-----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, TUfJc2fcKTSYjDx3ln/AmCgRqBEeA/S+jjIydHLHmOdFrAv9hyBCNrZNHk4p7Ngt ysEdj14DoYZ+bJoRxeGC2g== 0000950148-98-000247.txt : 19980218 0000950148-98-000247.hdr.sgml : 19980218 ACCESSION NUMBER: 0000950148-98-000247 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980130 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MRV COMMUNICATIONS INC CENTRAL INDEX KEY: 0000887969 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 061340090 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-11174 FILM NUMBER: 98536094 BUSINESS ADDRESS: STREET 1: 8917 FULLBRIGHT AVE CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8187739044 MAIL ADDRESS: STREET 1: 8943 FULLBRIGHT AVE CITY: CHATSWORTH STATE: CA ZIP: 91311 8-K 1 FORM 8-K 1 ================================================================================ FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) January 30, 1998 MRV COMMUNICATIONS, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation) 0-23452 06-1340090 (Commission File Number) (I.R.S. Employer Identification No.) 8917 Fullbright Ave. Chatsworth, CA 91311 (Address of principal executive officers) (Zip Code) 818 773-9044 Registrant's telephone number, including area code N.A. (Former name or former address, if changed since last report) ================================================================================ 2 Item 2. Acquisition or Disposition of Assets On January 30, 1998, the Registrant completed an acquisition from Whittaker Corporation ("Whittaker") of all of the outstanding capital stock of Whittaker Xyplex, Inc. a Delaware corporation (the "Acquisition"). Whittker Xyplex, Inc., is a holding corporation owning all of the outstanding capital stock of Xyplex, Inc., a Massachusetts corporation ("Xyplex"). Accordingly, as result of the Acquisition, the Registrant acquired Xyplex. The purchase price paid to Whittaker, which was arrived at as the result of arms' length negotiations, consisted of $35,000,000 in cash and 3-year warrants to purchase up to 500,000 shares of common stock of the Registrant ("Common Stock") at an exercise price of $35 per share. The source of the cash paid by Registrant was net proceeds from the Company's public offering of Common Stock completed in September 1997. Warrants to purchase 421,402 shares of Common Stock were issued to Whitaker at the closing and Warrants to purchase 78,598 shares of Common Stock are issuable to Whittaker if Whittaker delivers Xyplex's audited financial statements to the Registrant by March 30, 1998. Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired It is impracticable to file the required financial statements of Xyplex with this Form 8-K report. Such of the required financials statements as are available are being filed herewith as Exhibit 2.2(a) to this Form 8-K report. Registrant plans to file the remainder of the required financial statements as an amendment to this Form as soon as practicable, but not later than 60 days following the date by which this report on Form 8-K is required be filed. (b) Pro forma Financial Information It is impracticable to file the required pro forma financial information with this Form 8-K report. Registrant plans to file the required pro forma financial information as an amendment to this Form as soon as practicable, but not later than 60 days following the date by which this report on Form 8-K must be filed. 2 3 (c) Exhibits 2.1 (a) Stock Purchase Agreement dated January 19, 1998 by and between Whittaker and Registrant. 2.1 (b) Warrant Agreement dated January 30, 1998 by and between Whittaker and Registrant. 2.1 (c) Warrant Certificate No. Whittaker#1 to purchase 421,402 shares of Common Stock of Registrant issued to Whitaker on Janaury 30, 1998. 2.2 (a) Xyplex, Inc. Financial Statements for the years ended December 31, 1995 and 1994, consisting of: Report of Independent Accountants Xyplex, Inc. Balance Sheets December 31, 1995 and 1994 Xyplex, Inc. Statements of Income for the years ended December 31, 1995 and 1994 Xyplex, Inc. Statements of Stockholder's Equity for the years ended December 31, 1995 and 1994 Xyplex, Inc. Statements of Cash Flows for the years ended December 31, 1995 and 1994 Xyplex, Inc. Notes to Financial Statements 3 4 SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MRV Communications, Inc. Dated February 12, 1998 /s/ Edmund Glazer ----------------------------------- Edmund Glazer Vice President of Finance and Administration and Chief Financial Officer 4 EX-2.1(A) 2 EXHIBIT 2.1(A) 1 EXHIBIT 2.1(a) STOCK PURCHASE AGREEMENT THIS AGREEMENT is entered into as of January 19, 1998, by and between Whittaker Corporation, a Delaware corporation (the "Seller"), and MRV Communications, Inc. (the "Buyer"). The Buyer and the Seller are referred to collectively herein as the "Parties." The Seller owns all of the outstanding capital stock of Whittaker Xyplex, Inc., a Delaware corporation (the "Target"). The Target owns all of the outstanding capital stock of Xyplex, Inc., a Massachusetts corporation (the "Subsidiary"). This Agreement contemplates a transaction in which the Buyer will purchase from the Seller, and the Seller will sell to the Buyer, all of the outstanding capital stock of the Target in return for the consideration set forth herein. Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows. 1. Definitions. "Accredited Investor" has the meaning set forth in Regulation D promulgated under the Securities Act. "Acquisition Agreement" has the meaning set forth in Section 6(i) below. "Adverse Consequences" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees, including court costs and reasonable attorneys' fees and expenses. "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act. "Affiliated Group" means any affiliated group within the meaning of Code Section 1504(a). "Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or could form the basis for any specified consequence. "Broker's Contract" has the meaning set forth in Section 3(a)(iv). "Buyer" has the meaning set forth in the preface above. "Buyer's Stock" has the meaning set forth in Section 2(b) below. "Closing" has the meaning set forth in Section 2(c) below. 2 "Closing Date" has the meaning set forth in Section 2(c) below. "Code" means the Internal Revenue Code of 1986, as amended. "Confidential Information" means any information concerning the business and affairs of the Target that is not already generally available to the public. "Controlled Group of Corporations" has the meaning set forth in Code Section 1563. "Deferred Intercompany Transaction" has the meaning set forth in Reg. Section 1.1502-13. "Disclosure Schedule" has the meaning set forth in Sections 3 and 4 below. "Employee Benefit Plan" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit plan or program. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Section 3(2). "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section 3(1). "Environmental, Health and Safety Laws" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, and the Occupational Safety and Health Act of 1970, each as amended, together with all other laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof) concerning pollution or protection of the environment, public health and safety, or employee health and safety, including laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes, as in effect on the date hereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Excess Loss Account" has the meaning set forth in Reg. Section 1.1502-19. "Extremely Hazardous Substance" has the meaning set forth in Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended. "Fiduciary" has the meaning set forth in ERISA Section 3(21). 2 3 "Financial Statement" has the meaning set forth in Section 4(f) below. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indemnified Party" has the meaning set forth in Section 8(d) below. "Indemnifying Party" has the meaning set forth in Section 8(d) below. "Intellectual Property" means (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (c) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications, registrations, and renewals in connection therewith, (e) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (f) all computer software (including data and related documentation), (g) all other proprietary rights, and (h) all copies and tangible embodiments thereof (in whatever form or medium). "Knowledge" means actual knowledge after reasonable investigation. "Liability" means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Most Recent Balance Sheet" means the balance sheet contained within the Most Recent Financial Statements. "Most Recent Financial Statements" has the meaning set forth in Section 4(f) below. "Most Recent Fiscal Month End" has the meaning set forth in Section 4(f) below. "Most Recent Fiscal Year End" means October 31, 1997. "Multiemployer Plan" has the meaning set forth in ERISA Section 3(37). 3 4 "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Party" has the meaning set forth in the preface above. "PBGC" means the Pension Benefit Guaranty Corporation. "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof). "Prohibited Transaction" has the meaning set forth in ERISA Section 406 and Code Section 4975. "Purchase Price" has the meaning set forth in Section 2(b) below. "Raytheon" has the meaning set forth in Section 6(i) below. "Raytheon Obligations" has the meaning set forth in Section 6(i) below. "Reportable Event" has the meaning set forth in ERISA Section 4043. "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanic's, materialmen's, and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "Seller" has the meaning set forth in the preface above. "Subsidiary" has the meaning set forth in the preface above. "Subsidiary Share" means any share of Common Stock of the Subsidiary. "S-X" has the meaning set forth in Section 6(g). "Target" has the meaning set forth in the preface above. "Target Share" means any share of the Common Stock, par value $.01 per share, of the Target. 4 5 "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Third Party Claim" has the meaning set forth in Section 8(d) below. "Warrants" means the warrants to purchase shares of Buyer's Stock, issued in accordance with the Warrant Agreement attached as Exhibit A hereto, which comprise a portion of the Purchase Price. 2. Purchase and Sale of Target Shares. (a) Basic Transaction. On and subject to the terms and conditions of this Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees to sell to the Buyer, all of the Target Shares for the consideration specified below in this Section 2. (b) Purchase Price. The Buyer agrees to deliver to the Seller at the Closing $35,000,000 in cash and warrants to purchase 421,402 shares of common stock of the Buyer ("Buyer's Stock"), such warrants to be issued pursuant to the Warrant Agreement, a form of which is attached as Exhibit A hereto, (such cash and Warrant, together with the Warrant for 78,598 shares of Buyer's Stock to be issued pursuant to Section 6(g) hereof, if any, the "Purchase Price"). (c) The Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Freshman, Marantz, Orlanski, Cooper & Klein, 9100 Wilshire Boulevard, 8 East, Beverly Hills, California, commencing at 9:00 a.m. local time on the fifth business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective Parties will take at the Closing itself) or such other date as the Buyer and the Seller may mutually determine (the "Closing Date"). (d) Deliveries at the Closing. At the Closing, (i) the Seller will deliver to the Buyer stock certificates representing all of the Target Shares, endorsed in blank or accompanied by duly executed assignment documents and a standard investment representation letter with respect to the Warrants, and (ii) the Buyer will deliver to the Seller the consideration specified in Section 2(b) above. (e) Other Actions. At or immediately prior to the Closing, (i) the Subsidiary, the Target and the Seller shall release and cancel any intercompany loans, guaranties, liens and other 5 6 intercompany obligations (except for that certain License Agreement dated as of January 24, 1997 between the Subsidiary, on one hand, and Seller and Whittaker Communications, Inc., on the other), and (ii) the Seller will require its lenders to release any liens on the Target Shares, the Subsidiary Shares or the assets of the Subsidiary in favor of Seller's lenders. 3. Representations and Warranties Concerning the Transaction. (a) Representations and Warranties of the Seller. The Seller represents and warrants to the Buyer that the statements contained in this Section 3(a) are correct and complete as of the date of this Agreement, except as set forth in Schedule 3(a) attached hereto. (i) Organization of Seller. The Seller is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. (ii) Authorization of Transaction. The Seller has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Seller, enforceable in accordance with its terms and conditions. The Seller need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement, other than filings required by the Hart-Scott-Rodino Act. (iii) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Seller is subject or any provision of its charter or bylaws or (B) conflict with, result in a breach of or constitute a default under any material contract to which the Seller is a party, including any agreement to merge the Target or the Subsidiary, sell or transfer the Target Shares or the Subsidiary Shares, or sell all or substantially all of the Subsidiary's assets. (iv) Brokers' Fees. The Seller has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Buyer could become liable or obligated, other than fees and expenses owed to Dillon, Read & Co., Inc. pursuant to the Seller's contract with Dillon, Read & Co., Inc. dated as of February 7, 1997 (the "Broker's Contract"). (v) Target Shares. The Seller holds of record and owns beneficially all of the outstanding Target Shares, and as of the Closing Date such Shares shall be free and clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities laws), Taxes, Security Interests, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands. The Seller is not a party to any option, warrant, purchase right, or other contract or commitment that could require the Seller to sell, transfer, or otherwise dispose of any capital stock of the Target (other than this 6 7 Agreement). The Seller is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any capital stock of the Target. (vi) Guaranties. At the Closing, the Seller will not be the guarantor for any obligations or Liabilities of the Target or the Subsidiary. (vii) Investment. The Seller is not acquiring the Warrants with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act. (b) Representations and Warranties of the Buyer. The Buyer represents and warrants to the Seller that the statements contained in this Section 3(b) are correct and complete as of the date of this Agreement, except as set forth in Schedule 3(b) attached hereto. (i) Organization of the Buyer. The Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. (ii) Authorization of Transaction. The Buyer has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Buyer, enforceable in accordance with its terms and conditions. The Buyer need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement other than the filing of a Notice under Regulation D of the Securities Act and filings required by the Hart-Scott-Rodino Act. (iii) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Buyer is subject or any provision of its charter or bylaws or (B) conflict with, result in a breach of or constitute a default under any material contract to which the Buyer is a party. (iv) Brokers' Fees. The Buyer has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Seller could become liable or obligated. (v) Investment. The Buyer is not acquiring the Target Shares with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act. (vi) Capitalization. The entire authorized capital stock of the Buyer consists of 40,000,000 Shares. The Buyer has, and at all times during which the Warrants are exercisable shall reserve and keep available, free from preemptive rights, out of its 7 8 authorized but unissued common stock or its authorized and issued common stock held in its treasury, for the purpose of enabling it to satisfy any obligation to issue Buyer's Shares upon the exercise of Warrants. 4. Representations and Warranties Concerning the Target and the Subsidiary. The Seller represents and warrants to the Buyer that the statements contained in this Section 4 are correct and complete as of the date of this Agreement, except as set forth in the disclosure schedules delivered by the Seller to the Buyer on the date hereof (the "Disclosure Schedule"). The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Section 4. (a) Organization, Qualification, and Corporate Power. Each of the Target and the Subsidiary is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. Each of the Target and the Subsidiary is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required. The Subsidiary has full corporate power and authority and all material licenses, permits, and authorizations necessary to carry on the business in which it is engaged and to own and use the properties owned and used by it. Section 4(a) of the Disclosure Schedule lists the directors and officers of the Target and the Subsidiary. The Seller has delivered to the Buyer correct and complete copies of the charter and bylaws of the Target and the Subsidiary (as amended to date). Neither the Target nor the Subsidiary is in default under or in violation of any provision of its charter or bylaws. The Target has no equity interest in any Person, except for the Subsidiary. The Subsidiary has no equity interest in any other Person. (b) Capitalization. (i) The entire authorized capital stock of the Target consists of 40,000,000 Target Shares, 36,800,000 of which are issued and outstanding. All of the outstanding Target Shares have been duly authorized, are validly issued, fully paid, and nonassessable, and are held of record and are beneficially owned by the Seller. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require the Target to issue, sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to the Target. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of the Target. (ii) The entire authorized capital stock of the Subsidiary consists of 1,000 Subsidiary Shares, all of which are issued and outstanding, and there are no Subsidiary Shares held in the treasury of Subsidiary. All of the outstanding Subsidiary Shares have been duly authorized, are validly issued, fully paid, and nonassessable, and are held of record and are beneficially owned by the Target. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require the Subsidiary to issue, sell, or 8 9 otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to the Subsidiary. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of the Subsidiary. (c) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Target or the Subsidiary is subject or any provision of the charter or bylaws of the Target or the Subsidiary or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any material agreement, contract, lease, license, instrument, or other arrangement to which the Subsidiary is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets). The Subsidiary does not need to give any notice to, make any filing with, or obtain the authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement other than filings required by the Hart-Scott-Rodino Act. (d) Brokers' Fees. Neither the Target nor the Subsidiary has any Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (e) Title to Assets. The Subsidiary has good and marketable title to, or a valid leasehold interest in, the properties and assets used by it, located on its premises, or shown on the Most Recent Balance Sheet or acquired after the date thereof, and as of the Closing Date will be free and clear of all Security Interests, except for properties and assets disposed of in the Ordinary Course of Business since the date of the Most Recent Balance Sheet. (f) Financial Statements. Attached hereto as Schedule 4(f) are the following financial statements (collectively the "Financial Statements"): (i) unaudited balance sheet and statements of income, changes in stockholders' equity, and cash flow as of and for the fiscal year ended October 31, 1997 for the Subsidiary; (ii) unaudited balance sheet and statements of income, changes in stockholders' equity, and cash flow (the "Most Recent Financial Statements") as of and for the two months ended January 4, 1998 (the "Most Recent Fiscal Month End") for the Subsidiary; and (iii) unaudited balance sheet and statements of income, changes in stockholders' equity and cash flow for the period from April 10, 1996 to October 31, 1996. The Financial Statements (including the notes thereto) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of the Subsidiary as of such dates and the results of operations of the Subsidiary for such periods, are correct and complete, and are consistent with the books and records of the Subsidiary (which books and records are correct and complete); provided, however, that the Most Recent Financial Statements are subject to normal year-end adjustments (which will not be material individually or in the aggregate) and lack footnotes and other presentation items. 9 10 (g) Events Subsequent to Most Recent Fiscal Year End. Since the Most Recent Fiscal Year End, there has not been any material adverse change in the business, financial condition, operations or results of operations of the Subsidiary. Without limiting the generality of the foregoing, since that date: (i) the Subsidiary has not sold, leased, transferred, or assigned any of its assets, tangible or intangible, outside the Ordinary Course of Business; (ii) the Subsidiary has not entered into any material agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) outside the Ordinary Course of Business; (iii) no party (including the Subsidiary) has accelerated, terminated, modified, or canceled any material agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) to which the Subsidiary is a party or by which it is bound; (iv) the Subsidiary has not imposed any Security Interest upon any of its assets, tangible or intangible outside the Ordinary Course of Business; (v) the Subsidiary has not made any material capital expenditures outside the Ordinary Course of Business; (vi) the Subsidiary has not made any material capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person outside the Ordinary Course of Business; (vii) the Subsidiary has not accelerated the collection of outstanding accounts receivable, through the offer of discounts or otherwise, outside the Ordinary Course of Business; (viii) the Subsidiary has not created, incurred, assumed, or guaranteed any indebtedness for borrowed money or capitalized lease obligation either involving more than $200,000 singly or $1.5 million in the aggregate; (ix) the Subsidiary has not delayed or postponed the payment of accounts payable and other Liabilities outside the Ordinary Course of Business; (x) the Subsidiary has not canceled, compromised, waived, or released any material right or claim outside the Ordinary Course of Business; (xi) the Subsidiary has not granted any license or sublicense of any rights under or with respect to any Intellectual Property outside the Ordinary Course of Business; 10 11 (xii) the Subsidiary has not declared, set aside, or paid any dividend or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased, or otherwise acquired any of its capital stock; (xiii) there has been no change made or authorized in the charter or bylaws of the Subsidiary; (xiv) the Subsidiary has not issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its capital stock; (xv) the Subsidiary has not experienced any damage, destruction, or loss (whether or not covered by insurance) to its property; (xvi) the Subsidiary has not made any loan to, or entered into any other transaction with, any of its directors, officers, and employees outside the Ordinary Course of Business; (xvii) the Subsidiary has not entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement outside the Ordinary Course of Business; (xviii) the Subsidiary has not granted any increase in the base compensation of any of its directors, officers or employees outside the Ordinary Course of Business; (xix) the Subsidiary has not adopted, amended, modified, or terminated any bonus, profit-sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its directors, officers, and employees (or taken any such action with respect to any other Employee Benefit Plan); (xx) the Subsidiary has not made any other material change in employment terms for any of its directors, officers, or employees outside the Ordinary Course of Business; (xxi) there has not been any other material occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving the Subsidiary; and (xxii) the Subsidiary has not committed to any of the foregoing. (h) Undisclosed Liabilities. The Subsidiary does not have any Liability (and there is no Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against it giving rise to any Liability), except for (i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) and (ii) Liabilities which have arisen after the Most Recent Fiscal Month End in the Ordinary Course of Business (none of 11 12 which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of law). (i) Legal Compliance. The Subsidiary, and its predecessors and Affiliates, has complied with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof) other than where noncompliance with such laws would not have a material adverse effect on the Subsidiary, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any failure so to comply. (j) Tax Matters. (i) The Subsidiary has filed all Tax Returns that it was required to file. All such Tax Returns were correct and complete in all material respects. All Taxes owed by the Subsidiary (whether or not shown on any Tax Return) have been paid. The Subsidiary currently is not the beneficiary of any extension of time within which to file any Tax Return. No claim has been made since April 10, 1996 by an authority in a jurisdiction where the Subsidiary does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Security Interests on any of the assets of the Subsidiary that arose in connection with any failure (or alleged failure) to pay any Tax. (ii) The Subsidiary has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. (iii) No Seller or director or officer (or employee responsible for Tax matters) of the Subsidiary expects any authority to assess any additional Taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any Tax Liability of the Subsidiary either (A) claimed or raised by any authority in writing or (B) as to which any of the Seller and the directors and officers (and employees responsible for Tax matters) of the Subsidiary has Knowledge based upon personal contact with any agent of such authority. Schedule 4(j) lists all federal, state, local, and foreign income Tax Returns filed with respect to the Subsidiary for taxable periods ended on or after October 31, 1996, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. The Seller has delivered to the Buyer correct and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by the Subsidiary since October 31, 1996. (iv) The Subsidiary has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (v) The Subsidiary has not filed a consent under Code ss.341(f) concerning collapsible corporations. The Subsidiary has not made any payments, is not obligated to 12 13 make any payments, and is not a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code Section 280G. The Subsidiary has not been a United States real property holding corporation within the meaning of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii). The Subsidiary is not a party to any Tax allocation or sharing agreement. The Subsidiary (A) has not been a member of an Affiliated Group filing a consolidated federal income Tax Return (other than a group the common parent of which was the Subsidiary) and (B) does not have any Liability for the Taxes of any Person (other than the Subsidiary) under Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (vi) The unpaid Taxes of the Subsidiary (A) did not, as of the Most Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) and (B) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Subsidiary in filing its Tax Returns. (k) Real Property. Schedule 4(k) lists and describes briefly all real property leased or subleased to the Subsidiary. The Seller has delivered to the Buyer correct and complete copies of the leases and subleases listed in Schedule 4(k) (as amended to date). With respect to each lease and sublease listed in Schedule 4(k): (A) the lease or sublease is legal, valid, binding and enforceable against the Subsidiary, and in full force and effect; (B) as to each lease and sublease, the Subsidiary is not in default, and no event has occurred which, with notice or lapse of time, would constitute a breach or default or permit termination, modification, or acceleration thereunder; (C) as to each lease and sublease, the Subsidiary has not repudiated any provision thereof; (D) there are no material disputes, oral agreements, or forbearance programs in effect as to the lease or sublease; (E) the Subsidiary has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the leasehold or subleasehold; and (F) to the Knowledge of the Subsidiary, all facilities leased or subleased thereunder have received all approvals of governmental authorities (including licenses and permits) required in connection with the operation thereof and have been operated and maintained in accordance with applicable laws, rules, and regulations. 13 14 (l) Intellectual Property. (i) The Subsidiary has not interfered with, infringed upon, misappropriated, or violated any material Intellectual Property rights of third parties in any material respect, and neither the Seller nor the directors and officers of the Subsidiary have received any charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, or violation by the Subsidiary (including any claim that the Subsidiary must license or refrain from using any Intellectual Property rights of any third party). To the Knowledge of the Subsidiary, no third party has interfered with, infringed upon, misappropriated, or violated any material Intellectual Property rights of the Subsidiary in any material respect. (ii) The Subsidiary owns or has the right to use pursuant to license, sublicense, agreement, or permission all Intellectual Property necessary for the operation of the business of the Subsidiary as presently conducted. Each item of Intellectual Property owned or used by the Subsidiary immediately prior to the Closing hereunder will be owned or available for use by the Subsidiary on identical terms and conditions immediately subsequent to the Closing hereunder. The Subsidiary has taken all necessary action to maintain and protect each item of Intellectual Property that it owns or uses. (iii) Schedule 4(l)(iii) identifies each patent or registration which has been issued to the Subsidiary with respect to any of its Intellectual Property, identifies each pending patent application or application for registration which the Subsidiary has made with respect to any of its Intellectual Property, and identifies each license, agreement, or other permission which the Subsidiary has granted to any third party with respect to any of its Intellectual Property (together with any exceptions). The Seller has delivered to the Buyer correct and complete copies of all such patents, registrations, applications, licenses, agreements, and permissions (as amended to date). Schedule 4(l)(iii) also identifies each trade name or unregistered trademark used by the Subsidiary in connection with its business. With respect to each item of Intellectual Property identified in Schedule 4(l)(iii): (A) the Subsidiary possesses all right, title, and interest in and to the item, free and clear of any Security Interest, license, or other restriction; (B) the item is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge; (C) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or, to the Knowledge of the Subsidiary, is threatened which challenges the legality, validity, enforceability, use, or ownership of the item; and (D) the Subsidiary has no existing contracts or indemnification agreements whereby it is obligated to indemnify any Person for or against any interference, infringement or misappropriation with respect to the items. 14 15 (iv) Schedule 4(l)(iv) identifies each material item of Intellectual Property that any third party owns and that the Subsidiary uses pursuant to license, sublicense, agreement, or permission. With respect to each item of Intellectual Property required to be identified in Schedule 4(l)(iv): (A) the license, sublicense, agreement, or permission covering the item is legal, valid, binding, enforceable, and in full force and effect; (B) the license, sublicense, agreement, or permission will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby (including the assignments and assumptions referred to in Section 2 above); (C) no party to the license, sublicense, agreement, or permission is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default or permit termination, modification, or acceleration thereunder; (D) no party to the license, sublicense, agreement, or permission has repudiated any provision thereof; (E) with respect to each sublicense, the representations and warranties set forth in subsections (A) through (D) above are true and correct with respect to the underlying license; (F) to the Knowledge of the Subsidiary the underlying item of Intellectual Property is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge; (G) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or, to the Knowledge of the Subsidiary, is threatened which challenges the legality, validity, or enforceability of the underlying item of Intellectual Property; and (H) the Subsidiary has not granted any sublicense or similar right with respect to the license, sublicense, agreement, or permission. (v) To the Knowledge of the Subsidiary, the Subsidiary will not, prior to the Closing, knowingly interfere with, infringe upon, misappropriate, or otherwise come into conflict with, any Intellectual Property rights of third parties as a result of the continued operation of its business as presently conducted. (m) Tangible Assets. The Subsidiary owns or leases all buildings, machinery, equipment, and other tangible assets necessary for the conduct of its business as presently conducted. Each such tangible asset is free from defects (patent and latent), has been maintained in 15 16 accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear), and is suitable for the purposes for which it presently is used. (n) Inventory. The inventory of the Subsidiary consists of raw materials and supplies, manufactured and purchased parts, goods in process, and finished goods, all of which is merchantable and fit for the purpose for which it was procured or manufactured, and none of which is slow-moving, obsolete, damaged, or defective, subject only to the reserve for inventory writedown set forth in the Most Recent Balance Sheet, as adjusted for the passage of time through the Closing Date, in accordance with the past custom and practice of the Subsidiary and in accordance with GAAP. (o) Contracts. Schedule 4(o) lists the following contracts and other agreements to which the Subsidiary is a party: (i) any agreement (or group of related agreements) for the lease of personal property to or from any Person providing for lease payments in excess of $300,000 per annum; (ii) any agreement (or group of related agreements) for the purchase or sale of raw materials, commodities, supplies, products, or other personal property, or for the furnishing or receipt of services, the performance of which will extend over a period of more than one year, result in a material loss to the Subsidiary, or involve consideration in excess of $1.6 million; (iii) any agreement concerning a partnership or joint venture; (iv) any agreement (or group of related agreements) under which it has created, incurred, assumed, or guaranteed any indebtedness for borrowed money, or any capitalized lease obligation, in excess of $1.6 million or under which it has imposed a Security Interest on any of its assets, tangible or intangible; (v) any agreement concerning confidentiality or noncompetition; (vi) any agreement with any of the Seller and its Affiliates (other than the Subsidiary); (vii) any profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance, or other material plan or arrangement for the benefit of its current or former directors, officers, and employees; (viii) any collective bargaining agreement; (ix) any agreement for the employment of any individual on a full-time, part-time, consulting, or other basis providing annual compensation in excess of $100,000 or providing severance benefits in excess of $100,000; 16 17 (x) any agreement under which it has advanced or loaned any amount to any of its directors, officers, and employees outside the Ordinary Course of Business; (xi) any agreement under which the consequences of a default or termination could have a material adverse effect on the business, financial condition, operations or results of operations of the Subsidiary; or (xii) any other agreement (or group of related agreements) the performance of which involves consideration in excess of $1.6 million. The Seller has provided Buyer with access to a correct and complete copy of each written agreement listed in Schedule 4(o) and a written summary setting forth the material terms and conditions of each oral agreement referred to in Schedule 4(o). With respect to each such agreement: (A) the agreement is legal, valid, binding, enforceable, and in full force and effect; (B) no party is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration, under the agreement; and (C) no party has repudiated any provision of the agreement. (p) Notes and Accounts Receivable. All notes and accounts receivable of the Subsidiary are reflected properly on their books and records, are valid receivables subject to no setoffs or counterclaims and are current and collectible at their recorded amounts, subject only to the reserve for bad debts set forth in the Most Recent Balance Sheet as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Subsidiary and in accordance with GAAP. (q) Powers of Attorney. There are no outstanding powers of attorney executed on behalf of the Target or the Subsidiary. (r) Insurance. Schedule 4(r) sets forth the following information with respect to each insurance policy (including policies providing property, casualty, liability, and workers' compensation coverage and bond and surety arrangements) to which the Subsidiary has been a party, a named insured, or otherwise the beneficiary of coverage at any time since April 10, 1996: (i) the name, addresses and phone numbers of the agents; (ii) the name of the insurer, the name of the policyholder, and the name of each covered insured; (iii) the policy number and the period of coverage; (iv) the type and amount (including deductible and ceiling amounts) of coverage; and 17 18 (v) the description of any retroactive premium adjustments or other material loss-sharing arrangements. With respect to each such insurance policy: (A) the policy is legal, valid, binding, enforceable, and in full force and effect; (B) the Subsidiary is not in breach or default (including with respect to the payment of premiums or the giving of notices), and no event has occurred which, with notice or the lapse of time, would constitute such a breach or default, or permit termination, modification, or acceleration, under the policy; and (C) no party to the policy has repudiated any provision thereof. Schedule 4(r) describes any self-insurance arrangements affecting the Subsidiary. (s) Litigation. Schedule 4(s) sets forth each instance in which the Subsidiary (i) is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a party or, to the Knowledge of the Subsidiary, is threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. None of the actions, suits, proceedings, hearings, and investigations set forth in Schedule 4(s) could result in any material adverse change in the business, financial condition, operations or results of operations of the Subsidiary. The Subsidiary has no reason to believe that any such action, suit, proceeding, hearing, or investigation will be brought or threatened against the Subsidiary. (t) Product Warranty. Each product manufactured, sold, leased, or delivered by the Subsidiary has been in conformity with all applicable contractual commitments and all express and implied warranties, and the Subsidiary does not have any Liability (and there is no Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against it giving rise to any Liability) for replacement or repair thereof or other damages in connection therewith, subject only to the reserve for product warranty claims set forth in Most Recent Balance Sheet as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Subsidiary and in accordance with GAAP. No product manufactured, sold, leased, or delivered by the Subsidiary is subject to any guaranty, warranty, or other indemnity beyond the applicable standard terms and conditions of sale or lease. Schedule 4(t) includes copies of the standard terms and conditions of sale or lease for the Subsidiary (containing applicable guaranty, warranty, and indemnity provisions). (u) Product Liability. The Subsidiary does not have any Liability (and there is no Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against it giving rise to any Liability) arising out of any injury to individuals or property as a result of the ownership, possession, or use of any product sold, leased or delivered by the Subsidiary prior to the Closing Date. (v) Employees. To the Knowledge of any of the Seller and the directors and officers of the Subsidiary, no executive, key employee, or significant group of employees plans to terminate employment with the Subsidiary during the next 12 months. The Subsidiary is not a party to or bound by any collective bargaining agreement, nor has it experienced any strikes, grievances, 18 19 claims of unfair labor practices, or other collective bargaining disputes since April 10, 1996. The Subsidiary has not committed any unfair labor practice since April 10, 1996. The Subsidiary does not have Knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees of the Subsidiary. (w) Employee Benefits. (i) Schedule 4(w) lists each Employee Benefit Plan that the Subsidiary maintains or to which the Subsidiary contributes. (ii) With respect to each Employee Benefit Plan that the Subsidiary maintains or to which the Subsidiary contributes, except for such matters as, individually or in the aggregate, could not reasonably be expected to have a material adverse effect on the financial condition of the Subsidiary: (A) Each such Employee Benefit Plan (other than any Multiemployer Plan) (and each related trust, insurance contract, or fund), complies in form and in operation in all material respects with the applicable requirements of ERISA, the Code, and other applicable laws. (B) All required reports and descriptions (including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions) have been filed or distributed appropriately with respect to each such Employee Benefit Plan (other than any Multiemployer Plan). The requirements of Part 6 of Subtitle B of Title I of ERISA and of Code Section 4980B have been met in all material respects with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. (C) All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Benefit Plan which is an Employee Pension Benefit Plan and all contributions for any period ending on or before the Closing Date which are not yet due have been paid to each such Employee Pension Benefit Plan or accrued in accordance with the past custom and practice of the Subsidiary. All premiums or other payments for all periods ending on or before the Closing Date have been paid with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. (D) Each such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multiemployer Plan) meets the requirements of a "qualified plan" under Code Section 401(a) and has received, within the last two years, a favorable determination letter from the Internal Revenue Service. (E) The market value of assets under each such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multiemployer Plan) 19 20 equals or exceeds the present value of all vested and nonvested Liabilities thereunder determined in accordance with PBGC methods, factors, and assumptions applicable to an Employee Pension Benefit Plan terminating on the date for determination. (F) The Seller has delivered to the Buyer correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, the most recent Form 5500 Annual Report, and all related trust agreements, insurance contracts, and other funding agreements which implement each such Employee Benefit Plan (other than any Multiemployer Plan). (iii) With respect to each Employee Benefit Plan that the Subsidiary, or the Controlled Group of Corporations which includes the Subsidiary, has maintained since April 10, 1996 for the benefit of the Subsidiary or to which any of them has contributed since April 10, 1996 for the benefit of the Subsidiary: (A) No such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multiemployer Plan) has been completely or partially terminated or been the subject of a Reportable Event as to which notices would be required to be filed with the PBGC. No proceeding by the PBGC to terminate any such Employee Pension Benefit Plan (other than any Multiemployer Plan) has been instituted or, to the Knowledge of the Subsidiary, threatened. (B) To the Knowledge of the Seller, there have been no Prohibited Transactions with respect to any such Employee Benefit Plan (other than any Multiemployer Plan). To the Knowledge of the Seller, no Fiduciary has any Liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any such Employee Benefit Plan (other than any Multiemployer Plan). No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than any Multiemployer Plan) (other than routine claims for benefits) is pending or, to the Knowledge of the Subsidiary, threatened. The Subsidiary has no Knowledge of any Basis for any such action, suit, proceeding, hearing, or investigation. (C) The Subsidiary has not incurred, and the Subsidiary has no reason to expect that the Subsidiary will incur, any Liability to the PBGC (other than PBGC premium payments) or otherwise under Title IV of ERISA (including any withdrawal Liability) or under the Code with respect to any such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multiemployer Plan). 20 21 (iv) The Subsidiary, or the Controlled Group of Corporations that includes the Subsidiary, has not since April 10, 1996 contributed to any Multiemployer Plan for the benefit of the Subsidiary, and does not have any Liability (including withdrawal Liability) under any Multiemployer Plan. (v) The Subsidiary does not maintain or contribute, or is required to contribute, to any Employee Welfare Benefit Plan providing medical, health, or life insurance or other welfare-type benefits for current or future retired or terminated employees, their spouses, or their dependents (other than in accordance with Code Section 4980B, Title I of ERISA, or any applicable state statute). (x) Guaranties. Neither the Target nor the Subsidiary is a guarantor or is otherwise liable for any Liability or obligation (including indebtedness) of any other Person. (y) Environmental, Health, and Safety Laws. (i) The Subsidiary has complied with all Environmental, Health, and Safety Laws, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any failure so to comply other than failure to comply which would not have a material adverse effect on the Subsidiary. Without limiting the generality of the preceding sentence, the Subsidiary has obtained and been in compliance with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in, all Environmental, Health, and Safety Laws. (ii) The Subsidiary does not have any material Liability under any Environmental Law. (z) Target Operations. The Target has no material business or operations, except for its ownership of the stock of the Subsidiary and maintenance of a stock option plan for the benefit of officers, directors and employees of the Subsidiary. (aa) Disclosure. The representations and warranties contained in this Section 4 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 4 not misleading. 5. Pre-Closing Covenants. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing. (a) General. Each of the Parties will use its best efforts to take all action and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Section 7 below). 21 22 (b) Notices and Consents. The Seller will cause the Subsidiary to give any notices to third parties, and will cause the Subsidiary to use its best efforts to obtain any third party consents, that the Buyer reasonably may request in connection with the matters referred to in Section 4(c) above. Each of the Parties will (and the Seller will cause the Subsidiary to) give any notices to, make any filings with, and use its best efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters referred to in Sections 3(a)(ii), 3(b)(ii), and 4(c) above. Without limiting the generality of the foregoing, each of the Parties will file any Notification and Report Forms and related material that he or it may be required to file with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice under the Hart-Scott-Rodino Act no later than five business days after the date hereof, will use its best efforts to obtain an early termination of the applicable waiting period, and will make any further filings pursuant thereto that may be necessary, proper, or advisable in connection therewith. (c) Operation of Business. The Seller will not cause or permit the Subsidiary to engage in any practice or take any action outside the Ordinary Course of Business of the Subsidiary or which results in a material adverse change in the business, financial condition, operations or results of operations of the Subsidiary, except for actions to which Buyer has given its prior consent. (d) Preservation of Business. The Seller will cause the Subsidiary to keep its business and properties substantially intact, including its present operations, physical facilities, working conditions, and relationships with lessors, licensors, suppliers, customers, and employees. (e) Full Access. The Seller will permit, and the Seller will cause the Subsidiary to permit, representatives of the Buyer to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of the Subsidiary, to all premises, properties, personnel, books, records (including Tax records), contracts, and documents of or pertaining to the Subsidiary; provided, however, that the Seller and the Subsidiary shall not be required to allow Buyer access to competitively sensitive information, such as that relating to prices or customers. (f) Notice of Developments. The Seller will give prompt written notice to the Buyer of any material adverse development causing a breach of any of the representations and warranties in Section 4 above. Each Party will give prompt written notice to the others of any material adverse development causing a breach of any of its own representations and warranties in Section 3 above. (g) Exclusivity. Seller will not (and Seller will not cause or permit the Subsidiary or the Target to) solicit, initiate, or encourage the submission of any proposal or offer from any other Person relating to the acquisition of any capital stock or other voting securities, or any substantial portion of the assets, of the Subsidiary (including any acquisition structured as a merger, consolidation or share exchange). 22 23 6. Post-Closing Covenants. The Parties agree as follows with respect to the period following the Closing. (a) General. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 8 below). The Seller acknowledges and agrees that from and after the Closing the Buyer will be entitled to possession of all documents, books, records (including Tax records), agreements, and financial data of any sort relating to the Subsidiary. (b) Litigation Support. In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Subsidiary, each of the other Parties will cooperate with him or it and its counsel in the contest or defense, make available their personnel, and provide such testimony and access to their books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 8 below). (c) Transition. The Seller will not take any action that is designed or intended to have the effect of discouraging any lessor, licensor, customer, supplier, or other business associate of the Subsidiary from maintaining the same business relationships with the Subsidiary after the Closing as it maintained with the Subsidiary prior to the Closing. the Seller will refer all customer inquiries relating to the business of the Subsidiary to the Buyer from and after the Closing. (d) Confidentiality. The Seller will treat and hold as such all of the Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to the Buyer or destroy, at the request and option of the Buyer, all tangible embodiments (and all copies) of the Confidential Information which are in its possession. In the event that any of the Seller is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, that Seller will notify the Buyer promptly of the request or requirement so that the Buyer may seek an appropriate protective order or waive compliance with the provisions of this Section 6(d). If, in the absence of a protective order or the receipt of a waiver hereunder, the Seller is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, that Seller may disclose the Confidential Information to the tribunal; provided, however, that the Seller shall use its best efforts to obtain, at the reasonable request of the Buyer, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as the Buyer shall designate. The foregoing provisions shall 23 24 not apply to any Confidential Information which is generally available to the public immediately prior to the time of disclosure (other than as a result of a disclosure directly or indirectly by Seller or its agents or representatives in violation of this Section 6(d)). (e) Covenant Not to Compete. For a period of three years from and after the Closing Date, the Seller will not engage directly or indirectly in any business that the Subsidiary conducts as of the Closing Date in any geographic area in which the Subsidiary conducts that business as of the Closing Date; provided, however, that no owner of less than 10% of the outstanding stock of any publicly-traded corporation shall be deemed to engage in such business by virtue of such stock ownership. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 6(e) is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provisions, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. (f) Name Change. Seller will, within 30 days after the Closing Date, change the name of the Target to a name which does not include the word "Whittaker." (g) Delivery of Audited Financial Statements. As soon as reasonably practical following the Closing and in any event within 60 days thereafter, Seller shall deliver to Buyer the balance sheets and statements of operations, changes in stockholders' equity, and cash flow covering the periods either (i) (A) for the fiscal year ended October 31, 1997, (B) for the period from April 10, 1996 to October 31, 1996, (C) for the period from January 1, 1996 through April 9, 1996, and (D) from January 1, 1995 through December 31, 1995, or (ii) (A) for the period from April 1, 1996 to December 31, 1996, and (B) for the period from January 1, 1997 to December 31, 1997, in either case prepared in accordance with Regulation S-X promulgated by the Securities and Exchange Commission ("S-X"), audited by a nationally recognized accounting firm, and together with a manually signed accountant's report thereon that complies with Rule 2-02 of S-X. If Seller delivers such audited financial statements to Buyer within 60 days of the Closing Date, Buyer shall deliver to Seller a warrant to purchase 78,598 shares of the Buyer's common stock exercisable from the date of delivery of such financial statements to the third anniversary of the Closing Date, pursuant to the Warrant Agreement attached as Exhibit A hereto. (h) Auditors' Consents. Each of the parties shall use its best efforts to obtain consents of the accounting firm performing such audits to the use of the accountant's reports described in Section 6(g) above in any registration statement of Buyer within three business days of any request for such a consent; provided that Buyer shall have the sole responsibility for payment of any fees in connection with such consents. (i) Rights Against Raytheon. Seller and Buyer acknowledge that Seller acquired the capital stock of Subsidiary from Raytheon Company ("Raytheon") pursuant to that certain Stock 24 25 Purchase Agreement, dated as of March 2, 1996 between Raytheon and Seller (the "Acquisition Agreement") under which Raytheon made certain representations, warranties and agreements (collectively the "Raytheon Obligations") to Seller relative to Subsidiary and that the Raytheon Obligations may overlap or cover matters in addition to the representations, warranties and agreements of Seller to Buyer under this Agreement. Seller agrees to use its best efforts to obtain the consent of Raytheon to its assignment of the Raytheon obligations to Buyer and upon obtaining such consent, shall assign the Raytheon Obligations to Buyer. In the event that Seller is unable to obtain Raytheon's consent to such assignment and a matter or event occurs or a liability is discovered for which Seller could pursue a claim or action under the Raytheon Obligations or for indemnity, Seller agrees to cooperate with Buyer and at Buyer's request to diligently prosecute such claim or action in Seller's name on behalf and for the benefit of Buyer. Any such claim or action shall be prosecuted at Buyer's sole cost and expense using counsel of Buyer's choice and any recovery obtained shall be allocated between Buyer and Seller in accordance with each Party's claim. Nothing herein shall preclude Seller from bringing an action against Raytheon on its own behalf and at its own expense. 7. Conditions to Obligation to Close. (a) Conditions to Obligation of the Buyer. The obligation of the Buyer to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) (A) the representations and warranties set forth in Sections 2(e), 3(a)(i), 3(a)(iii)(A), 3(a)(v), 4(b) and 5(c) (except as the Disclosure Schedule sets forth exceptions to such Sections) above shall be true and correct in all material respects as of the Closing Date, (B) the Seller shall have full corporate power and authority to execute and deliver this Agreement and perform its obligations hereunder, (C) neither the execution and the delivery of this Agreement nor the consummation of the transactions contemplated hereby will violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any government, governmental agency or court to which any of the Seller, the Target or the Subsidiary is a party or any provision of their respective charters or bylaws, and (D) each of the Target and the Subsidiary is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation; (ii) all applicable waiting periods (and any extensions thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been terminated; and (iii) the Buyer shall have received the resignations, effective as of the Closing, of each director on the board of directors of the Target. The Buyer may waive any condition specified in this Section 7(a) if it executes a writing so stating at or prior to the Closing. 25 26 (b) Conditions to Obligation of the Seller. The obligation of the Seller to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Section 3(b) above shall be true and correct in all material respects as of the Closing Date; and (ii) all applicable waiting periods (and any extensions thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been terminated. The Seller may waive any condition specified in this Section 7(b) if it executes a writing so stating at or prior to the Closing. 8. Remedies for Breaches of This Agreement. (a) Survival of Representations and Warranties. All of the representations and warranties of the Seller contained in Section 4 above, other than the representations contained in Sections 4(j) and 4(y), shall survive the Closing hereunder (even if the Buyer knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing) and continue in full force and effect for a period of two years thereafter; provided, however, that the representations and warranties contained in Sections 4(j) and 4(y) above relating to Tax Matters and Environmental, Health, and Safety Laws, respectively, shall survive the Closing hereunder (even if the Buyer knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing) and continue in full force and effect for the relevant statute of limitations periods; provided further, that the representations and warranties contained in Section 4(l)(v) shall not survive the Closing. All of the other representations and warranties of the Parties contained in this Agreement (including the representations and warranties of the Parties contained in Section 3 above) shall survive the Closing (even if the damaged Party knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing) and continue in full force and effect for two years thereafter (subject to any applicable statutes of limitations). (b) Indemnification Provisions for Benefit of the Buyer. (i) In the event the Seller breaches any of its representations, warranties, and covenants contained herein (other than the covenants in Section 2(a) above and the representations and warranties in Section 3(a) above), and, if there is an applicable survival period pursuant to Section 8(a) above, provided that the Buyer makes a written claim for indemnification against the Seller pursuant to Section 11(g) below within such survival period, then the Seller agrees to indemnify the Buyer from and against the entirety of any Adverse Consequences the Buyer may suffer through and after the date of the claim for indemnification (including any Adverse Consequences the Buyer may suffer after the end of any applicable survival period) resulting from, arising out of, relating to, in the nature of, or caused by the breach; provided, however, that the Seller shall not have any obligation to indemnify the Buyer from and against any Adverse Consequences resulting from, arising out of, relating to, in the nature of, or caused by the breach of any 26 27 representation or warranty of the Seller contained in Section 4 above until the Buyer has suffered Adverse Consequences by reason of all such breaches in excess of a $500,000 aggregate threshold (at which point the Seller will be obligated to indemnify the Buyer from and against all such Adverse Consequences relating back to the first dollar). (ii) In the event Seller breaches any of its covenants in Section 2(a) above or any of its representations and warranties in Section 3(a) above, and, if there is an applicable survival period pursuant to Section 8(a) above, provided that the Buyer makes a written claim for indemnification against the Seller pursuant to Section 11(g) below within such survival period, then the Seller agrees to indemnify the Buyer from and against the entirety of any Adverse Consequences the Buyer may suffer through and after the date of the claim for indemnification (including any Adverse Consequences the Buyer may suffer after the end of any applicable survival period) resulting from, arising out of, relating to, in the nature of, or caused by the breach. (c) Indemnification Provisions for Benefit of the Seller. In the event the Buyer breaches any of its representations, warranties, and covenants contained herein, and, if there is an applicable survival period pursuant to Section 8(a) above, provided that any of the Seller makes a written claim for indemnification against the Buyer pursuant to Section 11(g) below within such survival period, then the Buyer agrees to indemnify the Seller from and against the entirety of any Adverse Consequences the Seller may suffer through and after the date of the claim for indemnification (including any Adverse Consequences the Seller may suffer after the end of any applicable survival period) resulting from, arising out of, relating to, in the nature of, or caused by the breach. (d) Matters Involving Third Parties. (i) If any third party shall notify any Party (the "Indemnified Party") with respect to any matter (a "Third Party Claim") which may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Section 8, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing; provided, however, that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is prejudiced. (ii) Any Indemnifying Party will have the right to defend the Indemnified Party against the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying Party notifies the Indemnified Party in writing within 15 days after the Indemnified Party has given notice of the Third Party Claim that the Indemnifying Party will indemnify the Indemnified Party from and against the entirety of any Adverse Consequences the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim, (B) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to 27 28 the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third Party Claim and fulfill its indemnification obligations hereunder, (C) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, (D) settlement of, or an adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of the Indemnified Party, likely to establish a precedential custom or practice materially adverse to the continuing business interests of the Indemnified Party, and (E) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently. (iii) So long as the Indemnifying Party is conducting the defense of the Third Party Claim in accordance with Section 8(d)(ii) above, (A) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim, (B) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party, and (C) the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party. (iv) In the event any of the conditions in Section 8(d)(ii) above is or becomes unsatisfied, however, (A) the Indemnified Party may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third Party Claim in any manner it reasonably may deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, any Indemnifying Party in connection therewith), (B) the Indemnifying Parties will reimburse the Indemnified Party promptly and periodically for the costs of defending against the Third Party Claim (including reasonable attorneys' fees and expenses), and (C) the Indemnifying Parties will remain responsible for any Adverse Consequences the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim to the fullest extent provided in this Section 8. 9. Tax Matters. The following provisions shall govern the allocation of responsibility as between Buyer and Seller for certain tax matters following the Closing Date: (a) Seller will include the income of the Subsidiary on Seller's Returns for all periods through the Closing Date in which the Subsidiary was included in such Returns and account for and pay any federal income taxes attributable to such income on such returns. Seller shall deliver to Buyer copies of such Returns and any Returns relating to the Subsidiary for the period prior to the Closing Date within 10 days of the filing of such Returns with the appropriate Tax Authority. The Subsidiary shall be responsible for and shall pay to Seller the portion of the consolidated tax liability for such periods chargeable to the Subsidiary under the principles of Treas. Reg. Section 1.1552-1(a)(2) and applicable state and local laws and regulations. The Subsidiary will furnish tax information to Seller for inclusion in Seller's Returns for the period which includes the Closing Date in accordance with the Subsidiary's past custom and practice. The income of the Subsidiary 28 29 will be apportioned between the period up to and including the Closing Date and the period after the Closing Date by closing the books of the Subsidiary as of the end of the Closing Date. (b) At Seller's request, Buyer will cause the Subsidiary to make or join with Seller in making any election if the making of such election does not have a material adverse impact on Buyer (or the Subsidiary) for any tax period beginning on or after the Closing Date. (c) It is agreed and understood that the parties shall not make an election under Section 338(h)(10) of the Code in respect of the purchase and sale of the Target Shares pursuant to this Stock Purchase Agreement. (d) Seller will elect to retain any net operating loss carryovers or capital loss carryovers of the Subsidiary or the Target under Treasury Regulation Section 1.1502-20(g), or have any such losses reattributed to Seller prior to the Closing. (e) Any refunds received after the Closing Date by Seller attributable to any Tax losses or Tax credits of the Subsidiary arising after the Closing Date shall be remitted promptly to Buyer. (f) Each of Seller and Buyer shall (i) make available for inspection and copying upon the reasonable request of the other party all working papers, books of account and records relating to the periods before and after, respectively, the Closing Date, and (ii) shall cooperate with each other in the event of any Tax audit, dispute or protest. 10. Termination. (a) Termination of Agreement. Certain of the Parties may terminate this Agreement as provided below: (i) the Buyer and the Seller may terminate this Agreement by mutual written consent at any time prior to the Closing; and (ii) either the Buyer or the Seller may terminate this Agreement by giving written notice to the other party if the Closing shall not have occurred on or before March 31, 1998. (b) Effect of Termination. If any Party terminates this Agreement pursuant to Section 10(a) above, all rights and obligations of the Parties hereunder shall terminate without any Liability of any Party to any other Party (except for any Liability of any Party then in breach). 11. Miscellaneous. (a) Press Releases and Public Announcements. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the Buyer and the Seller; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any 29 30 listing or trading requirement concerning its publicly-traded securities (in which case the disclosing Party will notify the other Parties of such disclosure 48 hours prior to making the disclosure). (b) No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns. (c) Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof. (d) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the Buyer and the Seller; provided, however, that the Buyer may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (ii) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases the Buyer nonetheless shall remain responsible for the performance of all of its obligations hereunder). (e) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. (f) Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (g) Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing and shall be deemed effectively given (i) upon personal delivery to the party notified, (ii) five days after deposit with the United States Post Office, by registered or certified mail, postage prepaid, return receipt requested, (iii) one business day after deposit with a nationally recognized air courier service such as DHL or Federal Express for next day delivery, or (iv) on the day of facsimile transmission, with confirmed transmission, to the facsimile number shown below (or to such other facsimile number as the party to be notified may indicate by ten days advance written notice to the other party in the manner herein provided), provided that notice is also given under clauses (i), (ii) or (iii) above; in any such case addressed to the party to be notified at the address indicated below for that party, or at such other address as that party may indicate by ten days advance written notice to the other party in the manner herein provided: If to the Seller: 30 31 John K. Otto Chief Financial Officer Whittaker Corporation 1955 N. Surveyor Avenue Simi Valley, CA 93063 Fax: (805) 584-4148 with a copy to: John R. Light, Esq. Latham & Watkins 633 W. 5th Street, Suite 4000 Los Angeles, CA 90071 Fax: (213) 891-8763 If to the Buyer: Noam Lotan President and Chief Executive Officer MRV Communications, Inc. 8943 Fullbright Avenue Chatsworth, CA 91311 Fax: (818) 407-5656 with a copy to: Mark A. Klein, Esq. Freshman, Marantz, Orlanski, Cooper & Klein 9100 Wilshire Boulevard Eight Floor East Tower Beverly Hills, CA 90212-3480 Fax: (310) 274-8357 Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. (h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER 31 32 JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE. (i) Amendments and Waivers No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyer and the Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (j) Severability Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. (k) Expenses. Each of the Parties shall bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. The Seller agrees that the Subsidiary has not borne or will bear any of the Seller' costs and expenses (including any of their legal fees and expenses) in connection with this Agreement or any of the transactions contemplated hereby. (l) Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant. (m) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits, Annexes, and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. (n) Specific Performance. Each of the Parties acknowledges and agrees that the other Parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that, subject to Section 11(p), the other Parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United 32 33 States or any state thereof having jurisdiction over the Parties and the matter (subject to the provisions set forth in Section 11(o) below), in addition to any other remedy to which they may be entitled, at law or in equity. (o) Submission to Jurisdiction. Subject to the provisions of Section 11(p) below, each of the Parties submits to the jurisdiction of any state or federal court sitting in Delaware, in any action or proceeding arising out of or relating to this Agreement and agrees that all claims in respect of the action or proceeding may be heard and determined in any such court. Each Party further agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other Party with respect thereto. Any Party may make service on any other Party by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving of notices in Section 11(g) above. Nothing in this Section 11(o), however, shall affect the right of any Party to serve legal process in any other manner permitted by law or at equity. Each Party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law or at equity. 33 34 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. MRV COMMUNICATIONS, INC. /s/ Zeev Rav Noy -------------------------------- By: Zeev Rav Noy Title: Chief Operating Officer /s/ Edmund Glazer ------------------------------------------------ By: Edmund Glazer Title: Vice President of Finance and Administration, and Chief Financial Officer WHITTAKER CORPORATION /s/ Joseph F. Alibrandi ------------------------------------------------ By: Joseph F. Alibrandi Title: President and Chief Executive Officer /s/ John K. Otto ------------------------------------------------ By: John K. Otto Title: Vice President, Chief Financial Officer and Treasurer 34 EX-2.1(B) 3 EXHIBIT 2.1(B) 1 EXHIBIT 2.1(b) MRV COMMUNICATIONS, INC. and WHITTAKER CORPORATION ------------------------------- WARRANT AGREEMENT Dated as of January 30, 1998 2 WARRANT AGREEMENT dated as of January 30, 1998 between MRV Communications, Inc., a Delaware corporation (the "Company"), and Whittaker Corporation, a Delaware corporation (the "Holder"). WHEREAS, the Company proposes to issue Common Stock Purchase Warrants, as hereinafter described (the "Warrants"), to purchase up to an aggregate of 500,000 shares of Common Stock, par value $0.0034 per share (the "Common Stock"), of the Company (the Common Stock issuable on exercise of the Warrants being referred to herein as the "Warrant Shares"), each Warrant entitling the holder thereof to purchase one Warrant Share. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto agree as follows: SECTION 1. Warrant Certificates. The certificates evidencing the Warrants (the "Warrant Certificates") to be delivered pursuant to this Agreement shall be in registered form only and shall be substantially in the form set forth in Exhibit A attached hereto. SECTION 2. Execution of Warrant Certificates. Warrant Certificates shall be signed on behalf of the Company by its Chairman of the Board or its President or a Vice President and by its Secretary or an Assistant Secretary under its corporate seal. Each such signature upon the Warrant Certificates may be in the form of a facsimile signature of the present or any future Chairman of the Board, President, Vice President, Secretary or Assistant Secretary and may be imprinted or otherwise reproduced on the Warrant Certificates and for that purpose the Company may adopt and use the facsimile signature of any person who shall have been Chairman of the Board, President, Vice President, Secretary or Assistant Secretary, notwithstanding the fact that at the time the Warrant Certificates shall be countersigned and delivered or disposed of he shall have ceased to hold such office. The seal of the Company may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Warrant Certificates. Any Warrant Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Warrant Certificate, shall be a proper officer of the Company to sign such Warrant Certificate, although at the date of the execution of this Warrant Agreement any such person was not such officer. SECTION 3. Warrant Register. The Company shall number and register the Warrant Certificates in a register as they are issued by the Company. The Company may deem and treat the registered holder(s) of the Warrant Certificates as the absolute owner(s) thereof (notwithstanding any notation of ownership or other writing thereon made by anyone), for all purposes, and the Company shall not be affected by any notice to the contrary. SECTION 4. Registration of Transfers and Exchanges. The Company shall from time to time register the transfer of any outstanding Warrant Certificates upon the records to be 3 maintained by it for that purpose, upon surrender thereof accompanied (if so required by it) by a written instrument or instruments of transfer duly executed by the registered holder or holders thereof or by the duly appointed legal representative thereof or by a duly authorized attorney. Upon any such registration of transfer, a new Warrant Certificate shall be issued to the transferee(s) and the surrendered Warrant Certificate shall be cancelled by the Company. Cancelled Warrant Certificates shall thereafter be disposed of in a manner satisfactory to the Company. The Holder agrees that each certificate representing Warrant Shares will bear the following legend: "The securities evidenced or constituted hereby have been acquired for investment and have not been registered under the Securities Act of 1933, as amended. Such securities may not be sold, transferred, pledged or hypothecated unless the registration provisions of said Act have been complied with or unless the Company has received an opinion of counsel reasonably satisfactory to the Company that such registration is not required." Warrant Certificates may be exchanged at the option of the holder(s) thereof, when surrendered to the Company at its office for another Warrant Certificate or other Warrant Certificates of like tenor and representing in the aggregate a like number of Warrants. Warrant Certificates surrendered for exchange shall be cancelled by the Company. SECTION 5. Terms of Warrants; Exercise of Warrants. Subject to the terms of this Agreement, the Warrant holder shall have the right, which may be exercised commencing at the opening of business on January 30, 1998 and until 5:00 p.m., Pacific time on January 29, 2001 to receive from the Company the number of fully paid and nonassessable Warrant Shares which the Warrant holder may at the time be entitled to receive on exercise of such Warrants and payment of the Exercise Price then in effect for such Warrant Shares. In the alternative, the Warrant holder may exercise its right, during the Exercise Period, to receive Warrant Shares on a net basis, such that, without the exchange of any funds, the Warrant holder receives that number of Warrant Shares otherwise issuable (or payable) upon exercise of its Warrants less that number of Warrant Shares having an aggregate current market price at the time of exercise equal to the aggregate Exercise Price that would otherwise have been paid by the Warrant holder. For purposes of the foregoing sentence, "current market price" of the Warrant Shares will be determined in the manner set forth in Section 10(d) hereof. Each Warrant not exercised prior to 5:00 p.m., Pacific time, on January 29, 2001 shall become void and all rights thereunder and all rights in respect thereof under this agreement shall cease as of such time. No adjustments as to dividends will be made upon exercise of the Warrants. A Warrant may be exercised upon surrender to the Company at its principal office of the certificate or certificates evidencing the Warrants to be exercised with the form of election to purchase on the reverse thereof duly filled in and signed, and upon payment to the Company 2 4 of the exercise price (the "Exercise Price") which is set forth in the form of Warrant Certificate attached hereto as Exhibit A as adjusted as herein provided, for the number of Warrant Shares in respect of which such Warrants are then exercised. Payment of the aggregate Exercise Price shall be made (i) in cash or by certified or official bank check payable to the order of the Company, or (ii) in the manner provided in the first paragraph of this Section 5. Upon such surrender of Warrants and payment of the Exercise Price the Company shall issue and cause to be delivered with all reasonable dispatch to or upon the written order of the Warrant holder and in such name or names as the holder may designate, a certificate or certificates for the number of full Warrant Shares issuable upon the exercise of such Warrants together with cash as provided in Section 11; provided, however, that if any consolidation, merger or lease or sale of assets is proposed to be effected by the Company as described in subsection (m) of Section 10 hereof, or a tender offer or an exchange offer for shares of Common Stock of the Company shall be made, upon such surrender of Warrants and payment of the Exercise Price as aforesaid, the Company shall, as soon as possible, but in any event not later than two business days thereafter, issue and cause to be delivered the full number of Warrant Shares issuable upon the exercise of such Warrants in the manner described in this sentence together with cash as provided in Section 11. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrants and payment of the Exercise Price. The Warrants shall be exercisable, at the election of the holders thereof, either in full or from time to time in part and, in the event that a certificate evidencing Warrants is exercised in respect of fewer than all of the Warrant Shares issuable on such exercise at any time prior to the date of expiration of the Warrants, a new certificate evidencing the remaining Warrant or Warrants will be issued pursuant to the provisions of this Section. All Warrant Certificates surrendered upon exercise of Warrants shall be cancelled by the Company. Such cancelled Warrant Certificates shall then be disposed of by the Company. SECTION 6. Payment of Taxes. The Company will pay all documentary stamp taxes attributable to the initial issuance of Warrant Shares upon the exercise of Warrants; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue of any Warrant Certificates or any certificates for Warrant Shares in a name other than that of the registered holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such Warrant Certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. SECTION 7. Mutilated or Missing Warrant Certificates. In case any of the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company may in its 3 5 discretion issue in exchange and substitution for and upon cancellation of the mutilated Warrant Certificate, or in lieu of and substitution for the Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor and representing an equivalent number of Warrants, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of such Warrant Certificate and indemnity, if requested, also satisfactory to them. Applicants for such substitute Warrant Certificates shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company may prescribe. SECTION 8. Reservation of Warrant Shares. The Company will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Stock or its authorized and issued Common Stock held in its treasury, for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the maximum number of shares of Common Stock which may then be deliverable upon the exercise of all outstanding Warrants. The Company or, if appointed, the transfer agent for the Common Stock (the "Transfer Agent") and every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of any of the rights of purchase aforesaid will be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with the Transfer Agent and with every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by the Warrants. The Company will supply such Transfer Agent with duly executed certificates for such purposes and will provide or otherwise make available any cash which may be payable as provided in Section 11. The Company will furnish such Transfer Agent a copy of all notices of adjustments and certificates related thereto, transmitted to each holder pursuant to Section 12 hereof. Before taking any action which would cause an adjustment pursuant to Section 10 hereof to reduce the Exercise Price below the then par value (if any) of the Warrant Shares, the Company will take any corporate action which may, in the opinion of its counsel (which may be counsel employed by the Company), be necessary in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares at the Exercise Price as so adjusted. The Company covenants that all Warrant Shares which may be issued upon exercise of Warrants will, upon issue, be fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issue thereof. SECTION 9. Obtaining Stock Exchange Listings. The Company will from time to time take all action which may be necessary so that the Warrant Shares, immediately upon their issuance upon the exercise of Warrants, will be listed on the principal securities exchanges and markets within the United States of America, if any, on which other shares of Common Stock are then listed. 4 6 SECTION 10. Adjustment of Exercise Price and Number of Warrant Shares Issuable. The Exercise Price and the number of Warrant Shares issuable upon the exercise of each Warrant are subject to adjustment from time to time upon the occurrence of the events enumerated in this Section 10. For purposes of this Section 10, "Common Stock" means shares now or hereafter authorized of any class of common stock of the Company and any other stock of the Company, however designated, that has the right (subject to any prior rights of any class or series of preferred stock) to participate in any distribution of the assets or earnings of the Company without limit as to per share amount. (a) Adjustment for Change in Capital Stock. If the Company: (1) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock; (2) subdivides its outstanding shares of Common Stock into a greater number of shares; (3) combines its outstanding shares of Common Stock into a smaller number of shares; (4) makes a distribution on its Common Stock in shares of its capital stock other than Common Stock; or (5) issues by reclassification of its Common Stock any shares of its capital stock; then the Exercise Price in effect immediately prior to such action shall be proportionately adjusted so that the holder of any Warrant thereafter exercised may receive the aggregate number and kind of shares of capital stock of the Company which he would have owned immediately following such action if such Warrant had been exercised immediately prior to such action. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. If after an adjustment a holder of a Warrant upon exercise of it may receive shares of two or more classes of capital stock of the Company, the Company shall determine the allocation of the adjusted Exercise Price between the classes of capital stock. After such allocation, the exercise privilege and the Exercise Price of each class of capital stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this Section. 5 7 Such adjustment shall be made successively whenever any event listed above shall occur. (b) Adjustment for Rights Issue. If the Company distributes any rights, options or warrants to all holders of its Common Stock entitling them for a period expiring within 60 days after the record date mentioned below to purchase shares of Common Stock at a price per share less than the current market price per share on that record date, the Exercise Price shall be adjusted in accordance with the formula: O + N x P ------- E' = E x M ----------- O + N where: E'= the adjusted Exercise Price. E = the current Exercise Price. O = the number of shares of Common Stock outstanding on the record date. N = the number of additional shares of Common Stock offered. P = the offering price per share of the additional shares. M = the current market price per share of Common Stock on the record date. The adjustment shall be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the record date for the determination of stockholders entitled to receive the rights, options or warrants. If at the end of the period during which such rights, options or warrants are exercisable, not all rights, options or warrants shall have been exercised, the Exercise Price shall be immediately readjusted to what it would have been if "N" in the above formula had been the number of shares actually issued. (c) Adjustment for Other Distributions. If the Company distributes to all holders of its Common Stock any of its assets or debt securities or any rights or warrants to purchase debt securities, assets or other securities of the Company, the Exercise Price shall be adjusted in accordance with the formula: 6 8 E' = E x M - F ------------ M where: E'= the adjusted Exercise Price. E = the current Exercise Price. M = the current market price per share of Common Stock on the record date mentioned below. F = the fair market value on the record date of the assets, securities, rights or warrants applicable to one share of Common Stock. The Board of Directors shall determine the fair market value. The adjustment shall be made successively whenever any such distribution is made and shall become effective immediately after the record date for the determination of stockholders entitled to receive the distribution. This subsection (c) does not apply to cash dividends or cash distributions paid out of consolidated current or retained earnings as shown on the books of the Company prepared in accordance with generally accepted accounting principles. Also, this subsection does not apply to rights, options or warrants referred to in subsection (b) of this Section 10. (d) Current Market Price. In subsections (b) and (c) of this Section 10 the current market price per share of Common Stock on any date is the average of the Quoted Prices of the Common Stock for 30 consecutive trading days commencing 45 trading days before the date in question. The "Quoted Price" of the Common Stock is the last reported sales price of the Common Stock as reported on the Nasdaq National Market, or if the Common Stock is listed on a securities exchange, the last reported sales price of the Common Stock on such exchange which shall be for consolidated trading if applicable to such exchange, or if neither so reported or listed, the last reported bid price of the Common Stock. In the absence of one or more such quotations, the Board of Directors of the Company shall determine the current market price on the basis of such quotations as it in good faith considers appropriate. (e) When De Minimis Adjustment May Be Deferred. No adjustment in the Exercise Price need be made unless the adjustment would require an increase or decrease of at least 1% in the Exercise Price. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. 7 9 All calculations under this Section shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. (f) When No Adjustment Required. No adjustment need be made for a transaction referred to in subsections (a), (b) or (c) of this Section 10 if Warrant holders are to participate in the transaction on a basis and with notice that the Board of Directors determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in the transaction. No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. No adjustment need be made for a change in the par value or no par value of the Common Stock. To the extent the Warrants become convertible into cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash. (g) Notice of Adjustment. Whenever the Exercise Price is adjusted, the Company shall provide the notices required by Section 12 hereof. (h) Voluntary Reduction. The Company from time to time may reduce the Exercise Price by any amount for any period of time if the period is at least 20 days and if the reduction is irrevocable during the period; provided, however, that in no event may the Exercise Price be less than the par value of a share of Common Stock. Whenever the Exercise Price is reduced, the Company shall mail to Warrant holders a notice of the reduction. The Company shall mail the notice at least 15 days before the date the reduced Exercise Price takes effect. The notice shall state the reduced Exercise Price and the period it will be in effect. A reduction of the Exercise Price does not change or adjust the Exercise Price otherwise in effect for purposes of subsections (a), (b) and (c) of this Section 10. 8 10 (i) Notice of Certain Transactions. If: (1) the Company takes any action that would require an adjustment in the Exercise Price pursuant to subsections (a), (b) or (c) of this Section 10 and if the Company does not arrange for Warrant holders to participate pursuant to subsection (i) of this Section 10; (2) the Company takes any action that would require a supplemental Warrant Agreement pursuant to subsection (j) of this Section 10; or (3) there is a liquidation or dissolution of the Company, the Company shall mail to Warrant holders a notice stating the proposed record date for a dividend or distribution or the proposed effective date of a subdivision, combination, reclassification, consolidation, merger, transfer, lease, liquidation or dissolution. The Company shall mail the notice at least 15 days before such date. Failure to mail the notice or any defect in it shall not affect the validity of the transaction. (j) Reorganization of Company. If the Company consolidates or merges with or into, or transfers or leases all or substantially all its assets to, any person, upon consummation of such transaction the Warrants shall automatically become exercisable for the kind and amount of securities, cash or other assets which the holder of a Warrant would have owned immediately after the consolidation, merger, transfer or lease if the holder had exercised the Warrant immediately before the effective date of the transaction. Concurrently with the consummation of such transaction, the corporation formed by or surviving any such consolidation or merger if other than the Company, or the person to which such sale or conveyance shall have been made, shall enter into a supplemental Warrant Agreement so providing and further providing for adjustments which shall be as nearly equivalent as may be practical to the adjustments provided for in this Section. The successor Company shall mail to Warrant holders a notice describing the supplemental Warrant Agreement. If the issuer of securities deliverable upon exercise of Warrants under the supplemental Warrant Agreement is an affiliate of the formed, surviving, transferee or lessee corporation, that issuer shall join in the supplemental Warrant Agreement. If this subsection (j) applies, subsections (a), (b) and (c) of this Section 10 do not apply. 9 11 (k) When Issuance or Payment May Be Deferred. In any case in which this Section 10 shall require that an adjustment in the Exercise Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event (i) issuing to the holder of any Warrant exercised after such record date the Warrant Shares and other capital stock of the Company, if any, issuable upon such exercise over and above the Warrant Shares and other capital stock of the Company, if any, issuable upon such exercise on the basis of the Exercise Price and (ii) paying to such holder any amount in cash in lieu of a fractional share pursuant to Section 11; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional Warrant Shares, other capital stock and cash upon the occurrence of the event requiring such adjustment. (l) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price pursuant to this Section 10, each Warrant outstanding prior to the making of the adjustment in the Exercise Price shall thereafter evidence the right to receive upon payment of the adjusted Exercise Price that number of shares of Common Stock (calculated to the nearest hundredth) obtained from the following formula: N' = N x E --------- E' where: N' = the adjusted number of Warrant Shares issuable upon exercise of a Warrant by payment of the adjusted Exercise Price. N = the number or Warrant Shares previously issuable upon exercise of a Warrant by payment of the Exercise Price prior to adjustment. E' = the adjusted Exercise Price. E = the Exercise Price prior to adjustment. (m) Form of Warrants. Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon the exercise of the Warrants, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the Warrants initially issuable pursuant to this Agreement. 10 12 SECTION 11. Fractional Interests. The Company shall not be required to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be presented for exercise in full at the same time by the same holder, the number of full Warrant Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of the Warrants so presented. If any fraction of a Warrant Share would, except for the provisions of this Section 11, be issuable on the exercise of any Warrants (or specified portion thereof), the Company shall pay an amount in cash equal to the Exercise Price on the day immediately preceding the date the Warrant is presented for exercise, multiplied by such fraction. SECTION 12. Notices to Warrant Holders. Upon any adjustment of the Exercise Price pursuant to Section 10, the Company shall promptly thereafter (i) cause to be given to each of the registered holders of the Warrant Certificates at his address appearing on the Warrant register a certificate of a firm of independent public accountants of recognized standing selected by the Board of Directors of the Company (who may be the regular auditors of the Company) setting forth the Exercise Price after such adjustment and setting forth in reasonable detail the method of calculation and the facts upon which such calculations are based and setting forth the number of Warrant Shares (or portion thereof) issuable after such adjustment in the Exercise Price, upon exercise of a Warrant and payment of the adjusted Exercise Price, which certificate shall be conclusive evidence of the correctness of the matters set forth therein, by first-class mail, postage prepaid. Where appropriate, such notice may be given in advance and included as a part of the notice required to be mailed under the other provisions of this Section 12. In case: (a) the Company shall authorize the issuance to all holders of shares of Common Stock of rights, options or warrants to subscribe for or purchase shares of Common Stock or of any other subscription rights or warrants; or (b) the Company shall authorize the distribution to all holders of shares of Common Stock of evidences of its indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends payable in shares of Common Stock or distributions referred to in subsection (a) of Section 10 hereof); or (c) of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or of the conveyance or transfer of the properties and assets of the Company substantially as an entirety, or of any reclassification or change of Common Stock issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or a tender offer or exchange offer for shares of Common Stock; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or 11 13 (e) the Company proposes to take any action (other than actions of the character described in Section 10(a)) which would require an adjustment of the Exercise Price pursuant to Section 10; then the Company shall cause to be given to each of the registered holders of the Warrant Certificates at his address appearing on the Warrant register, at least 20 days (or 10 days in any case specified in clauses (a) or (b) above) prior to the applicable record date hereinafter specified, or promptly in the case of events for which there is no record date, by first-class mail, postage prepaid, a written notice stating (i) the date as of which the holders of record of shares of Common Stock to be entitled to receive any such rights, options, warrants or distribution are to be determined, or (ii) the initial expiration date set forth in any tender offer or exchange offer for shares of Common Stock, or (iii) the date on which any such consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up is expected to become effective or consummated, and the date as of which it is expected that holders of record of shares of Common Stock shall be entitled to exchange such shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up. The failure to give the notice required by this Section 12 or any defect therein shall not affect the legality or validity of any distribution, right, option, warrant, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up, or the vote upon any action. Nothing contained in this Agreement or in any of the Warrant Certificates shall be construed as conferring upon the holders thereof the right to vote or to consent or to receive notice as shareholders in respect of the meetings of shareholders or the election of Directors of the Company or any other matter, or any rights whatsoever as shareholders of the Company. SECTION 13. Notices to Company. Any notice or demand authorized by this Agreement to be given or made by the Company or by the registered holder of any Warrant Certificate to or on the Company shall be sufficiently given or made when and if deposited in the mail, first class or registered, postage prepaid, addressed (until another address is filed in writing by the Company), as follows: MRV Communications, Inc. 8917 Fullbright Avenue Chatsworth, California 91311 Attention: Corporate Secretary In case the Company shall fail to maintain such office or agency or shall fail to give such notice of the location or of any change in the location thereof, presentations may be made and notices and demands may be served at the principal office of the Transfer Agent. SECTION 14. Supplements and Amendments. The Company and the Warrant holders may from time to time supplement or amend this Agreement with the approval of all holders of Warrant Certificates. 12 14 SECTION 15. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors and assigns hereunder. SECTION 16. Termination. This Agreement shall terminate at 5:00 p.m., Pacific time on January 29, 2001. Notwithstanding the foregoing, this Agreement will terminate on any earlier date if all Warrants have been exercised. SECTION 17. Governing Law. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be construed in accordance with the internal laws of said State. SECTION 18. Benefits of This Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Holder and the registered holders of the Warrant Certificates any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Holder and the registered holders of the Warrant Certificates. SECTION 19. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. [Signature Page Follows] 13 15 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. MRV COMMUNICATIONS, INC. /s/ ZEEV RAV-NOY C.O.O. ------------------------- By Title [Seal] Attest: /s/ EDMUND GLAZER ---------------------- Secretary WHITTAKER CORPORATION /s/ JOHN K. OTTO ------------------------- By John K. Otto Title Vice President Attest: /S/ LYNNE M. O. BRICKNER ---------------------- Secretary 14 16 EXHIBIT A TO WARRANT AGREEMENT [Form of Warrant Certificate] THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE REGISTRATION PROVISIONS OF SUCH ACT HAVE BEEN COMPLIED WITH OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. EXERCISABLE ON OR BEFORE FEBRUARY ___, 2001 No. [1][2] [421,402][78,598] Warrants Warrant Certificate MRV COMMUNICATIONS, INC. This Warrant Certificate certifies that WHITTAKER CORPORATION, or registered assigns, is the registered holder of Warrants expiring February ___, 2001 (the "Warrants") to purchase Common Stock, par value $0.0034 per share (the "Common Stock"), of MRV Communications, Inc., a Delaware corporation (the "Company"). Each Warrant entitles the holder upon exercise to receive from the Company on or before 5:00 p.m. Pacific time on February ___, 2001, one fully paid and nonassessable share of Common Stock (a "Warrant Share") at the initial exercise price (the "Exercise Price") of $35.00 payable in lawful money of the United States of America upon surrender of this Warrant Certificate and payment of the Exercise Price at the office of the Company, but only subject to the conditions set forth herein and in the Warrant Agreement referred to herein. Notwithstanding the foregoing, Warrants may be exercised without the exchange of funds pursuant to the net exercise provisions of Section 5 of the Warrant Agreement. The Exercise Price and number of Warrant Shares issuable upon exercise of the Warrants are subject to adjustment upon the occurrence of certain events set forth in the Warrant Agreement. No Warrant may be exercised after 5:00 p.m., Pacific time on February ___, 2001, and to the extent not exercised by such time such Warrants shall become void. This Warrant Certificate shall be governed and construed in accordance with the internal laws of the State of Delaware. A-1 17 The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants expiring February ___, 2001 entitling the holder on exercise to receive shares of Common Stock, par value $0.0034 per share, of the Company (the "Common Stock"), and are issued or to be issued pursuant to a Warrant Agreement dated as of February ___, 1998 (the "Warrant Agreement"), duly executed and delivered by the Company to Whittaker Corporation, a Delaware corporation (the "Holder"), which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company, the Holder and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. A copy of the Warrant Agreement may be obtained by the holder hereof upon written request to the Company. Warrants may be exercised at any time on or before February ___, 2001. The holder of Warrants evidenced by this Warrant Certificate may exercise them by surrendering this Warrant Certificate, with the form of election to purchase set forth hereon properly completed and executed, together with payment of the Exercise Price in cash at the office of the Company. In the event that upon any exercise of Warrants evidenced hereby the number of Warrants exercised shall be less than the total number of Warrants evidenced hereby, there shall be issued to the holder hereof or his assignee a new Warrant Certificate evidencing the number of Warrants not exercised. No adjustment shall be made for any dividends on any Common Stock issuable upon exercise of this Warrant. The Warrant Agreement provides that upon the occurrence of certain events the Exercise Price set forth on the face hereof may, subject to certain conditions, be adjusted. If the Exercise Price is adjusted, the Warrant Agreement provides that the number of shares of Common Stock issuable upon the exercise of each Warrant shall be adjusted. No fractions of a share of Common Stock will be issued upon the exercise of any Warrant, but the Company will pay the cash value thereof determined as provided in the Warrant Agreement. Warrant Certificates, when surrendered at the office of the Company by the registered holder thereof may be exchanged, in the manner and subject to the limitations provided in the Warrant Agreement, but without payment of any service charge, for another Warrant Certificate or Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants. Upon due presentation for registration of transfer of this Warrant Certificate at the office of the Company a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith. A-2 18 The Company may deem and treat the registered holder(s) thereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. Neither the Warrants nor this Warrant Certificate entitles any holder hereof to any rights of a stockholder of the Company. IN WITNESS WHEREOF, MRV Communications, Inc. has caused this Warrant Certificate to be signed by its President and by its Secretary, and has caused its corporate seal to be affixed hereunto or imprinted hereon. Dated: February ___, 1998 MRV COMMUNICATIONS, INC. By ------------------------ President By ------------------------ Secretary A-3 19 [Form of Election to Purchase] (To Be Executed Upon Exercise Of Warrant) The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to receive __________ shares of Common Stock and herewith tenders payment for such shares to the order of MRV Communications, Inc. in the amount of $______ in accordance with the terms hereof, unless the holder is exercising Warrants pursuant to the net exercise provisions of Section 5 of the Warrant Agreement. The undersigned requests that a certificate for such shares be registered in the name of ________________, whose address is _______________________________ and that such shares be delivered to ________________ whose address is ___________ ______________________. If said number of shares is less than all of the shares of Common Stock purchasable hereunder, the undersigned requests that a new Warrant Certificate representing the remaining balance of such shares be registered in the name of ______________, whose address is _________________________, and that such Warrant Certificate be delivered to _________________, whose address is __________________. Signature: Date: A-4 EX-2.1(C) 4 EXHIBIT 2.1(C) 1 EXHIBIT 2.1(c) THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE REGISTRATION PROVISIONS OF SUCH ACT HAVE BEEN COMPLIED WITH OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. EXERCISABLE ON OR BEFORE JANUARY 29, 2001 No. Whittaker #1 421,402 Warrants Warrant Certificate MRV COMMUNICATIONS, INC. This Warrant Certificate certifies that WHITTAKER CORPORATION, or registered assigns, is the registered holder of Warrants expiring January 29, 2001 (the "Warrants") to purchase Common Stock, par value $0.0034 per share (the "Common Stock"), of MRV Communications, Inc., a Delaware corporation (the "Company"). Each Warrant entitles the holder upon exercise to receive from the Company on or before 5:00 p.m. Pacific time on January 29, 2001, one fully paid and nonassessable share of Common Stock (a "Warrant Share") at the initial exercise price (the "Exercise Price") of $35.00 payable in lawful money of the United States of America upon surrender of this Warrant Certificate and payment of the Exercise Price at the office of the Company, but only subject to the conditions set forth herein and in the Warrant Agreement referred to herein. Notwithstanding the foregoing, Warrants may be exercised without the exchange of funds pursuant to the net exercise provisions of Section 5 of the Warrant Agreement. The Exercise Price and number of Warrant Shares issuable upon exercise of the Warrants are subject to adjustment upon the occurrence of certain events set forth in the Warrant Agreement. No Warrant may be exercised after 5:00 p.m., Pacific time on January 29, 2001, and to the extent not exercised by such time such Warrants shall become void. This Warrant Certificate shall be governed and construed in accordance with the internal laws of the State of Delaware. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants expiring January 29, 2001 entitling the holder on exercise to receive shares of Common Stock, par value $0.0034 per share, of the Company (the "Common Stock"), and are issued or to be issued pursuant to a Warrant Agreement dated as of January 30, 1998 (the "Warrant Agreement"), duly executed and delivered by the Company to Whittaker Corporation, a Delaware corporation (the "Holder"), which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company, the Holder and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. A copy of the Warrant Agreement may be obtained by the holder hereof upon written request to the Company. Warrants may be exercised at any time on or before January 29, 2001. The holder of Warrants evidenced by this Warrant Certificate may exercise them by surrendering this Warrant Certificate, with the form of election to purchase set forth hereon properly completed and executed, together with 1 2 payment of the Exercise Price in cash at the office of the Company. In the event that upon any exercise of Warrants evidenced hereby the number of Warrants exercised shall be less than the total number of Warrants evidenced hereby, there shall be issued to the holder hereof or his assignee a new Warrant Certificate evidencing the number of Warrants not exercised. No adjustment shall be made for any dividends on any Common Stock issuable upon exercise of this Warrant. The Warrant Agreement provides that upon the occurrence of certain events the Exercise Price set forth on the face hereof may, subject to certain conditions, be adjusted. If the Exercise Price is adjusted, the Warrant Agreement provides that the number of shares of Common Stock issuable upon the exercise of each Warrant shall be adjusted. No fractions of a share of Common Stock will be issued upon the exercise of any Warrant, but the Company will pay the cash value thereof determined as provided in the Warrant Agreement. Warrant Certificates, when surrendered at the office of the Company by the registered holder thereof may be exchanged, in the manner and subject to the limitations provided in the Warrant Agreement, but without payment of any service charge, for another Warrant Certificate or Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants. Upon due presentation for registration of transfer of this Warrant Certificate at the office of the Company a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith. The Company may deem and treat the registered holder(s) thereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. Neither the Warrants nor this Warrant Certificate entitles any holder hereof to any rights of a stockholder of the Company. IN WITNESS WHEREOF, MRV Communications, Inc. has caused this Warrant Certificate to be signed by its Chief Operating Officer and by its Assistant Secretary, and has caused its corporate seal to be affixed hereunto or imprinted hereon. Dated: January 30, 1998 MRV COMMUNICATIONS, INC. By /s/ ZEEV RAV-NOY --------------------------------- Chief Operating Officer By /s/ EDMUND GLAZER --------------------------------- Assistant Secretary 2 3 [Form of Election to Purchase] (To Be Executed Upon Exercise Of Warrant) The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to receive __________ shares of Common Stock and herewith tenders payment for such shares to the order of MRV Communications, Inc. in the amount of $______ in accordance with the terms hereof, unless the holder is exercising Warrants pursuant to the net exercise provisions of Section 5 of the Warrant Agreement. The undersigned requests that a certificate for such shares be registered in the name of ________________, whose address is _______________________________ and that such shares be delivered to ________________ whose address is ___________ ______________________. If said number of shares is less than all of the shares of Common Stock purchasable hereunder, the undersigned requests that a new Warrant Certificate representing the remaining balance of such shares be registered in the name of ______________, whose address is ________________, and that such Warrant Certificate be delivered to _________________, whose address is __________________. Signature: ---------------------------- Date: ___________ 3 EX-2.2.(A) 5 EXHIBIT 2.2.(A) 1 EXHIBIT 2.2(a) [COOPERS & LYBRAND LETTERHEAD] XYPLEX, INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 2 [COOPERS & LYBRAND LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Raytheon Company: We have audited the accompanying balance sheets of Xyplex, Inc. as of December 31, 1995 and 1994, and the related statements of income, stockholder's equity, and cash flows for the years then ended. These financial statements are the responsibility of 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. As discussed in Note 1, interest expense associated with Raytheon Company's general corporate debt has not been allocated to Xyplex, Inc.'s financial statements. Also as discussed in Note 1, Xyplex, Inc. has earned interest income primarily on its intercompany receivable from Raytheon based on an agreed-upon rate. As discussed in Note 2, certain costs and expenses presented in the financial statements represent allocations of the costs of services provided to Xyplex, Inc. by Raytheon Company. As a result of these factors, the financial statements presented may not be indicative of the financial position or results of operations that would have been achieved had Xyplex, Inc. operated as a nonaffiliated entity. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Xyplex, Inc. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. Boston, Massachusetts April 22, 1996 3 XYPLEX, INC. BALANCE SHEETS December 31, 1995 and 1994
ASSETS 1995 1994 ---- ---- Current assets: Cash and cash equivalents $ 113,000 $ 140,000 Short-term investments 400,000 400,000 Accounts receivable, less reserve of $805,000 and $719,000 in 1995 and 1994, respectively 19,584,000 18,663,000 Inventory 8,974,000 8,397,000 Other current assets 790,000 456,000 Receivable from parent company 33,774,000 35,447,000 ------------ ------------ Total current assets 63,635,000 63,503,000 Property and equipment, net 7,854,000 6,386,000 Deferred tax asset 6,136,000 3,168,000 Other assets 2,032,000 1,627,000 Goodwill 85,624,000 123,982,000 ------------ ------------ Total assets $165,281,000 $198,666,000 ============ ============ LIABILITIES AND PARENT COMPANY INVESTMENT Current liabilities: Current portion of capital lease obligations 472,000 796,000 Accounts payable 7,517,000 6,504,000 Accrued payroll and employee benefits 4,749,000 3,326,000 Other accrued expenses 1,700,000 900,000 Deferred revenue 3,134,000 1,551,000 ------------ ------------ Total current liabilities 17,572,000 13,077,000 Long-term portion of capital lease obligations 84,000 604,000 Commitments and contingencies Parent company investment 147,625,000 184,985,000 ------------ ------------ Total liabilities and parent company investment $165,281,000 $198,666,000 ============ ============
The accompanying notes are an integral part of the financial statements. 2 4 XYPLEX, INC. STATEMENTS OF INCOME for the years ended December 31, 1995 and 1994 1995 1994 ---- ---- Net sales $107,617,000 $95,233,000 Cost of sales 49,360,000 40,646,000 ------------ ----------- Gross profit 58,257,000 54,587,000 ------------ ----------- Operating expenses: Selling and marketing 35,675,000 25,283,000 General and administrative 6,300,000 5,008,000 Research and development 16,039,000 13,045,000 Parent company allocations 425,000 24,000 Amortization of goodwill 8,358,000 1,393,000 Impairment of goodwill 30,000,000 - Acquisition charges - 4,299,000 ------------ ----------- Total operating expenses 96,797,000 49,052,000 ------------ ----------- (Loss) income from operations (38,540,000) 5,535,000 Interest expense (74,000) (131,000) Interest income 22,000 834,000 Interest income from parent company 2,238,000 212,000 ------------ ----------- Net (loss) income before tax provision (36,354,000) 6,450,000 Provision for federal income taxes 1,006,000 3,152,000 ------------ ---------- Net (loss) income $(37,360,000) $ 3,298,000 ============ =========== The accompanying notes are an integral part of the financial statements. 3 5 XYPLEX, INC. STATEMENTS OF STOCKHOLDER'S EQUITY for the years ended December 31, 1995 and 1994
COMMON STOCK ADDITIONAL PARENT TOTAL ----------------------- RETAINED PAID-IN COMPANY STOCKHOLDERS' SHARES AMOUNT EARNINGS CAPITAL INVESTMENT EQUITY ---------- -------- ------------ ------------ ------------ ------------ Balance, January 1, 1994 6,055,000 $ 61,000 $ 22,083,000 $ 34,537,000 $ 56,681,000 Exercise of stock options 141,000 1,000 -- 46,000 47,000 Tax benefit related to employee stock options -- -- -- 1,172,000 1,172,000 Sale of common stock under employee stock purchase plan 60,000 1,000 -- 805,000 806,000 Net income earned through date of acquisition -- -- 1,641,000 -- 1,641,000 Acquisition by Raytheon Company (6,256,000) (63,000) (23,724,000) (36,560,000) $ 60,347,000 -- Allocation of goodwill to parent company investment -- -- -- -- 122,981,000 122,981,000 Net income -- -- -- -- 1,657,000 1,657,000 ---------- -------- ------------ ------------ ------------ ------------ Balance, December 31, 1994 -- -- -- -- 184,985,000 184,985,000 Net loss -- -- -- -- (37,360,000) (37,360,000) ---------- -------- ------------ ------------ ------------ ------------ Balance, December 31, 1995 -- -- -- -- $147,625,000 $147,625,000 ========== ======== ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements. 4 6 XYPLEX, INC. STATEMENTS OF CASH FLOWS for the years ended December 31, 1995 and 1994
1995 1994 -------------- -------------- Cash flows from operating activities: Net (loss) income $ (37,360,000) $ 3,298,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,868,000 5,239,000 Impairment of goodwill 30,000,000 -- Tax benefit from employee stock options -- 1,172,000 Deferred income tax provision (2,968,000) (2,453,000) Changes in assets and liabilities: Accounts receivable (921,000) (5,546,000) Inventory (577,000) (3,402,000) Other current assets (334,000) (114,000) Accounts payable and accrued expenses 1,096,000 893,000 Deferred revenue 1,583,000 720,000 Other assets (110,000) (18,000) -------------- -------------- Net cash provided by (used in) operating activities 4,277,000 (211,000) -------------- -------------- Cash flows from investing activities: Purchase and sale of equipment, net (6,437,000) (3,760,000) Purchase of licenses and other intangible assets (836,000) (1,090,000) Net proceeds from sales of securities -- 19,917,000 -------------- -------------- Net cash (used in) provided by investing activities (7,273,000) 15,067,000 Cash flows from financing activities: Increase in accounts payable related to cash overdrafts 2,140,000 1,866,000 Repayment of note payable -- (253,000) Proceeds from exercise of stock options -- 46,000 Proceeds from sale of stock under employee stock purchase plan -- 805,000 Payments of capital leases (844,000) (863,000) Net receipts from (payments to) parent company 1,673,000 (33,140,000) -------------- -------------- Net cash provided by (used in) financing activities 2,969,000 (31,539,000) Net decrease in cash and cash equivalents (27,000) (16,683,000) Cash and cash equivalents, beginning of year 140,000 16,823,000 -------------- -------------- Cash and cash equivalents, end of year $ 113,000 $ 140,000 ============== ==============
The accompanying notes are an integral part of the financial statements. 5 7 XYPLEX, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ------------------------------------------- BASIS OF PRESENTATION Xyplex, Inc. (the "Company" or "Xyplex") designs, manufactures, markets and supports data networks. On October 7, 1994, Xyplex was acquired by Raytheon Company ("Raytheon") for total consideration of $186,000,000. Pursuant to the purchase method of accounting, the assets and liabilities acquired by Raytheon were revalued to their fair value. The excess of the purchase price over the fair value of the net assets acquired was approximately $125,000,000 and accordingly, goodwill and the parent company investment were increased by $125,000,000. Effective on the close of business on April 9, 1996, Xyplex was acquired by Whittaker Corporation. The accompanying historical financial statements present the Company's results of operations and its financial condition as a stand alone entity through October 7, 1994 and as a wholly-owned subsidiary of Raytheon thereafter. Interest expense associated with Raytheon's general corporate debt has not been allocated to the Company's financial statements. Certain costs and expenses presented in the financial statements represent intercompany allocations and management's estimates of the costs of services provided to the Company by Raytheon. (See Note 2 for further discussion of allocations.) Additionally, as discussed in further detail below, Xyplex earned interest income primarily on its intercompany receivable from Raytheon based on an agreed-upon rate. As a result of these factors, the financial statements presented may not be indicative of the results that would have been achieved had the Company operated as a non-affiliated entity. The Company has had transactions in the normal course of business with Raytheon and its subsidiaries. Revenues from these transactions, totaling $1,172,000 in 1995 and $128,000 in 1994, are in accordance with Xyplex's normal terms and conditions. The remaining receivables from these transactions with Raytheon are included in trade accounts receivable and totaled $458,000 and $28,000 as of December 31, 1995 and 1994, respectively. Additionally, Xyplex transferred a substantial amount of its cash and investments to Raytheon upon the acquisition date and has subsequently participated in the Raytheon cash management program. All of this cash management activity is recorded in the receivable from parent company account. Intercompany activity also includes allocations of corporate expenses, state and federal income tax payments and credits, and interest earned on the intercompany receivable balance itself. Interest is earned on the intercompany receivable balance at a rate of 6.25% in 1995 and 5% in 1994 and totaled approximately $2,238,000 in 1995 and $212,000 in 1994. PARENT COMPANY INVESTMENT The parent company investment account represents the net assets of the company. As described above, this account was credited with the excess of the purchase price over the fair value of Xyplex's net assets at the time of Raytheon's purchase. Continued 6 8 XYPLEX, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED PRINCIPLES OF CONSOLIDATION The accompanying financial statements include the accounts of the Company and its wholly owned subsidiaries, Xyplex Foreign Sales Corporation, Inc., a foreign sales corporation formed in April 1990 and Xyplex Security Corp., formed in May 1991. Significant intercompany accounts and transactions have been eliminated in consolidation. The assets of Xyplex Security Corp. were liquidated during 1994 after the Company was purchased by Raytheon. Effective in 1995, the Company's foreign sales were reported under Raytheon's foreign sales corporation (RITL). USE OF ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Cash equivalents include all highly liquid investments with original maturities of ninety days or less at the time of acquisition. All other investments are considered to be short-term investments and are recorded at cost which approximates fair value. Under the Company's cash management system with Raytheon, checks issued but not presented to banks frequently result in overdraft balances for accounting purposes. The Company has determined the net overdraft balance by bank and has correspondingly reclassified these amounts to Accounts Payable. REVENUE RECOGNITION The Company recognizes product revenue upon shipment of goods and software. Maintenance and support fees greater than $10,000 are recognized ratably over the life of the contract. A provision is made at the time of shipment for estimated warranty costs to be incurred. INVENTORY Inventories are stated at the lower of cost (first-in, first-out method) or market. Continued 7 9 XYPLEX, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Expenditures for maintenance and repairs are charged to expense while the costs of significant improvements are capitalized. Depreciation is computed using the straight-line and accelerated methods in amounts that allocate the cost of these assets over their estimated useful lives as follows:
ESTIMATED ASSET CLASSIFICATION USEFUL LIFE - -------------------- ----------- Equipment 5 years Computer equipment 3 years Furniture and fixtures 5 years Leasehold improvements Term of Lease Demonstration units 3 years Equipment under capital lease Term of Lease
Upon retirement or sale, the cost of assets disposed and the related accumulated depreciation are eliminated and the related gains or losses are reflected in income. INTANGIBLES Goodwill, which represents the amount Raytheon incurred in excess of the fair value of the net assets of Xyplex on the date of purchase, is amortized on a straight-line basis over a period of 15 years. For the years ended December 31, 1995 and 1994, the Company incurred amortization expense related to this asset of $8,358,000 and $1,393,000. Accumulated amortization related to goodwill totaled $9,751,000 and $1,393,000 as of December 31, 1995 and 1994. Other intangibles assets, consisting primarily of licenses, are included in other assets. These assets are amortized over a one to three year period based on net realizable value. For the years ended December 31, 1995 and 1994, the Company incurred amortization expense of $444,000 and $245,000. Accumulated amortization related to these other assets totaled $624,000 and $180,000 as of December 31, 1995 and 1994. The Company periodically reviews the carrying value of its intangible assets as well as the amortization periods to determine whether current events and circumstances warrant adjustment to the carrying values or estimated useful lives. At each balance sheet date, management evaluates the carrying value of intangible assets to determine whether there has been any permanent impairment. As of December 31, 1995, the Company recognized goodwill impairment of $30,000,000. This amount represents the approximate difference between the fair value and the carrying value of the Company's net assets based on the anticipated sale of the Company. Continued 8 10 XYPLEX, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS Research and development costs are charged to expense as incurred. In accordance with Statement of Financial Accounting Standards (SFAS) No. 86, capitalization of internally developed computer software costs begins upon the establishment of technological feasibility. The Company believes that once a working model has been established, the additional development costs to bring the product to a commercially acceptable level are not significant. There were no software development costs capitalized as of December 31, 1995 and 1994. INCOME TAXES The Company records income taxes based on an asset and liability approach which results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book and tax bases of assets and liabilities. For purposes of these financial statements, income taxes have been calculated as if Xyplex had prepared a tax return on a stand alone basis. In accordance with Raytheon's policy, all sate and local taxes have been included in general and administrative expenses. 2. ALLOCATED COSTS: The historical statements of operations, include charges from Raytheon representing the Company's share of the cost of support services provided. These charges are allocations of corporate expenses associated with legal, marketing, management, financial and facilities management services. The basis of the allocation is dependent on the functions and includes net sales, square feet occupied, and percentage share of all other corporate assessments. For these services, the Company was charged $425,000 and $24,000 in 1995 and 1994, respectively. Management believes the methods used to allocate the costs are reasonable based on the company's use of such facilities and services. 3. INVENTORY: Inventories consist of the following at December 31, 1995 and 1994:
1995 1994 ---- ---- Raw materials $ 987,000 $1,753,000 Work in process 3,856,000 2,874,000 Finished goods 4,131,000 3,770,000 ---------- ---------- $8,974,000 $8,397,000 ========== ==========
Continued 9 11 XYPLEX, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED Work in process and finished goods inventories include materials, labor and manufacturing overhead. At December 31, 1995 and 1994, finished goods include approximately $2,553,000 and $1,747,000, respectively, of demonstration products located at the sales and support offices and potential customer sites. 4. PROPERTY AND EQUIPMENT: Property and equipment consist of the following:
1995 1994 ---- ---- Equipment $ 5,810,000 $ 3,413,000 Computer equipment 8,433,000 6,302,000 Furniture and fixtures 1,626,000 835,000 Leasehold improvements 2,515,000 2,090,000 Demonstration units 3,080,000 2,372,000 Equipment under capital lease 3,513,000 3,528,000 ----------- ----------- 24,977,000 18,540,000 Less - Accumulated depreciation and amortization (17,123,000) (12,154,000) ----------- ----------- $ 7,854,000 $ 6,386,000 =========== ===========
Equipment under capital leases had accumulated amortization of $2,942,000 and $2,078,000 as of December 31, 1995 and 1994. Acquisitions for equipment under capital lease obligations totaled $477,000 in 1994. There were no such acquisitions in 1995. 5. LONG-TERM DEBT: At December 31, 1993, the Company had approximately $253,000 outstanding under a term note payable. Until the acquisition by Raytheon, the Company made the required monthly principal payments of approximately $23,000 plus interest. In October 1994, the Company paid this note off in full. 6. STOCK PLANS: During 1994, the Company had two stock options plans in effect: the 1991 Restated Stock Option Plan (the "1991 Plan") and the 1989 Consultant's Stock Option Plan (the "1989 Plan"). Under the 1991 Plan, incentive stock options were granted at an exercise price of not less than the fair market value of common stock as determined in accordance with the 1991 Plan and nonqualified options were granted at an exercise price of not less than 50% of the fair market value of the common stock Continued 10 12 XYPLEX, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED at the date of grant. Under the 1989 Plan, stock options were granted to eligible consultants, as defined, at a price of not less than the fair value of the common stock at the date of grant. At the time the Company was acquired by Raytheon, the outstanding options of both of these plans were exchanged for options to purchase Raytheon stock. A summary of stock option activity under the 1991 Plan and the 1989 Plan follows:
1991 1989 Related Consultant's Stock Option Plan Stock Option Plan ------------------------- ----------------- Number of Option Number of Option Options Price Options Price -------- -------------- --------- ----- Outstanding at December 31, 1993 613,532 $ .12 - 28.62 333 $.12 Granted 24,069 $11.63 - 18.50 Exercised (140,963) $ .12 - 26.00 Canceled (28,075) $ 1.84 - 21.25 (333) Exchanged for Raytheon stock options 468,563 -------- ---- Outstanding at December 31, 1994 - - ======== ====
Prior to the acquisition by Raytheon, the Company also had the 1991 Employee Stock Purchase Plan (the "ESPP") in effect. Under the terms of the ESPP, the Company was authorized to grant options to purchase an aggregate of 140,000 shares of common stock in a series of six-month periods. The purchase price was 85% of the lower of the fair value per share of common stock, as defined in the ESPP. At the time the Company was acquired by Raytheon, these shares were converted to Raytheon Stock. 7. INCOME TAXES: The provision for income taxes in the accompanying consolidated statements of income consists of the following at December 31, 1995 and 1994:
1995 1994 ----------- ----------- Federal: Current $ 3,450,000 $ 4,238,000 Deferred (2,444,000 (1,086,000) ----------- ----------- $ 1,006,000 $ 3,152,000 =========== ===========
Continued 11 13 XYPLEX, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED A reconciliation of the federal statutory rate percentage to the Company's effective tax rate percentage is as follows for the years ended December 31, 1995 and 1994. 1995 1994 ---- ---- Income tax provision at federal statutory rate (35.0)% 35.0 % Amortization of nondeductible goodwill 36.9 7.6 Non-deductible acquisition charges - 16.2 Other 0.9 (9.9) ------------ ----------- Effective tax rate 2.8 % 48.9 % ------------ ----------- The approximate income tax effect of each type of temporary difference compromising the deferred tax asset at December 31, 1995 and 1994 is as follows: 1995 1994 ---- ---- Inventory $1,736,000 $ 829,000 Deferred revenue 957,000 305,000 Depreciation 935,000 443,000 Accrued vacation 463,000 394,000 Accrued warranty 306,000 181,000 Bad debt 282,000 252,000 Other, net 374,000 205,000 ========== ========== Total federal deferred tax asset 5,053,000 2,609,000 State deferred tax asset, net 1,083,000 559,000 Total deferred tax asset $6,136,000 $3,168,000 ========== ========== Income taxes paid totaled approximately $3,322,000 and $2,935,000 in 1995 and 1994, respectively. 8. 401(k) RETIREMENT PLAN: The Company had a 401(k) retirement plan covering all employees who are regularly scheduled to work 1,000 or more hours of service per year. Participants may elect to defer up to 15% of their compensation for deposit under the plan, subject to certain IRS limitations. The Company may elect to make contributions to the plan. The contributions are allocated to each eligible participant's account in proportion to each participant's deferrals for the plan year, subject to IRS limitations; participants' deferrals in excess of 6% of compensation are not matched. The Company elected not Continued 12 14 XYPLEX, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED to make contributions to the plan for the year ended December 31, 1994. In 1995, the Company contributed approximately $275,000. 9. LEASE COMMITMENTS: The Company has both operating and capital lease commitments for certain facilities and equipment. These leases expire at various dates through the year 2014. Future minimum lease payments under these noncancelable leases are as follows:
OPERATING CAPITAL YEAR LEASES LEASES ---- --------- ------- 1996 $1,458,000 $495,000 1997 761,000 85,000 1998 633,000 - 1999 416,000 2000 416,000 - Thereafter 2,278,000 - ---------- -------- Total minimum lease payments $5,962,000 580,000 ========== ======== Less amount represent interest 24,000 -------- Present value of minimum lease payments 556,000 Less current portion of capital lease obligations 472,000 ------- $ 84,000 ========
Rent expense was approximately $1,911,000 and $1,479,000 in 1995 and 1994, respectively. 10. SIGNIFICANT CUSTOMERS AND EXPORT SALES: During 1994, sales to one customer totaled approximately $12,045,000 or 12.5% of net sales. No single customer accounted for more than 10% of net sales during 1995. Continued 13 15 XYPLEX, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED Export sales as a percentage of net sales for the years ended December 31, 1995 and 1994, respectively, are as follows:
1995 1994 ---- ---- Europe 12.5% 12.0% Pacific Rim 5.0 4.1 Canada 4.0 4.4 Other 9.8 5.1 ---- ---- 31.3% 25.6% ==== ====
11. EMPLOYMENT AGREEMENTS: During 1995, Raytheon and Xyplex provided strategic resolution bonuses to key employees. These bonuses, totaling approximately $1,500,000, were due and payable on March 1, 1996 for each employee who continued to be an employee on March 1, 1996. Of the $1,500,000 charge, approximately $250,000 was funded by Xyplex with the remainder being funded by Raytheon. Also during 1995, Raytheon entered into employment agreements with certain key employees of the Company which provide for salary continuation of up to 12 months in the event of termination of employment without cause. The aggregate commitment under these employment agreements should all covered employees be terminated is approximately $1,500,000. 14 -----END PRIVACY-ENHANCED MESSAGE-----