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EXHIBIT 2.1
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AGREEMENT AND PLAN OF REORGANIZATION
dated as of
December 22, 1997
by and among
GIGA-TRONICS INCORPORATED,
GIGA MICRO CORP.
and
MICROSOURCE, INC.
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TABLE OF CONTENTS
RECITALS....................................................................1
ARTICLE I THE MERGER.......................................................2
Section 1.01. The Merger.............................................2
Section 1.02. Conversion of Shares...................................2
Section 1.03. Exchange of Certificates...............................4
Section 1.04. Dissenting Shares......................................6
Section 1.05. Fractional Shares......................................6
Section 1.06. Microsource Options....................................6
Section 1.07. Escrow Agreement.......................................7
ARTICLE II THE SURVIVING CORPORATION........................................9
Section 2.01. Articles of Incorporation..............................9
Section 2.02. Bylaws.................................................9
Section 2.03. Directors and Officers.................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF MICROSOURCE..................9
Section 3.01. Corporate Existence and Power..........................9
Section 3.02. Corporate Authorization................................9
Section 3.03. Governmental Authorization............................10
Section 3.04. Non-Contravention.....................................10
Section 3.05. Capitalization........................................11
Section 3.06. Subsidiaries and Investments..........................11
Section 3.07. Financial Statements..................................11
Section 3.08. Absence of Changes or Events. Since..................12
Section 3.09. No Undisclosed Liabilities............................14
Section 3.10. Litigation............................................14
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Section 3.11 Taxes..................................................14
Section 3.12 Insurance..............................................15
Section 3.13. Employee Benefit Plans; ERISA.........................15
Section 3.14. Material Agreements...................................16
Section 3.15. Real Property; Leases.................................16
Section 3.16. Title to Assets.......................................17
Section 3.17. Environmental Matters.................................17
Section 3.18. Intellectual Property.................................18
Section 3.19. No Guaranties.........................................18
Section 3.20. Absence of Certain Business Practices.................19
Section 3.21. Compliance with Laws and Other Instruments............19
Section 3.22. Tax Matters...........................................19
Section 3.23. Restrictions on Business Activities...................19
Section 3.24. Interested Party Transactions.........................20
Section 3.25. Microsource Advisors..................................20
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF GIGA-TRONICS.................20
Section 4.01. Corporate Existence and Power.........................20
Section 4.02 Corporate Authorization................................21
Section 4.03. Governmental Authorization............................21
Section 4.04. Non-Contravention.....................................21
Section 4.05. Capitalization of Giga-tronics........................22
Section 4.06. Capitalization of Merger Sub; Subsidiaries............23
Section 4.07. SEC Filings...........................................23
Section 4.08. Financial Statements..................................23
Section 4.09. Absence of Certain Changes............................24
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Section 4.10. Litigation............................................25
Section 4.11. No Undisclosed Liabilities............................25
Section 4.12. Tax Matters...........................................25
ARTICLE V COVENANTS OF MICROSOURCE........................................26
Section 5.01. Conduct of Microsource................................26
Section 5.02. Shareholders' Meeting; Proxy Material.................27
Section 5.03. Access to Financial and Operation Information ........27
Section 5.04. Other Offers..........................................27
Section 5.05. Maintenance of Business...............................28
Section 5.06. Compliance with Obligations...........................29
Section 5.07. Notices of Certain Events.............................29
Section 5.08. Confidentiality.......................................29
Section 5.09. Compliance with the Securities Act....................29
Section 5.10. Options...............................................30
Section 5.11. Advisory Fees.........................................30
ARTICLE VI COVENANTS OF GIGA-TRONICS AND MERGER SUB.......................30
Section 6.01. Conduct of Giga-tronics...............................30
Section 6.02. Compliance with Securities Laws.......................31
Section 6.03. Maintenance of Business...............................31
Section 6.04. Compliance with Obligations...........................31
Section 6.05. Notices of Certain Events.............................31
Section 6.06. Confidentiality.......................................31
Section 6.07. Obligations of Merger Sub.............................32
Section 6.08. Compliance with the Securities Act....................32
Section 6.09. Shareholders' Meeting; Proxy Material.................32
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Section 6.10. Access to Financial and Operation Information ........32
Section 6.11. Credit for Service....................................33
ARTICLE VII OTHER COVENANTS OF THE PARTIES................................33
Section 7.01. Advice of Changes.....................................33
Section 7.02. SEC Filings; Indemnification..........................33
Section 7.03. Other Regulatory Approvals............................35
Section 7.04. Actions Contrary to Stated Intent.....................35
Section 7.05. Certain Other Filings.................................35
Section 7.06. Communications........................................35
Section 7.07. Satisfaction of Conditions Precedent..................36
ARTICLE VIII CONDITIONS TO THE MERGER.....................................36
Section 8.01. Conditions to Obligations of Gigatronics
and Merger Sub .......................................36
Section 8.02. Conditions to Obligations of Microsource..............37
Section 8.03. Conditions to Obligations of Each Party...............38
ARTICLE IX INDEMNIFICATION................................................38
Section 9.01. Indemnification Obligation............................38
Section 9.02. Term of Indemnification Obligation....................39
Section 9.03. Notice and Determination of Claims....................40
Section 9.04. Third Party Claims....................................40
Section 9.05. Escrow Shares.........................................41
Section 9.06. Limitation on Damages.................................42
Section 9.07. Exclusive Remedy......................................42
Section 9.08. Indemnification Definitions...........................42
ARTICLE X TERMINATION OF AGREEMENT........................................42
Section 10.01. Termination..........................................42
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Section 10.02. Effect of Termination................................43
ARTICLE XI MISCELLANEOUS..................................................43
Section 11.01. Further Assurances..................................43
Section 11.02. Fees and Expenses....................................44
Section 11.03. Notices..............................................44
Section 11.04. Governing Law.......................................45
Section 11.05. Binding upon Successors and Assigns; Assignment ....45
Section 11.06. Severability .......................................45
Section 11.07. Entire Agreement.....................................45
Section 11.08. Other Remedies......................................46
Section 11.09. Amendment and Waivers................................46
Section 11.10. No Waiver............................................46
Section 11.11. Construction of Agreement: Knowledge.................46
Section 11.12. Parties in Interest..................................46
Section 11.13. Counterparts.........................................46
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is entered
into as of the 22nd day of December, 1997, by and among Giga-tronics
Incorporated, a California corporation ("GIGA-TRONICS"), Giga Micro Corp., a
Delaware corporation and a wholly owned subsidiary of Giga-tronics ("MERGER
SUB") and Microsource, Inc., a California corporation ("MICROSOURCE").
RECITALS
A. The Boards of Directors of Giga-tronics, Merger Sub and Microsource
have each determined to engage in the transactions contemplated hereby, pursuant
to which (i) Merger Sub will merge (the "Merger") with and into Microsource,
(ii) each share of common stock, no par value, of Microsource ("Microsource
Common Stock") and preferred stock, no par value, of Microsource ("Microsource
Preferred Stock," and collectively with Microsource Common Stock, Microsource
Stock"), except for shares of Microsource Stock as to which dissenters' rights,
if available, will have been perfected, will be converted into the right to
receive a fraction of a share of common stock, no par value, of Giga-tronics
("Giga-tronics Common Stock"), in the manner and amount herein described, (iii)
each outstanding Microsource Option as defined in Section 1.06 shall convert
into an option to purchase Giga-tronics Common Stock and (iv) the capital stock
of Merger Sub will be converted into shares of Microsource Common Stock, all
upon the terms and subject to the conditions set forth herein.
B. The Board of Directors of Microsource has approved, and has resolved
to recommend that the shareholders of Microsource approve the Merger and this
Agreement. The Board of Directors of Giga-tronics has resolved to recommend that
the shareholders of Giga-tronics approve the Merger and this Agreement.
C. The respective Boards of Directors of Giga-tronics and Merger Sub
have approved the Merger and this Agreement. Giga-tronics, as the sole
shareholder of Merger Sub, has approved the Merger and this Agreement.
D. The parties intend for the transactions contemplated by this
Agreement to qualify as a tax-free reorganization in accordance with the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
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ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER.
(a) Subject to the terms and conditions hereof, and in accordance with
the General Corporation Law of California (the "California GCL") and the General
Corporation Law of Delaware (the "Delaware GCL"), Merger Sub will be merged with
and into Microsource (the "Merger"), as soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VIII hereof.
Following the Merger, Microsource will continue as the surviving corporation
(the "Surviving Corporation"), and the separate corporate existence of Merger
Sub will cease.
(b) Concurrent with the Closing (as defined in subsection (d) below),
Giga-tronics, Microsource and Merger Sub will file an agreement of merger in the
form attached hereto as Exhibit 1.01 (the "Agreement of Merger") in the Offices
of the Secretary of State of the States of California and Delaware in accordance
with the California GCL and Delaware GCL, respectively. The Merger will become
effective at such time as the Agreement of Merger is duly filed in the Office of
the Secretary of State of the State of California (the date of such filing being
hereinafter referred to as the "Effective Date" and the time of such filing
being hereinafter referred to as the "Effective Time").
(c) From and after the Effective Time, the Surviving Corporation will
possess all the property, rights, privileges, powers and franchises and be
subject to all of the restrictions, liabilities and duties of Microsource and
Merger Sub, all as provided under the laws of the State of California.
(d) The closing of the transactions contemplated by this Agreement (the
"Closing") will take place on March 25, 1998 at the offices of Gibson, Dunn &
Crutcher LLP, One Montgomery Street, San Francisco, California 94104, or at such
other date and place as Giga-tronics and Microsource may agree. The date of the
Closing determined pursuant to this Section 1.01(d) is referred to as the
"Closing Date."
SECTION 1.02. CONVERSION OF SHARES.
(a) At the Effective Time:
(i) Subject to Section 1.05 hereof, at the Effective Time each
issued and outstanding share of Microsource Common Stock and Microsource
Preferred Stock issued and outstanding immediately prior to the Effective Time,
other than Dissenting Microsource Shares as defined in Section 1.04 hereof (the
"Microsource Shares"), will automatically, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into a right to
receive the number of shares of Gigatronics Common Stock as is determined
pursuant to this Section 1.02.
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(ii) The number of shares of Giga-tronics Common Stock (the
"Merger Consideration") that will be issued in the Merger, including (1) shares
that would have been issued to holders of Dissenting Microsource Shares; (2)
fractional shares that would have been issuable but for Section 1.05 below and
(3) the Escrow Shares as defined in Section 1.07 hereof, will be 750,000 less
the number of shares of Giga-tronics Common Stock issuable upon exercise
(whether presently exercisable or not) of all Replacement Options.
(iii) Each share of Microsource Stock issued and outstanding
immediately prior to the Merger and owned directly or indirectly by Microsource
as treasury stock will be canceled, and no consideration will be delivered in
exchange therefor.
(iv) The Agreement of Merger to be filed will contain the final
exchange ratio (the "Exchange Ratio") for Microsource Shares into Giga-tronics
Common Stock and will be equal to (a) 750,000 less the number of shares of
Common Stock of Giga-tronics issuable upon exercise (whether presently
exercisable or not) upon exercise of all Replacement Options divided by (b) the
aggregate of the number of Microsource Shares outstanding (including Microsource
Dissenting Shares) at the Effective Time (the "Microsource Outstanding
Equivalent Number"). The Microsource Outstanding Equivalent Number will be equal
to the number of Microsource Shares outstanding at the Effective Time. All
Microsource Shares will be exchangeable into Giga-tronics Common Stock at the
same Exchange Ratio as follows:
(a) each share of Common Stock of Microsource (the
"Microsource Common Shares") will be entitled to receive such number of shares
of Giga-tronics Common Stock equal to the Exchange Ratio;
(b) each share of Series A Preferred Stock of Microsource
(the "Microsource Series A Shares") will be entitled to receive such number of
shares of Giga-tronics Common Stock equal to the Exchange Ratio multiplied by
the number of shares of Microsource Common Stock into which each Microsource
Series A Share is convertible;
(c) each share of Series B Preferred Stock of Microsource
(the "Microsource Series B Shares") will be entitled to receive such number of
shares of Giga-tronics Common Stock equal to the Exchange Ratio multiplied by
the number of shares of Microsource Common Stock into which each Microsource
Series B Share is convertible;
(d) each share of Series C Preferred Stock of Microsource
(the "Microsource Series C Shares") will be entitled to receive such number of
shares of Giga-tronics Common Stock equal to the Exchange Ratio multiplied by
the number of shares of Microsource Common Stock into which each Microsource
Series C Share is convertible;
(e) each share of Series D Preferred Stock of Microsource
(the "Microsource Series D Shares") will be entitled to receive such number of
shares of Giga-tronics Common Stock equal to the Exchange Ratio multiplied by
the number of shares of Microsource Common Stock into which each Microsource
Series D Share is convertible.
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(f) each share of Series E Preferred Stock of Microsource
(the "Microsource Series E Shares") will be entitled to receive such number of
shares of Giga-tronics Common Stock equal to the Exchange Ratio multiplied by
the number of shares of Microsource Common Stock into which each Microsource
Series E Share is convertible;
(g) each share of Series F Preferred Stock of Microsource
(the "Microsource Series F Shares") will be entitled to receive such number of
shares of Giga-tronics Common Stock equal to the Exchange Ratio multiplied by
the number of shares of Microsource Common Stock into which each Microsource
Series F Share is convertible.
The Microsource Series A Shares, the Microsource Series B Shares, the
Microsource Series C Shares, the Microsource Series D Shares, the Microsource
Series E Shares, and the Microsource Series F Shares are herein referred to as
the "Microsource Preferred Shares."
(b) Each share of Microsource Stock held by Giga-tronics prior to
consummation of the Merger shall be included in the Microsource Equivalent
Outstanding Number but canceled upon consummation of the Merger and no shares of
Giga-tronics Common Stock issued in exchange therefor.
(c) If between the date of this Agreement and the Effective Time, the
number of outstanding Microsource Shares or shares of Giga-tronics Common Stock
will have been changed into a different number of shares or a different class,
by reason of any stock dividend, subdivision, reclassification,
recapitalization, split-up, combination, exchange of shares or the like, the
Exchange Ratio will be correspondingly adjusted.
SECTION 1.03. EXCHANGE OF CERTIFICATES.
(a) Giga-tronics (or such third party as Giga-tronics will appoint) will
act as Exchange Agent (the "Exchange Agent") for delivery of the Merger
Consideration less the Escrow Shares (as defined in Section 1.07) to the holders
of Microsource securities (the "Microsource Shareholders") and, if applicable,
the cash to which holders of Microsource Shares will be entitled pursuant to
Section 1.05 hereof. Such Merger Consideration less the Escrow Shares shall be
referred to herein as the "Non-Escrow Merger Consideration."
(b) As soon as practicable after the Effective Time, the Exchange Agent
will promptly mail to each holder of record (other than Giga-tronics or Merger
Sub or any other subsidiary of Giga-tronics) of a certificate or certificates
which immediately prior to the Effective Time represented issued and outstanding
Microsource Shares (individually a "Certificate" and collectively the
"Certificates"), a letter of transmittal for return to the Exchange Agent which
will specify that delivery will be effected, and risk of loss and the title to
the Certificates will pass, only upon receipt of the Certificates in exchange
for the Non-Escrow Merger Consideration. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with and in accordance with such
letter of transmittal, the holder of such Certificate will be entitled to
receive in exchange therefor the Non-Escrow Merger Consideration that such
holder is entitled to receive pursuant to Section 1.02(a) hereof. Upon such
surrender the Exchange Agent will promptly deliver such Non-Escrow Merger
Consideration.
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(c) Until surrendered, each Certificate will be deemed for all purposes
to evidence only the right to receive the Merger Consideration into which
Microsource Shares formerly represented thereby will have been converted
pursuant to Section 1.02(a) hereof. No dividends or other distribution declared
or made after the Effective Time with respect to Giga-tronics Common Stock with
a record date after the Effective Time will be paid to the holders of any
unsurrendered Certificate until the holder thereof surrenders such Certificate.
(d) After the Effective Time there will be no transfers on the stock
transfer books of either Microsource (the stock transfer books of which will be
closed) or the Surviving Corporation of Microsource Shares which were
outstanding immediately prior to the Effective Time. If after the Effective Time
Certificates are presented for transfer to the Exchange Agent, together and in
accordance with the letter of transmittal from the Exchange Agent, they will be
canceled and exchanged for the Non-Escrow Merger Consideration.
(e) Except as expressly provided herein, the Surviving Corporation will
pay all charges and expenses, including those of the Exchange Agent (if such
Exchange Agent is not Giga-tronics) in connection with the exchange of
Certificates for the Merger Consideration. Any shares of Giga-tronics Common
Stock issued as Merger Consideration deposited with the Exchange Agent which
remain unclaimed by the former Microsource Shareholders after six (6) months
following the Effective Time will be delivered to Giga-tronics, and any former
Microsource Shareholders who have not then complied with the instructions for
exchanging their Certificates will thereafter look only to Giga-tronics for
exchange of Certificates.
(f) If any Certificate will have been lost, stolen, or destroyed, upon
the making of an affidavit of that fact by the person claiming such Certificate
to be lost, stolen or destroyed, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed Certificate the Non-Escrow Merger Consideration
deliverable in respect thereof as determined in accordance with the terms of
this Agreement. When authorizing such payment in exchange for any lost, stolen
or destroyed Certificate, the person to whom the Merger Consideration is to be
issued, as a condition precedent to the issuance thereof, if so requested by
Giga-tronics, will give Giga-tronics a bond satisfactory to Giga-tronics against
any claim that may be made against Giga-tronics with respect to the Certificate
alleged to have been lost, stolen or destroyed.
(g) Neither Giga-tronics, the Merger Sub nor the Exchange Agent will be
liable to any former shareholder of Microsource for any amount properly
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar laws. To the extent permitted by applicable law, any portion
of the Non-Escrow Merger Consideration that remains unclaimed by any Microsource
Shareholder (at such time as such portion of the Merger Consideration would
otherwise escheat to or become property of any governmental authority) will
become the property of Giga-tronics, free and clear of any Liens (as defined
below), claims or other interest of any other person previously entitled
thereto.
SECTION 1.04. DISSENTING SHARES. Microsource Shares that have not been
voted for approval of this Agreement and with respect to which a demand for
payment and appraisal will have been properly made in accordance with Chapter 13
of the California GCL ("Dissenting
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Microsource Shares") will not be converted into the right to receive the Merger
Consideration at or after the Effective Time but will be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Microsource Shares pursuant to the laws of the State of
California. If a holder of Dissenting Microsource Shares ("Dissenting
Shareholder"), will withdraw his or her demand for such payment and appraisal or
will become ineligible for such payment and appraisal, then, as of the Effective
Time or the occurrence of such event of withdrawal or ineligibility, whichever
last occurs, such holder's Dissenting Microsource Shares will cease to be
Dissenting Microsource Shares and will be converted into the right to receive,
and will be exchangeable for, the Merger Consideration into which such
Dissenting Microsource Shares would have been converted pursuant to Section
1.02(a) hereof. Microsource will give Giga-tronics prompt notice of any demand
received by Microsource from a holder of Dissenting Microsource Shares for
appraisal of Microsource Shares, and Giga-tronics will have the right to
participate in all negotiations and Proceedings with respect to such demand.
Microsource agrees that, except with the prior written consent of Giga-tronics,
or as required under the California GCL, it will not voluntarily make any
payment with respect to, or settle or offer to settle, any such demand for
appraisal. Each Dissenting Shareholder who, pursuant to the provisions of
Chapter 13 of the California GCL, becomes entitled to payment of the value of
the Dissenting Microsource Shares will receive payment therefor (but only after
the value therefor will have been agreed upon or finally determined pursuant to
such provisions). Any Merger Consideration which would have been issuable with
respect to Dissenting Microsource Shares will be retained by Giga-tronics.
SECTION 1.05. FRACTIONAL SHARES. Notwithstanding any other provision of
this Agreement to the contrary, no fractional shares of Giga-tronics Common
Stock will be issued in connection with the Merger. All shares of Giga-tronics
Common Stock to which a Microsource Shareholder is entitled immediately prior to
the Effective Time will be aggregated. If a fractional share results from such
aggregation, in lieu of any such fractional share, each Microsource Shareholder
who would otherwise have been entitled to receive a fraction of a share of
Giga-tronics Common Stock upon surrender of Certificates for exchange pursuant
to Section 1.03 will be entitled to receive from Giga-tronics a cash payment
equal to such fraction multiplied by the closing sale price per share of
Giga-tronics Common Stock on the last business day on which Giga-tronics Common
Stock is traded on NASDAQ prior to the Effective Time.
SECTION 1.06. MICROSOURCE OPTIONS. Giga-tronics will assume all of the
outstanding options to purchase shares of Microsource Common Stock granted
pursuant to the 1982 Stock Option Plan, 1983 Stock Option Plan, 1985 Stock
Option Plan, 1988 Stock Option Plan and 1992 Employee Stock Option Plan of
Microsource and pursuant to Section 5.10 (the "Options"). Each Option, whether
vested or unvested, shall convert into an option (a "Replacement Option") to
acquire, on the same terms and conditions, including the vesting schedule, as
were applicable under such replaced Option prior to the Effective Time, the
number of shares of Giga-tronics Common Stock (rounded down to the nearest whole
number) equal to the product of the Exchange Ratio and the number of shares
subject to such Option, at a price per share (rounded up to the nearest $.01)
equal to the aggregate exercise price for the shares subject to such Option
divided by the number of full shares of Giga-tronics Common Stock deemed to be
purchasable pursuant to such Replacement Option; provided, however, that in no
event shall the terms of any
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Replacement Option give the optionee additional benefits that such optionee did
not have under an original Option that is described under Section 421(a) of the
Code. Following the Effective Time, upon surrender of the outstanding Options,
Giga-tronics shall deliver to holders of Options appropriate option agreements
representing the Replacement Options. Giga-tronics shall take all corporate
action necessary to reserve for issuance a sufficient number of shares of
Giga-tronics Common Stock for delivery under Options assumed in accordance with
this Agreement. Within ten (10) days after the Effective Date, Giga-tronics
shall file a registration statement on Form S-8 relating to such assumed Options
and shall use all reasonable efforts to maintain the effectiveness of such
registration statement (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such Options remain outstanding.
Giga-tronics shall use all reasonable efforts to qualify as soon as practicable
after the Effective Date under applicable state securities laws the issuance of
such shares of Giga-tronics Common Stock issuable upon exercise of such
Replacement Options.
SECTION 1.07. ESCROW AGREEMENT.
(a) At the Effective Time, the Exchange Agent will withhold that number
of shares of Giga-tronics Common Stock which equals ten percent (10%) of the
aggregate Merger Consideration otherwise issuable to each Microsource
Shareholder as determined pursuant to this Section 1.07 rounded down to the
nearest whole number of shares of Giga-tronics Common Stock to be issued to each
Microsource Shareholder and deliver such shares (the "Escrow Shares") to an
escrow agent (the "Escrow Agent"), registered in the name of the Escrow Agent,
to be held by the Escrow Agent as collateral for the Microsource Shareholders'
obligations under Article IX for breaches of the representations and warranties
of Microsource contained in this Agreement and pursuant to the provisions of an
escrow agreement (the "Escrow Agreement") in substantially the form of Exhibit
1.07. The Escrow Shares will be represented by a certificate or certificates
issued in the name of the Microsource Shareholders and delivered to the Escrow
Agent. The Escrow Shares will be delivered and will be held by the Escrow Agent
from the time of delivery after the Effective Time until six (6) months after
the Effective Time (the "Escrow Period"), subject to Section 9.2.
(b) In the event that the Merger is approved by the Microsource
Shareholders in accordance with the California GCL, as provided herein, the
Microsource Shareholders shall, without any further act of any Microsource
Shareholder, be deemed to have consented to and approved (i) the use of the
Escrow Shares as collateral for the Microsource Shareholders' indemnification
obligations under Article IX in the manner set forth in the Escrow Agreement,
(ii) the appointment of Hans Burkhardt and Chuck Abronson as the joint
representatives of the Microsource Shareholders (collectively, the
"Representatives") under the Escrow Agreement and as the attorneys-in-fact and
agents for and on behalf of each Microsource Shareholder (other than holders of
Dissenting Microsource Shares), and the taking by the Representatives of any and
all actions and the making of any decisions required or permitted to be taken by
the Representatives under the Escrow Agreement (including, without limitation,
the exercise of the power to: (a) authorize delivery to Giga-tronics of Escrow
Shares in satisfaction of claims for Damages by Giga-tronics; (b) agree to,
negotiate, enter into settlements and compromises of and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to such
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claims; (c) resolve any claim made by any Giga-tronics Indemnitee pursuant to
Article IX; and (d) take all actions necessary in the judgment of the
Representatives for the accomplishment of the foregoing) and (iii) to all of the
other terms, conditions and limitations in the Escrow Agreement.
SECTION 1.08. MICROSOURCE WARRANTS.
(a) At least ninety percent (90%) of the outstanding warrants for
Microsource Stock (as set forth in Section 3.05 of the Microsource Disclosure
Letter, the "Microsource Warrants") which are "in the money" (as determined in
accordance with Section 1.08(c)) will be exercised or transferred to
Giga-tronics (without consideration) prior to Closing. In the event of exercise,
the exercise price of such Microsource Warrants may be (i) paid in cash to
Microsource prior to Closing or (ii) made on a net basis by cancellation of
Microsource promissory notes in favor of the holder of such Microsource Warrants
prior to Closing.
(b) Microsource Warrants which are not "in the money" and which are not
exercised will be canceled prior to Closing.
(c) A Microsource Warrant shall be deemed to be "in the money" if the
per share exercise price of such Microsource Warrant divided by the Exchange
Ratio (assuming for these purposes in calculating the Exchange Ratio that all
Microsource Warrants will be exercised prior to Closing except those Microsource
Warrants with an exercise price of fifty cents ($.50) per share which will be
canceled prior to the Closing Date), is less than the Giga-tronics Common Stock
Price.
(d) For the purposes of this Section 1.08, the "Giga-tronics Common
Stock Price" shall mean the average closing price for one share of Giga-tronics
Common stock over a three (3) trading day period, the last date of which shall
be the third day prior to the Closing Date, of one share of Giga-tronics Common
Stock as reported by the Nasdaq National Market System or such other principal
exchange or market where such shares are traded.
SECTION 1.09. MICROSOURCE INDEBTEDNESS. Within thirty (30) days of the
Closing Date, Giga-tronics shall pay the outstanding principal amount plus
accrued interest for the promissory notes in the principal amount of $682,051
issued to holders of Microsource Warrants (excluding Giga-tronics) to the extent
not previously paid or canceled.
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.01. ARTICLES OF INCORPORATION. The Articles of Incorporation
of the Surviving Corporation will be amended and restated at the Effective Time
to conform to the Articles of Incorporation attached as Exhibit A to the
Agreement of Merger attached hereto as Exhibit 1.01.
SECTION 2.02. BYLAWS. The Bylaws of the Surviving Corporation will be in
the form attached hereto as Exhibit 2.02, until thereafter amended in accordance
with applicable law.
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SECTION 2.03. DIRECTORS AND OFFICERS. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, George H. Bruns, Jr., Mark H. Cosmez, II and Mark Lampenfeld
will become the initial directors of the Surviving Corporation, and the officers
of Microsource at the Effective Time will become the initial officers of the
Surviving Corporation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MICROSOURCE
Except as disclosed in a document referring specifically to this
Agreement (the "Microsource Disclosure Letter") which is delivered by
Microsource to Giga-tronics prior to the execution of this Agreement (which will
contain cross references to each representation and warranty to which any item
there disclosed pertains), Microsource represents and warrants to Giga-tronics
and the Merger Sub as set forth below:
SECTION 3.01. CORPORATE EXISTENCE AND POWER. Microsource is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals (collectively,
"Governmental Authorizations") required to carry on its business as now
conducted. Each of Microsource and its Subsidiaries (as defined in Section 3.06)
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary.
Microsource has delivered to Giga-tronics true, correct and complete copies of
Microsource's Articles of Incorporation and Bylaws as currently in effect.
SECTION 3.02. CORPORATE AUTHORIZATION. The execution, delivery and
performance by Microsource of this Agreement, the Microsource and the
Giga-tronics Affiliates Agreements and the consummation by Microsource of the
transactions contemplated hereby and thereby are within Microsource's corporate
powers and have been duly authorized by all necessary corporate action, except
for the approval by Microsource's shareholders in connection with the
consummation of the Merger. The Microsource and Giga-tronics Affiliates
Agreements are collectively referred to herein as the "Microsource Ancillary
Agreements." This Agreement and the Microsource Ancillary Agreements constitute,
or upon execution will constitute, valid and binding agreements of Microsource,
enforceable against Microsource in accordance with their respective terms.
SECTION 3.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Microsource of this Agreement, the Microsource Ancillary
Agreements and the Agreement of Merger and the consummation of the Merger by
Microsource require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than:
(i) the filing of the Agreement of Merger in accordance with
California and Delaware law;
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(ii) compliance with any applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act") and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, respectively;
(iii) compliance with any applicable foreign or state securities
or "blue sky" laws; and
(iv) such other filings or registrations with, or
authorizations, consents or approvals of, governmental bodies, agencies,
officials or authorities, the failure of which to make or obtain would not
materially adversely affect the ability of Microsource, Giga-tronics or Merger
Sub to consummate the transactions contemplated hereby and operate their
businesses as heretofore operated.
SECTION 3.04. NON-CONTRAVENTION. The execution, delivery and performance
by Microsource of this Agreement, the Microsource Ancillary Agreements and the
Agreement of Merger and the consummation by Microsource of the transactions
contemplated hereby and thereby do not and will not:
(i) contravene or conflict with the Articles of Incorporation or
Bylaws of Microsource;
(ii) assuming compliance with the matters referred to in Section
3.03 and assuming the requisite approval of Microsource's shareholders of the
Merger, contravene or conflict with or constitute a violation of any provision
of any law, regulation, judgment, injunction, order or decree binding upon or
applicable to Microsource;
(iii) conflict with or result in a breach or violation of, or
constitute a default under, or result in the termination or cancellation of, or
right to accelerate, any material agreement, contract or other instrument
binding upon Microsource or any license, franchise, permit or other similar
authorization held by Microsource; or
(iv) result in the creation or imposition of any Lien (as defined
below) on any asset of Microsource.
For purposes of this Agreement, the term "Lien" means, with respect to
any asset, any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset.
SECTION 3.05. CAPITALIZATION. The authorized capital stock of
Microsource consists of 40,000,000 shares of Microsource Common Stock and
19,340,079 shares of Microsource Preferred Stock. As of the date hereof, there
are 3,512,392 shares of Microsource Common Stock and 17,738,232 shares of
Microsource Preferred Stock outstanding, consisting of 790,000 Microsource
Series A Shares, 633,333 Microsource Series B Shares, 461,535 Microsource Series
C Shares, 666,667 Microsource Series D Shares, 4,601,531 Microsource Series E
Shares and 10,585,166 Microsource Series F Shares. All outstanding shares of
Microsource Stock have been duly authorized and validly issued and are fully
paid and nonassessable and free from any
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preemptive rights. Except as set forth in the Microsource Disclosure Letter and
as otherwise contemplated by this Agreement, there are outstanding (i) no shares
of capital stock or other voting securities of Microsource, (ii) no securities
of Microsource convertible into or exchangeable for shares of capital stock or
voting securities of Microsource and (iii) no options or other rights to acquire
from Microsource, and no obligation of Microsource to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or other voting securities of Microsource (the items in clauses (i), (ii)
and (iii) being referred to collectively as the "Microsource Securities"). There
are no outstanding obligations of Microsource to repurchase, redeem or otherwise
acquire any Microsource Securities.
SECTION 3.06. SUBSIDIARIES AND INVESTMENTS. Except as set forth in the
Microsource Disclosure Letter, Microsource has no Subsidiaries and does not own,
directly or indirectly, any outstanding capital stock or equity interest in any
corporation, partnership, joint venture or other entity. For purposes of this
Agreement, "Subsidiary" means any entity in which a person owns, directly or
indirectly, fifty percent (50%) or more of such entity's outstanding voting
securities or equity interests or is a general partner, limited partner or
member.
SECTION 3.07. FINANCIAL STATEMENTS. Microsource has delivered to
Giga-tronics copies of financial statements (of which the unaudited financial
statements have been initialed by Microsource's Secretary and identified with a
reference to this Section of this Agreement) (hereinafter collectively called
the "Financial Statements"), which have been prepared in accordance with
generally accepted accounting principles consistently applied (except for
footnote requirements) and maintained throughout the periods indicated and
fairly present the financial condition of Microsource as at their respective
dates and the results of its operations for the periods covered thereby (subject
to normal year-end adjustments) as follows: consolidated balance sheets of
Microsource at November 29, 1997 and December 31, 1996 and the related
statements of earnings for the 11 months ended November 29, 1997 and the
year-ended December 31, 1996. The balance sheet of Microsource at November 29,
1997 (the "Microsource Balance Sheet Date") is referred to herein as the
"Microsource Balance Sheet." Such statements of earnings do not contain any
items of special or nonrecurring income or any other income not earned in the
ordinary course of business except as expressly specified therein, and such
interim financial statements include all adjustments, which consist only of
normal recurring accruals, necessary for such fair presentation.
SECTION 3.08. ABSENCE OF CHANGES OR EVENTS. Since the Microsource
Balance Sheet Date, Microsource has conducted its business in all material
respects in the ordinary course and has not, without the prior written consent
of Giga-tronics:
(a) incurred any obligation or liability, absolute, accrued, contingent
or otherwise, whether due or to become due, except current liabilities for trade
or business obligations incurred in connection with the purchase of goods or
services in the ordinary course of business and consistent with its prior
practice, none of which liabilities, in any case or in the aggregate, materially
and adversely affects the business, liabilities or financial condition of
Microsource;
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(b) discharged or satisfied any lien, charge or encumbrance other than
those then required to be discharged or satisfied, or paid any obligation or
liability, absolute, accrued, contingent or otherwise, whether due or to become
due, other than current liabilities shown on the Balance Sheet and current
liabilities incurred since the Balance Sheet Date in the ordinary course of
business and consistent with its prior practice;
(c) declared or made any payment of dividends or other distribution to
its shareholders or upon or in respect of any shares of its capital stock, or
purchased, retired or redeemed, or obligated itself to purchase, retire or
redeem, any of its shares of capital stock or other securities;
(d) mortgaged, pledged or subjected to lien, charge, security interest
or any other encumbrance or restriction any of its property, business or assets,
tangible or intangible;
(e) sold, transferred, leased to others or otherwise disposed of any of
its assets, except for inventory sold in the ordinary course of business, or
canceled or compromised any debt or claim, or waived or released any right of
substantial value;
(f) received any notice of termination of any contract, lease or other
agreement or suffered any damage, destruction or loss (whether or not covered by
insurance) which in any case or in the aggregate, has had a materially adverse
effect on the assets, operations or prospects of Microsource;
(g) encountered any labor union organizing activity, had any actual or
employee strikes, work stoppages, slow-downs or lock-outs, or had any material
change in its relations with its employees, agents, customers or suppliers or
with any governmental authorities or self-regulatory organizations;
(h) transferred or granted any rights under, or entered into any
settlement regarding the breach or infringement of, any United States or foreign
license, patent, copyright, trademark, trade name, invention or similar rights,
or modified any existing rights with respect thereto;
(i) made any change in the rate of compensation, commission, bonus or
other direct or indirect remuneration payable, or paid or agreed or orally
promised to pay, conditionally or otherwise, any bonus, extra compensation,
pension or severance or vacation pay, to any shareholder, director, officer,
employee, salesman, distributor or agent of Microsource;
(j) issued or sold any shares of its capital stock or other securities,
or issued, granted or sold any options, rights or warrants with respect thereto
(other than under its stock option plans identified in the Microsource
Disclosure Letter), or acquired any capital stock or other securities of any
corporation or any interest in any business enterprise, or otherwise made any
loan or advance to or investment in any person, firm or corporation;
(k) made any capital expenditures or capital additions or betterments in
excess of an aggregate of $25,000;
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(l) changed its banking or safe deposit arrangements;
(m) instituted, settled or agreed to settle any litigation, action or
Proceeding before any court or governmental body relating to Microsource or its
property;
(n) failed to replenish its inventories and supplies in a normal and
customary manner consistent with its prior practice and prudent business
practices prevailing in the industry, or made any purchase commitment in excess
of the normal, ordinary and usual requirements of its business or at any price
in excess of the then current market price or upon terms and conditions more
onerous than those usual and customary in the industry, or made any change in
its selling, pricing, advertising or personnel practices inconsistent with its
prior practice and prudent business practices prevailing in the industry;
(o) suffered any change, event or condition which, in any case or in the
aggregate, has had or may have a materially adverse effect on Microsource's
condition (financial or otherwise), properties, assets, liabilities or
operations, including, without limitation, any change in Microsource's revenues,
costs, backlog or relations with its employees, agents, customers, or suppliers;
(p) entered into any transaction, contract or commitment other than in
the ordinary course of business or paid or agreed to pay any legal, accounting,
brokerage, finder's fee, taxes or other expenses in connection with, or incurred
any severance pay obligations by reason of this Agreement or the transactions
contemplated hereby;
(q) any change by Microsource of its accounting principles, methods or
practices or in the manner it keeps its books and records; or
(r) entered into any agreement or made any commitment to take any of the
types of action described in subparagraphs (a) through (q) above.
SECTION 3.09. NO UNDISCLOSED LIABILITIES. There are no liabilities of
Microsource or any of its Subsidiaries, including contingent liabilities, of the
type required to be reflected in financial statements (including the notes
thereto) under generally accepted accounting principles that are material to
Microsource, other than:
(a) liabilities disclosed or provided for in the Microsource Balance
Sheet (including the notes thereto);
(b) liabilities incurred in the ordinary course of business consistent
with past practice since the Microsource Balance Sheet Date and which do not
exceed $25,000 in the aggregate;
(c) liabilities incurred other than in the ordinary course of business
and which do not exceed $25,000 in the aggregate; and
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(d) liabilities under this Agreement.
SECTION 3.10. LITIGATION. There is no Proceeding or claim pending or
overtly threatened against Microsource, to the knowledge of Microsource, or any
of its assets or against or involving any of its officers, directors or
employees in connection with the business or affairs of Microsource, including,
without limitation, any claims for indemnification arising under any agreement
to which Microsource is a party, which could, individually or in the aggregate,
have a Material Adverse Effect (as defined below) on Microsource or which in any
manner challenges or seeks to prevent, enjoin, alter or materially delay any of
the transactions contemplated hereby. Microsource is not subject to or in
default with respect to any writ, order, judgment, injunction or decree, which
would have a Material Adverse Effect on Microsource. For purposes of this
Agreement, a "Material Adverse Effect," with respect to any person or entity,
means a material adverse effect on the financial condition, business,
liabilities (including contingent liabilities) or results of operations of such
person or entity and its Subsidiaries, taken as a whole; and "Material Adverse
Change" will mean a change or a development involving a prospective change which
would have a Material Adverse Effect.
SECTION 3.11. TAXES.
(a) For purposes of this Agreement, "Tax" or "Taxes" means any and all
taxes, fees, levies, duties, tariffs, imposts, and other charges of any kind
(together with any and all interest, penalties, additions to tax and additional
amounts imposed with respect thereto) imposed by any governmental or taxing
authority including, without limitation: taxes or other charges on or with
respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation, or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer, value
added, or gains taxes; license, registration and documentation fees; and customs
duties, tariffs, and similar charges.
(b) Except as described in Section 3.11 of the Microsource Disclosure
Letter, (i) Microsource has filed all federal, state, local and foreign tax
returns and reports required to be filed by it and has paid and discharged all
Taxes shown as due thereon and has paid all of such other Taxes as are due,
other than such filings, payments or other occurrences that would not have a
Material Adverse Effect; (ii) neither the IRS nor any other taxing authority or
agency, domestic or foreign, is now asserting or, to the knowledge of
Microsource, threatening to assert against Microsource any deficiency or claim
for additional Taxes or interest thereon or penalties in connection therewith;
(iii) Microsource has not granted any waiver of any statute of limitations with
respect to, or any extension of a period for the assessment of, any federal,
state, county, municipal or foreign income Tax; (iv) the accruals and reserves
for Taxes reflected in the Microsource Balance Sheet and the most recent
quarterly financial statements are adequate to cover all Taxes accruable through
the date thereof (including interest and penalties, if any, thereon) in
accordance with generally accepted accounting principals; (v) Microsource has
not made an election under Section 341(f) of the Code; (vi) Microsource has
withheld or collected and paid over to the appropriate governmental authorities
or is properly holding for such payment all Taxes required by law to be withheld
or collected, except for such failures to have so
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withheld or collected and paid over or to be so holding for payment which would
not have a Material Adverse Effect and (vii) there are no material liens for
Taxes upon the assets of Microsource, other than liens for Taxes that are being
contested in good faith by appropriate Proceedings.
(c) Microsource is not party to or bound by, nor has any obligation
under any Tax sharing, Tax indemnity or Tax allocation or similar agreement.
SECTION 3.12. INSURANCE. Microsource maintains the policies of fire,
liability, use and occupancy and other forms of insurance covering its
properties and businesses set forth in the Microsource Disclosure Letter. Such
policies are in full force and effect.
SECTION 3.13. EMPLOYEE BENEFIT PLANS; ERISA. Section 3.13 of the
Microsource Disclosure Letter lists (i) all the employee benefit plans, programs
and arrangements maintained for the benefit of any current or former employee,
officer or director of Microsource (the "Plans") and (ii) all contracts and
agreements relating to employment that provide for annual compensation in excess
of $25,000 and all severance agreements, with any of the directors, officers or
employees of Microsource (other than, in each case, any such contract or
agreement that is terminable by Microsource at will without penalty or other
adverse consequence) (the "Employment Contracts"). Giga-tronics has been
furnished with a copy of each Plan, any currently effective summary plan
descriptions and the most recent annual reports, actuarial reports, registration
statements or other securities law filings and determination letters produced or
filed with respect thereto, and each Employment Contract. Except as set forth in
Section 3.13 of the Microsource Disclosure Letter: (i) none of the Plans is a
multiemployer plan within the meaning of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"); (ii) none of the Plans promises or provides
retiree medical or life insurance benefits to any person; (iii) each Plan
intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service (the "IRS")
that it is so qualified and nothing has occurred since the date of such letter
to affect the qualified status of such Plan; (iv) none of the Plans promises or
provides severance benefits or benefits contingent upon a change in ownership or
control, within the meaning of Section 280G of the Code; (v) each Plan has been
operated in all material respects in accordance with its terms and the
requirements of applicable law; (vi) no Plan is or has been covered by Title IV
of ERISA or Section 412 of the Code; (vii) Microsource has not incurred any
direct or indirect liability under, arising out of or by operation of Title IV
of ERISA in connection with the termination of, or withdrawal from, any Plan or
other retirement plan or arrangement, and no fact or event exists that could
give rise to any such liability; and (viii) Microsource has not incurred any
liability under, and has complied in all respects with, the Worker Adjustment
Retraining Notification Act, and no fact or event exists that could give rise to
liability under such act.
SECTION 3.14. MATERIAL AGREEMENTS.
(a) The Microsource Disclosure Letter includes a complete and accurate
list of all contracts, agreements, leases and instruments to which Microsource
is a party or by which it or its properties or assets are bound which
individually involve payments or receipts in excess of
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$25,000, inclusive of contracts entered into with customers and suppliers in the
ordinary course of business, or that pertain to employment or severance benefits
for any officer, director or employee of Microsource, whether written or oral
(each a "Microsource Agreement").
(b) Neither Microsource nor, to the knowledge of Microsource, any other
party is in default under any Microsource Agreement and no event has occurred
which (after notice or lapse of time or both) would become a breach or default
under, or would permit modification, cancellation, acceleration or termination
of any Microsource Agreement or result in the creation of any security interest
upon, or any person obtaining any right to acquire, any properties, assets or
rights of Microsource.
(c) Each Microsource Agreement is in full force and effect and is valid
and legally binding; there are no unresolved disputes involving or with respect
to any Microsource Agreement; and no party to a Microsource Agreement has
advised Microsource that it intends either to terminate a Microsource Agreement
or to refuse to renew a Microsource Agreement upon the expiration of the term
thereof.
(d) Microsource is not in violation of, or in default with respect to,
any term of its Articles of Incorporation or Bylaws.
SECTION 3.15. REAL PROPERTY; LEASES.
(a) The Microsource Disclosure Letter includes a correct and complete
list of all items of real property, including leased property, and any material
buildings, structures and improvements located thereon or therein, which are
owned or leased by Microsource.
(b) To Microsource's knowledge with respect to any real property of
Microsource, including any leased property, and any material buildings,
structures and improvements located thereon or therein, such buildings, fixtures
and improvements, and the present use thereof, are not the subject of any
official complaint or notice of violation of any applicable zoning ordinance,
building code or environmental laws, and such premises are not affected or
threatened by any condemnation or eminent domain Proceeding.
(c) All leases of real property and all material leases of personal
property by Microsource are in full force and effect and there exists no default
on the part of Microsource which would interfere with the use made and proposed
to be made of such real and personal property, and, except for leases of
personal property terminated in the ordinary course of business, upon
consummation of the Merger, will continue to entitle Microsource to the use and
possession of the real or personal property purported to be covered thereby for
the terms specified in such leases and for the purposes for which such real or
personal property is now used.
SECTION 3.16. TITLE TO ASSETS. Microsource has good and marketable title
to, or a valid leasehold interest in, all the properties and assets it owns or
uses in its business, including, without limitation, those reflected in its
books and records and in the Balance Sheet (except inventory sold after the
Balance Sheet Date in the ordinary course of business). None of such
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properties and assets are subject to any mortgage, pledge, lien, charge,
security interest, encumbrance, restriction, lease, license, easement, liability
or adverse claim of any nature whatsoever, except (i) mortgages or security
interests shown on the Balance Sheet as securing specific liabilities or
obligations or (ii) those imperfections of title and encumbrances, if any,
which, individually or in the aggregate, (A) are not substantial in character,
amount or extent and do not materially detract from the value of the properties
subject thereto and (B) do not interfere with either the present and continued
use of such property or the conduct of Microsource's normal operations. All of
the properties and assets owned, leased or used by Microsource are in good
operating condition and repair, ordinary wear and tear excepted, are suitable
for the purposes used, are adequate and sufficient for all current operations of
Microsource.
SECTION 3.17. ENVIRONMENTAL MATTERS.
(a) For purposes of this Agreement, the following terms will have the
following meanings: (i) "Hazardous Substances" means (A) those substances
defined in or regulated under the following United States federal statutes and
their state or foreign counterparts, as each may be amended from time to time,
and all regulations thereunder: the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking
Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and
Rodenticide Act and the Clean Air Act; (B) petroleum and petroleum products
including crude oil and any fractions thereof; (C) natural gas, synthetic gas,
and any mixtures thereof; (D) radon; (E) asbestos; (F) any other pollutant or
contaminant; and (G) any substance with respect to which a federal, state or
local agency requires environmental investigation, monitoring, reporting or
remediation; and (ii) "Environmental Laws" means any United States or foreign,
federal, state or local law relating to (A) releases or threatened releases of
Hazardous Substances or materials containing Hazardous Substances; (B) the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Substances or materials containing Hazardous Substances; or (C)
otherwise relating to pollution of the environment or the protection of human
health.
(b) Except as would not have a Material Adverse Effect: (i) Microsource
has not violated and is not in violation of any Environmental Law; (ii) there
has been no contamination, disposal, spilling, dumping, incineration, discharge,
storage, treatment or handling of any Hazardous Substance, on or from any of the
properties owned or leased by Microsource (including, without limitation, soils
and surface and ground waters); (iii) Microsource is not liable for any off-site
contamination; (iv) Microsource is not liable under any Environmental Law; (v)
Microsource has all permits, licenses and other authorizations required under
any Environmental Law ("Environmental Permits"); (vi) Microsource has been and
is in compliance with its Environmental Permits; and (vii) there are no pending,
or, to the knowledge of Microsource, threatened claims against Microsource
relating to any Environmental Law or Hazardous Substance.
SECTION 3.18. INTELLECTUAL PROPERTY. No claim is pending or, to the
knowledge of Microsource, threatened to the effect that the present or past
operations of Microsource infringes upon or conflicts with the rights of others
with respect to any intellectual property (including,
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without limitation, licenses, patents, patent rights, patent applications,
trademarks, trademark applications, trade names, copyrights, drawings, trade
secrets, know-how and computer software) necessary to permit Microsource to
conduct its business as now operated (the "Microsource Intellectual Property").
Except as disclosed in the Microsource Disclosure Letter, no claim is pending
or, to the knowledge of Microsource, threatened to the effect that, any of the
Microsource Intellectual Property is invalid or unenforceable. The Microsource
Disclosure Letter lists all licenses (other than with respect to off-the-shelf
software), patents, patent rights, patent applications, trademarks, trademark
applications, trade names, copyrights and service marks of Microsource and each
of its Subsidiaries. Except as set forth in the Microsource Disclosure Letter,
no contract, agreement or understanding between Microsource or any of its
Subsidiaries and any other party exists which would impede or prevent the
continued use by Microsource and its Subsidiaries of the entire right, title and
interest of Microsource and its Subsidiaries in and to the Microsource
Intellectual Property.
SECTION 3.19. NO GUARANTIES. None of the obligations or liabilities of
Microsource is guaranteed by, or subject to a similar contingent liability of,
any other person, firm or corporation, nor has Microsource guaranteed, or
otherwise become contingently liable for, the obligations or liabilities of any
other person, firm or corporation.
SECTION 3.20. ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither Microsource
nor, to the knowledge of Microsource, any officer, employee or agent of
Microsource, nor any other person acting on its behalf, has, directly or
indirectly, within the past five (5) years given or agreed to give any gift or
similar benefit to any customer, supplier, governmental employee or other person
who is or may be in a position to help or hinder the business of Microsource (or
assist Microsource in connection with any actual or proposed transaction) which
(a) might subject Microsource to any damage or penalty in any civil, criminal or
governmental litigation or Proceeding, (b) if not given in the past, might have
had an adverse effect on the assets, business or operations of Microsource as
reflected in the Financial Statements or (c) if not continued in the future,
might adversely affect Microsource's assets, business, operations or prospects
or which might subject Microsource to suit or penalty in any private or
governmental litigation or Proceeding.
SECTION 3.21. COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS. Microsource is
in compliance with all existing laws, rules, regulations, ordinances, orders,
judgments and decrees now applicable to its business, properties or operations
as presently conducted, except to the extent that failure to comply would not
have a Material Adverse Effect. Neither the ownership nor use of Microsource's
properties nor the conduct of its business violates, or with or without the
giving of notice or the passage of time, or both, will violate, conflict with or
result in a default, right to accelerate or loss of rights under, any terms or
provisions of its articles of incorporation or bylaws as presently in effect, or
any lien, encumbrance, mortgage, deed of trust, lease, license, agreement,
understanding, law, ordinance, rule or regulation, or any order, judgment or
decree to which Microsource is a party or by which it may be bound or affected.
Microsource is not aware of any proposed laws, rules, regulations, ordinances,
orders, judgments, decrees, governmental takings, condemnations or other
Proceedings which would be applicable
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to its business, operations or properties and which might adversely affect its
properties, assets, liabilities, operations or prospects, either before or after
the Closing.
SECTION 3.22. TAX MATTERS. Neither Microsource nor any of its affiliates
has taken or agreed to take any action that would prevent the Merger from
constituting a transaction qualifying under Section 368(a) of the Code. Neither
Microsource nor any of its affiliates or agents is aware of any agreement, plan
or other circumstances that would prevent the Merger from qualifying under
Section 368(a) of the Code and to their knowledge, the Merger will so qualify.
SECTION 3.23. RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(non- compete or otherwise), commitment, judgment, injunction order or decree to
which Microsource or any of its Subsidiaries is a party or otherwise binding
upon Microsource or any Microsource Subsidiary which has or could reasonably be
expected to have the effect of prohibiting or impairing any business practice of
Microsource, any acquisition of property by Microsource or the conduct of
business by Microsource. Without limiting the foregoing, Microsource has not
entered into any agreement under which Microsource is restricted from selling,
licensing or otherwise distributing any of its products.
SECTION 3.24. INTERESTED PARTY TRANSACTIONS. To the knowledge of
Microsource no officer, director or shareholder of Microsource (nor any
ancestor, sibling, descendant or spouse of any such person, or any trust,
partnership or corporation in which any of such persons has or has had an
interest) has or has had, directly or indirectly, (i) an economic interest in
any entity which furnished or sold, or furnishes or sells, services or products
that Microsource furnishes or sells or proposes to furnish or sell, or (ii) an
economic interest in any entity that purchases from, or sells or furnishes to,
Microsource any goods or services; provided that ownership of no more than one
percent (1%) of the outstanding voting stock of a publicly traded corporation
will not be deemed an "economic interest in any entity" for purposes of this
Section 3.24.
SECTION 3.25. MICROSOURCE ADVISORS. Except as set forth in the
Microsource Disclosure Letter, there is no investment banker, broker, finder or
other intermediary ("Microsource Advisor") which has been retained by or is
authorized to act on behalf of Microsource who is entitled to any fee or
commission from Giga-tronics or Microsource or any of its affiliates upon
consummation of the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GIGA-TRONICS
Except as disclosed in a document referring specifically to this
Agreement (the "Giga-tronics Disclosure Letter") which is delivered by
Giga-tronics to Microsource on or prior to the execution of this Agreement
(which will contain cross references to each representation and warranty to
which any item there disclosed pertains) or as disclosed in the SEC Filings (as
defined in Section 4.07(b)), Giga-tronics represents and warrants to Microsource
as set forth below:
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SECTION 4.01. CORPORATE EXISTENCE AND POWER. Giga-tronics and Merger Sub
are corporations duly incorporated, validly existing and in good standing under
the laws of the State of California and Delaware, respectively. Each of
Giga-tronics and Merger Sub has all corporate powers and all material
Governmental Authorizations required to carry on its business as now conducted.
Giga-tronics is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary.
Giga-tronics has delivered to Microsource true and complete copies of
Giga-tronics' Articles of Incorporation and Bylaws and Merger Sub's Certificate
of Incorporation and Bylaws, each as currently in effect.
SECTION 4.02. CORPORATE AUTHORIZATION. The execution, delivery and
performance by Giga-tronics and Merger Sub of this Agreement, the Microsource
and the Giga-tronics Affiliates Agreements and the consummation by Giga-tronics
and Merger Sub of the transactions contemplated hereby and thereby are within
the corporate powers of Giga-tronics and Merger Sub and have been duly
authorized by all necessary corporate action, except for the approval by
Microsource's shareholders in connection with the consummation of the Merger.
The Microsource and Giga-tronics Affiliates Agreements are collectively referred
to herein as the "Giga-tronics Ancillary Agreements." This Agreement and the
Giga-tronics Ancillary Agreements constitute, or upon execution will constitute,
valid and binding agreements of Giga-tronics and Merger Sub, enforceable in each
case against each in accordance with their respective terms.
SECTION 4.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Giga-tronics and Merger Sub of this Agreement, and the
Giga-tronics Ancillary Agreements and the consummation of the Merger by
Giga-tronics and Merger Sub, require no action by or in respect of, or filing
with, any governmental body, agency, official or authority other than:
(a) the filing of an agreement of merger in accordance with California
and Delaware law;
(b) compliance with any applicable requirements of the Hart Scott Rodino
Act ("HSR Act");
(c) compliance with any applicable requirements of the Securities Act
and the Exchange Act, and the rules and regulations promulgated thereunder,
respectively;
(d) compliance with any applicable foreign or state securities or "blue
sky" laws; and
(e) such other filings or registrations with, or authorizations,
consents or approvals of, governmental bodies, agencies, officials or
authorities, the failure of which to make or obtain would not materially
adversely affect the ability of Microsource, Giga-tronics or Merger Sub to
consummate the transactions contemplated hereby and operate their businesses as
heretofore operated.
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SECTION 4.04. NON-CONTRAVENTION. The execution, delivery and performance
by Giga-tronics and Merger Sub of this Agreement and the Giga-tronics Ancillary
Agreements and the consummation by Giga-tronics and Merger Sub of the
transactions contemplated hereby and thereby do not and will not:
(a) contravene or conflict with the respective Articles of Incorporation
or Bylaws of Giga-tronics or Merger Sub;
(b) assuming compliance with the matters referred to in Section 4.03,
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to Giga-tronics, Merger Sub or any Subsidiary of Giga-tronics;
(c) conflict with or result in a breach or violation of, or constitute a
default under, or result in the termination or cancellation of, or right to
accelerate, any agreement, contract or other instrument binding upon
Giga-tronics or Merger Sub or any such Giga-tronics Subsidiary or any material
license, franchise, permit or other similar authorization held by Giga-tronics,
Merger Sub or any such Giga-tronics Subsidiary; or
(d) result in the creation or imposition of any Lien on any asset of
Giga-tronics, Merger Sub or any Subsidiary of Giga-tronics.
SECTION 4.05. CAPITALIZATION OF GIGA-TRONICS.
(a) The authorized capital stock of Giga-tronics consists of 40,000,000
shares of Giga-tronics Common Stock and 1,000,000 shares of preferred stock. As
of the date hereof, there are outstanding:
(i) 4,320,338 shares of Giga-tronics Common Stock; and
(ii) employee and director stock options to purchase an
aggregate of 390,670 shares of Giga-tronics Common Stock.
Giga-tronics has authorized the issuance of employee rights to purchase 700,000
shares of Giga-tronics Common Stock under Giga-tronics' 1990 Restated Stock
Option Plan, as amended, the issuance of up to 130,000 shares of Giga-tronics
Common Stock under Giga-tronics' Employee Stock Purchase Plan. In addition,
Giga-tronics has granted options in connection with its acquisition of
Ultracision, Inc. for 56,370 shares of Giga-tronics Common Stock. All
outstanding shares of Giga-tronics Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable and free from any preemptive
rights. Except as set forth in the Giga-tronics Disclosure Letter and as
otherwise contemplated by this Agreement, there are outstanding (i) no shares of
capital stock or other voting securities of Giga-tronics, (ii) no securities of
Giga-tronics convertible into or exchangeable for shares of capital stock or
voting securities of Giga-tronics and (iii) no options or other rights to
acquire from Giga-tronics, and no obligation of Giga-tronics to issue, any
capital stock, voting securities or securities convertible
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into or exchangeable for capital stock or other voting securities of
Giga-tronics (the items in clauses (i), (ii) and (iii) being referred to
collectively as the "Giga-tronics Securities"). There are no outstanding
obligations of Giga-tronics or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any Giga-tronics Securities. Except as set forth in the
Giga-tronics Disclosure Letter, no holder of Giga-tronics Securities has, as of
the date hereof, any contractual right to include any such securities in any
registration statement proposed to be filed by Giga-tronics under the Securities
Act.
(b) All shares of Giga-tronics Common Stock issued in the Merger (and
upon exercise of the Replacement Options) will, upon issuance, be fully paid,
validly issued and nonassessable. Giga-tronics has reserved sufficient shares of
Giga-tronics Common Stock for issuance in the Merger.
SECTION 4.06. CAPITALIZATION OF MERGER SUB; SUBSIDIARIES. The authorized
capital stock of Merger Sub consists of 1,000 shares of common stock, $.01 par
value, all of which are outstanding. All of the issued and outstanding capital
stock of Merger Sub is owned by Giga-tronics. Merger Sub has not conducted any
business prior to the date hereof and has no assets, liabilities or obligations
of any nature other than those incident to its formation and pursuant to this
Agreement. Except as disclosed in Section 4.06 of the Giga-tronics Disclosure
Letter, Giga-tronics does not own, directly or indirectly, any outstanding
capital stock or equity interest in any corporation, partnership, joint venture
or other entity other than Merger Sub.
SECTION 4.07. SEC FILINGS.
(a) Giga-tronics has since March 30, 1996 filed all proxy statements,
schedules and reports required to be filed by it with the SEC pursuant to the
Exchange Act.
(b) Giga-tronics has delivered to Microsource copies of the following
documents filed by it with the SEC (the "SEC Filings"):
(i) its annual report on Form 10-K for its fiscal year ended
March 29, 1997;
(ii) its quarterly report on Form 10-Q for its fiscal quarters
ending June 28 and September 27, 1997;
(iii) its proxy or information statements relating to meetings
of, or actions taken without a meeting by, the shareholders of Giga-tronics held
on or since August 5, 1997; and
(iv) all of its other reports, statements, schedules and
registration statements filed with the SEC since March 29, 1997.
(c) As of its filing date, no such report or statement filed pursuant to
the Exchange Act contained any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
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(d) No such registration statement, as amended or supplemented, if
applicable, filed pursuant to the Securities Act, as of the date such statement
or amendment became effective, contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein not misleading.
SECTION 4.08. FINANCIAL STATEMENTS. The audited financial statements
Giga-tronics included in its annual reports on Form 10-K and the unaudited
financial statements of Giga-tronics included in its quarterly reports on Form
10-Q referred to in Section 4.07 present fairly, in conformity with generally
accepted accounting principles applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of
Giga-tronics as of the dates thereof and its results of operations,
shareholders' equity and cash flows for the periods then ended (subject to
normal year-end adjustments in the case of any interim financial statements).
For purposes of this Agreement, "Giga-tronics Balance Sheet" means the balance
sheet of Giga-tronics as of September 27, 1997, and the notes thereto, contained
in Giga-tronics' quarterly report on Form 10-Q filed for its fiscal quarter then
ended, and "Giga-tronics Balance Sheet Date" means September 27, 1997.
SECTION 4.09. ABSENCE OF CERTAIN CHANGES. Since the Giga-tronics Balance
Sheet Date, Giga-tronics and its Subsidiaries have in all material respects
conducted their business in the ordinary course and there has not been:
(a) any Material Adverse Change with respect to Giga-tronics;
(b) any declaration, setting aside or payment of any dividend or other
distribution in respect of any shares of capital stock of Giga-tronics;
(c) except for the acquisition of Ultracision, Inc. any repurchase,
redemption or other acquisition by Giga-tronics or any of its Subsidiaries of
any outstanding shares of capital stock or other securities of, or other
ownership interests in, Giga-tronics or any such Subsidiary;
(d) any amendment of any material term of any outstanding Giga-tronics
Securities or any Giga-tronics Subsidiary Securities;
(e) any receipt by Giga-tronics of notice of termination of any
contract, lease or other agreement or any damage, destruction or other casualty
loss (whether or not covered by insurance) materially and adversely affecting
the business, assets, liabilities, earnings or prospects of Giga-tronics or any
of its Subsidiaries;
(f) any new (or amendment to or alteration of any existing) bonus,
incentive compensation, severance, stock option, stock appreciation right,
pension, matching gift, profit-sharing, employee stock ownership, retirement,
pension group insurance, death benefit, or other fringe benefit plan,
arrangement or trust agreement adopted or implemented by Giga-tronics which
would result in a material increase in cost to Giga-tronics;
(g) any change by Giga-tronics of its accounting principles, methods or
practices or in the manner it keeps its books and records; or
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(h) the entering into of any agreement by Giga-tronics or any person on
behalf of Giga-tronics to take any of the foregoing actions.
(i) the incurrence of any obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, except current
liabilities for trade or business obligations incurred in connection with the
purchase of goods or services in the ordinary course of business and consistent
with its prior practice, none of which liabilities, in any case or in the
aggregate, materially and adversely affects the business, liabilities or
financial condition of Giga-tronics;
(j) the suffering of any change, event or condition which, in any case
or in the aggregate, has had or may have a materially adverse effect on
Giga-tronics' condition (financial or otherwise), properties, assets,
liabilities or operations, including, without limitation, any change in
Giga-tronics' revenues, costs, backlog or relations with its employees, agents,
customers, or suppliers;
SECTION 4.10. LITIGATION. There is no Proceeding or claim pending or
overtly threatened, against Giga-tronics or any of its assets or against or
involving any of its officers, directors or employees in connection with the
business or affairs of Giga-tronics, including, without limitation, any claims
for indemnification arising under any agreement to which Giga-tronics is a
party, which could, individually or in the aggregate, have a Material Adverse
Effect on Giga-tronics or which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated hereby.
Giga-tronics is not subject to or in default with respect to any writ, order,
judgment, injunction or decree, which would have a Material Adverse Effect on
Giga-tronics.
SECTION 4.11. NO UNDISCLOSED LIABILITIES. There are no liabilities of
Giga-tronics (on a consolidated basis), including contingent liabilities, of the
type required to be reflected in financial statements (including the notes
thereto) under generally accepted accounting principles that are material to
Giga-tronics, other than:
(a) liabilities disclosed or provided for in the Giga-tronics Balance
Sheet (including the notes thereto);
(b) liabilities incurred in the ordinary course of business consistent
with past practice since the Giga-tronics Balance Sheet Date and which do not
exceed $500,000 in the aggregate;
(c) liabilities incurred other than in the ordinary course of business
and which do not exceed $500,000 in the aggregate; and
(d) liabilities under this Agreement.
SECTION 4.12. TAX MATTERS. Neither Giga-tronics nor any of its
affiliates has taken or agreed to take any action that would prevent the Merger
from constituting a transaction qualifying under Section 368(a) of the Code.
Neither Giga-tronics nor any of its affiliates or agents is aware of any
agreement, plan or other circumstances that would prevent the Merger
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from qualifying under Section 368(a) of the Code and to their knowledge, the
Merger will so qualify.
ARTICLE V
COVENANTS OF MICROSOURCE
Microsource agrees that:
SECTION 5.01. CONDUCT OF MICROSOURCE. From the date hereof until the
Effective Time, Microsource will in all material respects conduct its business
in the ordinary course, except as may be specifically contemplated in this
Article V. Without limiting the generality of the foregoing, from the date
hereof until the Effective Time, except as contemplated hereby or previously
disclosed by Microsource to Giga-tronics in writing, without the prior written
consent of Giga-tronics:
(a) Microsource will not adopt or propose any change in its Articles of
Incorporation or Bylaws;
(b) Microsource will not enter into or amend any employment agreements,
oral or written or increase the compensation payable or to become payable by it
to any of its officers, directors, or consultants over the amount payable as of
November 30, 1997, or increase the compensation payable to any other employees
(other than (A) increases in the ordinary course of business which are not in
the aggregate material to Microsource, or (B) pursuant to plans disclosed in
Microsource Disclosure Letter), or adopt or amend any employee benefit plan or
arrangement (oral or written);
(c) Except as specified in Sections 5.10 and 5.11 and except for the
issuance of up to ten thousand (10,000) additional Options to purchase
Microsource Common Stock pursuant to the Microsource 1992 Stock Option Plan and
upon the exercise of outstanding Options or warrants, Microsource will not
issue, sell, deliver or agree or commit to issue, sell or deliver (whether
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any Microsource Securities or
amend any of the terms of any Microsource Securities or agreements outstanding
on the date hereof;
(d) Microsource will not pay any dividend or make any other distribution
to holders of its capital stock nor will Microsource redeem or otherwise acquire
any Microsource Securities;
(e) Microsource will not, directly or indirectly, merge or consolidate
with another entity or dispose of or acquire any material properties or assets
except in the ordinary course of business;
(f) Microsource will not incur any additional indebtedness for borrowed
money in excess of $25,000 in the aggregate, except pursuant to existing
arrangements which have been disclosed to Giga-tronics prior to the date hereof;
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(g) Except as may be specified in Section 5.10, Microsource will not
amend or change the period of exercisability or accelerate the exercisability of
any outstanding options or warrants to acquire shares of capital stock, or
accelerate, amend or change the vesting period of any outstanding restricted
stock;
(h) Microsource will not, except in the ordinary course of business
consistent with past practices, sell, license or otherwise transfer to any
person any Microsource intellectual property rights; and
(i) Microsource will not agree or commit to do any of the foregoing.
SECTION 5.02. SHAREHOLDERS' MEETING; PROXY MATERIAL. Microsource will
mail to its shareholders the Joint Proxy Statement/Prospectus and cause a
meeting of its shareholders to be duly called and held as soon as reasonably
practicable or will seek the written consent of its shareholders for the purpose
of voting on (or in the case of a written consent, consenting to) the approval
and adoption of this Agreement and the Merger. The Board of Directors of
Microsource will, subject to their fiduciary duties, recommend approval and
adoption of this Agreement and the Merger by Microsource's shareholders. In
connection with such meeting or seeking of written consent, Microsource:
(a) will use all reasonable efforts to obtain the necessary approvals by
its shareholders of this Agreement and the transactions contemplated hereby; and
(b) will otherwise comply with all legal requirements applicable to such
meeting.
SECTION 5.03. ACCESS TO FINANCIAL AND OPERATION INFORMATION. From the
date hereof until the Effective Time, Microsource will give Giga-tronics, its
counsel, financial advisors, auditors and other authorized representatives
reasonable access during normal business hours to the offices, properties, books
and records of Microsource, will furnish to Giga-tronics, its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data as such persons may reasonably request and will instruct
Microsource's employees, counsel and financial advisors to cooperate with
Giga-tronics in its investigation of the business of Microsource and in the
planning for the combination of the businesses of Microsource and Giga-tronics
following the consummation of the Merger; provided that no investigation
pursuant to this Section will affect any representation or warranty given by
Microsource to Giga-tronics hereunder. In addition, Microsource will cooperate
in arranging joint meetings among representatives of Microsource and
Giga-tronics and persons with whom Microsource maintains business relationships.
All requests for information made pursuant to this Section will be directed to
the Chief Financial Officer of Microsource or such person as may be designated
by him. All information obtained pursuant to this Section 5.03 will be governed
by the terms of Section 5.08 of this Agreement.
SECTION 5.04. OTHER OFFERS. From the date hereof until the earlier of
the Effective Date or the termination of this Agreement in accordance with the
terms hereof, Microsource will not (and will not authorize or permit its
officers, directors, employees or other agents to), directly or
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indirectly, (i) take any action to solicit, initiate or encourage the making of
any Acquisition Proposal (as hereinafter defined); or (ii) engage in
negotiations with, or disclose any nonpublic information relating to Microsource
or afford access to the properties, books or records of Microsource to, any
person or entity that informs the Board of Directors that it is considering
making, or has made, an Acquisition Proposal. Until this Agreement will be
terminated in accordance with the terms hereof, Microsource will not enter into
any agreement to merge or consolidate with, or sell a substantial portion of its
assets to, any person or entity. Microsource will promptly notify Giga-tronics
after receipt of any Acquisition Proposal or any request for nonpublic
information relating to Microsource in connection with an Acquisition Proposal
or for access to the properties, books or records of Microsource by any person
or entity that informs the Board of Directors that it is considering making, or
has made, an Acquisition Proposal. The term "Acquisition Proposal" will mean any
inquiry, expression of interest or the making of any proposal or offer with
respect to (i) any merger, consolidation, tender offer or other similar
transaction or related transactions pursuant to which the holders of the voting
securities of Microsource prior to the transaction hold following the
consummation of such transaction less than eighty percent (80%) of the voting
securities of the surviving entity, (ii) a sale of a material portion of the
assets of Microsource, or (iii) any equity or convertible debt transaction or
related transactions in which any person or group of affiliated persons other
than current security holders of Microsource acquire securities of Microsource
representing more than twenty percent (20%) of the aggregate voting power of
Microsource's outstanding securities, other than in each case the transactions
contemplated by this Agreement. For purposes of the foregoing definition, one
person will be deemed to be affiliated with a second person if such first person
controls, is controlled by or is under common control with the second person,
and control, for purposes hereof, will be deemed to exist only in the event
there exists ownership of or the right to vote, in either case directly or
indirectly, securities representing more than fifty percent (50%) of the
aggregate voting power of an entity's outstanding securities. Notwithstanding
the foregoing, in the event that Microsource receives an unsolicited Acquisition
Proposal, the terms of which are, in the judgment of the Board of Directors of
Microsource, superior to the terms of the transaction contemplated hereby,
Microsource shall be entitled to the extent advised by counsel that such steps
are necessary to fulfill the fiduciary duty of the Board of Directors to
Microsource's shareholders, to : (i) furnish non-public information to such
party if prior to furnishing such non-public information Microsource receives an
executed confidentiality agreement from such party; (ii) transmit the terms of
the offer to Microsource's shareholders, and (iii) not recommend or withdraw a
recommendation of the transaction contemplated hereby.
SECTION 5.05. MAINTENANCE OF BUSINESS. Microsource will use all
reasonable efforts to carry on its business, keep available the services of its
officers and employees and preserve its relationships with those of its
customers, suppliers, licensors and others having business relationships with it
that are material to its business in substantially the same manner as it has
prior to the date hereof. If Microsource becomes aware of a material
deterioration or facts which are likely to result in a material deterioration in
the relationship with any material customer, supplier, licensor or others having
business relationships with it, it will promptly bring such information to the
attention of the Giga-tronics in writing.
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SECTION 5.06. COMPLIANCE WITH OBLIGATIONS. Prior to the Effective Date,
Microsource will comply with (i) all applicable federal, state, local and
foreign laws, rules and regulations, (ii) all material agreements and
obligations, including its Articles of Incorporation and Bylaws, by which it,
its properties or its assets may be bound, and (iii) all decrees, orders, writs,
injunctions, judgments, statutes, rules and regulations applicable to
Microsource and its properties or assets, except for such failures to comply
which do not have a Material Adverse Effect.
SECTION 5.07. NOTICES OF CERTAIN EVENTS. Microsource will, upon
obtaining knowledge of any of the following, promptly notify Giga-tronics of:
(a) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with the Merger;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the Merger; and
(c) any claims or Proceedings commenced or threatened against
Microsource which, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Sections 3.10 or 3.20 or which
relate to the consummation of the Merger.
SECTION 5.08. CONFIDENTIALITY. Microsource agrees that for a period of
three (3) years following any termination of this Agreement Microsource will not
(a) disclose to any person, association, firm, corporation or other entity in
any manner, directly or indirectly, any confidential information or data of
Giga-tronics whether of a technical or commercial nature, nor (b) use, or permit
or assist, by acquiescence or otherwise, any person, association, firm,
corporation or other entity to use, directly or indirectly, any such information
or data in any manner which reasonably would be deemed to be competitive with
the operations of Giga-tronics excepting only use of: (i) information in the
public domain at the time of disclosure to Microsource; (ii) information
subsequently coming into the public domain by means other than disclosure by
Microsource or any of its agents; (iii) information Microsource can establish
and document was in its possession or was known to it prior to its disclosure to
Microsource by Giga-tronics; (iv) information disclosed to Microsource by a
third party not in violation of any obligation of confidentiality or
nondisclosure known to Microsource or of which Microsource should reasonably
have known; or (v) information which was independently developed by Microsource
or which is generally known in Microsource's industry.
SECTION 5.09. COMPLIANCE WITH THE SECURITIES ACT. Microsource will use
all reasonable efforts to cause each person who is an "affiliate," as that term
is used in paragraphs (c) and (d) of Rule 145 under the Securities Act, of
Microsource to enter into prior to the Effective Date an Affiliates Agreement in
substantially the form attached hereto as Exhibit 5.09 (a "Microsource
Affiliates Agreement").
SECTION 5.10. OPTIONS. Microsource shall grant to the employees
specified in Exhibit 5.10 hereto Options to purchase the number of shares of
Microsource Common Stock set forth therein. Such Options will be assumed by
Giga-tronics in accordance with Section 1.06.
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SECTION 5.11. ADVISORY FEES. Any and all fees or other consideration
payable to Microsource Advisor shall have been paid and satisfied in full
through the issuance of shares of Microsource Common Stock prior to the
Effective Time.
SECTION 5.12. MICROSOURCE WARRANTS. Microsource shall cause the
Microsource Warrants which are not "in the money" as determined in accordance
with Section 1.08 and which have not been exercised to be canceled.
ARTICLE VI
COVENANTS OF GIGA-TRONICS AND MERGER SUB
Giga-tronics and Merger Sub agree that:
SECTION 6.01. CONDUCT OF GIGA-TRONICS. From the date hereof until the
Effective Time, Giga-tronics and its Subsidiaries will in all material respects
conduct their business in the ordinary course. Without limiting the generality
of the foregoing, from the date hereof until the Effective Time, except as
contemplated hereby or previously disclosed by Giga-tronics to Microsource in
writing, without the prior written consent of Microsource:
(a) Giga-tronics will not adopt or propose any changes in its Articles
of Incorporation or Bylaws;
(b) Giga-tronics will not pay any dividend or make any other
distribution to holders of its capital stock nor will Giga-tronics or any of its
Subsidiaries redeem or otherwise acquire any Giga-tronics Securities;
(c) Giga-tronics will take no extraordinary actions affecting its
capital structure (e.g., declaration of stock dividends or stock splits);
(d) Giga-tronics will not except, in the ordinary course of business
consistent with past practices, sell, license or otherwise transfer to any
person any Giga-tronics intellectual property rights or any intellectual
property rights of any of its Subsidiaries; and
(e) Giga-tronics will not, and will not permit any of its Subsidiaries
to, agree or commit to do any of the foregoing.
SECTION 6.02. COMPLIANCE WITH SECURITIES LAWS. Giga-tronics will take
any action required to be taken under foreign or state securities or "blue sky"
laws in connection with the issuance of Giga-tronics Common Stock in the Merger.
SECTION 6.03. MAINTENANCE OF BUSINESS. Giga-tronics will use its best
efforts to carry on its business, keep available the services of its officers
and employees and preserve its relationships with those of its customers,
suppliers, licensors and other persons having business relationships with it
that are material to its business in substantially the same manner as it has
prior to the date hereof. If Giga-tronics becomes aware of a material
deterioration or facts which
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are likely to result in a material deterioration in the relationship with any
customer, supplier, licensor or others having business relationships with it, it
will promptly bring such information to the attention of Microsource in writing.
SECTION 6.04. COMPLIANCE WITH OBLIGATIONS. Prior to the Effective Date,
Giga-tronics and its Subsidiaries will each comply with (i) all applicable
federal, state, local and foreign laws, rules and regulations, (ii) all material
agreements and obligations, including its respective certificate or articles of
incorporation and bylaws, by which it, its properties or its assets may be
bound, and (iii) all decrees, orders, writs, injunctions, judgments, statutes,
rules and regulations applicable to Giga-tronics and its Subsidiaries and their
respective properties or assets.
SECTION 6.05. NOTICES OF CERTAIN EVENTS. Giga-tronics will, upon
obtaining knowledge of any of the following, promptly notify Microsource of:
(a) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with the Merger;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the Merger; and
(c) any claims or Proceedings commenced or threatened against
Giga-tronics or any of its Subsidiaries which, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to Section
4.10 or which relate to the consummation of the Merger.
SECTION 6.06. CONFIDENTIALITY. Giga-tronics agrees that for a period of
three (3) years following any termination of this Agreement Giga-tronics will
not (a) disclose to any person, association, firm, corporation or other entity
in any manner, directly or indirectly, any confidential information or data of
Microsource, whether of a technical or commercial nature, nor (b) use, or permit
or assist, by acquiescence or otherwise, any person, association, firm,
corporation or other entity to use, directly or indirectly, any such information
or data in any manner which reasonably would be deemed to be competitive with
the operations of Microsource excepting only use of (i) information in the
public domain at the time of disclosure to Giga-tronics (ii) information
subsequently coming into the public domain by means other than disclosure by
Giga-tronics or any of its agents (iii) information Giga-tronics can establish
and document was in its possession or was known to it prior to its disclosure to
Giga-tronics by Microsource; (iv) information disclosed to Giga-tronics by a
third party not in violation of any obligation of confidentiality or
nondisclosure known to Giga-tronics or of which Giga-tronics should reasonably
have known; or (v) information which was independently developed by Giga-tronics
or which is generally known in Microsource's industry.
SECTION 6.07. OBLIGATIONS OF MERGER SUB. Giga-tronics will take all
action necessary to cause Merger Sub to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement. Merger Sub will not issue any shares of its capital stock, any
securities convertible into or exchangeable for its capital stock, or any
option, warrant or other right to acquire its capital stock to any Person other
than Giga-
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tronics or a wholly owned Subsidiary of Giga-tronics. Merger Sub will
not incur any indebtedness or liabilities of any kind except pursuant to this
Agreement.
SECTION 6.08. COMPLIANCE WITH THE SECURITIES ACT. Giga-tronics will use
all reasonable efforts to cause each person who is an "affiliate," as that term
is used in paragraphs (c) and (d) of Rule 145 under the Securities Act, of
Giga-tronics to enter on or prior to the Effective Date an Affiliates Agreement
in substantially the form attached hereto as Exhibit 6.08 (a "Giga-tronics
Affiliates Agreement").
SECTION 6.09. SHAREHOLDERS' MEETING; PROXY MATERIAL. Giga-tronics will
mail to its shareholders the Joint Proxy Statement/Prospectus and cause a
meeting of its shareholders to be duly called and held as soon as reasonably
practicable or will seek the written consent of its shareholders for the purpose
of voting on (or in the case of a written consent, consenting to) the approval
and adoption of this Agreement and the Merger. The Board of Directors of
Giga-tronics will, subject to their fiduciary duties, recommend approval and
adoption of this Agreement and the Merger by Giga-tronics' shareholders. In
connection with such meeting or seeking of written consent, Giga-tronics:
(a) will use all reasonable efforts to obtain the necessary approvals by
its shareholders of this Agreement and the transactions contemplated hereby; and
(b) will otherwise comply with all legal requirements applicable to such
meeting.
SECTION 6.10. ACCESS TO FINANCIAL AND OPERATION INFORMATION. From the
date hereof until the Effective Time, Giga-tronics will give Microsource, its
counsel, financial advisors, auditors and other authorized representatives
reasonable access during normal business hours to the offices, properties, books
and records of Giga-tronics, will furnish to Microsource, its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data as such persons may reasonably request and will instruct
Giga-tronics' employees, counsel and financial advisors to cooperate with
Microsource in its investigation of the business of Giga-tronics and in the
planning for the combination of the businesses of Giga-tronics and Microsource
following the consummation of the Merger; provided that no investigation
pursuant to this Section will affect any representation or warranty given by
Giga-tronics to Microsource hereunder. In addition, Giga-tronics will cooperate
in arranging joint meetings among representatives of Giga-tronics and
Microsource and persons with whom Giga-tronics maintains business relationships.
All requests for information made pursuant to this Section will be directed to
the Chief Financial Officer of Giga-tronics or such person as may be designated
by him. All information obtained pursuant to this Section 6.10 will be governed
by the terms of Section 6.06 of this Agreement.
SECTION 6.11. CREDIT FOR SERVICE. Giga-tronics agrees to provide
employees of Microsource with credit for all service with Microsource or its
affiliates for purposes of vesting and eligibility under any employee benefit
plan, program or arrangement of Giga-tronics.
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ARTICLE VII
OTHER COVENANTS OF THE PARTIES
The Parties agree that:
SECTION 7.01. ADVICE OF CHANGES. Each party will promptly advise each
other party in writing (i) of any event known to its executive officers
occurring subsequent to the date of this Agreement that would render any
representation or warranty of such party contained in this Agreement, if made on
or as of the date of such event or the Effective Date, untrue, inaccurate or
misleading in any material respect (other than an event so affecting a
representation or warranty which is expressly limited to a state of facts
existing at a time prior to the occurrence of such event) and (ii) of any
Material Adverse Change in the business condition of the party and its
Subsidiaries, taken as a whole.
SECTION 7.02. SEC FILINGS; INDEMNIFICATION.
(a) Giga-tronics and Microsource, and their respective agents, will
jointly prepare and within twelve (12) business days after the date of this
Agreement will file with the SEC a joint proxy statement/registration statement
(the "Preliminary Joint Proxy Statement/Prospectus") comprising preliminary
proxy materials of the Company and Giga-tronics under the Exchange Act with
respect to the Merger and Registration Statements on Form S-4 and preliminary
prospectus of Giga-tronics under the Securities Act with respect to the
Giga-tronics Common Stock to be issued in the Merger, and will thereafter use
their respective best efforts to respond to any comments of the SEC with respect
thereto and to cause a definitive joint proxy statement/registration statement
(including all supplements and amendments thereto, the "Joint Proxy
Statement/Prospectus") and proxy to be mailed to their respective shareholders
as promptly as practicable.
(b) Giga-tronics and Microsource will cooperate with each other and
provide to each other all information necessary in order to prepare the Joint
Proxy Statement/Prospectus and any other filing required to consummate the
transactions contemplated by this Agreement (collectively, the "SEC Filings")
and will provide promptly to the other parties any information that such party
may obtain that could necessitate amending any such document.
(c) Giga-tronics and Microsource will notify the other party promptly of
the receipt of any comments from the SEC or its staff or any other government
official and of any requests by the SEC or its staff or any other government
official for amendments or supplements to any of the SEC Filings or for
additional information and will supply the other party with copies of all
correspondence between Giga-tronics or any of its representatives or Microsource
or any of its representatives, as the case may be, on the one hand, and the SEC
or its staff or any other governmental official, on the other hand, with respect
thereto. If at any time prior to the Effective Time, any event will occur that
should be set forth in an amendment of, or a supplement to, any of the SEC
Filings, Giga-tronics and Microsource agree promptly to prepare and file such
amendment or supplement and to distribute such amendment or supplement as
required by applicable law, including, in the case of an amendment or supplement
to the Joint
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Proxy Statement/Prospectus, mailing such supplement or amendment to their
respective shareholders.
(d) The information to be provided by Giga-tronics and Microsource for
use in the SEC Filings will at all times prior to the Effective Time be true and
correct in all material respects and will not omit to state any material fact
required to be stated therein or necessary in order to make such information not
misleading, and Giga-tronics and Microsource each agree to correct any such
information provided by it for use in any SEC Filing that will have become false
or misleading. Each SEC Filing, when filed with the SEC or any government
official, will comply in all material respects with all applicable requirements
of law.
(e) Giga-tronics will indemnify, defend and hold harmless the
Microsource Shareholders, each of their officers and directors and each other
person, if any, who controls any of the foregoing within the meaning of the
Exchange Act against any claims or Damages to which any of the foregoing may
become subject under the Securities Act or the Exchange Act or otherwise,
insofar as such Damages (or actions in respect thereof) arise out of or are
based upon (i) an untrue statement or alleged untrue statement of a material
fact contained in any SEC Filing or (ii) the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, provided that Giga-tronics was responsible for such misstatement
or omission.
(f) In accordance with Article IX hereof, Microsource will indemnify,
defend and hold harmless Giga-tronics, each of is officers and directors and
each other person, if any, who controls any of the foregoing within the meaning
of the Exchange Act against any claims or Damages to which any of the foregoing
may become subject under the Securities Act or the Exchange Act or otherwise,
insofar as such Damages (or actions in respect thereof) arise out of or are
based upon (i) an untrue statement or alleged untrue statement of a material
fact contained in any SEC Filing or (ii) the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, provided that Microsource was responsible for such misstatement
or omission.
(g) The Joint Proxy Statement/Prospectus will include the recommendation
of the Boards of Directors of Microsource and Giga-tronics, respectively,
provided, however, that the Boards of Directors of Microsource and Giga-tronics,
respectively, may modify or withdraw its recommendations if it determines, with
the advice of outside counsel, that it may be required to do so in the exercise
of its fiduciary duties.
SECTION 7.03. OTHER REGULATORY APPROVALS. Prior to the Effective Time,
each party will execute and file, or join in the execution and filing of, any
application or other document that may be necessary in order to obtain the
authorization, approval or consent of any governmental body, federal, state,
local or foreign, which may be reasonably required, or that the other company
may reasonably request, in connection with the consummation of the Merger.
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Each party will use its reasonable best efforts to obtain all such
authorizations, approvals and consents.
SECTION 7.04. ACTIONS CONTRARY TO STATED INTENT. No party hereto will,
from or after the date hereof and either before or after the Effective Time,
take any action that would prevent the Merger from qualifying as a
reorganization under Section 368 of the Code.
SECTION 7.05. CERTAIN OTHER FILINGS. The Parties will cooperate with one
another:
(a) in connection with the preparation of any filing required by the HSR
Act;
(b) in determining whether any action by or in respect of, or filing
with, any governmental body, agency or official, or authority is required, or
any actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement; and
(c) in seeking any such actions, consents, approvals or waivers or
making any such filings, furnishing information required in connection therewith
and seeking timely to obtain any such actions, consents, approvals or waivers.
SECTION 7.06. COMMUNICATIONS. Between the date hereof and the Effective
Time, no party will furnish any written communication to its shareholders or to
the public generally or otherwise communicate with any news media if the subject
matter thereof relates to the transactions contemplated by this Agreement
without the prior approval of Microsource and Giga-tronics as to the content
thereof, which approval will not be unreasonably withheld; provided that the
foregoing will not be deemed to prohibit the filing or disseminating of the
Joint Proxy Statement/Prospectus or any other disclosure required by any
applicable law or by any competent governmental authority.
SECTION 7.07. SATISFACTION OF CONDITIONS PRECEDENT. The parties will use
their reasonable efforts to satisfy or cause to be satisfied all the conditions
precedent that are set forth in Article VIII, as applicable to each of them, and
to cause the transactions contemplated by this Agreement to be consummated, and,
without limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on its
part in order to effect the transactions contemplated hereby.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01. CONDITIONS TO OBLIGATIONS OF GIGA-TRONICS AND MERGER SUB.
The obligations of Giga-tronics and Merger Sub hereunder are subject to the
fulfillment or satisfaction, on and as of the Effective Date, of each of the
following conditions (any one or more of which may be waived by Giga-tronics,
but only in a writing signed by Giga-tronics):
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(a) Accuracy of Representations and Warranties. The representations and
warranties of Microsource contained in Article III shall have been true and
accurate on the date hereof, and will be true and accurate in all material
respects on and as of the Effective Date with the same force and effect as if
they had been made on the Effective Date (except to the extent a representation
or warranty speaks only as of an earlier date, except for changes contemplated
by this agreement, and except for an update of the Microsource Disclosure Letter
which Microsource shall deliver to Giga-tronics showing any changes which have
occurred since the date hereof with respect to the information contained
therein) and Microsource will have provided Giga-tronics with a certificate
executed by the Group Presidents and the Chief Financial Officer of Microsource,
dated as of the Effective Date, to such effect.
(b) Covenants. Microsource will have performed and complied with all of
its covenants contained in Articles V and VII in all material respects on or
before the Effective Date, and Giga-tronics will receive a certificate to such
effect signed by Microsource's President and Chief Financial Officer.
(c) No Material Adverse Change. There will have been no Material Adverse
Change in Microsource since the Microsource Balance Sheet Date.
(d) Microsource Affiliates Agreements. Giga-tronics will have received
from Microsource a letter identifying each person or entity who is an affiliate
of Microsource and shall have received from each such affiliate a duly executed
Microsource Affiliates Agreement.
(e) Legal Opinion. Giga-tronics and the Merger Sub will have received an
opinion of Heller, Ehrman, White & McAuliffe, counsel for Microsource, dated as
of the Closing Date, in the form of Exhibit 8.01 attached hereto.
(f) Exercise of Microsource Warrants. In accordance with Section 1.08,
all of the Microsource Warrants which are determined to be not "in the money"
and which have not been exercised shall have been canceled.
(g) Consents. Microsource will have received the written consents
specified Section 3.04(iii) of the Microsource Disclosure Letter.
SECTION 8.02. CONDITIONS TO OBLIGATIONS OF MICROSOURCE. Microsource's
obligations hereunder are subject to the fulfillment or satisfaction, on and as
of the Effective Date, of each of the following conditions (any one or more of
which may be waived by Microsource, but only in a writing signed by
Microsource):
(a) Accuracy of Representations and Warranties. The representations and
warranties of Giga-tronics set forth in Article IV shall have been true and
accurate on the date hereof, and will be true and accurate in all material
respects on and as of the Effective Date with the same force and effect as if
they had been made on the Effective Date (except to the extent a representation
or warranty speaks only as of an earlier date, except for changes contemplated
by this Agreement and except for an update of the Giga-tronics Disclosure Letter
which Giga-
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tronics shall deliver to Microsource showing any changes which have occurred
since the date hereof with respect to the information contained therein) and
Giga-tronics will have provided Microsource with a certificate executed by the
President and the Chief Financial Officer of Giga-tronics, dated as of the
Effective Date, to such effect.
(b) Covenants. Giga-tronics will have performed and complied with all of
its covenants contained in Articles VI and VII in all material respects on or
before the Effective Date, and Microsource will receive a certificate to such
effect signed by Giga-tronics' President and Chief Financial Officer.
(c) No Material Adverse Change. There will have been no Material Adverse
Change in Giga-tronics since the Giga-tronics Balance Sheet Date.
(d) Giga-tronics Affiliates Agreements. Microsource will have received
from Giga-tronics a letter identifying each person or entity who is an affiliate
of Giga-tronics and shall have received from each such affiliate a duly executed
Giga-tronics Affiliates Agreement.
(e) Legal Opinion. Microsource will have received an opinion of Gibson,
Dunn & Crutcher LLP, counsel for Giga-tronics and the Merger Sub, dated as of
the Closing Date, and addressed to the shareholders of Microsource, in the form
of Exhibit 8.02 attached hereto.
(f) Tax-Free Reorganization. Microsource will have received the opinion
of its counsel to the effect that the Merger will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Code. In preparing
the tax opinion, counsel may rely upon (and to the extent reasonably required,
the parties shall make and use reasonable efforts to cause their directors and
shareholders to make) reasonable representations relating thereto.
(g) Tax Opinion Representations. Giga-tronics shall have delivered to
counsel to Microsource a signed representation letter in support of the tax
opinion to be rendered pursuant to Section 8.02(f) in a form reasonably
acceptable to Microsource.
SECTION 8.03. CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of Microsource and Giga-tronics hereunder are subject to the
fulfillment, on and as of the Effective Date, of each of the following
conditions (any one or more of which may be waived by such parties, but only in
a writing signed by such parties):
(a) Joint Proxy Statement/Prospectus. The Joint Proxy
Statement/Prospectus will have been declared effective under the Securities Act
and no stop orders with respect thereto will have been issued.
(b) Shareholder Approval. Giga-tronics and Microsource's respective
shareholders will have duly approved this Agreement, the Merger Agreement and
the Merger, all in accordance with applicable laws and regulatory requirements.
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(c) Illegality or Legal Constraint. No statute, rule, regulation,
executive order, decree, injunction or restraining order will have been enacted,
promulgated or enforced (and not repealed, superseded or otherwise made
inapplicable) by any court or governmental authority which prohibits the
consummation of the Merger (each party agreeing to use its reasonable best
efforts to have any such order, decree or injunction lifted).
(d) Consents. All written consents, assignments, waivers or
authorizations ("Consents"), other than Governmental Authorizations, that are
required as a result of the Merger for the continuation in full force and effect
of any material contracts or leases of Microsource or Giga-tronics will have
been obtained, other than those Consents the failure of which to obtain would
not have a Material Adverse Effect on Microsource or Giga-tronics.
(e) Governmental Authorizations. There will have been obtained any and
all Governmental Authorizations, permits, approvals and consents of securities
or "blue sky" commissions of any jurisdiction and of any other governmental body
or agency, that may reasonably be deemed necessary so that the consummation of
the Merger will be in compliance with applicable laws, the failure to comply
with which would have a Material Adverse Effect on Giga-tronics, Microsource or
the Surviving Corporation or would be reasonably likely to subject any of
Giga-tronics, Merger Sub, Microsource or any of their respective directors or
officers to substantial penalties or criminal liability.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. INDEMNIFICATION OBLIGATION.
(a) Giga-tronics, each of its Affiliates (including Merger Sub), and
each of their respective officers, directors, employees, agents and
representatives (collectively, the "Giga-tronics Indemnitees") shall be
indemnified and held harmless by Microsource (provided that, upon the Closing,
Microsource shall cease to have any indemnity obligations under this Section
9.01, Microsource shall thereafter be a Giga-tronics Indemnitee, and no
Microsource Shareholder shall have any right to seek reimbursement or
contribution from Microsource for any amounts paid by such Microsource
Shareholder under this Article IX), and each Microsource Shareholder in respect
of any and all Damages incurred by any Giga-tronics Indemnitee as a result of
any breach of any representation, warranty, covenant or agreement made by
Microsource in this Agreement. Microsource (subject to the parenthetical in the
preceding sentence) shall be liable in full with respect to any such breach, and
each Microsource Shareholder shall be liable with respect to any such breach on
a pro rata basis. Nothing set forth in this Section 9.01 shall be deemed to
prohibit or limit any Giga-tronics Indemnitee's right at any time before, on or
after the Closing Date to seek injunctive or other equitable relief, in lieu of
or in addition to Damages, for the failure of Microsource to perform any
covenant or agreement contained herein. After the Effective Time, all Damages to
which any Giga-tronics Indemnitee may be entitled shall be payable from the
Escrow Shares. The Microsource Shareholders shall have no obligations under this
Article IX prior to the Effective Time. After the Effective Time, the
obligations of the Microsource Shareholders under this Article IX shall be
limited to the Escrow Shares.
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(b) Microsource, each Microsource Shareholder, and each of Microsource's
and the Microsource Shareholders' respective Affiliates, and each of their
respective officers, directors, employees, agents and representatives
(collectively, the "Shareholder Indemnitees") shall be indemnified and held
harmless by Giga-tronics in respect of any and all Damages incurred by any
Shareholder Indemnitee as a result of any misrepresentation and/or breach of any
representation, warranty, covenant or agreement made by Giga-tronics in this
Agreement; provided, however, that Microsource and its Subsidiaries shall cease
to be Shareholder Indemnitees after the Closing. Nothing set forth in this
Section 9.01(b) shall be deemed to prohibit or limit any Shareholder
Indemnitee's right at any time before, on or after the Closing Date to seek
injunctive or other equitable relief, in lieu of or in addition to Damages, for
the failure of Giga-tronics to perform any covenant or agreement contained
herein.
SECTION 9.02. TERM OF INDEMNIFICATION OBLIGATION.
(a) All representations, warranties, covenants, agreements and
obligations of Microsource contained herein, and all claims of any Giga-tronics
Indemnitee in respect of any breach of any such representation, warranty,
covenant, agreement or obligation, shall terminate and be of no further force
and effect six (6) months after the Effective Time. Notwithstanding the
foregoing, in the event that any Giga-tronics Indemnitee shall provide written
notice of a specifically identified claim for indemnification in accordance with
the first sentence of Section 9.03 prior to the expiration of any applicable
time period described in the prior sentences of this Section 9.02, such claim
shall have been timely made even if such claim shall not be finally resolved
until after the expiration of the applicable time period.
(b) All representations, warranties, covenants, agreements and
obligations of Giga-tronics and Merger Sub contained herein, and all claims of
any Shareholder Indemnitee in respect of any breach of any such representation,
warranty, covenant, agreement or obligation of Giga-tronics, shall terminate and
be of no further force and effect six (6) months after the Effective Time.
Notwithstanding the foregoing, in the event that any Shareholder Indemnitee
shall provide written notice of a specifically identified claim for
indemnification in accordance with the first sentence of Section 9.03 prior to
the expiration of any applicable time period described in the prior sentences of
this Section 9.02(b), such claim shall have been timely made even if such claim
shall not be finally resolved until after the expiration of the applicable time
period.
SECTION 9.03. NOTICE AND DETERMINATION OF CLAIMS. If any Giga-tronics
Indemnitee or Shareholder Indemnitee (each, an "Indemnitee") shall believe that
such Indemnitee is entitled to indemnification pursuant to Section 9.01 from any
Microsource Shareholder (or prior to the Closing, Microsource), with respect to
a Giga-tronics Indemnitee, or from Giga-tronics, with respect to a Shareholder
Indemnitee, as the case may be (the "Indemnitors"), in respect of any Damages,
such Indemnitee shall give all potential Indemnitors prompt written notice
thereof. Any such notice shall set forth in reasonable detail and, if and to the
extent then known, the amount of Damages (or an estimate thereof) arising from
such claim and the basis for such claim for indemnification. The failure of such
Indemnitee to give notice of any claim for indemnification promptly shall not
adversely affect such Indemnitee's right to indemnity
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hereunder except to the extent that such failure adversely affects the rights of
the Indemnitor to assert any reasonable defense to such claim. The Indemnitors
shall have fifteen (15) business days following their receipt of such notice
either (i) to acquiesce in such claim by giving such Indemnitee written notice
of such acquiescence or (ii) to object to the claim by giving such Indemnitee
written notice of the objection. If any Indemnitor acquiesces in such claim,
such Indemnitee shall be entitled to be indemnified by the acquiescing
Indemnitor for such Indemnitor's share (which may be the entire amount if so
provided in this Agreement) of the Damages incurred by such Indemnitee in
respect of such claim. If one (1) or more of the Indemnitors object to such
claim in the manner required above by the expiration of such fifteen (15)
business day period, representatives of the Indemnitor and Indemnitee (in the
event the Indemnitor or Indemnitee is a corporation or other business entity,
such representative shall be a member of senior management) shall meet to
attempt to resolve such dispute. If the dispute cannot be resolved by such
representatives within twenty (20) business days either party may make a written
demand for formal dispute resolution and specify therein the scope of the
dispute. Within thirty (30) calendar days after such written notification, the
Indemnitor and Indemnitee shall meet for one (1) day with an impartial mediator
(such mediator to be chosen by the mutual agreement of such Indemnitor and
Indemnitee) and consider dispute resolution alternatives other than litigation.
If an alternative method of dispute resolution is not agreed upon within thirty
(30) days after the one (1) day mediation, either party may begin litigation
Proceedings. Nothing in this section shall be deemed to require arbitration.
SECTION 9.04. THIRD PARTY CLAIMS. In connection with any claim that may
give rise to indemnity under this Article IX resulting from or arising out of
any claim or Proceeding against an Indemnitee by a person that is not a party
hereto, the Indemnitors may, upon notice to the relevant Indemnitee, assume the
defense of any such claim or Proceeding if the Indemnitors jointly acknowledge
in writing to the relevant Indemnitee the right of such Indemnitee to indemnity
pursuant hereto in respect of the entirety of such claim and provide written
evidence reasonably satisfactory to such Indemnitee that such Indemnitors have
the financial wherewithal to defend and pay such claim in full. If the
Indemnitors assume the defense of any such claim or Proceeding, the Indemnitors
shall select counsel reasonably acceptable to such Indemnitee to conduct the
defense of such claim or Proceeding, shall take all steps necessary in the
defense or settlement thereof and shall at all times diligently and promptly
pursue the resolution thereof. If the Indemnitors shall have assumed the defense
of any claim or Proceeding in accordance with this Section 9.04, the Indemnitors
shall be authorized to consent to a settlement of, or the entry of any judgment
arising from, any such claim or Proceeding, without the prior written consent of
such Indemnitee; provided, however, that the Indemnitors shall have paid or
caused to be paid all amounts arising out of such settlement or judgment
concurrently with the effectiveness thereof; provided further, that the
Indemnitors shall not be authorized to encumber any of the assets of any
Indemnitee or to agree to any restriction that would apply to any Indemnitee or
to the conduct of such Indemnitee's business; and provided further, that a
condition to any such settlement shall be a complete release of such Indemnitee
with respect to such claim. Such Indemnitee shall be entitled to participate in
(but not control) the defense of any such action, with its own counsel and at
its own expense. Each Indemnitee shall, and shall cause each of its Affiliates
and representatives to, cooperate fully with the Indemnitors in the defense of
any claim or Proceeding being defended by the Indemnitors pursuant to this
Clause (d). If the Indemnitors
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do not assume the defense of any claim or Proceeding resulting therefrom in
accordance with the terms of this Clause (d), such Indemnitee may defend against
such claim or Proceeding in such manner as it may deem appropriate, including
settling such claim or Proceeding after giving notice of the same to the
Indemnitors, on such terms as such Indemnitee may deem appropriate. If the
Indemnitors seek to question the manner in which such Indemnitee defended such
claim or Proceeding or the amount of or nature of any such settlement, the
Indemnitors shall have the burden to prove by a preponderance of the evidence
that such Indemnitee did not defend such claim or Proceeding in a reasonably
prudent manner.
SECTION 9.05. ESCROW SHARES. In the event of any claims under Section
9.01 in which it is determined in accordance with this Article IX that any
Giga-tronics Indemnitee is entitled to indemnification, Giga-tronics shall be
entitled to pay such claims from the Escrow Shares. If a balance remains of the
Escrow Shares after the termination of the Escrow Period, the Escrow Agent shall
distribute on a pro rata basis such balance to the Microsource Shareholders
entitled thereto; provided, however, that the Escrow Agent shall retain the
portion of the balance of the Escrow Shares necessary to cover any claims for
which a notice has been delivered by a Giga-tronics Indemnitee in accordance
with Section 9.03, but such claim has not been finally resolved in accordance
with Section 9.03 or 9.04; provided, however, that once such claim has been
finally resolved in accordance with this Agreement, the Escrow Agent shall
distribute the portion of such balance of the Escrow Shares relating to the
claim to the Microsource Shareholders or the Giga-tronics Indemnitees entitled
thereto, as the case may be.
SECTION 9.06. LIMITATION ON DAMAGES. The aggregate amount of all Damages
pursuant to, or arising out of, this Agreement and the transactions contemplated
hereby, including any breach of the covenants, representations, warranties and
other provisions set forth in this Agreement, for which Microsource (in the
event the Effective Time shall not occur) shall be obligated to indemnify all
Giga-tronics Indemnitees shall not exceed the Merger Consideration. Neither
party shall be liable for Damages under this Article IX unless the aggregate
amount of all such Damages exceeds Thirty-Five Thousand Dollars ($35,000) in
which case the liability for indemnification under this Article IX shall include
all amounts including such Thirty-Five Thousand Dollars ($35,000).
SECTION 9.07. EXCLUSIVE REMEDY. The remedies provided for in this
Article IX are exclusive and shall be in lieu of all other remedies for breach
of this Agreement; provided, however, that the foregoing clause of this sentence
shall not be deemed a waiver by any party of any right to specific performance
or injunctive relief, or any remedy arising by reason of any claim of fraud or a
knowing or willful breach of this Agreement.
SECTION 9.08. INDEMNIFICATION DEFINITIONS.
(a) For purposes of this Agreement, "Damages" means all demands, claims,
actions or causes of action, assessments, losses, damages, costs, expenses,
liabilities, judgments, awards, fines, sanctions, penalties, charges and amounts
paid in settlement, in each case resulting in actual out-of-pocket, lost
"benefit of the bargain or other monetary loss, including (y) interest on cash
disbursements in respect of any of the foregoing at a rate per annum equal to
the prime rate
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as published by Bank of America, NT&SA, compounded quarterly, from the date each
such cash disbursement is made until the person incurring the same shall have
been indemnified in respect thereof and (z) reasonable costs, fees and expenses
of attorneys, experts, accountants, appraisers, consultants, witnesses,
investigators and any other agents of such person. Without limiting the
generality of the foregoing, effective after the Closing, any Damages to
Microsource arising out of any such breach by Microsource (where such breach
occurs before the Closing), shall be deemed to be Damages to Giga-tronics, and
Giga-tronics shall be entitled to assert a claim under Article IX with respect
thereto.
(b) For purposes of this Agreement, "Proceeding" means any action, suit,
hearing or arbitration or governmental investigation (whether public or
private).
ARTICLE X
TERMINATION OF AGREEMENT
SECTION 10.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time whether before or after the approval by the
shareholders of Microsource or Giga-tronics:
(a) by mutual consent of the Boards of Directors of Giga-tronics, Merger
Sub and Microsource;
(b) by either Giga-tronics and Merger Sub or Microsource, if the
requisite approval of the shareholders of Microsource or Giga-tronics will not
be obtained by May 29, 1998;
(c) by Giga-tronics or Microsource, if the terminating party is not in
material breach of its obligations under this Agreement and if the Board of
Directors of Microsource will have recommended or approved any acceptance by
shareholders of any Acquisition Proposal (other than an Acquisition Proposal
made by Giga-tronics or an affiliate of Giga-tronics); provided, however, that
Microsource may not terminate this Agreement pursuant to this Section 10.01(c)
unless, simultaneously with such termination, Microsource pays to Giga-tronics a
termination fee of $750,000 and enters into a definitive agreement to effect an
Acquisition Proposal.
(d) by either Giga-tronics and Merger Sub or Microsource, respectively,
(A) if there has been a breach of any representation and warranty such that
Section 8.01(a) or 8.02(a), respectively, cannot be satisfied or (B) if either
Microsource or Giga-tronics and Merger Sub, respectively, fail to perform any
material covenant or agreement contained in this Agreement such that Sections
8.01(b) or 8.02(b) cannot be satisfied, and in both case (A) and case (B) such
breach has not been promptly cured after notice to the breaching party; or
(e) by Microsource, if it is not in material breach of its obligations
under this Agreement and if the Board of Directors of Giga-tronics will have
withdrawn its recommendation of the Merger, or
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(f) by either Giga-tronics and Merger Sub or Microsource, respectively,
at any time after May 29, 1998, unless the delay is caused by the failure of the
terminating party to fulfill its obligations hereunder.
SECTION 10.02. EFFECT OF TERMINATION. In the event of termination of
this Agreement as provided above, this Agreement will forthwith become void,
and, except as provided in Section 10.01(c), there will be no liability on the
part of either Giga-tronics, Merger Sub or Microsource, except that each of the
agreements contained or referred to in Sections 5.08, 6.06 and 11.02 and Article
9 will survive the termination hereof; provided, however, that each party will
be entitled to any remedies at law or in equity in the event of a breach of this
Agreement by the other party.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. FURTHER ASSURANCES. Subject to the fiduciary duties of
the Board of Directors of Microsource as advised by outside counsel, each of the
parties hereto agrees to use all reasonable efforts to take, or cause to be
taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement in
the most expeditious manner practicable, including but not limited to the
satisfaction of all conditions to the Merger. Without limiting the generality of
the foregoing, each party agrees to cooperate fully with the other parties and
to execute such further instruments, documents and agreements and to give such
further written assurances as may be reasonably requested by any other party to
better evidence and reflect the transactions described herein and contemplated
hereby and to carry into effect the intents and purposes of this Agreement.
SECTION 11.02. FEES AND EXPENSES. Whether or not the Merger is
consummated, each party will pay all fees and expenses incurred by such party,
including counsel fees and fees of accountants contracted by such party, and any
other expenses specifically identifiable to such party in connection with the
transactions contemplated hereby. Any other costs and expenses not specifically
identified as applicable to either Microsource or Giga-tronics will be shared
equally.
SECTION 11.03. NOTICES. Any notice or communication required or
permitted by this Agreement will be deemed sufficiently given if in writing and,
if delivered personally, when it is delivered or, if delivered in another
manner, the earlier of when it is actually received by the party to whom it is
directed or when the period set forth below expires (whether or not it is
actually received):
(a) if deposited with the U.S. Postal Service, postage prepaid, and
addressed to the party to receive it as set forth below, forty-eight (48) hours
after such deposit as registered or certified mail; or
(b) if accepted by Federal Express or a similar delivery service in
general usage for delivery to the address of the party to receive it as set
forth next below, twenty-four (24) hours after the delivery time promised by the
delivery service.
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Giga-tronics and Merger Sub:
Giga-tronics Incorporated
4650 Norris Canyon Road
San Ramon, CA 94583
Attention: George H. Bruns, Jr.
Chief Executive Officer
Facsimile: (510) 328-4700
With copy to:
Gibson, Dunn & Crutcher LLP
Pacific Telesis Tower
One Montgomery Street
San Francisco, CA 94104
Attention: William L. Hudson, Esq.
Facsimile: (415) 986-5309
Microsource:
Microsource, Inc.
1269 Corporate Center Parkway
Santa Rosa, CA 95407
Attention: Hans Burkhardt, Group President
Mark Lampenfeld, Group President
Facsimile: (707) 527-7176
With copy to:
Heller, Ehrman, White & McAuliffe
525 University Avenue, Suite 1100
Palo Alto, CA 94301
Attention: Richard Friedman, Esq.
Facsimile: (650) 324-0638
Such communications will be effective when they are received by the
addressee thereof. Any party may change its address for such communications by
giving notice thereof to the other parties in conformity with this Section.
SECTION 11.04. GOVERNING LAW. The laws of the State of California
(irrespective of its choice of law principles) will govern all issues concerning
the Merger and all other issues concerning the validity of this Agreement, the
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties.
SECTION 11.05. BINDING UPON SUCCESSORS AND ASSIGNS; ASSIGNMENT. This
Agreement and the provisions hereof will be binding upon each of the parties,
their permitted successors
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assigns. This Agreement may not be assigned by any party without the prior
written consent of the parties.
SECTION 11.06. SEVERABILITY. If any provision of this Agreement, or the
application thereof, will for any reason or to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will continue in full force and effect and in
no way be affected, impaired or invalidated.
SECTION 11.07. ENTIRE AGREEMENT. This Agreement and the other agreements
and instruments referenced herein constitute the entire understanding and
agreement of the parties with respect to the subject matter hereof and supersede
all prior and contemporaneous agreements or understandings, inducements or
conditions, express or implied, written or oral, between the parties with
respect hereto.
SECTION 11.08. OTHER REMEDIES. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by law
on such party, and the exercise of any one remedy will not preclude the exercise
of any other.
SECTION 11.09. AMENDMENT AND WAIVERS. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof or default in the performance hereof will
not be deemed to constitute a waiver of any other default or any succeeding
breach or default. At any time before or after approval of this Agreement and
the Merger by the shareholders of Microsource and prior to the Effective Time,
this Agreement may be amended or supplemented by Microsource or Giga-tronics
with respect to any of the terms contained in this Agreement, except that
following approval by the shareholders of Microsource there will be no amendment
or change to the provisions hereof with respect to the Exchange Ratio without
further approval by the shareholders of Microsource, and no other amendment will
be made which by law requires further approval by such shareholders without such
further approval.
SECTION 11.10. NO WAIVER. The failure of any party to enforce any of the
provisions hereof will not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
SECTION 11.11. CONSTRUCTION OF AGREEMENT: KNOWLEDGE. A reference to an
Article, Section or an Exhibit will mean an Article of, a Section in, or Exhibit
to, this Agreement unless otherwise explicitly set forth. The titles and
headings herein are for reference purposes only and will not in any manner limit
the construction of this Agreement which will be considered as a whole. The
words "include," "includes" and "including" when used herein will be deemed in
each case to be followed by the words "without limitation." For purposes of this
Agreement, "knowledge" of any party will mean the actual knowledge of the
executive officers of such party.
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SECTION 11.12. PARTIES IN INTEREST. This Agreement will be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this Agreement
except for Section 7.02 (which is intended to be for the benefit of the persons
provided for therein, and may be enforced by such persons) and Indemnitees under
Article IX who are not parties to this Agreement.
SECTION 11.13. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which will be an original as against any party
whose signature appears thereon and all of which together will constitute one
and the same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all of the parties reflected hereon as signatories.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
GIGA-TRONICS INCORPORATED
By: /s/George H. Bruns, Jr.
Name: George H. Bruns, Jr.
Title: Chief Executive Officer
GIGA MICRO CORP.
By: /s/ George H. Bruns, Jr.
Name: George H. Bruns, Jr.
Title: Chief Executive Officer
MICROSOURCE, INC.
By: /s/ Mark Lampenfeld
Name: Mark Lampenfeld
Title: President
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