or disposition thereof conflicts or will conflict with the rights of any other party, nor, to the knowledge of the Company, is there any basis for any such assertion. To the best knowledge of the Company, no third party has infringed or misappropriated any Company Intellectual Property, except as disclosed to Parent in writing. 2.13.4 To the best knowledge of the Company, no current or former employee of or consultant to the Company is in violation of any material provision of any employment contract, patent disclosure agreement, non-competition agreement, non-solicitation agreement or any other Contract, or any restrictive covenant relating to the right of any such employee to be employed by the Company, or to use trade secrets or proprietary information of others, and the employment of such employees or consultants by the Company does not subject the Company to any liability. 2.13.5 The Company has taken all reasonable and practicable steps, consistent with industry standards, to protect, preserve and maintain the secrecy and confidentiality of the Company Intellectual Property and all the Company's proprietary rights therein. Except as disclosed in Item 2.13.5, all current and former officers, employees and consultants of the Company having access to proprietary information have executed and delivered to the Company an agreement regarding the protection of such proprietary information and the assignment of inventions to the Company and to the best knowledge of the Company, no current or former officer, employee or consultant is in violation of any provision thereof; and copies of the form of all such agreements have been delivered to Parent's counsel. The Company has secured valid written assignments from all consultants, contractors and employees who were involved in, or who contributed to, the creation or development of any Company Intellectual Property of the rights to such contributions that the Company does not already own by operation of law. No current or former employee, officer, director, consultant or independent contractor of the Company has any right, license, claim or interest whatsoever in or with respect to any Company Intellectual Property. 19 28 2.13.6 Item 2.13.6 contains a complete list of (i) all worldwide registrations of any patents, copyrights, mask works, trademarks and services marks with any Governmental Body; (ii) all applications, registrations, filings and other formal actions made or taken pursuant to federal, state and foreign laws by the Company to secure, perfect or protect its interest in the Company Intellectual Property, including, without limitation, all patent applications, copyright applications, and applications for registration of trademarks and service marks; and (iii) all unregistered copyrights, trademarks and service marks. All patents, and all registered trademarks, service marks and copyrights held by the Company are valid, enforceable and subsisting. The Company owns all right, title and interest in and to all such Company Intellectual Property free and clear of all security interests, liens, pledges, mortgages, assignments, claims, licenses, restrictions and encumbrances. 2.13.7 Item 2.13.7 contains a complete list of (i) all licenses, sublicenses and other Contracts as to which the Company is a party and pursuant to which any person is authorized to use any Company Intellectual Property, and (ii) all licenses, sublicenses and other Contracts as to which the Company is a party and pursuant to which the Company is authorized to use any third party patents, trademarks or copyrights, including but not limited to software ("Third Party Intellectual Property") which (x) but for such Contracts would be infringed by, or (y) are incorporated in, or form a part of, any product or service sold, licensed, distributed, provided or marketed by the Company. 2.13.8 Neither the Company, nor any other party acting on its behalf, has disclosed or delivered to any party, or permitted the disclosure or delivery to any escrow agent or other party of any Company Source Code. No event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or would reasonably be expected to, result in the disclosure or delivery to any party of any the Company Source Code. Item 2.13.8 identifies each Contract (whether written or oral) pursuant to which the Company has deposited, or is or may be required to deposit, with an escrowholder or any other party, any the Company Source Code and further describes whether the execution of this Agreement or the consummation of the Merger or any of the other transactions contemplated hereby, in and of itself, would reasonably be expected to result in the release from escrow of any the Company Source Code. As used in this Section 2.13.8, "the Company Source Code" means, collectively, any source code, or any material portion or aspect of the source code, or any material proprietary information or algorithm contained in or relating to any source code, of any Company Intellectual Property or any other product marketed by the Company. 2.13.9 Except as set forth in Item 2.13.9, to the Company's knowledge, all software developed by the Company and licensed by the Company to customers and all other products manufactured, sold, licensed, leased or delivered by the Company to customers and all services provided by the Company to customers on or prior to the Closing Date conform in all material respects to applicable contractual commitments, express and implied warranties, product specifications and product documentation and to any representations provided to customers and the Company has no material liability (and, to the best of Company's knowledge, there is no basis for any present or future action, suit, Proceeding, charge, complaint, claim or demand against the Company giving rise to any liability that could have a Material Adverse Effect on the Company) for replacement or repair thereof or other damages in connection therewith in excess of any reserves therefor reflected on the Company Financial Statements. During the six (6) month period ended on March 31, 1999, the Company has not experienced any product or 20 29 service warranty claims that were materially greater than the amount of the same type of claims experienced for the six (6) month period ended September 30, 1998. Since January 1, 1996, the Company has not had any of its products returned by a purchaser thereof except for normal warranty returns consistent with past history and those returns that would not result in a reversal of any material amount of revenue recognized by the Company on any of its financial statements from such purchases. The Company is not under any liability or obligation, and no such outstanding claim has been made, with respect to the return of inventory or products in the possession of customers, licensees, distributors, retailers, or end-users, except such liabilities, obligations and claims as, in the aggregate, do not exceed $100,000. 2.13.10 No government funding or university or college facilities were used in the development of the computer software programs or applications owned by the Company. 2.13.11 All versions of the software products currently being developed, licensed, marketed or distributed by the Company are (and, to the Company's knowledge, any third party software included in any such products is) Year 2000 Ready. To the extent that older versions of the Company's products are not Year 2000 Ready: the Company has no contractual obligations to make such older versions Year 2000 Ready; customers using any of such older versions have been informed of upgrade paths to products that are Year 2000 Ready, and such upgrades are available; and the failure of such customers to upgrade to Year 2000 Ready versions of such software products will not directly or indirectly have a Material Adverse Effect on the Company. "Year 2000 Ready" means, as applied to a software product, that: (i) such software product has been tested by the Company and found to be Y-2000 Compliant (as defined in Section 2.28) or, only as to software products which Company only markets or distributes, has been represented and warranted to the Company, in writing, by the developer or owner thereof as being Y-2000 Compliant, which written representations and warranties have been provided to Parent; and (ii) accurately processes date and/or time-dependent data (including, but not limited to, calculating, comparing and sequencing) from, into, throughout and between the 20th and 21st centuries (through 2035), the years 1999 and 2000, and leap year calculations (year 2000 is a leap year); and (iii) when used in combination with other information technology, such software product will accurately process date and/or time-dependent data if the other information technology generates accurate date and/or time output. 2.14 Compliance with Laws. The Company has complied and is in compliance with all applicable laws, statutes, ordinances, regulations and rules, and all Orders applicable to the Company or to its assets, properties and business, including, without limitation: (a) all applicable federal and state securities laws and regulations; (b) all applicable federal, state and local laws, statutes, ordinances, rules and regulations, and all Orders pertaining to (i) the sale, licensing, leasing, ownership or management of the Company's owned, leased or licensed real or personal property, Company Intellectual Property, products or technical data, (ii) employment or employment practices, terms and conditions of employment, or wages and hours or (iii) safety, health, fire prevention, environmental protection (including toxic waste disposal and related matters described in Section 2.21), building standards, zoning or other similar matters; (c) the Export Administration Act and regulations promulgated thereunder or other laws, regulations, rules or Orders applicable to the export or re-export of controlled commodities or technical data; or (d) the Immigration Reform and Control Act, except in each case where the failure to so comply would not have a Material Adverse Effect on the Company. The Company has received 21 30 all licenses, permits and approvals from, and has made all filings with, third parties, including Governmental Bodies and authorities, necessary to conduct its business as presently conducted, all of which licenses, permits and approvals are set forth in Item 2.14, except licenses, permits, approvals and filings, the absence of which, individually or in the aggregate, would not have a Material Adverse Effect on the Company. 2.15 Certain Transactions and Agreements. Except as set forth in Item 2.15, no person who is an officer, director, employee or stockholder of the Company, or a member of any such person's immediate family, has any direct or indirect ownership interest in, or any employment or consulting agreement with, any entity that competes with the Company or Parent (except with respect to any interest in less than 1% of the outstanding voting shares of any corporation whose stock is publicly traded). Except as set forth in Item 2.15, no person who is an officer, director, employee or stockholder of the Company, or any member of any such person's immediate family, is directly or indirectly interested in any Contract or informal arrangement with the Company, including, without limitation, any loan arrangements, except for compensation for services as an officer, director or employee of the Company and except for the normal rights of a stockholder or optionholder. Except as set forth in Item 2.15, none of such officers, directors, employees or stockholders or family members has any interest in any property, real or personal, tangible or intangible, including, without limitation, inventions, patents, copyrights, trademarks, trade names or trade secrets, used in the business of the Company. With regard to stockholders of the Company that are not Significant Stockholders, the Company makes the representations and warranties set forth in this Section 2.15 to the best of its knowledge. 2.16 Employees. 2.16.1 To the best knowledge of the Company, the Company is in compliance in all material respects with all applicable laws, agreements and Contracts relating to employment, employment practices, wages, hours, and terms and conditions of employment, including, but not limited to, employee compensation matters. Except as set forth in Items 2.16.1 and 2.16.4 or as previously provided to Parent, the Company does not have any employment contracts or consulting agreements currently in effect that are not terminable at will (other than agreements with the sole purpose of providing for the confidentiality of proprietary information or assignment of inventions). All independent contractors have been properly classified as independent contractors for the purposes of federal and applicable state tax laws, laws applicable to employee benefits and other applicable law, except where the failure to be so classified, in the aggregate, results in actual or potential liability to the Company of no more than $100,000. 2.16.2 The Company is not: (i) nor has ever been, subject to a union organizing effort; (ii) subject to any collective bargaining agreement with respect to any of its employees; (iii) subject to any other Contract, written or oral, with any trade or labor union, employees' association or similar organization; or (iv) the subject of any current labor disputes that would materially impair the operations of the Company's business. The Company has good labor relations, and the Company has no knowledge of any facts indicating that the consummation of the Merger or any of the other transactions contemplated hereby will adversely impact such labor relations in a material manner. As of the Agreement Date, the Company has no knowledge that any of its employees having an annual salary in excess of $50,000 intends to leave his or her employ. There are no controversies pending or, to the best knowledge of the 22 31 Company, threatened, between the Company (on the one hand) and any of its employees (on the other hand) that would be reasonably likely to result in the Company incurring any material liability. All of the employees of the Company employed in the United States of America are legally permitted to be employed by the Company in the United States of America. 2.16.3 The Company has no pension plan which constitutes, or has since the enactment of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), constituted, a "multiemployer plan" as defined in Section 3(37) of ERISA. No pension plan of the Company is subject to Title IV of ERISA. 2.16.4 Except as set forth in Item 2.16.4, the Company has previously delivered to Parent each employment, severance or other similar Contract, arrangement or policy, each "employee benefit plan" as defined in Section 3(3) of ERISA and each plan or arrangement (written or oral) providing for insurance coverage (including any self-insured arrangements), workers' benefits, vacation benefits, severance benefits, disability benefits, death benefits, hospitalization benefits, retirement benefits, deferred compensation, profit-sharing, bonuses, stock options, stock purchase, phantom stock, stock appreciation or other forms of incentive compensation or post-retirement insurance, compensation or benefits for employees, consultants or directors which has been entered into, maintained or contributed to by the Company since January 1, 1994. Such Contracts, plans and arrangements as are described in Item 2.16.4 are hereinafter collectively referred to as "Company Benefit Arrangements." To the best knowledge of the Company, except as otherwise described in Item 2.16.4, each Company Benefit Arrangement has been maintained in compliance in all material respects with its terms and with the requirements prescribed by any and all laws, statutes, Orders, rules and regulations that are applicable to such Company Benefit Arrangement, and each such Company Benefit Arrangement that is an "employee pension benefit plan" as defined in Section 3(2) of ERISA that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter that such plan satisfied the requirements of the Tax Reform Act of 1986 (a copy of which letter(s), if any, have been delivered to Parent and its counsel) or has been applied for and is currently pending a favorable determination letter that such plan satisfies the Tax Reform Act of 1986. The Company has delivered to Parent and its counsel a true and complete copy and description of each Company Benefit Arrangement. The Company has timely filed and delivered to Parent and its counsel the most recent annual report (Form 5500) for each Company Benefit Arrangement that is an "employee benefit plan" as defined under ERISA that is subject to such requirements. To the best knowledge of the Company, the Company has never been a participant in any "prohibited transaction," within the meaning of Section 406 of ERISA with respect to any employee pension benefit plan (as defined in Section 3(2) of ERISA) which the Company sponsors as employer or in which Company participates as an employer, which was not otherwise exempt pursuant to Section 408 of ERISA (including any individual exemption granted under Section 408(a) of ERISA), or which could result in an excise tax under the Code. All contributions due from the Company as of the date of the most recent balance sheet provided by the Company to Parent with respect to any of the Company Benefit Arrangements have been made or have been accrued on such balance sheet and no further contributions will be due or will have accrued thereunder as of the Closing Date other than amounts consistent with the amounts paid or accrued in the periods reflected on such balance sheet. All individuals who, pursuant to the terms of any Company Benefit Arrangement, are entitled to participate in any such Company 23 32 Benefit Arrangement, are currently participating in such Company Benefit Arrangement or have been offered an opportunity to do so and have declined. 2.16.5 There has been no amendment to, written interpretation or announcement (whether or not written) by the Company relating to, or change in employee participation or coverage under, any Company Benefit Arrangement that would increase materially the expense of maintaining such Company Benefit Arrangement above the level of the expense incurred in respect thereof for the Company's fiscal year ended December 31, 1998. 2.16.6 To the best knowledge of the Company, the group health plans (as defined in Section 4980B(g) of the Code) that benefit employees of the Company are in compliance, in all material respects, with the continuation coverage requirements of Section 4980B of the Code as such requirements affect the Company and its employees. As of the Closing Date, there will be no material outstanding, uncorrected violations under the Consolidation Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), with respect to any of the Company Benefit Arrangements, covered employees, or qualified beneficiaries. 2.16.7 Except as otherwise described in Item 2.16.7 or as set forth in Item 2.8, no benefit payable or which may become payable by the Company pursuant to any Company Benefit Arrangement or as a result of or arising under this Agreement or the other Transactional Agreements will constitute an "excess parachute payment" (as defined in Section 280G(b)(1) of the Code) which is subject to the imposition of an excise tax under Section 4999 of the Code or which would not be deductible by reason of Section 280G of the Code. Except as set forth on Item 2.16.7, the Company is not a party to any: (i) Contract with any executive officer or other key employee thereof (A) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company in the nature of the Merger or any of the other Transactions or any Transactional Agreements, (B) providing any term of employment or compensation guarantee, or (C) providing severance benefits or other benefits after the termination of employment of such employee regardless of the reason for such termination of employment; or (ii) Contract or plan, including, without limitation, any stock option plan, stock appreciation rights 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 the Merger or any of the other Transactions or any Transactional Agreements, or the value of any of the benefits of which will be calculated on the basis of any of the Transactions or any Transactional Agreements. 2.16.8 To the Company's knowledge, no current or former employee, consultant or independent contractor of the Company: (i) is in violation of any term or covenant of any employment contract, patent disclosure agreement, noncompetition or nondisclosure agreement or any other Contract or agreement with, or obligation to, any other party by virtue of such employee's, consultant's, or independent contractor's being employed by, or performing services for, the Company or using trade secrets or proprietary information of others; or (ii) has developed any technology, software or other copyrightable, patentable, or otherwise proprietary work for the Company that is subject to any Contract under which such employee, consultant or independent contractor has assigned or otherwise granted to any third party any rights or interest (including without limitation Company Intellectual Property) in such technology, software or other copyrightable, patentable or otherwise proprietary work, except for technology developed 24 33 by the Company specifically for its customers pursuant to development contracts entered into by the Company in the ordinary course of its business, which provide for retention of such technology and the related intellectual property rights by such customers. To the Company's knowledge, the employment of any employee of the Company does not subject the Company or to any liability to any third party. 2.16.9 There are no material pending claims against the Company under any workers' compensation plan or policy or for long-term disability benefits. 2.17 Corporate Documents. The books of account, stock records, minute books and other records of the Company are accurate, up to date and complete in all material respects, have been maintained in accordance with sound and prudent business practices and accurately and fairly reflect in all material respects the basis for the Company Financial Statements. All of the records of the Company are in the actual possession and direct control of the Company. The Company has made available to Parent for examination all documents and information listed in Items 2.1 through 2.23 and 2.30 or other exhibits called for by this Agreement that have been requested by Parent or its legal counsel, including, without limitation, the following: (a) copies of the Company's Articles of Incorporation or Bylaws as currently in effect; (b) the Company's minute book containing all records of all proceedings, consents, actions and meetings of its directors and stockholders; (c) the Company's stock ledger, journal and other records reflecting all stock issuances and transfers; and (d) all permits, Orders and consents issued by any regulatory agency or other Governmental Body with respect to the Company, or any securities of the Company, and all applications for such permits, Orders and consents. 2.18 No Brokers. Neither the Company nor any affiliate of the Company is obligated for the payment of any fees or expenses of any investment banker, broker, finder or similar party in connection with the origin, negotiation or execution of this Agreement or the Articles of Merger or in connection with the Merger or any other transaction contemplated by this Agreement, and Parent will not incur any liability to any such investment banker, broker, finder or similar party as a result of, this Agreement, the Merger or any act or omission of the Company or any of its employees, officers, directors, stockholders, agents or affiliates. 2.19 Bank Accounts. Item 2.19 sets forth a true and complete list of (i) all bank accounts and safe deposit boxes of the Company and all persons who are signatories thereunder or who have access thereto and (ii) the names of all persons holding general or special powers-of-attorney from the Company and a summary of the terms thereof. 2.20 Insurance. During the prior two years, the Company has maintained, and now maintains, policies of insurance and bonds of the type and in amounts customarily carried by persons or entities conducting businesses or owning assets similar in type and size to those of the Company. There is no claim pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been timely paid and the Company is otherwise in compliance with the terms of such policies and bonds. The Company has no knowledge of any threatened termination of any of such policies or bonds. All policies of insurance and bonds now held by the Company are set forth in Item 2.20 or have been delivered to Parent together with the name of the insurer under each policy, the policy coverage amount and any pending claims under the policy. 25 34 2.21 Environmental Matters. 2.21.1 To the best knowledge of the Company, during the period that the Company has owned or leased the premises occupied by it since the date of its organization, including the premises currently occupied by it, there have been no disposals, releases or threatened releases of Hazardous Materials on any such premises that might have a Material Adverse Effect on the Company. Neither the Company nor any Stockholder has any knowledge of any presence, disposals, releases or threatened releases of Hazardous Materials on or from any of such premises, which may have occurred prior to the Company having taken possession of any of such premises that would have a Material Adverse Effect on the Company. For purposes of this Agreement, the terms "disposal," "release," and "threatened release" have the definitions assigned thereto by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA"). For the purposes of this Section 2.21, "Hazardous Materials" mean any hazardous or toxic substance, material or waste that is or becomes prior to the Closing Date regulated under, or defined as a "hazardous substance," "pollutant," "contaminant," "toxic chemical," "hazardous material," "toxic substance" or "hazardous chemical" under (i) CERCLA; (ii) the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001 et seq.; (iii) the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.; (iv) the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; (v) the Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 et seq.; (vi) regulations promulgated under any of the above statutes; or (vii) any applicable state or local law, statute, ordinance, rule or regulation that has a scope or purpose similar to those identified above. 2.21.2 To the best knowledge of the Company, during the time that the Company has owned or leased such premises, none of the premises currently owned or leased by the Company or any premises previously occupied by the Company has been or is in material violation of any federal, state or local law, statute, ordinance, rule, regulation or Order relating to industrial hygiene or to the environmental conditions in such premises. 2.21.3 To the best knowledge of the Company, during the time that the Company has owned or leased the premises currently occupied by it or any premises previously occupied by the Company, neither the Company, nor, to the Company's knowledge, any third party, has used, generated, manufactured or stored in such premises or transported to or from such premises any Hazardous Materials that would have a Material Adverse Effect on the Company. 2.21.4 To the best knowledge of the Company, during the time that the Company has owned or leased the premises currently occupied by it or any premises previously occupied by the Company, there has been no Proceeding brought or threatened in writing against the Company, or any settlement reached by the Company with any party or parties alleging the presence, disposal, release or threatened release of any Hazardous Materials on, from or under any of such premises. 2.21.5 To the best knowledge of the Company, during the time that the Company has owned or leased the premises currently occupied by it or any premises previously occupied by the Company, no Hazardous Materials have been transported from such premises to 26 35 any site or facility now listed or proposed for listing on the National Priorities List, at 40 C.F.R. Part 300, or any list with a similar scope or purpose published by any state authority. 2.22 Customers. The Company has made available to Parent a true and complete list of the names with the dollar value of sales to each of the customers of the Company having aggregate annual sales of $50,000 or more in any calendar year since January 1, 1996. Except as set forth in Item 2.22, the Company has no outstanding disputes with any such customer, except where the failure to resolve such dispute would not have a Material Adverse Effect on the Company. 2.23 Accounts Receivable; Accounts Payable. 2.23.1 Item 2.23.1 sets forth a true and complete aged list of unpaid accounts and notes receivable owing to the Company, all of which are, and all receivables generated from the Agreement Date through the Closing Date will be, collectible in full in the ordinary course of business except to the extent that reserves have been established in the Company Financial Statements or are set forth in Item 2.23.1, which reserves, to the best knowledge of the Company, are sufficient. No such account has been assigned or pledged to any other person or entity and no defense or setoff to any such account has been asserted by the account obligor. 2.23.2 Item 2.23.2 sets forth a true and complete list of all accounts payable of the Company in an amount in excess of $10,000 as of March 31, 1999. 2.24 Voting Agreement; Proxies. The Significant Stockholders (other than Teknekron Corporation) have executed Voting Agreements, and the Irrevocable Proxies attached thereto as Exhibit A ("Proxies"). If Teknekron Corporation exercises the Teknekron Option in whole or in part, then upon the request of Parent, Teknekron Corporation will execute and deliver to Parent a Voting Agreement and Irrevocable Proxy within three (3) days of such request. 2.25 Vote Required. The affirmative vote of the holders of a majority of the shares of Company Common Stock that are issued and outstanding on the Record Date voting together as a single class is the only vote of the holders of any of the shares of the Company's capital stock necessary to approve this Agreement, the Merger, the Articles of Merger and the other Transactions. As used in this Section 2.25, the term "Record Date" means the record date for determining those stockholders of the Company who are entitled to vote at the Company Stockholders' Meeting (as defined in Section 4.4) or at any action taken by written consent of the Company's stockholders without a meeting under applicable law. 2.26 Board Approval. The Board of Directors of the Company has unanimously (i) duly approved this Agreement, the Articles of Merger and the Merger, and (ii) determined that the Merger is in the best interests of the stockholders of the Company and is on terms that are fair to such stockholders. 2.27 No Existing Discussions. Neither the Company nor any director, officer, stockholder, employee or agent of the Company is engaged in any way, directly or indirectly, in 27 36 any discussions, communications or negotiations with any third party relating to any Acquisition Proposal (as defined in Section 4.10). 2.28 Year 2000 Compliance. The Company is conducting a comprehensive review of all operating codes, programs, utilities and other software, as well as all hardware and systems, utilized by the Company (collectively, "Systems") to determine whether such Systems are designed or have been remediated to record, store, process and present dates on or after January 1, 2000 ("Millennial Dates") in the same manner, and with the same functionality, as provided on or before December 31, 1999, and are designed to not lose functionality or degrade in performance as a consequence of such software operating at a Millennial Date (such design and performance being referred to as "Y-2000 Compliant"). The Systems that have been tested by the Company as of the Agreement Date are identified in Item 2.28 and were either Y-2000 Compliant, or made to be Y-2000 Compliant, and the Company warrants the Y-2000 Compliant status thereof. If any Systems tested to date are or were not fully Y-2000 Compliant, such non-compliant Systems, or subparts thereof, are: (a) currently being modified, remediated, repaired, replaced, or otherwise made fully Y-2000 Compliant by the Company, and the scope and projected expense of said remediation is set forth in Item 2.28; or (b) such non-compliant Systems, or subparts thereof, are being superseded or phased out according to a written plan and schedule for system reorganization that is set forth in Item 2.28. To the best knowledge of the Company, all material vendors and suppliers to the Company are Y-2000 Compliant. 2.29 Disclosure. 2.29.1 No statement made by the Company or the Stockholders in either this Agreement, its exhibits and the Company Disclosure Letter, nor any of the certificates to be delivered by the Company or the Stockholders to Parent under this Agreement, taken together, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which such statements were made, not misleading. 2.29.2 None of the information supplied or to be supplied by or on behalf of the Company or the Stockholders for inclusion or incorporation by reference in any statement, recommendation, proposal or document provided to the stockholders of the Company, at the time of the Company Stockholders' Meeting (as defined in Section 4.4) or as of the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. 2.30 Knowledge. As used in this Agreement, the term "knowledge" or "best knowledge" of the Company and/or the Stockholders shall mean the actual knowledge, after reasonable investigation, of any of the persons listed in Schedule 2.30. 2.31 Material Adverse Effect. As used with respect to the Company, Material Adverse Effect shall mean any event, change or effect that is (or will with the passage of time be) materially adverse to the financial condition, properties, assets, liabilities, employee base, business, prospects, operations or results of operations of the Company. 28 37 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO. Parent and Newco hereby represent and warrant to the Company that except as may be set forth in a Parent disclosure letter delivered by Parent to the Company prior to the execution of this Agreement (the "Parent Disclosure Letter"; for all purposes of this Agreement, the statements contained in the Parent Disclosure Letter shall also be deemed to be representations and warranties made and given by the Parent under Article 3 of this Agreement), including items in the Parent Disclosure Letter referred to as "Items" below, each of the following representations, warranties and statements in this Article 3 are true and accurate as of the Agreement Date and will be true and accurate as of the Closing Date: 3.1 Organization and Good Standing. Parent is a corporation duly organized, validly existing and in good standing under California Law and has the corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted and as proposed to be conducted. Newco is a corporation duly organized, validly existing and in good standing under Delaware Law and has the corporate power and authority to own, operate and lease its properties and to carry on its business as proposed to be conducted. Newco has not engaged in any business activity except for matters relating to its organization and the approval of this Agreement and the transactions contemplated herein. Parent has delivered to the Company true and complete copies of the currently effective Articles of Incorporation and Bylaws of Parent and Newco. Neither Parent nor Newco is in violation of its Articles of Incorporation or Bylaws. 3.2 Power, Authorization and Validity. 3.2.1 Power and Authority. Parent has the corporate right, power, legal capacity and authority to enter into and perform its obligations under this Agreement and the Parent Ancillary Agreements and the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and the Parent Ancillary Agreements have been duly and validly approved and authorized by all necessary corporate action on the part of Parent. Newco has the corporate right, power, legal capacity and authority to enter into and perform its obligations under this Agreement and all agreements to which Newco is or will be a party that are required to be executed pursuant to this Agreement (the "Newco Ancillary Agreements") and the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and the Newco Ancillary Agreements have been duly and validly approved and authorized by all necessary corporate action on the part of Newco. 3.2.2 No Consents. No filing, authorization, approval or consent, governmental or otherwise, is necessary to enable Parent or Newco to enter into, and to perform their respective obligations under, this Agreement, the Parent Ancillary Agreements or the Newco Ancillary Agreements, except for (a) the filing by Parent of such reports and information with the SEC under the 1934 Act and the rules and regulations promulgated by the SEC thereunder, as may be required in connection with this Agreement, the Merger and other transactions contemplated by this Agreement, (b) the filing of the Articles of Merger with the Secretaries of State of the States of Nevada and Delaware, (c) such filings as may be required to comply with federal and state securities laws, and (d) filings required under the HSR Act and the expiration of applicable waiting periods under the HSR Act. 29 38 3.2.3 Enforceability. This Agreement and the Parent Ancillary Agreements are, or when executed by Parent will be, valid and binding obligations of Parent, enforceable against Parent in accordance with their respective terms, except as to the effect, if any, of (a) applicable bankruptcy and other similar laws affecting the rights of creditors generally, and (b) rules of law governing specific performance, injunctive relief and other equitable remedies; provided, however, that the Articles of Merger and the Parent Ancillary Agreements will not be effective until the earlier of the Effective Time or the date provided for therein. This Agreement and the Newco Ancillary Agreements are, or when executed by Newco will be, valid and binding obligations of Newco, enforceable against Newco in accordance with their respective terms, except as to the effect, if any, of (a) applicable bankruptcy and other similar laws affecting the rights of creditors generally, and (b) rules of law governing specific performance, injunctive relief and other equitable remedies; provided, however, that the Articles of Merger and the Newco Ancillary Agreements will not be effective until the earlier of the Effective Time or the date provided for therein. 3.3 No Conflict. Neither the execution and delivery of this Agreement nor any of the Parent Ancillary Agreements or Newco Ancillary Agreements by Parent or Newco, nor the consummation of the transactions contemplated hereby or thereby, will conflict with, or (with or without notice or lapse of time, or both) result in a termination, breach, impairment or violation of: (i) any provision of the Articles of Incorporation or Bylaws of Parent or Newco as currently in effect; (ii) any federal, state, local or foreign Order, statute, rule or regulation applicable to Parent or Newco or any of their respective assets or properties; or (iii) any material Contract to which Parent or any of its subsidiaries (if any) is a party or by which Parent or any of its subsidiaries (if any) or any of their respective assets or properties are bound where termination, breach, impairment or violation would have a Material Adverse Effect on Parent or any of its subsidiaries, taken as a whole. 3.4 SEC Filings. 3.4.1 Parent has made available to the Company true and complete copies of each report, registration statement (on a form other than Form S-8) and definitive proxy statement (in each case excluding copies of exhibits) filed by Parent with the SEC between December 31, 1998 and the Agreement Date pursuant to the 1933 Act or the 1934 Act, including without limitation the Parent 1998 10-K (collectively, the "Parent SEC Documents"). As of the time it was filed with the Securities and Exchange Commission (the "SEC") (or, if amended or superseded by a subsequent filing prior to the Agreement Date, then on the date of such subsequent filing): (i) each of the Parent SEC Documents complied in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act") or the Securities Exchange Act of 1934, as amended (the "1934 Act") (as the case may be); and (ii) none of the Parent SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 3.4.2 The consolidated financial statements (including any related notes) contained in the Parent SEC Documents: (i) complied as to form in all material respects with the published rules and regulations of the SEC applicable thereto; (ii) were prepared in conformity with GAAP applied on a consistent basis throughout the periods covered (except as may be indicated in the notes to such financial statements and, in the case of unaudited statements, as 30 39 permitted by Form 10-Q of the SEC, and except that unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end audit adjustments); and (iii) fairly present the consolidated financial position of Parent and its subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows of Parent and its subsidiaries for the periods covered thereby. 3.5 Proceedings; Orders. There is no pending Proceeding against Parent or any of its subsidiaries before any Governmental Body that, if determined adversely to Parent or such subsidiary, would have a Material Adverse Effect on Parent, or that could prevent, enjoin or materially alter or delay the consummation of the Merger or any other material transaction contemplated by this Agreement, nor, to Parent's knowledge, has any such Proceeding been threatened. There is no Order outstanding against Parent or any of its subsidiaries that would have a Material Adverse Effect on Parent, or that would prevent or enjoin Parent from consummating the Merger. 3.6 No Material Adverse Change. Except as set forth in Parent SEC Documents or Parent press releases filed or issued prior to the date of this Agreement, since December 31, 1998 there has not been any material adverse change in the financial condition, properties, assets, liabilities, business, prospects, results of operations or operations of Parent and its subsidiaries, taken as a whole. (For purposes of this Section 3.6, the parties agree that a change in the market price of Parent's common stock shall not, of itself, constitute a material adverse change of the type described in this Section 3.6). 3.7 No Brokers. Other than Warburg Dillon Read LLC, whose fees and expenses will be paid by Parent, Parent is not obligated for the payment of fees or expenses of any investment banker, broker or finder in connection with the origin, negotiation or execution of this Agreement or the Articles of Merger or in connection with any transaction provided for herein or therein. 3.8 Disclosure. No statement made by Parent in either this Agreement, its exhibits and the Parent Disclosure Letter, nor any of the certificates to be delivered by the Parent to Company under this Agreement, taken together, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which such statements were made, not misleading. 3.9 Material Adverse Effect. As used with respect to Parent, Material Adverse Effect shall mean any event, change or effect that is (or will with the passage of time be) materially adverse to the financial condition, properties, assets, liabilities, employee base, business, prospects, operations or results of operations of the Parent and its subsidiaries, taken as a whole, provided, however, that any change in the market price of Parent's common stock shall not, of itself, constitute or be considered to cause a Material Adverse Effect. 3.10 Knowledge of Parent. As used in this Agreement, the term "knowledge" of Parent shall mean the actual knowledge, without independent investigation, of any or all of Michael Margolis, Gilles Godin or Ronald Buckly prior to the Agreement Date. 31 40 4. PRE-CLOSING COVENANTS OF THE COMPANY. During the period from the Agreement Date until the earlier to occur of the (i) Effective Time or (ii) the termination of this Agreement in accordance with Article 9, the Company and Stockholders covenant to and agree with Parent as follows: 4.1 Advice of Changes. The Company and each Stockholder will promptly advise Parent in writing, to the full extent of such person's knowledge, (a) of any event occurring subsequent to the Agreement Date that would render any representation or warranty of the Company or the Stockholders contained in this Agreement, if made on or as of the date of such event or the Closing Date, untrue or inaccurate in any material respect and (b) of any material adverse change in the Company's financial condition, properties, assets, liabilities, business, financial performance, results of operations or prospects. The Company will deliver to Parent within fifteen (15) days after the end of each fiscal quarter and each monthly accounting period ending after the Agreement Date and before the Closing Date, an unaudited balance sheet and statement of operations for such period, which financial statements will be prepared in the ordinary course of the Company's business, consistent with its past practices in conformity with the Company's books and records and GAAP, and will present fairly and accurately in all respects the financial position of the Company at such dates and for such periods. 4.2 Maintenance of Business. The Company will carry on and preserve its business and its relationships with creditors, customers, suppliers, employees and others in substantially the same manner as it has prior to the Agreement Date. The parties hereto understand and acknowledge that it is their intent to work closely together during the period from the Agreement Date until the Closing Date. If the Company or any Stockholder becomes aware of a material deterioration in the Company's relationship with any creditor, customer, supplier or key employee, it will promptly bring such information to the attention of Parent in writing and, if requested by Parent, will exert its reasonable best efforts to restore such relationship. 4.3 Conduct of Business. Except as otherwise expressly provided in this Agreement, as listed in Item 4.3, or as approved or recommended by Parent in writing, the Company will not without the prior written consent of Parent: (a) borrow any money, or incur any liability or indebtedness other than in the ordinary course of business; (b) enter into any Contract or transaction not in the ordinary course of business or involving current or future payments by the Company (whether fixed, contingent or otherwise), expenses or capital expenditures in excess of $100,000; (c) grant any lien, security interest, mortgage or other encumbrance on or interest in any of its assets or properties; (d) except for the Merger, merge, consolidate or reorganize with, or acquire, or enter into any other business combination with, any corporation, partnership, limited liability company or any other entity or enter into any negotiations, discussions or Contract for such purpose; 32 41 (e) sell, transfer or dispose of any of its material assets except in the ordinary course of business consistent with past practice; (f) enter into any material Contract for the purchase, sale, lease or license of any property, real or personal, tangible or intangible, except in the ordinary course of business consistent with past practice, or enter into any Contract of the types and applicable dollar thresholds described in Section 2.11; (g) fail to maintain its equipment and other assets in good working condition and repair according to the standards it has maintained to the Agreement Date, subject only to ordinary wear and tear; (h) pay any bonus, royalty, increased salary or special remuneration to any director, officer, employee or consultant (except pursuant to existing arrangements heretofore disclosed in writing to Parent) or enter into any new employment or consulting agreement with any officer or key employee, or enter into any new agreement or plan of the type described in Section 2.16.4; (i) change any of its accounting methods, except as required by GAAP; (j) declare, set aside or pay any cash or stock dividend or other distribution in respect of capital stock, or redeem or otherwise acquire any of its capital stock or securities convertible or exchangeable for its capital stock; (k) amend, modify or terminate any Contract to which it is a party except those amended, modified or terminated in the ordinary course of business, consistent with past practice, and which are not material in amount or effect; (l) lend any amount to any person or entity, other than advances for travel and expenses that are incurred in the ordinary course of business consistent with past practice, not material in amount, which travel and expenses shall be documented by receipts for the claimed amounts; (m) guarantee or act as a surety for any debt or obligation except for the endorsement of checks and other negotiable instruments in the ordinary course of business, consistent with past practice; (n) waive or release any material right or claim except in the ordinary course of business, consistent with past practice; (o) issue or sell any shares of its capital stock of any class or any other of its securities, or issue or create any warrants, obligations, subscriptions, options, convertible securities, stock appreciation rights or other commitments to issue shares of capital stock, or accelerate the vesting of any outstanding option or other security; (p) subdivide or split or combine or reverse split the outstanding shares of its capital stock of any class or enter into any recapitalization affecting the number of outstanding shares of its capital stock of any class or affecting any other of its securities; 33 42 (q) amend its Articles of Incorporation or Bylaws or other charter documents; (r) agree to any audit assessment by any tax authority or Governmental Body or file any federal or state income or franchise tax return unless copies of such returns have been delivered to Parent for its review prior to filing; (s) grant, sell, license or transfer any of the Company's technology or any of the Company Intellectual Property, except in the ordinary course of business consistent with past practice, or take any action which could have the effect of placing any of the Company Intellectual Property in the public domain; (t) change any insurance coverage or issue any certificates of insurance; (u) terminate the employment of any key employee listed in Item 2.10(m); (v) modify or change the exercise or conversion rights or exercise or purchase prices of any capital stock of the Company, any Company stock options, warrants or other Company securities, or accelerate or otherwise modify (i) the right to exercise any option, warrant or other right to purchase any capital stock or other securities of the Company or (ii) the vesting or release of any shares of capital stock or other securities of the Company from any repurchase options or rights of refusal held by the Company or any other party or any other restrictions unless such accelerations/modifications are expressly contemplated by this Agreement; (w) agree, whether orally or in writing, to do any of the things described in the preceding clauses 4.3(a) through 4.3(v). 4.4 Approval of the Company's Stockholders. The Company shall hold a stockholders' meeting (the "Company Stockholders' Meeting") as promptly as reasonable after the date of this Agreement, to submit this Agreement, the Merger and approval of any related agreements or transactions for the consideration and approval of the stockholders of the Company, or shall solicit the written consent of its stockholders at the earliest practicable date, which approval shall be recommended by the Company's Board of Directors and the Company shall use its best efforts to obtain such stockholders' approval (the vote taken at such Company Stockholders' Meeting or by the solicitation of such written consent of the stockholders of the Company is hereinafter referred to as the "Company Stockholder Vote"). Such Company Stockholders' Meeting or action by written consent shall be called, held and conducted, and any proxies or written consents shall be solicited, in compliance with the Company's Articles of Incorporation and Bylaws, both as amended, and in compliance with applicable law. The Company will cause a proxy statement (the "Proxy Statement") to be delivered to each stockholder of the Company at least ten (10) business days prior to the taking of the Company Stockholder Vote. The Company will not put any proposal up for the vote of its stockholders (as part of the Company Stockholder Vote or otherwise) other than the proposal to approve this Agreement and the Merger, without obtaining Parent's prior written consent to do so, which 34 43 consent will not be unreasonably withheld, consistent with the provisions, purposes and intent of this Agreement. 4.5 Proxy Statement. The Company will be solely responsible for any statement, information or omission in the Proxy Statement relating to the Company or its affiliates. 4.6 Regulatory Approvals. The Company will promptly execute and file, or join in the execution and filing, of any application, notification (including without limitation any notification or provision of information, if any, that may be required under the HSR Act) or any other document that may be necessary in order to obtain the authorization, approval or consent of any Governmental Body, whether federal, state, local or foreign, which may be required, or which Parent may reasonably request, in connection with the consummation of the Merger or any other Transactions. The Company will use its diligent efforts to obtain, and to cooperate with Parent to promptly obtain, all such authorizations, approvals and consents. 4.7 Acceleration of Company Options. The Company will duly and validly accelerate all Company Options prior to the Effective Time. 4.8 Necessary Consents. The Company will use its best efforts to obtain such written consents and take such other actions as may be necessary or appropriate to facilitate and allow the consummation of the Transactions and to facilitate and allow Parent to carry on the Company's business after the Effective Time substantially as such business was conducted by the Company prior to the Effective Time. 4.9 Proceedings and Orders. The Company will notify Parent in writing promptly after learning of (i) any Proceeding by or before any court or other Governmental Body, initiated by or against it, or known by it to be threatened against the Company or any of its officers, directors, employees or stockholders in their capacity as such; or (ii) any Order relating to the Company. 4.10 No Other Negotiations. From and after the Agreement Date until the earlier of the Effective Time or termination of this Agreement pursuant to Article 9, the Company and the Stockholders shall not, and will instruct their respective representatives not to, directly or indirectly, (x) solicit, initiate or knowingly or recklessly encourage the making, submission or announcement of, any Acquisition Proposal by any person, entity or group (other than Parent and its representatives), or (y) participate in any discussions or negotiations with, or disclose any non-public information concerning the Company to, or afford any access to the properties, books or records of the Company to, or otherwise assist or facilitate, or enter into any Contract, agreement or understanding with, any person, entity or group (other than Parent and its representatives), in connection with any Acquisition Proposal with respect to the Company. Without limiting the generality of the foregoing, the Company and the Stockholders acknowledge and agree that any violation of any of the restrictions set forth in the preceding sentence by any representative of the Company or any Stockholder shall be deemed to constitute a breach of this Section 4.10 by the Company. For the purposes of this Agreement, an "Acquisition Proposal" with respect to an entity means any proposal or offer relating to (i) any merger, consolidation, sale of substantial assets or similar transactions involving the entity or any subsidiaries of the entity (other than sales or licenses of assets or inventory in the ordinary course 35 44 of business or as permitted under the terms of this Agreement), (ii) sale of 10% (or 20% for purposes of Section 9.3(c)) or more of the outstanding shares of capital stock of the entity (including without limitation by way of a tender offer or an exchange offer), (iii) the acquisition by any person of beneficial ownership or a right to acquire beneficial ownership of, or the formation of any "group" (as defined under Section 13(d) of the 1934 Act and the rules and regulations thereunder) which beneficially owns, or has the right to acquire beneficial ownership of, 10% (or 20% for purposes of Section 9.3(c)) or more of the then outstanding shares of capital stock of the entity (except for acquisitions for passive investment purposes only in circumstances where the person or group qualifies for and files a Schedule 13G with respect thereto); (iv) any initial public offering of capital stock or other securities of the Company pursuant to a registration statement filed under the 1933 Act; or (v) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing (any such transaction listed in (i)-(v) when consummated with an entity other than Parent to be referred to as an "Alternative Transaction"). The Company and the Stockholders will immediately cease any and all existing activities, discussions or negotiations with any parties conducted heretofore with respect to any Acquisition Proposal. The Company or a Stockholder will (A) notify Parent as promptly as practicable if it receives any proposal or written inquiry or written request for the Company in connection with an Acquisition Proposal or potential Acquisition Proposal and (B) as promptly as practicable notify Parent of the significant terms and conditions of any such Acquisition Proposal, as well as the identity of the third party submitting such Acquisition Proposal. In addition, from and after the Agreement Date until the earlier of the Effective Time and termination of this Agreement pursuant to Article 9, the Company will not, and will instruct its representatives not to, directly or indirectly, make or authorize any public statement, recommendation or solicitation in support of any Acquisition Proposal made by any person, entity or group (other than Parent). 4.11 Access to Information. Until the Closing Date, the Company will provide Parent and its agents with full access to the files, books, records, documents, personnel and offices of the Company, including, without limitation, any and all information relating to the Company's Taxes, Contracts, real, personal and intangible property, and financial condition, necessary for Parent to complete its diligence review of the Company's products and technology, subject to the terms of the Mutual Nondisclosure Agreement between Parent and Company dated December 15, 1998, as amended to date (the "Mutual Nondisclosure Agreement"). The Company will cause its accountants to cooperate with Parent and its agents in making available all financial information requested, including, without limitation, the right to examine all working papers pertaining to all financial statements prepared or audited by such accountants. 4.12 Satisfaction of Conditions Precedent. The Company and the Stockholders will use their reasonable best efforts to satisfy or cause to be satisfied all the conditions precedent that are set forth in Article 8, and the Company will use its best efforts to cause the Transactions to be consummated, and, without limiting the generality of the foregoing, to obtain all consents, waivers and authorizations of third parties and to make all filings with, and give all notices to, third parties that may be necessary or required on its part in order to effect the transactions provided for herein. In particular, the Company will use its best efforts to cause the Merger to become effective in accordance with this Agreement not later than May 31, 1999. 36 45 4.13 Securities Laws. The Company and the Stockholders shall assist Parent to the extent necessary to comply with the securities and blue sky laws of all jurisdictions applicable in connection with the Merger. 4.14 Notification of Employee Problems. The Company will promptly notify Parent if any of the Company's directors or officers becomes aware that any of the employees listed in Item 2.10(m) intends to leave its employ. 4.15 Company Dissenting Shares. As promptly as practicable after the date of the Company Stockholder Vote and prior to the Closing Date, the Company will furnish Parent with the name and address of each holder (or potential holder) of any Company Dissenting Shares and the number of Company Dissenting Shares (or potential Company Dissenting Shares) owned by each such holder. 4.16 Termination of Registration and Voting Rights. All registration rights agreements and voting agreements and proxies applicable to or affecting any outstanding shares or other securities of the Company (other than the Voting Agreements and the related Proxies referred to in Section 2.24) will be duly terminated and canceled by no later than immediately prior to the Effective Time. 4.17 Invention Assignment and Confidentiality Agreements. The Company will obtain from each employee, contractor and consultant of the Company who has had access to any software, technology or copyrightable, patentable or other proprietary works owned or developed by the Company, including but not limited to Company Intellectual Property, or to any other confidential or proprietary information of the Company or its clients, an invention assignment and confidentiality agreement in a form acceptable to Parent, duly executed by such employee, contractor or consultant and delivered to the Company. 4.18 Company Employee Plans and Benefit Arrangements. The Company shall take all such actions as contemplated under Section 1.3(b) with respect to the Company Options. The Company shall not issue any shares of its capital stock under any employee benefit plan and shall terminate any Company Benefit Arrangement that is governed by Section 401(k) of the Code immediately prior to the Effective Time upon the request of Parent. The Company agrees to cooperate with Parent after the Effective Time to complete any steps necessary to finalize the plan termination, including but not limited to distribution of plan assets. In the event that the distribution or rollover of assets from the trust of a Code Section 401(k) plan that is terminated will trigger liquidation, surrender or other fees that will be imposed on the terminated plan or any participant or beneficiary of such terminated plan, the Company shall take such actions as are necessary to reasonably estimate the amount of such fees and provide such reasonable estimate in writing to Parent prior to the Effective Time. Any Company Benefit Arrangement that is governed by Section 401(k) of the Code and relies on a standardized prototype document shall be amended prior to the Effective Time so as not to require all corporations that are members of the same controlled group of corporations as the employer sponsoring such plan to participate in such plan. The Company shall file any delinquent Form 5500s through the Department of Labor Delinquent Filer Voluntary Compliance Program prior to the Effective Time. 4.19 Takeover Statutes. If any fair price, moratorium, control share acquisition or other similar takeover statute shall become applicable to any of the Transactions, the 37 46 Company and the members of the Board of Directors of the Company shall grant such approvals and take such actions as are necessary so that the Merger and the other Transactions may be commenced as promptly as practicable on the terms contemplated hereby and otherwise act to eliminate or minimize the effects of such statute or regulation on the Transaction. 4.20 Closing of Merger. The Company and the Significant Stockholders will not refuse to effect the Merger if, on or before the Closing Date, all the conditions precedent to the Company's obligations to effect the Merger under Article 7 hereof have been satisfied or waived by the Company and Parent elects to consummate the Merger. 4.21 Termination of Management Agreement. The Company will duly and validly terminate prior to the Effective Time the Management Agreement or any similar agreements with Teknekron Corporation without any further obligation or liability to the Company or Parent. 5. COVENANTS OF PARENT. During the period from the Agreement Date until the earlier to occur of (i) the Effective Time or (ii) the termination of this Agreement in accordance with Article 9, Parent covenants to and agrees with the Company as follows: 5.1 Advice of Changes. Parent will promptly advise the Company in writing of any event occurring subsequent to the Agreement Date that would render any representation or warranty of Parent or Newco contained in this Agreement, if made on or as of the date of such event or the Closing Date, to be untrue or inaccurate in any material respect. 5.2 Satisfaction of Conditions Precedent. Parent will use its reasonable best efforts to satisfy or cause to be satisfied all the conditions precedent that are set forth in Article 7, and Parent will use its best efforts to cause the Transactions to be consummated, and, without limiting the generality of the foregoing, to obtain all consents, waivers and authorizations of third parties and to make all filings with, and give all notices to, third parties that may be necessary or required on its part in order to effect the Transactions. In particular, Parent will use its best efforts to cause the Merger to become effective in accordance with this Agreement not later than May 31, 1999. 5.3 Regulatory Approvals. Parent will promptly execute and file, or join in the execution and filing, of any application, notification (including without limitation any notification or provision of information, if any, that may be required under the HSR Act) or other document that may be necessary in order to obtain the authorization, approval or consent of any Governmental Body, whether federal, state, local or foreign, that may be reasonably required, in connection with the consummation of the Merger or any other Transaction. Parent will use diligent efforts to obtain all such authorizations, approvals and consents. 6. CLOSING MATTERS. 6.1 The Closing. Subject to termination of this Agreement as provided in Article 9 below, the Closing will take place at the offices of Bryan Cave LLP, 120 Broadway, Suite 500, Santa Monica, California 90404 at 10:00 a.m., Pacific Time, on or before June 11, 1999, or, if all conditions to Closing have not been satisfied or waived by such date, such other 38 47 place, time and date as the Company and Parent may mutually select (the "Closing Date"). Prior to or concurrently with the Closing, the Articles of Merger and such officers' certificates or other documents as may be required to effectuate the Merger will be filed in the office of the Secretaries of State of the States of Nevada and Delaware. Accordingly, the Merger will become effective at the Effective Time. 7. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligations under this Agreement are subject to the fulfillment or satisfaction, on and as of the Closing, of each of the following conditions (any one or more of which may be waived by the Company, but only in a writing signed on behalf of the Company by its Chief Executive Officer): 7.1 Accuracy of Representations and Warranties. The representations and warranties of Parent set forth in Article 3 (as qualified by the Parent Disclosure Letter) shall be true and accurate in all material respects on and as of the Agreement Date and the Closing Date as if made on and as of the Closing Date, and the Company shall have received a certificate to such effect executed on behalf of Parent by an executive officer of Parent (except for any such representations or warranties that, by their terms, speak only of a specific date or dates, in which case such representations and warranties shall be true and correct on and as of such specified date or dates). 7.2 Covenants. Parent shall have performed and complied in all material respects with all of its covenants contained in Article 5 on or before the Closing Date, and the Company shall have received a certificate to such effect executed on behalf of Parent by an executive officer of Parent. 7.3 Requisite Approvals. The Merger and the principal terms of this Agreement shall have been duly and validly approved and adopted by the Company's stockholders, in accordance with applicable laws and Company's Articles of Incorporation and Bylaws. The principal terms of this Agreement will have been duly and validly approved and adopted by Parent's Board of Directors in accordance with applicable laws and Parent's Articles of Incorporation and Bylaws. The principal terms of this Agreement will have been approved and adopted by Newco's Board of Directors and sole stockholder in accordance with applicable law and Newco's Articles of Incorporation and Bylaws. 7.4 Compliance with Law; No Legal Restraints; No Litigation. No litigation or Proceeding will be threatened or pending for the purpose or with the probable effect of enjoining or preventing the consummation of the Merger or any of the other material transactions contemplated by this Agreement. There will not be issued or enacted or adopted, or threatened in writing by any Governmental Body, any Order, legislative enactment, statute, regulation or Proceeding by any court, arbitrator, arbitration panel or Governmental Body or any other fact or circumstance, that, directly or indirectly, challenges, threatens, prohibits, enjoins, restrains, suspends, delays, conditions or renders illegal or imposes limitations on (or involves a challenge, threat to, or a prohibition, injunction, restraint, suspension, delay or illegality of, or to impose limitations on) the Merger or any other material transaction contemplated by this Agreement. 39 48 7.5 Government Consents; HSR Act Compliance. There shall have been obtained at or prior to the Closing Date such permits, consents or authorizations, and there shall have been taken such other actions, as may be required to consummate the Merger by any regulatory authority or Governmental Body having jurisdiction over the parties and the actions herein proposed to be taken, including but not limited to satisfaction of all requirements under applicable federal and state securities laws and the expiration or termination of the waiting period under the HSR Act. 7.6 Documents. The Company shall have received all written consents, assignments, waivers, authorizations or other certificates reasonably deemed necessary by the Company's legal counsel to consummate the transactions provided for in this Agreement and the Articles of Merger. 7.7 Opinion of Parent's Counsel. The Company shall have received from Fenwick & West LLP, counsel to Parent and Newco, an opinion substantially in the form of Exhibit 7.7. 7.8 Agreements. Parent shall have duly executed and delivered the Escrow Agreement and the Note and Security Agreement. 7.9 No Material Adverse Change. There will not have been any material adverse change in the financial condition, properties, assets, liabilities, business, employee base, results of operations or prospects of Parent and its subsidiaries, taken as a whole, since the Agreement Date, and the Company shall have received a certificate to such effect executed on behalf of Parent by an executive officer of Parent. The parties agree that a change in the market price of Parent's common stock shall not, of itself, constitute a material adverse change of the type described in this Section 7.9. 8. CONDITIONS TO OBLIGATIONS OF PARENT AND NEWCO. The obligations of Parent and Newco under this Agreement are subject to the fulfillment or satisfaction on, and as of the Closing, of each of the following conditions (any one or more of which may be waived by Parent, but only in a writing signed on behalf of Parent by its Chief Executive Officer): 8.1 Accuracy of Representations and Warranties. The representations and warranties of the Company and the Stockholders set forth in Article 2 (as qualified by the Company Disclosure Letter) shall be true and accurate in all material respects on and as of the Agreement Date and the Closing Date as if made on and as of the Closing Date, and Parent shall have received a certificate to such effect executed on behalf of the Company by its Chief Executive Officer (except for any such representations or warranties that, by their terms, speak only as of a specific date or dates, in which case such representations and warranties shall be true and correct on and as of such specified date or dates). 8.2 Covenants; No Material Adverse Change. The Company and the Stockholders shall have performed and complied in all material respects with all of the covenants contained in Article 4 on or before the Closing and Parent shall have received a certificate to such effect signed on behalf of the Company by its Chief Executive Officer. There shall not 40 49 have occurred any material adverse change in the financial condition, properties, assets, liabilities, business, employee base, results of operations, operations or prospects of the Company since the Agreement Date, and Parent shall have received a certificate to such effect executed on behalf of the Company by its Chief Executive Officer. 8.3 Compliance with Law; No Legal Restraints; No Litigation. There shall be no Order by any court or other Governmental Body or threat thereof, or any other fact or circumstance, which would prohibit or render illegal the transactions provided for in this Agreement. No litigation or Proceeding shall be pending or threatened which will have the probable effect of enjoining or preventing the consummation of any of the transactions provided for in this Agreement. No litigation, Proceeding or Order shall be pending or threatened that could reasonably be expected to have a Material Adverse Effect on the Company that has not been previously disclosed to Parent. 8.4 Government Consents; HSR Act Compliance. There shall have been obtained at or prior to the Closing Date such permits, consents or authorizations and there shall have been taken such other action, as may be required to consummate the Merger by any regulatory authority or Governmental Body having jurisdiction over the parties and the actions herein proposed to be taken, including but not limited to satisfaction of all requirements under applicable federal and state securities laws and the expiration or termination of the waiting period under the HSR Act. 8.5 Opinion of the Company's Counsel. Parent shall have received from Bryan Cave LLP, counsel to the Company and the Stockholders, an opinion substantially in the form of Exhibit 8.5. 8.6 Requisite Approvals. The terms of this Agreement and the Articles of Merger shall have been approved and adopted by: (a) the Company's Board of Directors and (b) the written consent or affirmative vote of stockholders of the Company as described in Section 2.25. 8.7 Restriction on Dissenting Shares. The number of the outstanding shares of Company Common Stock that have not affirmatively voted in favor of the Merger and are eligible to exercise or perfect any statutory appraisal rights of dissenting stockholders under applicable law will not exceed that number of such shares that represented five percent (5%) of the shares of the Company Common Stock outstanding on the Record Date (as defined in Section 2.25). 8.8 Documents. Parent shall have received duly executed copies of all written consents, assignments, waivers, authorizations or other certificates deemed necessary by Parent's legal counsel to provide for the continuation in full force and effect of any and all material Contracts of the Company and its subsidiaries, and for Parent to consummate the transactions provided for in this Agreement and the Articles of Merger. 8.9 Escrow Agreement. The Representatives and the Escrow Agent shall have duly executed and delivered to Parent the Escrow Agreement. 41 50 8.10 Non-Competition Agreements. Each person or entity listed on Schedule 8.10 shall have duly executed and delivered to Parent a Non-Competition Agreement. 8.11 Continued Employment of Certain Personnel. Each of the employees listed on Schedule 8.11 who are currently employees of the Company, (a) shall have continued to be employed as full-time employees of the Company at all times from the Agreement Date through the Effective Time and (b) shall have accepted offers of continued employment with the Company following the Effective Time pursuant to written employment offer letters or agreements satisfactory to Parent in which such persons will have agreed to continue to be full-time employees of the Company for a period of not less than two (2) years after the Effective Time except as approved by Parent. Not less than 80% of the Company's employees as of the Agreement Date shall remain employed by the Company on the Closing Date. 8.12 Resignation of Directors. The directors of the Company in office immediately prior to the Effective Time of the Merger will have resigned as directors in writing effective as of the Effective Time. 8.13 Due Diligence. Parent and its representatives shall have completed a due diligence review of the condition (financial and otherwise), operations, customer arrangements, intellectual property, business and prospects of, and any other matters relating to, the Company, and the results of such due diligence shall be satisfactory to Parent in its sole discretion. 9. TERMINATION. 9.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the Merger by the stockholders of the Company: (a) by the mutual written agreement of Parent and the Company; (b) at any time after ninety days after the Agreement Date, by either Parent or the Company if the Closing shall not have occurred on or before such date and such failure to consummate is not caused by a breach of this Agreement by the terminating party; (c) by the Company, if (i) there has been a breach by Parent of any representation, warranty, covenant or agreement set forth in this Agreement on the part of Parent, or if any representation of Parent will have become untrue, in either case which has or can reasonably be expected to have a Material Adverse Effect on Parent or (ii) the Company reasonably determines that the timely satisfaction of any condition set forth in Article 7 has become impossible or impracticable (other than as a result of the Company's or any Stockholder's failure to comply with or perform its covenants or obligations under this Agreement or any Company Ancillary Agreement or Stockholder Ancillary Agreement), provided, however, that if such breach or failure of condition shall be curable by Parent, then the Company may not terminate this Agreement unless Parent fails to cure within thirty (30) days after written notice thereof from the Company (except that no cure period will be provided for a breach by Parent which by its nature cannot be cured); (d) by Parent, if (i) there has been a breach by the Company or a Stockholder of any representation, warranty, covenant or agreement set forth in this Agreement 42 51 (other than a breach of Section 4.10) on the part of the Company or a Stockholder, or if any representation of the Company or a Stockholder will have become untrue, in either case which has or can reasonably be expected to have a Material Adverse Effect on the Company or (ii) Parent reasonably determines that the timely satisfaction of any condition set forth in Article 8 has become impossible or impracticable (other than as a result of the Parent's failure to comply with or perform its covenants or obligations under this Agreement or any Parent Ancillary Agreement); provided, however, that if such breach or failure of condition shall be curable by the Company or a Stockholder, as the case may be, then Parent may not terminate this Agreement unless the Company or such Stockholder fails to cure within thirty (30) days after written notice thereof (except that no cure period will be provided for a breach by the Company or a Stockholder which by its nature cannot be cured); (e) by Parent, if there is a breach of Section 4.10; (f) by either Parent or the Company, if a permanent injunction or other Order by any federal or state court that would make illegal or otherwise restrain, enjoin or prohibit the consummation of the Merger will have been issued and will have become final and nonappealable; (g) by either Parent or the Company, if any approval of the stockholders of the Company required for the consummation of the Merger submitted for approval shall not have been obtained by reason of the failure to obtain the required vote at a duly held meeting of stockholders or at any adjournment thereof; (h) by Parent, if any of the following shall occur: (i) the Company shall have failed to include in the Proxy Statement the unanimous recommendation of the Board of Directors of the Company in favor of approval and adoption of this Agreement and the Merger, or the Board of Directors of the Company shall have amended or modified in a manner adverse to Parent such Board of Directors' unanimous recommendation in favor of the Merger or approval or adoption of this Agreement; (ii) the Board of Directors of the Company shall have approved, publicly endorsed, recommended or executed a letter of intent or similar document with respect to any Acquisition Proposal other than the Merger; (iii) a tender or exchange offer relating to securities of the Company shall have been commenced and the Company shall not have sent to its stockholders, within ten (10) business days after the commencement of such tender or exchange offer, a statement that the Company recommends rejection of such tender or exchange offer; or (iv) an Acquisition Proposal (other than a tender or exchange offer relating to the securities of the Company) is publicly announced, and, upon Parent's request, the Company fails to issue a press release announcing its opposition to such Acquisition Proposal within five (5) business days after such request; or 43 52 (i) by Parent, in the event of a tender or an exchange offer relating to the securities of the Company which is accepted by more than fifty percent (50%) of the outstanding shares of the Company Common Stock. Any termination of this Agreement under this Section 9.1 will be effective by the delivery of written notice of the terminating party to the other party hereto. 9.2 Effect of Termination. If this Agreement is validly terminated pursuant to Section 9.1, except as otherwise provided in this Article 9, such termination shall be without liability or obligation of either party (or any stockholder, director, officer, employee, agent, consultant or representative of such party) to the other party to this Agreement (except that the parties to this Agreement shall under all circumstances remain bound by the terms and provisions of the Mutual Nondisclosure Agreement); provided that if such termination shall result from the willful failure of either party to fulfill a condition to the performance of the obligations of the other party or to perform a covenant of this Agreement or from a willful breach by either party to this Agreement, such party shall be fully liable for any and all damages incurred or suffered by the other party as a result of such failure or breach. The provisions of this Section 9.2, Sections 9.3 and 9.4 and Article 11 shall survive any termination hereof pursuant to Section 9.1. 9.3 Termination Fee. If this Agreement is terminated pursuant to Section 9.1, all further obligations of the parties under this Agreement shall terminate; provided, however, that: (a) the parties shall, in all events, remain bound by and continue to be subject to the applicable provisions set forth in Section 9.2 and Article 11; (b) if this Agreement is terminated by Parent pursuant to Section 9.1(e), (g), (h) or (i), then the Company shall pay to Parent, in cash, a non-refundable fee in the amount of $8,000,000 (the "Termination Fee"), within twenty (20) days of such termination; (c) if, within 180 days of any termination of this Agreement pursuant to Section 9.1(d)(i), the Company shall engage in any Alternative Transaction, as defined in Section 4.10, then the Company shall pay to Parent the Termination Fee in cash within three (3) business days after the effective date of such Alternative Transaction; (d) the parties shall, in all events, remain bound by the terms and provisions of the Mutual Nondisclosure Agreement; and (e) both Parent and the Company shall be entitled to announce the termination of this Agreement. 9.4 Non-Exclusivity of Termination Rights. The termination rights and obligations provided in this Article 9 shall not be deemed to be exclusive, provided, however, that the payment of the Termination Fee pursuant to Sections 9.3(b) and (c) hereof shall be Parent's exclusive remedy in the event of a termination of this Agreement pursuant to Sections 9.3(b) and (c) in which the Termination Fee is paid. 44 53 10. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING COVENANTS. 10.1 Survival. The representations, warranties, covenants and agreements of the parties hereto contained in this Agreement or in any certificate, document or instrument delivered pursuant hereto or in connection herewith will remain operative and in full force and effect, regardless of any investigation made by the parties, until the one year anniversary of the Closing Date (the "Expiration Date"); provided, however, that the representations and warranties contained in Sections 2.8 and 2.16 shall survive until the expiration of the statute of limitations for any claims made thereunder; and provided further that the representation and warranties made by Parent in Article 3 shall survive until the later of (i) the Expiration Date or (ii) the payment in full of the Notes. 10.2 Indemnification by Significant Stockholders. Subject to the limitations set forth in this Section 10.2, the Significant Stockholders hereby severally indemnify and hold harmless Parent and its respective officers, directors, agents and employees, and each person, if any, who controls or may control Parent within the meaning of the 1933 Act (collectively, "Parent Indemnified Parties") from and against any and all claims, demands, actions, causes of action, judgments, fines, penalties, obligations, losses, costs, damages, liquidated damages, liabilities and expenses including, without limitation, the reasonable fees and disbursements of legal counsel, investigators, consultants, accountants and other professionals (collectively, "Damages") incurred or suffered by any such Parent Indemnified Party arising from, by reason of or in connection with, any misrepresentation or breach of or default in connection with any of the representations, warranties, covenants or agreements given or made by the Company or any Stockholder in this Agreement or any certificate, document or instrument delivered by or on behalf of the Company or by a Company stockholder pursuant hereto or in connection herewith; provided, however, that the maximum aggregate indemnification obligation of the Significant Stockholders as a group under this Article 10 shall not exceed (a) the aggregate gross amount of the Per Share Payments payable to the Significant Stockholders as a group under Sections 1.3(a)(ii) and 1.3(b)(i) for all Damages arising out of or relating to the breach of any representation or warranty set forth in Section 2.1, 2.2 or 2.3; (b) $36,000,000 for all Damages arising out of or relating to the breach of any representation or warranty set forth in Section 2.6; (c) an aggregate of $36,000,000 for all Damages arising out of or relating to the breach of any representation or warranty set forth in Sections 2.8 or 2.16; (d) $41,000,000 for all Damages arising out of or relating to the breach of any representation or warranty set forth in Section 2.13; or (e) an aggregate of $14,400,000 for all Damages arising out of or relating to the breach of any representation or warranty set forth in any Section of Article 2 other than those Sections described in the foregoing clauses or Damages covered by the last sentence of this Section 10.2, the maximum individual indemnification obligation of each Significant Stockholder shall not exceed the gross consideration payable under Section 1.3 to such Significant Stockholder, and all indemnification obligations of the Significant Stockholders under this Article 10 shall be allocated proportionally among the Significant Stockholders pro rata based on the gross consideration payable to each Significant Stockholder under Section 1.3. The Significant Stockholders shall settle any claims for indemnification by first returning to Parent Notes from the Escrow, and if the aggregate amount of Damages exceeds the value of such escrowed Notes, then the Significant Stockholders shall severally fulfill such indemnification obligations in cash or Notes. The indemnification provided for in this Section 10.2 shall not apply unless and until 45 54 the aggregate Damages for which one or more Indemnified Persons seeks or has sought indemnification hereunder exceeds a cumulative aggregate of $2,000,000, in which event the Significant Stockholders shall, subject to the foregoing limitations, be obligated to indemnify the Parent Indemnified Parties in accordance with this Section 10.2 for any and all such Damages relating back to the first dollar of Damages. None of the provisions of this Section 10.2 or of the Escrow Agreement shall limit liability with respect to (i) claims of intentional misrepresentation or fraud, (ii) any criminal matters, or (iii) any claim concerning title to the shares of the Company's capital stock, provided, however, that by agreement to the Merger, each Company stockholder agrees severally to indemnify Parent from and against all Damages relating to any breach of the representations or warranties set forth in Section 2.1.4 with respect to the shares of Company Common Stock surrendered by such Company Stockholder at the Closing or concerning title to the Company's capital stock, and further provided, that the maximum indemnification obligation of any Company stockholder under this Section 10.2 shall not exceed the gross amount payable under Section 1.3 to such Company stockholder, and that all such liability for indemnification under this Article 10 shall be several. Notwithstanding the foregoing, neither the Company nor any Significant Stockholder shall have any liability to Parent for Damages arising out of or relating to the breach by any other Significant Stockholder of an Employment Agreement or a Non-Competition Agreement to which such breaching stockholder is a party. Any reference herein to the "gross amount or consideration payable" under Section 1.3 or a specific subsection thereof, or words to such effect, shall include in determining the gross amount amounts reduced or offset for Escrow Amounts, Promissory Notes paid down by the Parent under Section 1.3(a)(iii) or exercise price of Company Options which are bought out by Parent under Section 1.3(b), as is applicable to a specific stockholder or group of stockholders. 10.3 Indemnification by Parent. Parent shall indemnify and hold harmless the Significant Stockholders (collectively, the "Company Indemnified Parties", which together with the Parent Indemnified Persons are referred to as the "Indemnified Parties") from and against any and all Damages arising out of or relating to any misrepresentation or breach or default in connection with any of the representations, warranties, covenants or agreements given or made by Parent in this Agreement or in any certificate, document or instrument delivered by or on behalf of Parent pursuant hereto or in connection herewith; provided, however, that the maximum aggregate indemnification obligation of Parent under this Article 10 (the "Parent Cap") shall not exceed $5 million, except for Damages arising out of or relating to the breach of any representation or warranty set forth in Sections 3.1, 3.2 or 3.3, as to which the Parent Cap shall not be applicable. The indemnification provided for in this Section 10.3 shall not apply unless and until the aggregate Damages for which one or more Company Indemnified Parties seeks or has sought indemnification hereunder exceeds a cumulative aggregate of $1,000,000, in which event Parent, subject to the foregoing limitations, shall be obligated to indemnify the Company Indemnified Parties in accordance with this Section 10.3 for any and all such Damages relating back to the first dollar of Damages. 10.4 Procedures. Thomas Loo and Gary Crockett shall act as Representatives of the Significant Stockholders for all purposes of the Escrow Agreement and the indemnification provisions of this Article 10, are duly authorized to be such Representatives and may bind the Significant Stockholders with respect thereto. Promptly after the receipt by an Indemnified Party of notice or discovery of any claim, damage or legal action or proceeding giving rise to indemnification rights under this Agreement, such Indemnified Party shall give the 46 55 party from whom indemnification is sought (the "Indemnifying Party") and the Escrow Agent written notice of such claim, damage, legal action or proceeding (a "Claim"). A Parent Indemnified Party shall give notice of a Claim (a "Notice of Claim") to the Significant Stockholders by delivering such Notice of Claim to either of the Representatives. An Indemnified Party may assert a Claim at any time prior to the expiration of the applicable survival period in Section 10.1. No delay on the part of an Indemnified Party in giving an Indemnifying Party a Notice of Claim will relieve such Indemnifying Party of any of its obligations under this Article 10 (provided that such Notice of Claim is timely given prior to the expiration of the applicable survival period in Section 10.1) unless (and then only to the extent) that such Indemnifying Party is materially prejudiced thereby. Within twenty (20) days of delivery of such written notice, the Indemnifying Party may, at the expense of such Indemnifying Party, elect to take all necessary steps properly to contest any Claim involving third parties or to prosecute such Claim to conclusion or settlement satisfactory to the Indemnified Party, both as set forth in Section 10.5 herein, or notify the Indemnified Party in writing that it disputes the claim for indemnity. 10.5 Third-Party Claims. The following procedures shall apply to claims for indemnification by an Indemnified Party with respect to Third Party Claims (as defined herein). 10.5.1. Following the Closing, promptly following receipt of verbal or written notice to Parent or to any other Indemnified Party of a Third Party Claim (as defined below), such Indemnified Party shall give a Notice of Claim regarding such Third Party Claim to the Indemnifying Party and if applicable the Escrow Agent. A "Third Party Claim" means any claim, demand, suit, action, arbitration, investigation, inquiry or proceeding brought by a third party against such Indemnified Party that is based upon, or includes assertions that would, if true, constitute: (a) any inaccuracy, misrepresentation, breach of, or default in, any of the representations, warranties or covenants given or made by the Company or the Stockholders in this Agreement or in the Company Disclosure Letter or in any certificate delivered by or on behalf of the Company or the Stockholders or an officer of the Company pursuant thereto (if such inaccuracy, misrepresentation, breach or default existed at the Closing Date); or (b) any untrue statement of a material fact in the Proxy Statement or omission of any material fact from the Proxy Statement necessary in order to make the statements in the Proxy Statement, in light of the circumstances under which such statements were made, not misleading. 10.5.2. If a Third-Party Claim shall be brought or asserted against Parent or any other Parent Indemnified Party and such Third-Party Claim, if determined adversely to such Indemnified Party, would entitle such Indemnified Party to indemnity against any liability, damages and expenses claimed or reasonably likely to be incurred in or as a result of such Third-Party Claim pursuant to this Article 10, then, subject to the terms and conditions of this Agreement, the Representatives will have the right, at the Representatives' sole option, and at the Significant Stockholders' sole cost and expense without right of reimbursement from the Escrow Amount, Parent or from any other Indemnified Parties, to assume and control the defense of all Indemnified Parties against such Third-Party Claim with reputable legal counsel of the Representatives' choice that is reasonably satisfactory to Parent and the affected Indemnified Party(s), so long as: (A) the Representatives notify Parent and each affected Indemnified Party in writing that Representatives will assume and control the defense of such Third-Party Claim within twenty (20) days after Parent has given a Notice of Claim to the Representatives with respect to such Third-Party Claim; (B) the Representatives conduct the defense of the Third- 47 56 Party Claim actively and diligently at all times; and (C) the legal counsel chosen by the Representatives do not have any conflict of interest in representing the interests of Parent or any of the affected Indemnified Party(s). 10.5.3. So long as the Representatives are conducting the defense of the Third-Party Claim in accordance with Section 10.5.2 above: (A) Parent and each Indemnified Party may retain separate co-counsel and participate in the defense of the Third-Party Claim at its own cost and expense and shall have the right to receive copies of all pleadings, notices and communications with respect to the Third-Party Claim to the extent no attorney-client privilege is thereby waived; (B) Parent and each Indemnified Party may participate in settlement negotiations with respect to the Third-Party Claim; and (C) the Representatives will not consent to the entry of any judgment or enter into any settlement with respect to the Third-Party Claim unless (1) Parent and each of the affected Indemnified Parties consent thereto in writing (which consent will not unreasonably be withheld) or (2) the settlement, compromise or consent includes an unconditional release from all liability in favor of Parent and each Indemnified Party. If the Representatives do not elect to assume control of or otherwise participate in the defense or settlement of any Third-Party Claim, or if the Representatives so elect but any of the conditions in Section 10.5.2 above is not satisfied or becomes unsatisfied, then: Parent and the affected Indemnified Parties may control the defense of and consent to the entry of any judgment or enter into any settlement with respect to the Third-Party Claim, provided, however, that the Representatives (x) shall have the right to receive copies of all pleadings, notices and communications with respect to the Third-Party Claim so long as the receipt of such documents by the Representatives does not affect any privilege relating to the Indemnified Party, and (y) may participate in settlement negotiations with respect to the Third-Party Claim and Parent, and the Indemnified Parties shall not enter into any settlement of such Third-Party Claim without the prior written consent of the Representatives (which consent shall not be unreasonably withheld), provided, that if the Representatives shall have consented to any such settlement, then the Representatives shall have no power or authority to object to any claim by any Indemnified Party for indemnity under this Article 10 for the amount of such settlement; and (3) the Significant Stockholders will remain responsible (to the extent provided in this Article 10) to indemnify all Indemnified Parties for all Damages they may incur arising out of, resulting from or caused by the Third-Party Claim to the fullest extent provided in this Article 10. 10.6 Resolution of Conflicts; Arbitration. In case an Indemnifying Party shall dispute any Claim in writing, the Indemnified Party and the Indemnifying Party shall meet within ten days of notification of such dispute and attempt to agree upon the rights of the respective parties with respect to such Claim. The Representatives shall attend any meeting under this Section 10.6 in place of a Significant Stockholder. If the Indemnified Party and the Indemnifying Party should so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and distribute part of the Escrow Amount in accordance with the terms thereof. If the Indemnified Party and the Indemnifying Party fail to meet or if no such agreement can be reached after such meeting, either the Indemnifying Party or the Indemnified Party may demand arbitration of the matter unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration; and in either such event the matter shall be settled by arbitration conducted by three 48 57 arbitrators. The Indemnifying Party and the Indemnified Party shall each select an arbitrator, and the two arbitrators so selected shall select a third arbitrator, each of which arbitrators shall be independent and have at least ten years experience both in arbitration and in the telecommunications industry. The arbitrators shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrators, to discover relevant information from the opposing parties (which shall be limited to reasonable document production) about the subject matter of the dispute. The arbitrators shall rule upon motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys fees and costs, to the extent of a court of competent law or equity, should the arbitrators determine the discovery was sought without substantial justification or that discovery was refused or objected to without substantial justification. The decision of a majority of the three arbitrators as to the validity and amount of any Claim shall be binding and conclusive upon the parties to this Agreement, and the Escrow Agent shall be entitled to act in accordance with such decision and make or withhold payments out of the Escrow Amount in accordance therewith. Such decision shall be written and shall be supported by written findings of fact and conclusions of law which shall set forth the award, judgment, decree or order awarded by the arbitrators. Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction. Any such arbitration shall be held in Los Angeles, California under the rules then in effect of J.A.M.S./ENDISPUTE or its successor. For purposes of this Section 10.6, in any arbitration hereunder in which any Claim is at issue, the Indemnified Party shall be deemed to be the non-prevailing party in the event that the arbitrators award the Indemnified Party less than the sum of fifty percent (50%) of the disputed amount plus any amounts not in dispute; otherwise, the Indemnifying Party shall be deemed to be the non-prevailing party. The non-prevailing party to an arbitration shall pay its own expenses, the fees of each arbitrator, the administrative costs of the arbitration, and the expenses, including without limitation, reasonable attorneys' fees and costs, incurred by the other party to the arbitration. 10.7 Other Indemnification Provisions. 10.7.1 Notwithstanding anything to the contrary in this Agreement, each of the Significant Stockholders hereby agrees that such Significant Stockholder will not make any claim for indemnification against Company or Parent by reason of the fact that such Significant Stockholder was a director, officer, employee or agent of Company or was serving at the request of Company as a partner, trustee, director, officer, employee, or agent of another entity (whether such claim is for Damages or otherwise and whether such claim is pursuant to any statute, charter document, bylaw, agreement, or otherwise) with respect to any action, suit, proceeding, complaint, claim, or demand brought by Parent against Company or such Significant Stockholder. The foregoing shall not limit or affect any other right of the Significant Stockholders to seek indemnification or advancement of expenses by Company (whether such right is pursuant to statute or to the Company's charter documents or bylaws) in connection with any other proceeding brought by Parent other than under this Article 10 to which a Significant Stockholder becomes a party. 10.7.2 The amount of any Damages for which indemnification is provided under Section 10.2 or Section 10.3 shall be (i) net of any amounts recovered (net of the cost of recovery of such amounts) by any Indemnified Party under insurance policies with respect to 49 58 such Damages and (ii) reduced to take account of any net tax benefit (if any) actually realized by any Indemnified Party arising from the incurrence or payment of any such Damages. 10.7.3 Payments for Claims that are determined to be payable by the Significant Stockholders in accordance with this Section 10 will be deducted from the Escrow Amount in proportion to each Significant Stockholder's respective percentage interests in the Escrow Amount. 11. MISCELLANEOUS. 11.1 Governing Law. The internal laws of the State of California (irrespective of its choice of law principles) will govern the validity of this Agreement, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties hereto. 11.2 Assignment; Successors and Assigns. No party hereto may assign any of its rights or obligations hereunder without the prior written consent of the other parties hereto. Any purported assignment not permitted by this Section shall be void. This Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 11.3 Severability. If any provision of this Agreement, or the application thereof, is for any reason held to any extent to be invalid or unenforceable, the remainder of this Agreement and 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 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 the void or unenforceable provision. 11.4 Counterparts. This Agreement may be executed in counterparts, each of which will be an original as regards any party whose name appears thereon and all of which together will constitute one and the same instrument. This Agreement will become binding when one or more counterparts hereof, individually or taken together, bear the signatures of all parties reflected hereon as signatories. 11.5 Other Remedies. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby or by law on such party, and the exercise of any one remedy will not preclude the exercise of any other. 11.6 Amendment and Waivers. Any term or provision of this Agreement may be amended only by a writing signed by Parent, the Company and Stockholders holding at least 50% of the outstanding Company Common Stock. This Agreement may be amended by the parties hereto at any time before or after approval of the Company stockholders. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only by a writing signed by the party to be bound thereby. The waiver by a party of any breach hereof or default in the performance hereof will not be deemed to constitute a waiver of any other default or any succeeding breach or default. 50 59 11.7 No Waiver. The failure of any party to enforce any of the provisions hereof will not be construed to be a waiver of the right of such party thereafter to enforce such provisions. The waiver by any party of the right to enforce any of the provisions hereof on any occasion will not be construed to be a waiver of the right of such party to enforce such provision on any other occasion. 11.8 Expenses. Each party will bear its respective expenses and fees of its own accountants, attorneys, investment bankers and other professionals incurred with respect to this Agreement and the transactions contemplated hereby. 11.9 Attorneys' Fees. Should suit be brought to enforce or interpret any part of this Agreement, the prevailing party will be entitled to recover, as an element of the costs of suit and not as damages, reasonable attorneys' fees to be fixed by the court (including without limitation, costs, expenses and fees on any appeal). The prevailing party will be entitled to recover its costs of suit, regardless of whether such suit proceeds to final judgment. 11.10 Notices. Any notice or other communication required or permitted to be given under this Agreement will be in writing, will be delivered personally, by mail or express delivery, postage prepaid, or telecopy (confirmed in writing) and will be deemed given upon actual delivery or, if mailed by registered or certified mail, on the third business day following deposit in the mails, addressed as follows: (i) If to Parent and/or Newco: Tekelec 26580 West Agoura Road Calabasas, CA 91302 Attention: General Counsel Fax: 818/ 880-0176 with a copy to: Fenwick & West LLP Two Palo Alto Square Palo Alto, California 94306 Attention: Dennis R. DeBroeck Fax: 415-494-1417 (ii) If to the Company and/or the Significant Stockholders: IEX Corporation 2425 North Central Expressway Richardson, TX 75080-2736 Attention: President Fax: 972/301-4854 51 60 with a copy to the Representatives, in case of: Bryan Cave LLP 120 Broadway, Suite 500 Santa Monica, CA 90404 Attention: Thomas Loo, Esq. Fax: 310-576-2200 or to such other address as the party in question may have furnished to the other parties by written notice given in accordance with this Section 11.10. 11.11 Construction of Agreement. The language hereof will not be construed for or against any party. A reference to an article, Section or exhibit will mean an Article or Section in, or an exhibit to, this Agreement, unless otherwise explicitly set forth. The titles and headings in this Agreement are for reference purposes only and will not in any manner limit the construction of this Agreement. For the purposes of such construction, this Agreement will be considered as a whole. 11.12 No Joint Venture. Nothing contained in this Agreement will be deemed or construed as creating a joint venture or partnership between the parties hereto. No party is by virtue of this Agreement authorized as an agent, employee or legal representative of any other party. No party will have the power to control the activities and operations of any other, and the parties' status is, and at all times will continue to be, that of independent contractors with respect to each other. No party will have any power or authority to bind or commit any other. No party will hold itself out as having any authority or relationship in contravention of this Section. 11.13 Further Assurances. Each party agrees to cooperate fully with the other party and to execute such further instruments, documents and agreements and to give such further written assurances as may be reasonably requested by the other parties to evidence and reflect the transactions provided for herein and to carry into effect the intent of this Agreement. 11.14 Absence of Third Party Beneficiary Rights. No provisions of this Agreement are intended, nor will be interpreted, to provide or create any third party beneficiary rights or any other rights of any kind in any client, customer, affiliate, partner or employee of any party hereto or any other person or entity, unless specifically provided otherwise herein, and, except as so provided, all provisions hereof will be personal solely between the parties to this Agreement. 11.15 Public Announcement. Parent and the Company will issue a press release approved by both parties announcing the Merger as soon as practicable following the execution of this Agreement. Parent may issue such press releases, and make such other disclosures regarding the Merger, as it determines to be required or appropriate under applicable securities laws or NASD rules after reasonable consultation, where possible, with the Company. The Company and the Stockholders will not make any other public announcement or disclosure of the transactions contemplated by this Agreement. The Company and the Stockholders will prevent any trading in the securities of Parent by officers, directors, employees and agents of the Company having knowledge of any material information regarding Parent provided hereunder until the information in question has been publicly disclosed. 52 61 11.16 Confidentiality. The Company and Parent each confirm that they have entered into the Mutual Nondisclosure Agreement and that they are each bound by, and will abide by, the provisions of such Mutual Nondisclosure Agreement (except that Parent will cease to be bound by the Mutual Nondisclosure Agreement after the Merger becomes effective). If this Agreement is terminated, all copies of documents containing confidential information of a disclosing party will be returned by the receiving party to the disclosing party or be destroyed, as provided in the Mutual Nondisclosure Agreement. 11.17 Time is of the Essence. The parties hereto acknowledge and agree that time is of the essence in connection with the execution, delivery and performance of this Agreement, and that they will each utilize their best efforts to satisfy all the conditions to Closing on or before May 31, 1999. 11.18 Disclosure Letter. The Company Disclosure Letter shall be arranged in separate parts corresponding to the numbered and lettered sections contained in Article 2, and the information disclosed in any numbered or lettered part shall be deemed to relate to and to qualify only the particular representation or warranty set forth in the corresponding numbered or lettered Section in Article 2, and shall not be deemed to relate to or to qualify any other representation or warranty unless it is reasonably apparent from the information set forth in the Company Disclosure Schedule, that such information qualifies another representation or warranty of the Company in Article 2. 11.19 Entire Agreement. This Agreement and the exhibits hereto constitute the entire understanding and agreement of the parties hereto with respect to the subject matter hereof and supersede all prior and contemporaneous agreements or understandings, inducements or conditions, express or implied, written or oral, between the parties with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance or usage of trade inconsistent with any of the terms hereof. 11.20 Submission to Jurisdiction; Waiver of Jury Trial. Subject to the provisions of Section 10.6 each of the parties to this Agreement hereby irrevocably submits to the jurisdiction of any California state or federal court sitting in the county of Los Angeles in respect of any suit, action or proceeding arising out of or relating to this Agreement and seeking injunctive or equitable relief, and irrevocably accepts for itself and in respect of its property, generally and unconditionally, jurisdiction of the aforesaid courts. Each of the parties to this Agreement hereby irrevocably waives, to the fullest extent such party may effectively do so under applicable law, trial by jury and any objection that such party may now or hereafter have to the laying of venue of any such suit, action or proceeding brought in any such court and any claim that such suit, action or proceeding has been brought in an inconvenient forum. 53 62 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. Tekelec By: /s/ MICHAEL L. MARGOLIS ---------------------------------- Name: Michael L. Margolis Title: CEO and President Eagle Lonestar Corporation By: /s/ MICHAEL L. MARGOLIS ---------------------------------- Name: Michael L. Margolis Title: CEO IEX Corporation By: /s/ GARY CROCKET ---------------------------------- Name: Gary Crocket Title: CEO Stockholders: TEKNEKRON PARTNERS II IEX PARTNERS By: /s/ LESLIE K. WAGNER By: /s/ LESLIE K. WAGNER -------------------------------- --------------------------------- Name: Leslie K. Wagner Name: Leslie K. Wagner Title: General Partner Title: General Partner /s/ GARY CROCKETT - ----------------------------------- GARY CROCKETT /s/ STEPHEN LYNN - ----------------------------------- STEPHEN LYNN 63 Schedule 1.3 Significant Stockholders Teknekron Partners II IEX Partners Gary Crockett Stephen Lynn Debra May David Laizerovich Jeffrey Kupp Jerome Ball Joe Defenderfer Brad Simmons Teknekron Corporation 64 Schedule 2.30 Knowledge Harvey Wagner Gary Crockett Stephen Lynn Jeffrey Kupp Thomas Loo 65 Schedule 8.10 Parties Required to Enter into Non-Competition Agreements Teknekron Partners II IEX Partners Gary Crockett Stephen Lynn Debra May David Laizerovich Jeffrey Kupp Jerome Ball Joe Defenderfer Brad Simmons Teknekron Corporation Harvey Wagner 66 Schedule 8.11 Company Employees Entering into Employment Agreements with Parent Gary Crockett Debra May David Laizerovich Jeffrey Kupp Jerome Ball Joe Defenderfer Brad Simmons EX-4.01 3 EXHIBIT 4.01 1 EXHIBIT 4.01 NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 by and between Tekelec, IEX Corporation and the Significant Stockholders of IEX Corporation 2 TEKELEC, IEX CORPORATION, AND SIGNIFICANT STOCKHOLDERS OF COMPANY NOTE and Security Agreement Dated as of May 7, 1999 ================================================================================ 3 TABLE OF CONTENTS ARTICLE ONE..............................................................................................................2 SECTION 1.1. Definitions.....................................................................................2 ARTICLE TWO..............................................................................................................9 SECTION 2.1. Delivery of the Notes at the Closing............................................................9 SECTION 2.2 Escrow Notes....................................................................................11 SECTION 2.3 Payments........................................................................................11 ARTICLE THREE...........................................................................................................12 SECTION 3.1. Interest Rate; When Payable....................................................................12 SECTION 3.2. Default Rate...................................................................................12 SECTION 3.3. Waiver of Usury Laws...........................................................................13 ARTICLE FOUR............................................................................................................13 SECTION 4.1. Investment Representations.....................................................................13 SECTION 4.2. Source of Consideration........................................................................14 ARTICLE FIVE............................................................................................................14 SECTION 5.1. Limits on Resales of Notes.....................................................................14 SECTION 5.2. Subordination of Notes and Claims..............................................................16 ARTICLE SIX.............................................................................................................17 SECTION 6.1. Prohibition on Dividends and Distributions of Company..........................................17 SECTION 6.2. Prohibition of Equity Issuances of the Company.................................................17
4 SECTION 6.3. Prohibition of Liens on Company Assets.........................................................18 SECTION 6.4. Restriction on Certain Transactions; Asset Sales by the Company................................18 SECTION 6.5. Limitation on Other Company Indebtedness.......................................................19 SECTION 6.6 Affiliate Transactions with Company.............................................................20 SECTION 6.7. SEC Filings....................................................................................21 SECTION 6.8 Identification of Senior Indebtedness and Designated Senior Indebtedness........................21 ARTICLE SEVEN...........................................................................................................21 SECTION 7.1. Agreement of Subordination.....................................................................21 SECTION 7.2. Payments to Significant Stockholders...........................................................22 SECTION 7.3. Subrogation of Notes...........................................................................25 SECTION 7.4. Authorization to Effect Subordination..........................................................27 SECTION 7.5. No Impairment of Subordination.................................................................27 SECTION 7.6. Senior Indebtedness of Parent Entitled to Rely.................................................28 ARTICLE EIGHT...........................................................................................................28 SECTION 8.1. Failure to Make Payments When Due..............................................................28 SECTION 8.2 Default in Other Agreements.....................................................................28 SECTION 8.3. Other Defaults Under Agreements...............................................................29 SECTION 8.4. Involuntary Bankruptcy: Appointment of Receiver, etc...........................................29
2 5 SECTION 8.5. Voluntary Bankruptcy; Appointment of Receiver, etc.............................................30 SECTION 8.6. Dissolution....................................................................................30 SECTION 8.7. Judgments and Attachments......................................................................30 ARTICLE NINE............................................................................................................31 SECTION 9.1. Appointment....................................................................................31 SECTION 9.2. Powers: General Immunity.......................................................................32 SECTION 9.3 Right to Indemnity..............................................................................34 SECTION 9.4. Payee of Note Treated as Owner.................................................................34 SECTION 9.5. Successor Agent................................................................................34 ARTICLE TEN.............................................................................................................35 SECTION 10.1 Security........................................................................................35 SECTION 10.2. Rights and Remedies Upon Event of Default......................................................38 SECTION 10.3. Termination....................................................................................39 ARTICLE ELEVEN..........................................................................................................40 SECTION 11.1. Ratable Sharing................................................................................40 SECTION 11.2. Set Off........................................................................................41 SECTION 11.3. Governing Law..................................................................................41 SECTION 11.4. Assignment; Successors and Assigns.............................................................41 SECTION 11.5. Severability...................................................................................41
3 6 SECTION 11.6. Counterparts...................................................................................42 SECTION 11.7. Other Remedies.................................................................................42 SECTION 11.8. Amendment and Waivers..........................................................................42 SECTION 11.9. Expenses.......................................................................................43 SECTION 11.10. Attorneys' Fees...............................................................................43 SECTION 11.11. Notices.......................................................................................43 SECTION 11.12. Construction of Agreement.....................................................................45 SECTION 11.13. Further Assurances............................................................................45 SECTION 11.14. Other Waivers.................................................................................45 SECTION 11.15. Entire Agreement..............................................................................45 SECTION 11.16. Submission to Jurisdiction; Waiver of Jury Trial..............................................46
4 7 NOTE AND SECURITY AGREEMENT THIS NOTE AND SECURITY AGREEMENT ("Agreement") is entered into as of May 7, 1999 among Tekelec, a California corporation ("Parent"), IEX Corporation, a Nevada corporation and upon the effectiveness of the Merger (as defined below) a wholly-owned subsidiary of Parent (the "Company"), and the parties listed on the signature pages hereof (each individually referred to herein as a "Significant Stockholder" and collectively as "Significant Stockholders"). RECITALS A. Parent, Eagle Lonestar Corporation, a Delaware corporation ("Newco"), the Company and certain of the Significant Stockholders have entered into an Agreement and Plan of Reorganization dated as of April 20, 1999 (the "Merger Agreement"), pursuant to which Newco, a new corporation organized as a wholly-owned subsidiary of Parent, will be merged with and into the Company in a reverse triangular merger (the "Merger"), with the Company to be the surviving corporation of the Merger, all pursuant to the terms and conditions of the Merger Agreement, the Articles of Merger and the provisions of applicable law. B. Upon the effectiveness of the Merger, all the shares of common stock of the Company ("Company Common Stock") that are outstanding immediately prior to the effectiveness of the Merger will be converted into the right to receive an amount of cash from Parent and, for Significant Stockholders, subordinated Secured Promissory Notes issued jointly and severally by Parent and the Company ("Obligors") in the form of Exhibit A hereto (each individually referred to herein as a "Note" and collectively as the "Notes") on the basis determined in the Merger Agreement, the Articles of Merger and this Agreement. C. Obligors' obligations to Significant Stockholders under the Notes (the "Obligations") will be secured by (a) a pledge of the common stock of the Company by Parent and (b) the grant by the Company of a security interest in all assets and properties of the Company, pursuant to the terms and conditions of this Agreement and the Notes (the "Financing Documents"). 8 D. The Obligors and Significant Stockholders desire to provide for and set forth herein the terms and conditions governing such secured financing by the Significant Stockholders. AGREEMENT NOW THEREFORE, for and in consideration of the mutual covenants and the representations and warranties set forth herein, it is mutually covenanted and agreed among the parties hereto as follows: ARTICLE ONE Definitions SECTION 1.1 Definitions. "Affiliated Transferee" has the meaning assigned to that term in Section 5.1 hereof. "Aggregate Amounts Due" has the meaning assigned to that term in Section 11.1 hereof. "Agreement" means this Agreement, as amended or supplemented from time to time in accordance with its terms. "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "Business Day" means a day that is not a Saturday, a Sunday or a day on which banking institutions in Los Angeles, California are not required to be open. "Capital Lease", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with generally accepted accounting principles, is accounted for as a capital lease on the balance sheet of that Person. 2 9 "Capital Stock" means any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, including securities convertible into such corporate stock. "Certificates" has the meaning assigned to that term in Section 2.1 hereof. "Closing" has the meaning assigned to that term in Section 2.1 hereof. "Closing Date" has the meaning assigned to that term in Section 2.1 hereof. "Co-Agent" has the meaning assigned to that term in Section 9.1 hereof and includes any successor Co-Agent appointed pursuant to Section 9.5 hereof. "Collateral" has the meaning assigned to that term in Section 10.1 hereof. "Designated Senior Indebtedness" means (i) any and all indebtedness under Parent's Credit Agreement with Imperial Bank (as it may be amended, restated, extended, restructured or modified), now or hereafter outstanding and (ii) any other Senior Indebtedness of Parent in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which Parent is a party) expressly provides that such Senior Indebtedness shall be "Designated Senior Indebtedness" for purposes of this Agreement (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of the Designated Senior Indebtedness). "ERISA" means the Employment Retirement Income Security Act of 1974, as amended from time to time. "Escrow Agent" has the meaning assigned to that term in Section 2.1 hereof. "Escrow Agreement" has the meaning assigned to that term in Section 2.2 hereof. "Escrow Notes" has the meaning assigned to that term in Section 2.1 hereof. "Events of Default" has the meaning assigned to that term in Article 8 hereof. 3 10 "Extended Maturity Date(s)" has the meaning assigned to that term in Section 2.1 hereof. "First Extended Maturity Date" has the meaning assigned to that term in Section 3.1 hereof. "Indebtedness," as applied to any Person, means (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, debentures, notes or similar instruments, (iii) all obligations under (w) securities repurchase agreements, (x) interest rate swaps, caps, collars, options and similar arrangements, (y) any foreign exchange contract, currency swap contract, futures contract, currency option contract or other foreign currency hedge, and (z) credit swaps, caps, floors, collars and similar arrangements, (iv) obligations incurred, assumed or guaranteed in connection with the acquisition by it or a Subsidiary of any business, property or assets (except Purchase Money Debt classified as accounts payable under generally accepted accounting principles), (v) obligations as lessee under Capital Leases and liabilities under any financing lease or so-called "synthetic" lease transaction entered into, (vi) reimbursement obligations in respect of letters of credit, bank guarantees or bankers' acceptances, and (vii) obligations under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (vi) above. "Indemnity Section" has the meaning assigned to that term in Section 2.2 hereof. "Initial Maturity Date" has the meaning assigned to that term in Section 2.1 hereof. "Lien" means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest), financing statement or similar document, and any option, trust or other preferential arrangement having the practical effect of any of the foregoing. 4 11 "Material Assets" means assets of the Company having a book value in excess of fifteen percent (15%) of the total book value of the Company's assets. "Maturity Date" has the meaning assigned to that term in Section 2.1 hereof. "Net Cash Proceeds" means with respect to any asset sale by any Person, cash or cash equivalents received (including by way of sale or discounting of a note, installment receivable or other receivable, but excluding any other consideration received in the form of assumption by the acquiror of debt or other obligations relating to such properties or assets) therefrom by such Person, net of (A) all legal, title and recording tax expenses, commissions and other fees for services provided by non-affiliated Persons and expenses incurred and all federal, state, foreign and local taxes required to be accrued as a liability as a consequence of such asset sale, (B) all payments made by such Person or its Subsidiaries on any debt which is secured by such assets in accordance with the terms of any Lien upon or with respect to such assets or which must by the terms of such Lien, or in order to obtain a necessary consent to such asset sale or by applicable law, be repaid out of the proceeds from such asset sale and (C) appropriate amounts to be provided by such Person or any Subsidiary thereof, as the case may be, as a reserve as required by generally accepted accounting principles against any liabilities associated with such assets and retained by such Person or any Subsidiary thereof, as the case may be, after such asset sale, including, without limitation, liabilities under any indemnification obligations and severance and other employee termination costs associated with such asset sale, in each case as determined by the board of directors, in its reasonable good faith judgment evidenced by a resolution of the board of directors; provided, however, that any reduction in such reserve within twelve months following the consummation of such asset sale will be treated for all purposes in the Financing Documents as a new asset sale at the time of such reduction with Net Cash Proceeds equal to the amount of such reduction. "Payment Blockage Notice" has the meaning assigned to that term in Section 7.2 hereof. "Permitted Encumbrances" means the following types of Liens: 5 12 (i) Liens for taxes, assessments or governmental charges or claims the payment of which are not, at the time, delinquent or are being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made therefor; (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics and materialmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or that are being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made therefor; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) Liens securing Purchase Money Debt if the only collateral for such Purchase Money Debt is the assets acquired therewith; (v) leases or subleases granted to others not interfering in any material respect with the ordinary conduct of business; (vi) easements, rights-of-way, restrictions, minor defects, encroachments or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of business; (vii) any interest or title of a lessor or sublessor under any lease; (viii) Liens arising from filing Uniform Commercial Code financing statements relating solely to leases; 6 13 (ix) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; and (x) Liens existing on the date of this Agreement. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. "Pro Rata Share" means (i) with respect to all payments, computations and other matters relating to the Note of any Significant Stockholder, the percentage obtained by dividing (x) the outstanding principal amount owing under such Note to such Significant Stockholder by (y) the aggregate principal amount owing under all Notes to all Significant Stockholders. "Purchase Money Debt" of any Person means debt of such Person secured by a Lien on real or personal property of such Person which debt (a) constitutes all or a part of the purchase price or construction cost of such property or (b) is incurred prior to, at the time of or within 180 days after the acquisition or substantial completion of such property for the purpose of financing all or any part of the purchase price or construction cost thereof; provided, however, that (w) the debt so incurred does not exceed 100% of the purchase price or construction cost of such property and related expenses, (x) such Lien does not extend to or cover any property other than such item of property and any improvements on such item and proceeds thereof, (y) the purchase price or construction cost for such property is or should be included in "addition to property, plant and equipment" in accordance with generally accepted accounting principles, and (z) the purchase or construction of such property is not part of any acquisition of a Person or business unit or line of business. "Requisite Stockholders" means Significant Stockholders (or their respective successors or assigns) having or holding more than fifty percent (50%) of the aggregate outstanding principal amount of the Notes. "Representatives" has the meaning assigned to that term in Section 9.1 hereof. 7 14 "Right of First Refusal" has the meaning assigned to that term in Section 5.1 hereof. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Senior Indebtedness" means, without duplication, the principal and unpaid interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding), and, to the extent not included in the foregoing, all amounts payable as fees, costs, expenses, liquidated damages, indemnities, repurchase and other put obligations and other amounts to the extent accrued or due or in connection with all present and future (i) indebtedness of Parent for borrowed money, (ii) obligations of Parent evidenced by bonds, debentures, notes or similar instruments, (iii) all obligations of Parent under (w) securities repurchase agreements, (x) interest rate swaps, caps, collars, options and similar arrangements, (y) any foreign exchange contract, currency swap contract, futures contract, currency option contract or other foreign currency hedge, and (z) credit swaps, caps, floors, collars and similar arrangements, (iv) obligations incurred, assumed or guaranteed by Parent in connection with the acquisition by it or a Subsidiary of any business, property or assets (except Purchase Money Debt classified as accounts payable under generally accepted accounting principles), (v) obligations of Parent as lessee under Capital Leases and liabilities under any financing lease or so-called "synthetic" lease transaction entered into by Parent, (vi) reimbursement obligations of Parent in respect of letters of credit, bank guarantees or bankers' acceptances, (vii) obligations of Parent under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (vi) above; provided that Senior Indebtedness shall not include: (a) any indebtedness or obligations of the kinds referred to in clause (i) through (vii) above (collectively, "Debt") as to which, in the instrument or agreement creating or evidencing the same or pursuant to which the same is outstanding, it is expressly provided that such Debt shall be subordinated in right of payment to any other Debt of Parent, unless such instrument or agreement expressly provides that such Debt shall be senior in 8 15 right of payment to the Notes; (b) any Debt of Parent as to which, in the instrument or agreement creating or evidencing the same or pursuant to which the same is outstanding, it is expressly provided that such Debt shall not be senior in right of payment to, or is pari passu in right of payment with, or ranks junior in right of payment to, the Notes; (c) Debt of Parent in respect of the Notes; and (d) any Debt of Parent to any Subsidiary or other affiliate of Parent. Notwithstanding the foregoing, Senior Indebtedness shall not at any time exceed the difference between (a) $150,000,000 and (b) the outstanding aggregate principal amount of the Notes. "Stockholders" has the meaning assigned to that term in Section 8.7 hereof. "Subsidiary" means, with respect to any Person, any corporation, partnership, association, joint venture or other business entity of which more than fifty percent (50%) of the total voting power of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. ARTICLE TWO The Notes SECTION 2.1 Delivery of the Notes at the Closing. Subject to the terms and conditions set forth herein and in the Merger Agreement and Articles of Merger, Obligors hereby jointly and severally agree to execute in favor of the Significant Stockholders, and the Significant Stockholders hereby agree to accept from Obligors, $100,000,000 aggregate principal amount of the Notes. The Obligations, including without limitation all principal and accrued but unpaid interest, shall be due and payable in full on the Maturity Date, but shall be subject to prepayment at any time by Parent or the Company without penalty. The "Maturity Date" shall be that date which is the earliest to occur of: (a) the later to occur of the Initial Maturity Date or the latest Extended Maturity Date; or (b) the date on which 9 16 the entire unpaid principal amount and all accrued interest on each outstanding Note is declared or otherwise becomes immediately due and payable in full under Article 8 hereof. The "Initial Maturity Date" shall be November 7, 1999; provided, however, the Maturity Date may be extended by Obligors for successive three (3) month periods ("Extended Maturity Date(s)") if (a) at least $20,000,000 of the aggregate principal amount of the Notes, plus accrued but unpaid interest, has been paid (free of claims or liability for disgorgement to the extent provided under Article 7 hereof) on or prior to the Initial Maturity Date and an additional $20,000,000 of the aggregate principal amount of the Notes, plus accrued but unpaid interest, has been paid (free of claims or liability for disgorgement to the extent provided under Article 7 hereof) on or prior to each successive Extended Maturity Date and (b) no Event of Default shall exist hereunder at the Initial Maturity Date and on any Extended Maturity Date. Any principal payments made pursuant to the preceding sentence (to extend the Maturity Date) shall be made to satisfy outstanding principal under the Notes actually held by the Significant Stockholders (i.e., Notes other than the Escrow Notes), until such Notes are paid in full; any payments thereafter shall be applied to the Escrow Notes. The Maturity Date shall not be later than December 31, 2000. On the Closing Date, subject to the terms and conditions of this Agreement, the Merger Agreement and the Articles of Merger, and in reliance on the representations and warranties herein set forth, Obligors shall deliver to the Significant Stockholders the Notes, except that an amount equal to 10% of the gross consideration payable to Significant Stockholders under the Merger Agreement in aggregate principal amount of the Notes shall be delivered on behalf of the Significant Stockholders, and in accordance with the Merger Agreement, to the Escrow Agent as Escrow Notes (as such terms are defined in the Merger Agreement), all of which Notes (including without limitation the Escrow Notes) shall be dated the Closing Date and have other appropriate insertions; and the Significant Stockholders shall deliver to Parent the Certificates (as defined in the Merger Agreement) as provided in Section 1.5 of the Merger Agreement. The "Closing Date" and the "Closing" shall be as set forth in Section 6 of the Merger Agreement. 10 17 SECTION 2.2 Escrow Notes. The Escrow Notes delivered to the Escrow Agent at the Closing in accordance with the Merger Agreement shall be "Notes" for purposes of this Agreement and be in form and substance identical to the Notes actually received by the Significant Stockholders, except that the Escrow Notes may contain additional terms and conditions consistent with the provisions of Articles 1 and 10 of the Merger Agreement, and the Escrow Agreement (as defined in the Merger Agreement). The Escrow Notes shall be governed by this Agreement, except as set forth in Article 10 of the Merger Agreement (the "Indemnity Section") and the Escrow Agreement, the terms of which Indemnity Section and Escrow Agreement shall control over and supersede any contrary provisions of this Agreement or any other Financing Document. SECTION 2.3 Payments. Except as otherwise provided in this Agreement, the Indemnity Section and the Escrow Agreement, payments on the Notes shall be made by Parent and/or the Company to Significant Stockholders by lump sum wire transfer to an account maintained and designated by Co-Agents, who shall be solely responsible for disbursing requisite funds therefrom to each Significant Stockholder or other Note holder. Each such transfer by Obligors to Co-Agents shall constitute payment to each Significant Stockholder of its Pro Rata Share thereof on the date of such transfer for all purposes hereunder, including, without limitation, Articles 2, 3 and 8, and no Event of Default shall result from any delay of Co-Agents in disbursing funds to Significant Stockholders. Each Significant Stockholder shall provide Parent and the Company with its address and telephone and facsimile numbers and shall promptly advise Obligors of any change of such address or numbers. Upon any sale or other transfer or disposition of a Note under Section 5.1 hereof, Parent and the Company shall immediately be provided with the name and address and telephone and facsimile numbers of the purchaser or transferee of such Note. Co-Agents shall at all times maintain a register of the names, addresses and facsimile numbers of holders of the Notes and provide such list to Obligors upon request, and at least five Business Days prior to each scheduled payment of principal or interest hereunder. 11 18 ARTICLE THREE Interest SECTION 3.1 Interest Rate; When Payable. Each Note will provide that interest on unpaid principal will accrue at a rate equal to seven percent (7%) per annum (calculated on the basis of a 365-day year), compounded quarterly, through the Initial Maturity Date. Immediately following the Initial Maturity Date, such rate shall increase to twelve percent (12%) per annum (calculated on the basis of a 365-day year), compounded quarterly, which rate shall increase by two percent (2%) per annum immediately following each Extended Maturity Date after the first Extended Maturity Date (the "First Extended Maturity Date"). Interest shall be payable in arrears (i) on a calendar quarterly basis until the Initial Maturity Date, (ii) on the Initial Maturity Date (if the Maturity Date is extended under Section 2.1), (iii) on each Extended Maturity Date prior to the Maturity Date and (iv) to the extent unpaid at maturity, on the Maturity Date. SECTION 3.2 Default Rate. Each Note will further provide that upon the occurrence and during the continuation of any Event of Default (as defined in Article 8 below), the outstanding principal amount of all Notes shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a rate of twelve percent (12%) per annum (computed on the basis of a 365-day year), compounded quarterly, through the First Extended Maturity Date, and thereafter equal to the then applicable interest rate. Payment or acceptance of the increased rates of interest provided for in this Section 3.2 is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of any Significant Stockholder. SECTION 3.3 Waiver of Usury Laws. Notwithstanding any provision of any Financing Document, Obligors (individually and collectively) are not and will not be required to pay interest at a rate or any fee 12 19 or charge in an amount prohibited by applicable law. If interest or any fee or charge payable on any date would be in a prohibited amount, then such interest, fee or charge will be automatically reduced to the maximum amount that is not prohibited, and any interest, fee or charge for subsequent periods (to the extent not prohibited by applicable law) will be increased accordingly until Co-Agents and each Significant Stockholder receives payment of the full amount of each such reduction. To the extent that any prohibited amount is actually received by Co-Agents or any Significant Stockholder, then such amount will be automatically deemed to constitute a repayment of principal indebtedness hereunder. Obligors covenant (to the extent that they may lawfully do so) that they will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury law whenever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of the Financing Documents; and Obligors (to the extent that they may lawfully do so) hereby expressly waive all benefit or advantage of any such usury law and covenants that they will not hinder, delay or impede the execution of any power herein granted to Co-Agents based on such law, but will permit the execution of every such power as though no such usury law had been enacted. ARTICLE FOUR Representations and Warranties of Significant Stockholders SECTION 4.1 Investment Representations. Each Significant Stockholder hereby represents and warrants to Obligors that it is purchasing the Notes solely for its own account and not as nominee or agent for any other person and not with a view to, or for offer or sale in connection with, any distribution thereof (within the meaning of the Securities Act) that would be in violation of the securities laws of the United States of America or any state thereof; and that it is an "accredited investor" as that term is defined in Rule 501 of Regulation D of the Securities Act. Each Significant Stockholder agrees to complete and provide to Parent and Company an Investor Questionnaire in such form as reasonably requested by Parent. 13 20 SECTION 4.2 Source of Consideration. Each Significant Stockholder represents and warrants that no part of the consideration to be exchanged for or used to purchase the Notes to be purchased by it constitutes assets allocated to any qualified trust which contains the assets of any employee pension benefit plan with respect to which Obligors or any corporation considered an affiliate of Obligors within the meaning of Section 407(d)(7) of ERISA is a party in interest or disqualified person. As used in this Section 4.2, the terms "employee pension benefit plan" and "party in interest" shall have the meanings assigned to such terms in Section 3 of ERISA, the term "disqualified person" shall have the meaning assigned to such term in Section 4975 of the Internal Revenue Code of 1986, the term "qualified trust" shall mean any trust exempt under Section 501(a) of the Internal Revenue Code of 1986 that holds the assets of any employee pension benefit plan that is qualified under Section 401(a) of the Internal Revenue Code of 1986, and the term "affiliate" shall have the meaning assigned to it in Section 407(d)(7) of ERISA. ARTICLE FIVE Post-Closing Covenants of Significant Stockholders SECTION 5.1. Limits on Resales of Notes. No Significant Stockholder shall sell or otherwise transfer or dispose of any Note or Notes on or before the Initial Maturity Date or the occurrence of an Event of Default hereunder. If a Significant Stockholder desires to sell or otherwise transfer or dispose of any Note or Notes following the Initial Maturity Date or the occurrence of an Event of Default hereunder other than pursuant to a registration statement under the Securities Act, such Significant Stockholder shall deliver to Obligors an opinion of counsel in form and substance (and from counsel) reasonably satisfactory to Obligors, that exemptions from the Securities Act and any other applicable federal or state securities laws are available; provided, however, that Obligors shall be given not less than ten (10) Business Days' prior written notice of any intended sale, transfer or disposition of a Note by a Significant Stockholder and a right of first refusal for such period to purchase such Note by paying the full principal amount and accrued but unpaid interest outstanding thereunder ("Right of First Refusal"), which Right of First Refusal shall 14 21 terminate with respect to such Note (and only that Note) upon the initial sale, transfer or other disposition of such Note in accordance with this Section 5.1 to a Person other than a Significant Stockholder or Affiliated Transferee. Notwithstanding the foregoing provisions of this Section 5.1, a Significant Stockholder that is an individual may transfer a Note at any time to a family trust or limited partnership in which all of the general and limited partnership interests are held by such Significant Stockholder and members of such Significant Stockholder's immediate family (an "Affiliated Transferee") solely for estate planning purposes, subject only to the provision by such Significant Stockholder of an opinion of counsel in conformity with the preceding sentence. If any Note is sold or otherwise transferred or disposed of by a Significant Stockholder in accordance with this Section 5.1, then any purchaser, assignee or transferee of such Note (or subsequent purchaser, assignee or transferee) shall be deemed a "Significant Stockholder" under this Agreement and have the rights, duties and obligations arising hereunder. Upon issuance of the Notes, and until such time as the same is no longer required under applicable securities laws, the Notes (and all Notes issued in exchange therefor or substitution thereof) shall bear the following legend: "THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC. EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND 15 22 REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS." The first sentence of the foregoing legend shall be deleted from and shall not be applicable to a Note following the initial sale, transfer or other disposition of such Note in accordance with this Section 5.1 by a Significant Stockholder to a Person other than a Significant Stockholder or Affiliated Transferee. Notwithstanding the foregoing, the Escrow Notes shall not be sold or otherwise be subject to transfer or disposition so long as they are held by the Escrow Agent. Upon any release or return of any Escrow Notes to Significant Stockholders in accordance with the Indemnity Section or Escrow Agreement, such Notes shall be subject to the foregoing provisions of this Section 5.1. SECTION 5.2 Subordination of Notes and Claims. The Obligations under the Notes shall be subordinate to Senior Indebtedness of Parent as provided in Article 7 hereof. Each Significant Stockholder further covenants and agrees that any claims it may have against Parent arising out of this Agreement shall be subordinated to the Senior Indebtedness to the same extent and on the same terms as the Notes are subordinate to Senior Indebtedness. ARTICLE SIX Post-Closing Covenants of Parent and the Company Until payment in full of all of the Obligations, unless a Co-Agent or Requisite Stockholders shall otherwise give prior written consent, Parent and the Company, as applicable, shall perform all covenants in this Article 6. SECTION 6.1 Prohibition on Dividends and Distributions of Company The Company shall not declare, order, pay, make or set apart (i) any dividend or other distribution on account of any shares of any class of stock of the Company now or hereafter outstanding, except a dividend payable solely in shares of Capital Stock to the holders of that 16 23 class (which dividend of shares shall be subject to the pledge by Parent under Article 10 hereof), or (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value of any shares of any class of stock of the Company now or hereafter outstanding held by Parent. SECTION 6.2 Prohibition of Equity Issuances of the Company The Company shall not issue or sell any Capital Stock, except: (i) to Parent (which Capital Stock shall be subject to the pledge by Parent under Article 10 hereof); and (ii) as required to satisfy any pre-Merger obligations of the Company to issue or sell Capital Stock. SECTION 6.3 Prohibition of Liens on Company Assets The Company shall not create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of the Company, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the Uniform Commercial Code of any state or under any similar recording or notice statute, except: (i) Permitted Encumbrances; and (ii) Other Liens junior to Liens of the Significant Stockholders so long as the indebtedness secured thereby does not exceed $1,000,000 in aggregate principal amount. SECTION 6.4 Restriction on Certain Transactions; Asset Sales by the Company Neither the Company nor any wholly-owned Subsidiary of the Company shall enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), create any Subsidiary, or convey, sell, lease, sublease, 17 24 license, transfer or otherwise dispose of, in one transaction or a series of transactions, any intellectual property or Material Assets, whether now owned or hereafter acquired, except: (i) any Subsidiary of the Company may be created (as provided in subsection (iv) below), and merged or consolidated with or into the Company or any wholly-owned Subsidiary of the Company, or be liquidated, wound up or dissolved, or all or any substantial part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to the Company or any wholly-owned Subsidiary of the Company; provided that, in the case of such a merger or consolidation, the Company or such wholly-owned Subsidiary shall be the continuing or surviving corporation; (ii) the Company and its Subsidiaries may sell or otherwise transfer or dispose of (a) inventory in the ordinary course of business, (b) obsolete assets and (c) intellectual property in the ordinary course of business or for value acceptable to a Co-Agent or Requisite Stockholders, and may enter into licenses of intellectual property in the ordinary course of business or for value acceptable to a Co-Agent or Requisite Stockholders; and (iii) the Company and its Subsidiaries may sell or otherwise transfer or dispose of Material Assets in arms' length transactions with non-affiliated third parties for fair value, provided that the Net Cash Proceeds of any sales of Material Assets shall be applied as payment on the Notes; and (iv) the Company and its Subsidiaries may create Subsidiaries and transfer assets thereto, subject in each case to (a) the consent of a Co-Agent or Requisite Stockholders or (b) each such Subsidiary becoming an obligor under the Notes and being bound by the covenants applicable to the Company hereunder, and granting a security interest and lien in all of its assets and having its Capital Stock (to the extent held by the Company or its Subsidiary) pledged to Co-Agents under the terms and conditions set forth in Article 10 hereof. 18 25 SECTION 6.5 Limitation on Other Company Indebtedness The Company shall not create, incur, assume or guarantee, or otherwise become or remain liable with respect to, any Indebtedness, except: (i) the Company may become and remain liable with respect to the Notes; (ii) the Company may become and remain liable with respect to guarantees of Indebtedness of Parent that are subordinated to the Notes; (iii) the Company may become and remain liable with respect to Purchase Money Debt; (iv) the Company may become and remain liable with respect to Indebtedness described in parts (iv) and (v) of the definition thereof; (v) the Company may become and remain liable with respect to Indebtedness to any of its wholly-owned Subsidiaries, and any wholly-owned Subsidiary of the Company may become and remain liable with respect to Indebtedness to the Company or any other wholly-owned Subsidiary of the Company; provided that (a) all such intercompany Indebtedness shall be evidenced by promissory notes in which Co-Agents shall have a perfected security interest under Article 10 hereof, (b) all such intercompany Indebtedness owed by the Company to any of its Subsidiaries shall be unsecured and subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement, and (c) any payment by any Subsidiary of the Company under any guarantee of the Obligations shall result in a pro tanto reduction of the amount of any intercompany Indebtedness owed by such Subsidiary to the Company or to any of its Subsidiaries for whose benefit such payment is made; (vi) the Company may become and remain liable with respect to unsecured trade debt incurred in the ordinary course of business of the Company; and 19 26 (vii) the Company may remain liable with respect to Indebtedness existing on the date of this Agreement. SECTION 6.6 Affiliate Transactions with Company. The Company shall not engage in transactions with affiliates involving the lease, license, transfer, purchase or sale of assets, except: (i) transactions of a type that have historically been in the ordinary course of business for Parent and its affiliates; (ii) transactions in which fair value is received by the Company; (iii) transactions otherwise permitted by a Section of this Article 6; or (iv) transactions consented to by a Co-Agent or Requisite Stockholders. SECTION 6.7. SEC Filings. Parent shall provide to Co-Agents copies of its filings with the SEC under the Securities Exchange Act of 1934, in each case within fifteen (15) days of the date of filing. SECTION 6.8 Identification of Senior Indebtedness and Designated Senior Indebtedness. From time to time, upon reasonable request by a Co-Agent, Parent will provide a list of the then-outstanding Senior Indebtedness and Designated Senior Indebtedness to Co-Agents; provided, however, that such a request may be made only once prior to the Initial Maturity Date and no more frequently than once each quarter thereafter (excluding any reasonable requests made during the continuation of an Event of Default). 20 27 ARTICLE SEVEN Subordination of Notes SECTION 7.1. Agreement of Subordination. Parent and the Company covenant and agree, and each Significant Stockholder or other holder of a Note likewise covenants and agrees, that all Notes shall be issued subject to the provisions of this Article 7; and each Person holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees to be bound by such provisions. The payment of the principal of and interest on all Notes by Parent (but not by the Company) shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full in cash of all Senior Indebtedness of Parent, whether outstanding as of the date of this Agreement or thereafter incurred; provided, however, and notwithstanding any contrary provision of this Agreement, that unless a Co-Agent or any Significant Stockholder has actual notice or knowledge of the occurrence of an event or any reason why a payment to a Co-Agent or Significant Stockholders is not permitted by this Article 7 at the time of receiving such payment, such payment shall not be subject to any claim or liability for disgorgement by Co-Agents or Significant Stockholders to or for the benefit of a holder of Senior Indebtedness under this Article 7. SECTION 7.2. Payments to Significant Stockholders. No payment shall be made with respect to the principal of, or any interest on the Notes by Parent, if: (i) a default in the payment of principal, interest or other obligations due on any Senior Indebtedness of Parent has occurred and is continuing (or, in the case of Senior Indebtedness of Parent for which there is a period of grace, in the event of such a default that continues beyond the period of grace, if any, specified in the instrument or lease evidencing such Senior Indebtedness of Parent), unless and until such default shall have been cured or waived, shall have ceased to exist or shall become subject to a forbearance agreement expressly permitting payment on the Notes; or 21 28 (ii) a default (other than a payment default) on Designated Senior Indebtedness occurs and is continuing that then permits holders of such Designated Senior Indebtedness to accelerate its maturity and a Co-Agent receives a notice of the default (a "Payment Blockage Notice") from a representative of Designated Senior Indebtedness or a holder of Designated Senior Indebtedness or Parent. If a Co-Agent receives any Payment Blockage Notice pursuant to clause (ii) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until at least 365 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to a Co-Agent (unless such default was waived, cured or otherwise ceased to exist or was subject to a forbearance agreement expressly permitting payment on the Notes and thereafter subsequently reoccurred) shall be, or be made, the basis for a subsequent Payment Blockage Notice. Parent may and shall resume payments on and distributions in respect of the Notes upon the earlier of: (a) in the case of a payment default, the date upon which the default was cured or waived, ceases to exist or becomes subject to a forbearance agreement expressly permitting payment on the Notes, or (b) in the case of a default referred to in clause (ii) above, the earlier of the date on which such default is cured or waived, ceases to exist or becomes subject to a forbearance agreement expressly permitting payment on the Notes or 180 days after the date on which the applicable Payment Blockage Notice is received if the maturity of the applicable Designated Senior Indebtedness has not been accelerated, unless this Article 7 otherwise prohibits the payment or distribution at the time of such payment or distribution as a result of a payment default with respect to the applicable Senior Indebtedness as a consequence of the acceleration of the maturity thereof or otherwise. Upon any payment by Parent, or distribution of assets of Parent of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up 22 29 or liquidation or reorganization of Parent, whether voluntary or involuntary or in bankruptcy, moratorium of payments, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior Indebtedness of Parent shall first be paid in full in cash or other payment satisfactory to the holders of such Senior Indebtedness of Parent, or payment thereof in accordance with its terms provided for in cash or other payment satisfactory to the holders of such Senior Indebtedness of Parent before any payment is made on account of the principal of or interest on the Notes by Parent (other than from the Pledged Collateral or proceeds of foreclosure thereon); and upon any dissolution or winding-up or liquidation or reorganization of Parent or bankruptcy, insolvency, receivership or other proceeding, any payment by Parent, or distribution of assets of Parent of any kind or character, whether in cash, property or securities (other than the Pledged Collateral or the proceeds of foreclosure thereon), to which the Significant Stockholders or Co-Agents would be entitled, except for the provisions of this Article 7, shall (except as aforesaid), be paid by Parent or by any receiver, trustee in bankruptcy, moratorium of payments, liquidating trustee, agent or other Person making such payment or distribution, or by the Significant Stockholders or by the Co-Agents under this Agreement if received by them or it, directly to the holders of Senior Indebtedness of Parent (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness of Parent held by such holders, or as otherwise required by law or a court order) or their representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness of Parent may have been issued, as their respective interests may appear, to the extent necessary to pay all Senior Indebtedness of Parent in full, in cash or other payment satisfactory to the holders of such Senior Indebtedness of Parent, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness of Parent, before any payment or distribution is made by Parent, its successors or representatives to the Significant Stockholders or to the Co-Agents. For purposes of this Article 7, the words, "cash, property or securities" shall not be deemed to include shares of stock of Parent as reorganized or readjusted, or securities of Parent or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article 7 with respect to the Notes to the payment of all Senior Indebtedness of Parent which may at the time be outstanding; provided that (y) the Senior Indebtedness of Parent is assumed by the new 23 30 corporation, if any, resulting from any reorganization or readjustment, and (z) the rights of the holders of Senior Indebtedness of Parent (other than leases which are not assumed by Parent or the new corporation, as the case may be) are not, without the consent of such holders, altered by such reorganization or readjustment. In the event of the acceleration of the Notes because of an Event of Default, no payment or distribution shall be made to the Co-Agents or any Significant Stockholders in respect of the principal of or interest on the Notes by Parent, until (i) all Senior Indebtedness of Parent has been paid in full in cash or other payment satisfactory to the holders of Senior Indebtedness of Parent, (ii) such acceleration is rescinded in accordance with the terms of this Agreement or (iii) the 181st day following the date of such acceleration if no Senior Indebtedness of Parent has been accelerated prior thereto. If payment of the Notes is accelerated because of an Event of Default, Parent shall promptly notify holders of Senior Indebtedness of Parent of the acceleration. In the event that, notwithstanding the foregoing provisions, any payment or distribution of assets of Parent of any kind or character, whether in cash, property or securities (including, without limitation, by way of setoff or otherwise, but excluding the Pledged Collateral and any proceeds of foreclosure thereon), prohibited by the foregoing, shall be received by the Co-Agents or the Significant Stockholders before all Senior Indebtedness of Parent is paid in full in cash or other payment satisfactory to the holders of such Senior Indebtedness of Parent, or provisions made for such payment thereof in accordance with its terms in cash or other payment satisfactory to the holders of such Senior Indebtedness of Parent, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of Senior Indebtedness of Parent or their representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness of Parent may have been issued, as their respective interests may appear, as calculated by Parent, for application to the payment of all Senior Indebtedness of Parent remaining unpaid to the extent necessary to pay all Senior Indebtedness of Parent in full in cash or other payment satisfactory to the holders of such Senior Indebtedness of Parent after giving effect to any concurrent payment or distribution, or provision therefor to or for the holders of such Senior Indebtedness of Parent. 24 31 SECTION 7.3. Subrogation of Notes. Subject to the payment in full in cash of all Senior Indebtedness of Parent, the Significant Stockholders shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness of Parent pursuant to the provisions of this Article 7 to the rights of the holders of Senior Indebtedness of Parent to receive payments or distributions of cash, property or securities of Parent applicable to the Senior Indebtedness of Parent until the principal and interest on the Notes shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of Parent of any cash, property or securities to which the Significant Stockholders or the Co-Agents would be entitled except for the provision of this Article 7, and no payment over pursuant to the provisions of this Article 7, to or for the benefit of the holders of Senior Indebtedness of Parent by the Significant Stockholders or the Co-Agents, shall, as between Parent, its creditors other than holders of Senior Indebtedness of Parent, and the Significant Stockholders, be deemed to be a payment by Parent to or on account of the Senior Indebtedness of Parent. It is understood that the provisions of this Article 7 are and are intended solely for the purposes of defining the relative rights of the Significant Stockholders, on the one hand, and the holders of the Senior Indebtedness of the Parent on the other hand. Nothing contained in this Article 7 or elsewhere in this Agreement or in the Notes is intended to or shall impair, as among Parent, its creditors other than the holders of Senior Indebtedness of Parent, and the Significant Stockholders, the obligation of Parent (and the Company), which is absolute and unconditional to pay to the Significant Stockholders the principal of and interest on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Significant Stockholders and creditors of Parent other than the holders of the Senior Indebtedness of Parent, nor shall anything herein or therein prevent the Co-Agents or any Significant Stockholder from exercising all rights otherwise permitted by applicable law upon default under this Agreement or the Notes, subject to the rights, if any, under this Article 7 of the holders of Senior Indebtedness of Parent in respect of cash, property or securities of Parent (other than the Pledged Collateral and the proceeds of any foreclosure thereon) received upon the exercise of any such remedy. 25 32 Upon any payment or distribution of assets of Parent referred to in this Article 7, the Significant Stockholders and the Co-Agents shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, delivered to a Co-Agent or to the Significant Stockholders, for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness of Parent and other Indebtedness of Parent, with the amount thereof or payable thereon and all of the facts pertinent thereto or to this Article 7. SECTION 7.4. Authorization to Effect Subordination. Each Significant Stockholder by its acceptance of a Note authorizes and directs each Co-Agent on such Significant Stockholder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 7 and appoints each Co-Agent to act as the Significant Stockholder's attorney-in-fact for any and all such purposes. If the Co-Agent or Significant Stockholders do not file a proper proof of claim or proof of debt in the form required in any bankruptcy or insolvency proceeding at least fifteen (15) days before the expiration of the time to file such claim, holders of any Senior Indebtedness of Parent or their representatives are hereby authorized to file an appropriate claim for and on behalf of any Significant Stockholders. SECTION 7.5. No Impairment of Subordination. No right of any present or future holder of any Senior Indebtedness of Parent to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of Parent or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by Parent with the terms, provisions and covenants of this Agreement, regardless of any knowledge thereof which any holder may have or otherwise be charged with. 26 33 SECTION 7.6. Senior Indebtedness of Parent Entitled to Rely. The holders of Senior Indebtedness of Parent (including, without limitation, Designated Senior Indebtedness) shall have the right to rely upon this Article 7, and no amendment or modification of the provisions contained herein shall diminish the rights of such holders unless such holders at the time of such amendment or modification shall have agreed in writing thereto. ARTICLE EIGHT Events of Default Each Note shall provide that if any of the following conditions or events ("Events of Default") shall occur: SECTION 8.1. Failure to Make Payments When Due. Failure to pay any installment of principal of any Note when due, whether at stated maturity, by acceleration, by notice of prepayment or otherwise; or failure to pay any interest on any Note within ten (10) Business Days after the date due; or SECTION 8.2 Default in Other Agreements. (i) Failure (a) of Parent to pay when due $1,000,000 or more of principal of or interest on any specific Indebtedness (other than Indebtedness referred to in Section 8.1) or (b) of Parent to pay when due any principal of or interest on any Indebtedness having an outstanding principal amount of $5,000,000 or more, in each case beyond the end of any grace period provided therefor; or (ii) breach or default by Parent with respect to any other material term of any evidence of any Indebtedness described in the foregoing clause (i) if the effect of such breach or default is to cause an amount of $1,000,000 or more to become or be declared due and payable prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be (upon the giving or receiving of notice, lapse of time, both, or otherwise); provided, however, there shall not be an Event of Default under this Section 8.2 if any default or claimed default is cured either by payment of the amount of Indebtedness that is then due or payable or by curing 27 34 the cause of the default within forty-five (45) days from the date an executive officer of Parent actually becomes aware thereof (or ninety (90) days from the date an executive officer of Parent actually becomes aware thereof if Parent is attempting to remedy such default or disputes such default in good faith); or SECTION 8.3. Other Defaults Under Agreements. Parent or the Company shall default in the performance of or compliance with any term contained in this Agreement, other than any such term referred to in Section 8.1, and such default shall not have been remedied or waived within thirty (30) days after an executive officer of Parent or the Company (other than a Significant Stockholder), as applicable, actually becomes aware of such default (or sixty (60) days thereafter if Parent or the Company is attempting to remedy such default or disputes such default in good faith); or SECTION 8.4. Involuntary Bankruptcy: Appointment of Receiver, etc. (i) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of Parent or the Company in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against Parent or the Company under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over Parent or the Company, or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of Parent or the Company for all or a substantial part of its property; or SECTION 8.5. Voluntary Bankruptcy; Appointment of Receiver, etc. (i) Parent or the Company shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or under any other applicable 28 35 bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or Parent or the Company shall make any assignment for the benefit of creditors; or (ii) Parent or the Company shall be unable or shall fail, or shall admit in writing its inability, to pay its debts as such debts become due; or the Board of Directors of Parent or the Company (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to in clause (i) above or this clause (ii); or SECTION 8.6. Dissolution. Any order, judgment or decree shall be entered against Parent or the Company decreeing the dissolution or split up of Parent or the Company and such order shall remain undischarged or unstayed for a period in excess of 60 days; or SECTION 8.7. Judgments and Attachments. Any money judgment(s), writ(s) or warrant(s) of attachment or similar process(es) involving in the aggregate at any time an amount in excess of (a) $15,000,000 for Parent and (b) $5,000,000 for the Company (not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against Parent or the Company or any of their respective assets and shall remain undischarged, unbonded or unstayed for a period of 60 days, excluding any judgment, writ or warrant of attachment or similar process constituting, arising out of or resulting from a breach of any representation, warranty or covenant by the Company or Stockholders (as such terms are defined in the Merger Agreement) under the Merger Agreement; THEN (i) upon the occurrence of any Event of Default described in the foregoing Section 8.4 or 8.5, each of the unpaid principal amount of and accrued interest on the Notes and all other Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Parent and the Company and (ii) upon the occurrence and during the continuation of any other 29 36 Event of Default, Co-Agents shall, upon the written request of Requisite Stockholders, by written notice to Parent and the Company, declare all or any portion of the amounts described in clause (i) immediately above to be, and the same shall forthwith become, immediately due and payable. Notwithstanding anything contained in the preceding paragraph, if at any time within sixty (60) days after an acceleration of the Notes pursuant to such paragraph Obligors shall pay all arrears of interest and all payments on account of principal which shall have become due otherwise than as a result of such acceleration (with interest on principal at the rates specified in this Agreement) and all Events of Default (other than non-payment of the principal of and accrued interest on the Notes, in each case which is due and payable solely by virtue of acceleration) shall be remedied or waived, then Requisite Stockholders, by written notice to Obligors, may at their option rescind and annul such acceleration and its consequences; but such action shall not affect any subsequent Event of Default or impair any right consequent thereon. The provisions of this paragraph are intended merely to bind Significant Stockholders to a decision which may be made at the election of Requisite Stockholders and are not intended to benefit Obligors and do not grant Obligors the right to require Significant Stockholders to rescind or annul any acceleration hereunder, even if the conditions set forth herein are met. ARTICLE NINE Co-Agents of Significant Stockholders SECTION 9.1. Appointment. The Representatives (as defined in the Merger Agreement) are hereby appointed Co-Agents hereunder and under the other Financing Documents by Significant Stockholders and each Significant Stockholder hereby authorizes each Co-Agent to act as its agent in accordance with the terms of this Agreement and the other Financing Documents. Each Co-Agent accepts such appointment and agrees to act upon the express conditions contained in this Agreement and the other Financing Documents, as applicable. The provisions of this Article 9 are solely for the benefit of Co-Agents and Significant Stockholders, and Obligors shall have no rights as a third party beneficiary of any of the provisions thereof. In performing their functions and duties under this Agreement, Co-Agents shall act solely as agents of Significant Stockholders and do not 30 37 assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Obligors or any other Person (other than Significant Stockholders). SECTION 9.2. Powers: General Immunity. (a) Duties Specified. Each Significant Stockholder irrevocably authorizes each Co-Agent to take such action on such Significant Stockholder's behalf and to exercise such powers hereunder and under the other Financing Documents as are specifically delegated to Co-Agents by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. Co-Agents shall have only those duties and responsibilities that are expressly specified in this Agreement and the other Financing Documents and may perform such duties by or through their agents or employees. Co-Agents shall not have, by reason of this Agreement or any of the other Financing Documents, a fiduciary relationship in respect of any Significant Stockholders; and nothing in this Agreement or any of the other Financing Documents, expressed or implied, is intended to or shall be so construed as to impose upon a Co-Agent any obligations in respect of this Agreement or any of the other Financing Documents except as expressly set forth herein or therein. (b) No Responsibility for Certain Matters. Co-Agents shall not be responsible to any Significant Stockholders for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any other Financing Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any instruments or certificates or any other documents furnished or made by Co-Agents to Significant Stockholders or by or on behalf of Obligors to Co-Agents or any Significant Stockholder in connection herewith or therewith, nor shall Co-Agents be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the existence or possible existence of any Event of Default. (c) Exculpatory Provisions. Co-Agents and their respective officers, directors, employees or agents shall not be liable to Significant Stockholders for any action taken or omitted hereunder or in connection herewith by Co-Agents except to the extent caused by Co- 31 38 Agents' gross negligence or willful misconduct. If a Co-Agent shall request instructions from Significant Stockholders with respect to any act or action (including the failure to take an action) in connection with this Agreement or any of the other Financing Documents, such Co-Agent shall be entitled to refrain from such act or taking such action unless and until such Co-Agent shall have received instructions from Requisite Stockholders. Without prejudice to the generality of the foregoing, (i) each Co-Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Parent or the Company), accountants, experts and other professional advisors selected by it; and (ii) no Significant Stockholder shall have any right of action whatsoever against a Co-Agent as a result of such Co-Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Financing Documents in accordance with the instructions of Requisite Stockholders. Each Co-Agent shall be entitled to refrain from exercising any power, discretion or authority vested in it under this Agreement or any of the other Financing Documents unless and until it has obtained the instructions of Requisite Stockholders. Each Co-Agent is authorized to act in accordance with and upon the instructions of Requisite Stockholders. (d) Co-Agent Entitled to Act as Significant Stockholder. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, a Co-Agent in its individual capacity as a Significant Stockholder hereunder. With respect to its participation in the Notes, a Co-Agent that is a Significant Stockholder shall have the same rights and powers hereunder as any other Significant Stockholder and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Significant Stockholder" or "Significant Stockholders" or any similar term shall, unless the context clearly otherwise indicates, include such Co-Agent in its individual capacity. 32 39 SECTION 9.3 Right to Indemnity. Each Significant Stockholder, in proportion to its Pro Rata Share, severally agrees to indemnify each Co-Agent, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against each Co-Agent in performing its duties hereunder or under the other Financing Documents or otherwise in its capacity as Co-Agent in any way relating to or arising out of this Agreement or the other Financing Documents; provided that no Significant Stockholder shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from a Co-Agent's gross negligence or willful misconduct. If any indemnity furnished to a Co-Agent for any purpose shall, in the opinion of such Co-Agent, be insufficient or become impaired, such Co-Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. SECTION 9.4. Payee of Note Treated as Owner. Co-Agents may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with Co-Agents. Any request, authority or consent of or any payment to any person or entity who, at the time of making such request or giving such authority or consent, or receiving such payment, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of that Note or of any Note or Notes issued in exchange therefor. SECTION 9.5. Successor Co-Agents. A Co-Agent may resign at any time by giving thirty (30) days' prior written notice thereof to Significant Stockholders, Parent and the Company, and a Co-Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to Parent, the Company and Co-Agents and signed by Requisite Stockholders. Upon any such notice of resignation or any such removal, Requisite Stockholders shall have the right, upon five Business Days' notice to Obligors, to appoint a successor Co-Agent. Upon the 33 40 acceptance of any appointment as Co-Agent hereunder by a successor Co-Agent, that successor Co-Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Co-Agent and the retiring or removed Co-Agent shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Co-Agent's resignation or removal hereunder as Co-Agent, the provisions of this Article 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was a Co-Agent under this Agreement. ARTICLE TEN Security for Notes SECTION 10.1 Security. The payment and performance of Parent's and the Company's Obligations under the Notes will at all times be secured as follows: (a) Grant of Security Interest. As security for the due performance and payment of the Obligations, (i) the Company hereby grants to Co-Agents, on behalf of the Significant Stockholders, a security interest in and lien on the "Company Collateral" as defined in Section 10.1(b), and (ii) Parent hereby pledges and grants a lien to Co-Agents, on behalf of the Significant Stockholders, in the "Pledged Collateral" as defined in Section 10.1(b). (b) Collateral Defined. The term "Company Collateral" means, collectively, whether or not covered by Article 9 of the Uniform Commercial Code, any and all of the assets, properties, goods, inventory, equipment, furniture, fixtures, leases, supplies, records, money, deposit accounts, Capital Stock of Subsidiaries of the Company, documents, instruments, chattel paper, accounts, contract rights, investment property, financial assets, intellectual property rights (including, but not limited to, copyrights, copyright applications, moral rights, patents, patent applications, trademarks, service marks, trade names and trade secrets) and other general intangibles, of the Company, whether owned by the Company on the date of this Agreement or hereafter acquired, and all products and proceeds thereof. Notwithstanding the foregoing provisions of this Section 10.1(b), such grant of security interest 34 41 shall not extend to, and the term "Company Collateral" shall not include, any equipment lease, real property lease or chattel paper which is now or hereafter held by the Company as licensee, lessee or otherwise, to the extent that (a) such equipment lease, real property lease or chattel paper is not assignable or capable of being encumbered as a matter of law or under the terms of the license, lease or other agreement applicable thereto (but solely to the extent that any such restriction shall be enforceable under applicable law), without the consent of the licensor or lessor thereof or other applicable party thereto and (b) such consent has not been obtained; provided, however, that the foregoing grant of security interest shall extend to, and the term "Company Collateral" shall include, (i) any and all proceeds of such equipment lease, real property lease or chattel paper to the extent that the assignment or encumbering of such proceeds is not so restricted and (ii) upon the consent of any such licensor, lessor or other applicable party with respect to any such otherwise excluded equipment lease, real property lease or chattel paper being obtained (which consent shall be required only at a Co-Agent's request following an Event of Default hereunder), thereafter such equipment lease, real property lease or chattel paper as well as any and all proceeds thereof that might theretofore have been excluded from such grant of a security interest and the term "Company Collateral". The term "Pledged Collateral" means the Capital Stock of the Company held by Parent, now or hereafter, and all dividends and distributions thereon. In the event that any stock dividend, reclassification, readjustment, stock split or other change is declared or made with respect to the Pledged Collateral, or if warrants or any other rights, options or securities are issued to Parent in respect of the Pledged Collateral, then all new, substituted and/or additional shares or other securities issued by reason of such change or by the exercise of such warrants, rights, options or securities will be automatically pledged to Co-Agents and become part of the Pledged Collateral. Notwithstanding this Agreement, so long as Parent owns the Pledged Collateral and no Event of Default has occurred and is continuing, Parent will be entitled to vote any shares comprising the Pledged Collateral, subject to any proxies granted by Parent. The Company Collateral and Pledged Collateral shall be referred to herein as the "Collateral". 35 42 (c) Delivery of Certain Collateral. Any Collateral (other than checks) as to which possession is required under applicable law to perfect Co-Agents' security interest therein, shall be delivered to Co-Agents or, at Parent's request, an independent escrow holder acceptable to Parent and Co-Agents. Any such Collateral shall be duly endorsed and accompanied by duly executed instruments of transfer or assignment in blank, as applicable. (d) Financing Statements. So long as Obligors have any Obligations to Significant Stockholders under the Notes, Obligors will promptly execute and deliver to Co-Agents such notices, financing statements, or other documents and papers (including, but not limited to, such documents as may be filed with the U.S. Register of Copyrights and the U.S. Patent and Trademark Office in order to perfect Co-Agents' security interest in the Company's patents, patent applications, registered trademarks, registered copyrights and applications therefor) as Co-Agents may reasonably require in order to perfect and maintain the security interest in and lien on the Collateral granted to Co-Agents hereby. Notwithstanding the foregoing provisions of this Section 10.1(d), and except upon the occurrence and during the continuation of an Event of Default, the Company shall not be required to take any action that would restrict or limit its access to its deposit accounts. Upon the full and final discharge of all of the Obligations, each Co-Agent and each Significant Stockholder will execute and deliver such documents as may be reasonably necessary and requested and provided by Obligors to release the Collateral from the security interest and lien granted to Co-Agents in this Agreement, and return (or cause to be returned) to Obligors any Collateral in the possession of Co-Agents or their agents including, without limitation, the Pledged Collateral. (e) Co-Agents' Obligations and Duties. The Significant Stockholders hereby appoint each Co-Agent to act as the agent, attorney-in-fact and representative of the Significant Stockholders to execute and deliver any and all documents, and to exercise any and all rights and remedies of the Significant Stockholders under this Article 10, by and on behalf of the Significant Stockholders. Anything herein to the contrary notwithstanding, Obligors shall remain liable under each contract or agreement comprised in the Collateral to be observed or performed by them thereunder. A Co-Agent shall not have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by a Co-Agent of any payment relating to any of the Collateral, nor shall a Co-Agent be obligated in any 36 43 manner to perform any of the obligations of Obligors under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by a Co-Agent in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to Co-Agents or to which Co-Agents may be entitled at any time or times. Co-Agents' sole duty with respect to the custody, safe keeping and physical preservation of the Collateral in its possession, under Section 9-207 of the Uniform Commercial Code of the State of California or otherwise, shall be to deal with such Collateral in the same manner as Co-Agents deal with similar property for their own accounts. SECTION 10.2. Rights and Remedies Upon Event of Default. (a) Remedies. If an Event of Default shall have occurred and be continuing, Co-Agents may, without notice to or demand upon Obligors, declare this Agreement to be in default, and Co-Agents shall thereafter have in any jurisdiction in which enforcement hereof is sought, in addition to all other rights and remedies available under contract and applicable law, the rights and remedies of a secured party under the Uniform Commercial Code, including, without limitation, the right to take possession of the Collateral, and for that purpose Co-Agents may, so far as Obligors can give authority therefor, enter upon any premises on which the Collateral may be situated and remove the same therefrom. Co-Agents may in their discretion require Obligors to assemble all or any part of the Collateral at such location or locations within the state(s) of Obligors' principal offices(s) or at such other locations as Co-Agents may designate. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Co-Agents shall give to Obligors at least ten (10) Business Days' prior written notice of the time and place of any public sale of Collateral or of the time after which any private sale or any other intended disposition is to be made. Obligors hereby acknowledges that ten (10) Business Days' prior written notice of such sale or sales shall be reasonable notice. 37 44 (b) No Election of Remedies. The election by Co-Agent of any right or remedy will not prevent it from exercising any other right or remedy against Obligors. All rights and remedies are cumulative. (c) Sales of Collateral. Any item of Collateral may be sold for cash or other value at public or private sale or other disposition and the proceeds thereof collected by or for the Significant Stockholders. Obligors agree to promptly execute and deliver, or promptly cause to be executed and delivered, such instruments, documents, assignments, waivers, certificates and affidavits and supply or cause to be supplied such further information and take such further action as Co-Agents may require in connection with any such sale or disposition. Co-Agents will have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in Obligors, which right or equity is hereby waived or released. (d) Application of Proceeds. The proceeds of all sales and collections in respect of the Collateral, the application of which is not otherwise specifically herein provided for, will be applied as follows: (i) first, to the payment of the costs and expenses of such sale or sales and collections and the attorneys' fees and out-of-pocket expenses incurred by Co-Agents relating to costs of collection; (ii) second, any surplus then remaining will be applied first to the pro rata payment of all unpaid interest accrued under each Note, and then to the pro rata payment of unpaid principal under each Note; and (iii) third, any surplus then remaining will be paid to Obligors, as applicable. SECTION 10.3. Termination. When all Obligations have been paid and performed in full and discharged, all security interests and other Liens granted to Co-Agents under this Agreement will terminate. 38 45 ARTICLE ELEVEN Miscellaneous SECTION 11.1. Ratable Sharing. Significant Stockholders hereby agree among themselves that if any of them shall, whether by voluntary payment, by realization upon security, through the exercise of any right of set-off or recoupment, by counterclaim or cross-action or by the enforcement of any right under the Financing Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, fees and other amounts then due and owing to that Significant Stockholder hereunder or under the other Financing Documents (collectively, the "Aggregate Amounts Due" to such Significant Stockholder) which is greater than the proportion received by any other Significant Stockholder in respect of the Aggregate Amounts Due to such other Significant Stockholder, then the Significant Stockholder receiving such proportionately greater payment shall (i) notify Co-Agents and each other Significant Stockholder of the receipt of such payment and (ii) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Significant Stockholders so that all such recoveries of Aggregate Amounts Due shall be shared by all Significant Stockholders in proportion to the Aggregate Amounts Due to them; provided that if all or part of such proportionately greater payment received by such purchasing Significant Stockholder is thereafter recovered from such Significant Stockholder upon the bankruptcy or reorganization of Parent or the Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Significant Stockholder ratably to the extent of such recovery, but without interest. Obligors expressly consent to the foregoing arrangement and agree that any holder of a participation so purchased may exercise any and all rights of set-off, recoupment or counterclaim with respect to any and all monies owing by Parent or the Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder. 39 46 SECTION 11.2. Set Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, Obligors are hereby authorized by each Significant Shareholder at any time or from time to time, without notice to Significant Shareholders or to any other Person, any such notice being hereby expressly waived, to set off, recoup or to appropriate and to apply any and all indebtedness at any time held or owing by Obligors to or for the credit or the account of Significant Stockholders against and on account of the obligations and liabilities of Significant Stockholders to Obligors arising out of indemnity claims of Parent to the extent that such claims have been resolved in Parent's favor in accordance with the Indemnity Section and the Escrow Agreement. Any such setoff, recoupment, appropriation or application shall be subject to the terms, conditions and limitations of the Indemnity Section and Escrow Agreement. Except as provided in this Section 11.2 and in the Indemnity Section and Escrow Agreement, Obligors shall have no other right of setoff or recoupment with respect to the Obligations. SECTION 11.3. Governing Law. The internal laws of the State of California (irrespective of its choice of law principles) will govern the validity of the Financing Documents, the construction of their terms, and the interpretation and enforcement of the rights and duties of the parties thereto. SECTION 11.4. Assignment; Successors and Assigns. Except as set forth in Section 5.1, no party hereto may assign or delegate any of its rights or obligations under the Financing Documents without the prior written consent of the Obligors and Requisite Stockholders. Any purported assignment not permitted by this Section shall be void. The Financing Documents will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. SECTION 11.5. Severability. If any provision of this Agreement, or the application thereof, is for any reason held to any extent to be invalid or unenforceable, the remainder of this Agreement and 40 47 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 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 the void or unenforceable provision. SECTION 11.6. Counterparts. This Agreement may be executed in counterparts, each of which will be an original as regards any party whose name appears thereon and all of which together will constitute one and the same instrument. This Agreement will become binding when one or more counterparts hereof, individually or taken together, bear the signatures of all parties reflected hereon as signatories. SECTION 11.7. Other Remedies. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby or by law on such party, and the exercise of any one remedy will not preclude the exercise of any other. SECTION 11.8. Amendment and Waivers. Any term or provision of this Agreement may be amended only by a writing signed by Obligors and Requisite Stockholders. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only by a writing signed by the party to be bound thereby. The waiver by a party of any breach hereof or default in the performance hereof will not be deemed to constitute a waiver of any other default or any succeeding breach or default. The failure of any party to enforce any of the provisions hereof or any other Financing Document will not be construed to be a waiver of the right of such party thereafter to enforce such provisions. 41 48 SECTION 11.9. Expenses. Each party will bear its respective expenses and fees of its own accountants, attorneys, investment bankers and other professionals incurred with respect to the execution of this Agreement, the other Financing Documents and the transactions contemplated hereby, except that Obligors shall bear, or reimburse Co-Agents for, reasonable fees and expenses incurred by Co-Agents in preparing and filing the documents described in Section 10.1(d) hereof. SECTION 11.10. Attorneys' Fees. Should suit be brought to enforce or interpret any part of this Agreement or the other Financing Documents, the prevailing party will be entitled to recover, as an element of the costs of suit and not as damages, reasonable attorneys' fees to be fixed by the court (including without limitation, costs, expenses and fees on any appeal). The prevailing party will be entitled to recover its costs of suit, regardless of whether such suit proceeds to final judgment. SECTION 11.11. Notices. Any notice or other communication required or permitted to be given under this Agreement will be in writing, will be delivered personally, by mail or express delivery, postage prepaid, or telecopy (confirmed in writing) and will be deemed given upon actual delivery or, if mailed by registered or certified mail, on the third business day following deposit in the mails, addressed as follows: (i) If to Parent and/or the Company: Tekelec 26580 West Agoura Road Calabasas, CA 91302 Attention: General Counsel Fax: (818) 880-0176 42 49 with a copy to: Fenwick & West LLP Two Palo Alto Square Palo Alto, California 94306 Attention: Dennis R. DeBroeck Fax: 415-494-1417 (ii) If to the Co-Agents and/or Significant Stockholders: Thomas Loo, Esq. Bryan Cave LLP 120 Broadway, Suite 300 Santa Monica, CA 90404 Fax: (310) 576-2200 Gary Crockett IEX Corporation 2425 North Central Expressway Richardson, TX 75080-2736 Fax: (972)301-4854 with a copy to: Bryan Cave LLP 120 Broadway, Suite 300 Santa Monica, CA 90404 Attention: Tom Loo, Esq. Fax: 310-576-2200 or to such other address as the party in question may have furnished to the other parties by written notice given in accordance with this Section 11.11. 43 50 SECTION 11.12. Construction of Agreement. The language hereof will not be construed for or against any party. A reference to an article, Section or exhibit will mean an article or Section in, or an exhibit to, this Agreement, unless otherwise explicitly set forth. The titles and headings in this Agreement are for reference purposes only and will not in any manner limit the construction of this Agreement. For the purposes of such construction, this Agreement will be considered as a whole. SECTION 11.13. Further Assurances. Each party agrees to cooperate fully with the other party and to execute such further instruments, documents and agreements and to give such further written assurances as may be reasonably requested by the other parties to evidence and reflect the transactions provided for herein and to carry into effect the intent of this Agreement. SECTION 11.14. Other Waivers. Until the Obligations are satisfied in full, (a) Parent and the Company each waive, to the fullest extent permitted by law, any defense or benefit that may be derived from or afforded by law that limits the liability of or exonerates guarantors or sureties, including, without limitation, California Civil Code sections 2809, 2810, 2819, 2845, 2847, 2849 and 2850, and (b) neither Parent nor the Company shall pursue rights of subrogation or contribution against the other with respect to the Obligations. SECTION 11.15. Entire Agreement This Agreement, the Notes, the exhibits hereto and thereto and agreements (or portions thereof) referenced herein or therein constitute the entire understanding and agreement of the parties hereto with respect to the subject matter of the Financing Documents and supersede all prior and contemporaneous agreements or understandings, inducements or conditions, express or implied, written or oral, between the parties with respect to the subject matter of the Financing Documents. The express terms of the Financing Documents control and supersede any course of performance or usage of trade inconsistent with any of the terms of the Financing Documents. 44 51 SECTION 11.16. Submission to Jurisdiction; Waiver of Jury Trial EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS AND/OR SEEKING INJUNCTIVE OR EQUITABLE RELIEF, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT SUCH PARTY MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT SUCH PARTY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT WITH RESPECT TO ANY FINANCING DOCUMENT AND ANY CLAIM THAT SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 45 52 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested, all as of the date first above written. TEKELEC By: /s/ GILLES C. GODIN ------------------------------- Title: CFO and Vice President, Finance IEX CORPORATION By: /s/ GARY CROCKET ------------------------------- Title: CEO TEKNEKRON PARTNERS II By: /s/ LESLIE K. WAGNER ------------------------------- Title: General Partner IEX PARTNERS By: /s/ LESLIE K. WAGNER ------------------------------- Title: General Partner TEKNEKRON CORPORATION By: /s/ HARVEY E. WAGNER ------------------------------- Title: CEO 46 53 /s/ GARY CROCKETT ---------------------------------- Gary Crockett /s/ STEPHEN LYNN ---------------------------------- Stephen Lynn /s/ DEBRA MAY ---------------------------------- Debra May /s/ DAVID LAIZEROVICH ---------------------------------- David Laizerovich /s/ JEFFREY KUPP ---------------------------------- Jeffrey Kupp /s/ JEROME BALL ---------------------------------- Jerome Ball /s/ JOE DEFENDERFER ---------------------------------- Joe Defenderfer /s/ BRAD SIMMONS ---------------------------------- Brad Simmons 47 54 EXHIBIT A (Note and Security Agreement) EXHIBIT B (Agreement and Plan of Reorganization) THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC. EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. FORM OF SECURED PROMISSORY NOTE $________________ as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of [INSERT NAME OF SIGNIFICANT STOCKHOLDER] ("Holder"): (a) prior to or on the Maturity Date the principal amount of [INSERT AMOUNT] DOLLARS ($_______________), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of 55 the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. 56 IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By:_______________________________ Title: IEX CORPORATION By:_______________________________ Title: EX-4.02 4 EXHIBIT 4.02 1 EXHIBIT 4.02 SECURED PROMISSORY NOTES DATED AS OF MAY 7, 1999 made by Tekelec and IEX Corporation in favor of the Significant Stockholders of IEX Corporation 2 EXHIBIT 4.02 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $28,352,216.97 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of IEX Partners ("Holder"): (a) prior to or on the Maturity Date the principal amount of Twenty-Eight Million Three Hundred Fifty-Two Thousand Two Hundred Sixteen Dollars and Ninety-Seven Cents ($28,352,216.97), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 3 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 4 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $4,764,910.97 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of IEX Partners ("Holder"): (a) prior to or on the Maturity Date the principal amount of Four Million Seven Hundred Sixty-Four Thousand Nine Hundred Ten Dollars and Ninety-Seven Cents ($4,764,910.97), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 5 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 6 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $31,240,765.21 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Teknekron Partners II ("Holder"): (a) prior to or on the Maturity Date the principal amount of Thirty-One Million Two Hundred Forty Thousand Seven Hundred Sixty-Five Dollars and Twenty-One Cents ($31,240,765.21), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 7 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 8 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $5,250,364.20 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Teknekron Partners II ("Holder"): (a) prior to or on the Maturity Date the principal amount of Five Million Two Hundred Fifty Thousand Three Hundred Sixty-Four Dollars and Twenty Cents ($5,250,364.20), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 9 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 10 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $3,449,483.55 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Teknekron Corporation ("Holder"): (a) prior to or on the Maturity Date the principal amount of Three Million Four Hundred Forty-Nine Thousand Four Hundred Eighty-Three Dollars and Fifty-Five Cents ($3,449,483.55), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 11 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 12 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $579,724.75 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Teknekron Corporation ("Holder"): (a) prior to or on the Maturity Date the principal amount of Five Hundred Seventy-Nine Thousand Seven Hundred Twenty-Four Dollars and Seventy-Five Cents ($579,724.75), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 13 \ The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 14 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $11,334,017.39 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Gary Crockett ("Holder"): (a) prior to or on the Maturity Date the principal amount of Eleven Million Three Hundred Thirty-Four Thousand Seventeen Dollars and Thirty-Nine Cents ($11,334,017.39), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 15 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 16 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $1,904,809.91 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Gary Crockett ("Holder"): (a) prior to or on the Maturity Date the principal amount of One Million Nine Hundred Four Thousand Eight Hundred Nine Dollars and Ninety-One Cents ($1,904,809.91), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 17 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 18 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $1,971,133.46 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Stephen Lynn ("Holder"): (a) prior to or on the Maturity Date the principal amount of One Million Nine Hundred Seventy-One Thousand One Hundred Thirty-Three Dollars and Forty-Six Cents ($1,971,133.46), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 19 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 20 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $331,271.29 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Stephen Lynn ("Holder"): (a) prior to or on the Maturity Date the principal amount of Three Hundred Thirty-One Thousand Two Hundred Seventy-One Dollars and Twenty-Nine Cents ($331,271.29), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 21 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 22 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $985,566.73 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Jeffrey Kupp ("Holder"): (a) prior to or on the Maturity Date the principal amount of Nine Hundred Eighty-Five Thousand Five Hundred Sixty-Six Dollars and Seventy-Three Cents ($985,566.73), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 23 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 24 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $165,635.64 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Jeffrey Kupp ("Holder"): (a) prior to or on the Maturity Date the principal amount of One Hundred Sixty-Five Thousand Six Hundred Thirty-Five Dollars and Sixty-Four Cents ($165,635.64), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 25 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 26 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $2,020,411.79 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of David Laizerovich ("Holder"): (a) prior to or on the Maturity Date the principal amount of Two Million Twenty Thousand Four Hundred Eleven Dollars and Seventy-Nine Cents ($2,020,411.79), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 27 \ The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 28 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $339,553.07 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of David Laizerovich ("Holder"): (a) prior to or on the Maturity Date the principal amount of Three Hundred Thirty-Nine Thousand Five Hundred Fifty-Three Dollars and Seven Cents ($339,553.07), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 29 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 30 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $2,118,968.47 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Debra May ("Holder"): (a) prior to or on the Maturity Date the principal amount of Two Million One Hundred Eighteen Thousand Nine Hundred Sixty-Eight Dollars and Forty-Seven Cents ($2,118,968.47), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 31 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 32 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $356,116.63 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Debra May ("Holder"): (a) prior to or on the Maturity Date the principal amount of Three Hundred Fifty-Six Thousand One Hundred Sixteen Dollars and Sixty-Three Cents ($356,116.63), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 33 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 34 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $2,069,690.13 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Brad Simmons ("Holder"): (a) prior to or on the Maturity Date the principal amount of Two Million Sixty-Nine Thousand Six Hundred Ninety Dollars and Thirteen Cents ($2,069,690.13), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 35 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 36 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $347,834.85 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Brad Simmons ("Holder"): (a) prior to or on the Maturity Date the principal amount of Three Hundred Forty-Seven Thousand Eight Hundred Thirty-Four Dollars and Eighty-Five Cents ($347,834.85), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 37 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 38 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $1,034,845.07 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Joe Defenderfer ("Holder"): (a) prior to or on the Maturity Date the principal amount of One Million Thirty-Four Thousand Eight Hundred Forty-Five Dollars and Seven Cents ($1,034,845.07), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 39 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 40 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $173,917.43 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Joe Defenderfer ("Holder"): (a) prior to or on the Maturity Date the principal amount of One Hundred Seventy-Three Thousand Nine Hundred Seventeen Dollars and Forty-Three Cents ($173,917.43), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 41 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 42 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $1,034,845.07 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Jerome Ball ("Holder"): (a) prior to or on the Maturity Date the principal amount of One Million Thirty-Four Thousand Eight Hundred Forty-Five Dollars and Seven Cents ($1,034,845.07), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 43 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner 44 THIS NOTE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A NOTE AND SECURITY AGREEMENT DATED AS OF MAY 7, 1999 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF TEKELEC). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `ACT'), OR (B) IF TEKELEC HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND OTHER APPLICABLE SECURITIES LAWS. SECURED PROMISSORY NOTE $173,917.43 as of May 7, 1999 FOR VALUE RECEIVED, the undersigned Tekelec, a California corporation, and IEX Corporation, a Nevada corporation, (collectively the "Obligors"), hereby jointly and severally promise to pay to the order of Jerome Ball ("Holder"): (a) prior to or on the Maturity Date the principal amount of One Hundred Seventy-Three Thousand Nine Hundred Seventeen Dollars and Forty-Three Cents ($173,917.43), evidencing the indebtedness owing by the Obligors to Holder pursuant to the Note and Security Agreement dated as of May 7, 1999 (as amended and in effect from time to time, and as subject by its terms to the Agreement and Plan of Reorganization, dated April 20, 1999 and other documents referenced in such Note and Security Agreement, the "Note Agreement"), by and among the Obligors and the Significant Stockholders; and (b) interest from the date hereof on the principal amount from time to time outstanding to and including the maturity hereof at the rates and terms and in all cases in accordance with the terms of the Note Agreement. This Note evidences indebtedness under and has been issued by the Obligors in accordance with the terms of the Note Agreement. Holder is entitled to the benefits of the Note Agreement and may enforce the agreements of the Obligors contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Note Agreement. 45 The Obligors have the right, and the obligation under certain circumstances, to prepay the whole or part of the principal of this Note on the terms and conditions specified in the Note Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Note Agreement. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other rights of Holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Obligors hereby waive presentment, demand, notice, notice of acceleration, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person liable. THIS NOTE AND THE OBLIGATIONS OF OBLIGORS HEREUNDER SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OR LAW). OBLIGORS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS NOTE MAY BE BROUGHT IN ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN THE COUNTY OF LOS ANGELES AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON OBLIGORS BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 11.11 OF THE NOTE AGREEMENT. OBLIGORS HEREBY WAIVE TRIAL BY JURY AND ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. IN WITNESS WHEREOF, each of the undersigned, jointly and severally, has caused this Note to be signed by its duly authorized officer as of the day and year first above written. TEKELEC By: /s/ JILLES C. GODWIN -------------------------------------- Jilles C. Godwin Title: Chief Financial Officer and Vice President of Finance IEX CORPORATION By: /s/ THOMAS J. LOO ------------------------------------- Thomas J. Loo Title: Partner EX-23.1 5 EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the use of our report dated February 23, 1999, with respect to the financial statements of IEX Corporation included in this Current Report on Form 8-K of Tekelec. We also consent to the incorporation by reference in the Registration Statements of Tekelec on Form S-8 (File Nos. 33-48079, 33-82124, 33-60611, 333-05933, 333-28887, 333-37843, 333-71261) of our report dated February 23, 1999, with respect to the financial statements of IEX Corporation included in this Current Report on Form 8-K of Tekelec. /s/ ERNST & YOUNG LLP Dallas, Texas May 11, 1999 -----END PRIVACY-ENHANCED MESSAGE-----