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EXHIBIT 2
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of October
1, 1998, by and between Arrow Electronics, Inc., a New York corporation
("Arrow"), and ▇▇▇▇ Industries, Inc., a California corporation (the "Company").
WHEREAS, concurrently with the execution and delivery of this
Agreement, the Company and Arrow are entering into an Agreement of Purchase and
Sale, dated as of the date hereof (the "Purchase Agreement"; capitalized terms
used herein but not defined herein shall have the meanings set forth in the
Purchase Agreement), which provides that, among other things, upon the terms and
subject to the conditions thereof, Arrow will purchase the electronic components
distribution business of the Company; and
WHEREAS, as a condition and inducement to Arrow's willingness
to enter into the Purchase Agreement, Arrow has required that the Company agree,
and the Company has so agreed, to grant to Arrow an option with respect to
certain shares of the Company's common stock on the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements set forth herein and in the Purchase Agreement,
the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants Arrow an
irrevocable option (the "Company Option") to purchase up to 1,888,000 shares
(the "Company Shares") of common stock of the Company (the "Company Common
Stock") in the manner set forth below at a price which shall equal the
arithmetic average of the closing sales prices of the Company Common Stock
reported on the New York Stock Exchange for the ten (10) trading days ending and
including the trading day immediately preceding the date hereof (the "Exercise
Price").
2. Exercise of Option. The Company Option may be exercised by
Arrow, in whole or in part, at any time or from time to time after the Purchase
Agreement becomes terminable by Arrow under circumstances which could entitle
Arrow to expenses reimbursement under Section 16 of the Purchase Agreement
(other than the circumstances contemplated by the forepart of clause (b)
thereof, excluding the proviso thereto). In the event Arrow wishes to exercise
the Company Option, Arrow shall deliver to the Company a written notice (an
"Exercise Notice") specifying the total number of Company Shares it wishes to
purchase. Each closing of a purchase of Company Shares (a "Closing") shall occur
at a place, on a date and at a time designated by Arrow and reasonably
acceptable to the Company in an Exercise Notice delivered at least six business
days prior to the date of the Closing. The Company Option shall terminate upon
the earlier of: (i) the closing of the transactions contemplated by the Purchase
Agreement; (ii) the termination of the Purchase Agreement pursuant to Section
17(a) thereof (other than a termination in connection with which Arrow is
entitled to the payment specified in Section 16 thereof); and (iii) 180 days
following any termination of the Purchase Agreement in connection with which
Arrow is entitled to the payment specified in Section 16 thereof (or if, at the
expiration of such 180 day period, the Company Option cannot be exercised by
reason of any
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applicable judgment, decree, order, law or regulation, ten business days after
such impediment to exercise shall have been removed or shall have become final
and not subject to appeal, but in no event under this clause (iii) later than
the second anniversary of the date hereof). Notwithstanding the foregoing, the
Company Option may not be exercised if Arrow is in material breach of any of its
representations, warranties, covenants or agreements contained in this Agreement
or in the Purchase Agreement.
3. Conditions to Closing. The obligation of the Company to
issue the Company Shares to Arrow hereunder is subject to the conditions that
(i) all waiting periods, if any, under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder ("HSR Act"), applicable to the issuance of the Company Shares
hereunder shall have expired or have been terminated; (ii) all consents,
approvals, orders or authorizations of, or registrations, declarations or
filings with, any Federal, state or local administrative agency or commission or
other Federal state or local governmental authority or instrumentality, if any,
required in connection with the issuance of the Company Shares hereunder shall
have been obtained or made, as the case may be; (iii) no preliminary or
permanent injunction or other order by any court of competent jurisdiction
prohibiting or otherwise restraining such issuance shall be in effect; and (iv)
Arrow shall not be in material breach of the Purchase Agreement.
4. Closing. At any Closing, (a) the Company will deliver to
Arrow a single certificate in definitive form representing the number of the
Company Shares designated by Arrow in its Exercise Notice, such certificate to
be registered in the name of Arrow and to bear the legend set forth in Section
11, and (b) Arrow will deliver to the Company the aggregate price for the
Company Shares so designated and being purchased by wire transfer of immediately
available funds or certified check or bank check. At any Closing at which Arrow
is exercising the Company Option in part, Arrow shall present and surrender this
Agreement to the Company, and the Company shall deliver to Arrow an executed new
agreement with the same terms as this Agreement evidencing the right to purchase
the balance of the shares of Company Common Stock purchasable hereunder.
5. Representations and Warranties of the Company. The Company
represents and warrants to Arrow that (a) the Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California and has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder, (b) the execution and
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or any of
the transactions contemplated hereby, (c) this Agreement has been duly executed
and delivered by the Company and constitutes a valid and binding obligation of
the Company, and, assuming this Agreement constitutes a valid and binding
obligation of Arrow, is enforceable against the Company in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and
subject to usual equity principles, (d) the Company has taken all necessary
corporate action to authorize and reserve for issuance and to permit it to
issue, upon exercise of the Company Option, and at all times from the date
hereof through the expiration of the Company Option will have reserved,
1,888,000 unissued Company Shares and such other shares of Company Common
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Stock or other securities which may be issued pursuant to Section 10, all of
which, upon their issuance, payment and delivery in accordance with the terms of
this Agreement, will be validly issued, fully paid and nonassessable, and free
and clear of all claims, liens, charges, encumbrances and security interests of
any nature whatsoever (other than those created by or through Arrow), (e) the
execution and delivery of this Agreement by the Company does not, and the
performance of this Agreement by the Company will not conflict with, or result
in any violation of, or material default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or the loss of a material benefit under, or the
creation of a lien, pledge, security interest or other encumbrance on assets
pursuant to (any such conflict, violation, default, right of termination,
cancellation or acceleration, loss or creation, a "Violation"), (A) any
provision of the Restated Articles of Incorporation or Restated By-laws of the
Company or (B) any provisions of any loan or credit agreement, note, mortgage,
indenture, lease, benefit plan or other agreement, obligation, instrument,
permit, concession, franchise, license, except that the payment upon the
exercise by Arrow of its rights under Section 7 would violate the Credit
Agreement or (C) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or its properties or assets, which
Violation, in the case of each of clauses (B) and (C), individually or in the
aggregate would prevent or materially delay the exercise by Arrow of the Company
Option or any other right of Arrow under this Agreement and (f) except as
described in Section 6(c) of the Purchase Agreement, the execution and delivery
of this Agreement by the Company does not, and the performance of this Agreement
by the Company will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory authority.
6. Representations and Warranties of Arrow. Arrow represents
and warrants to the Company that (a) Arrow is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York
and has the corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder, (b) the execution and delivery of this
Agreement by Arrow and the consummation by Arrow of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Arrow and no other corporate proceedings on the part of Arrow are
necessary to authorize this Agreement or any of the transactions contemplated
hereby, (c) this Agreement has been duly executed and delivered by Arrow and
constitutes a valid and binding obligation of Arrow, and, assuming this
Agreement constitutes a valid and binding obligation of the Company, is
enforceable against Arrow in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and subject to usual equity
principles, (d) the execution and delivery of this Agreement by Arrow does not,
and the performance of this Agreement by Arrow will not, result in any Violation
pursuant to, (A) any provision of the Certificate of Incorporation or By-laws of
Arrow, (B) any provisions of any loan or credit agreement, note, mortgage,
indenture, lease, or other agreement, obligation, instrument, permit,
concession, franchise, license or (C) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Arrow or its properties or assets,
which Violation, in the case of each of clauses (B) and (C), would, individually
or in the aggregate have a material adverse effect on Arrow's ability to
consummate the transactions contemplated by this Agreement, (e) except as
described in Section 7(b) of the Purchase Agreement and Section 3(i) of this
Agreement, the execution and delivery of this Agreement by Arrow does not, and
the performance of this Agreement by Arrow will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or
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regulatory authority and (f) any Company Shares acquired upon exercise of the
Company Option will not be, and the Company Option is not being, acquired by
Arrow with a view to the public distribution or resale in any manner which would
be in violation of federal or state securities laws.
7. Put Right.
(a) Exercise of Put. At any time during which the Company
Option is exercisable pursuant to Section 2 (the "Repurchase Period"), upon
demand by Arrow, Arrow shall have the right to sell to the Company (or any
successor entity thereof) and the Company (or such successor entity) shall be
obligated to repurchase from Arrow (the "Put"), all or any portion of the
Company Option, at the price set forth in subparagraph (i) below, or, at any
time prior to the second anniversary of the date hereof, all or any portion of
the Company Shares purchased by Arrow pursuant hereto, at a price set forth in
subparagraph (ii) below:
(i) the difference between the "Market/Tender Offer
Price" for shares of Company Common Stock as of the date (the "Notice
Date") notice of exercise of the Put is given to the Company (defined
as the higher of (A) the price per share offered as of the Notice Date
pursuant to any tender or exchange offer or other Alternative Proposal
which was made prior to the Notice Date and not terminated or withdrawn
as of the Notice Date (the "Tender Price") and (B) the average of the
closing prices of shares of the Company Common Stock on the New York
Stock Exchange ("NYSE") for the five trading days immediately preceding
the Notice Date, (the "Market Price")), and the Exercise Price,
multiplied by the number of Company Shares purchasable pursuant to the
Company Option (or portion thereof with respect to which Arrow is
exercising its rights under this Section 7);
(ii) the Exercise Price paid by Arrow for the Company
Shares acquired pursuant to the Company Option plus the difference
between the Market/Tender Offer Price and the Exercise Price,
multiplied by the number of Company Shares so purchased. For purposes
of this clause (ii), the Tender Price shall be the highest price per
share offered pursuant to a tender or exchange offer or other
Alternative Proposal during the Repurchase Period.
(b) Payment and Redelivery of Company Option or Shares. In the
event Arrow exercises its rights under this Section 7, the Company shall, within
five business days of the Notice Date, pay the required amount to Arrow in
immediately available funds and Arrow shall surrender to the Company the Company
Option or the certificates evidencing the Company Shares purchased by Arrow
pursuant hereto, and Arrow shall warrant that it owns such shares and that such
shares are then free and clear of all liens, claims, charges and encumbrances of
any kind or nature whatsoever.
8. Restrictions on Certain Actions. The Company shall not
adopt any Rights Agreement or shareholder rights plan in any manner which would
cause Arrow, if Arrow has complied with its obligations under this Agreement, to
become an "Acquiring Person" under such Rights Agreement or shareholder rights
plan solely by reason of the beneficial ownership of the shares purchasable
hereunder.
9. Registration Rights.
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(a) The Company will, if requested by Arrow at any time and
from time to time within three years of the exercise of the Company Option, as
expeditiously as possible prepare and file up to three registration statements
under the Securities Act of 1933, as amended (the "Securities Act") if such
registration is necessary in order to permit the sale or other disposition of
any or all shares of securities that have been acquired by or are issuable to
Arrow upon exercise of the Company Option in accordance with the intended method
of sale or other disposition stated by Arrow, including a "shelf" registration
statement under Rule 415 under the Securities Act or any successor provision,
and the Company will use its best efforts to qualify such shares or other
securities under any applicable state securities laws. The Company will use
reasonable efforts to cause each such registration statement to become
effective, to obtain all consents or waivers of other parties which are required
therefor, and to keep such registration statement effective for such period not
in excess of 180 calendar days from the day such registration statement first
becomes effective as may be reasonably necessary to effect such sale or other
disposition. The obligations of the Company hereunder to file a registration
statement and to maintain its effectiveness may be suspended for up to 90
calendar days in the aggregate if the Board of Directors of the Company shall
have determined that the filing of such registration statement or the
maintenance of its effectiveness would require premature disclosure of material
nonpublic information that would materially and adversely affect the Company or
otherwise interfere with or adversely affect any pending or proposed offering of
securities of the Company or any other material transaction involving the
Company. Any registration statement prepared and filed under this Section 9, and
any sale covered thereby, will be at the Company's expense except for
underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Arrow's counsel related thereto. Arrow will provide and be
responsible for, in connection with indemnification provisions, all information
reasonably requested by the Company for inclusion in any registration statement
to be filed hereunder. If, during the time periods referred to in the first
sentence of this Section 9, the Company effects a registration under the
Securities Act of Company Common Stock for its own account or for any other
stockholders of the Company (other than on Form S-4 or Form S-8, or any
successor form), it will allow Arrow the right to participate in such
registration, and such participation will not affect the obligation of the
Company to effect demand registration statements for Arrow under this Section 9;
provided that, if the managing underwriters of such offering advise the Company
in writing that in their opinion the number of shares of Company Common Stock
requested to be included in such registration exceeds the number which can be
sold in such offering, the Company will include the shares requested to be
included therein by Arrow after the shares intended to be included therein by
the Company have been included and prior to any shares requested to be included
by any third parties are included. In connection with any registration pursuant
to this Section 9, the Company and Arrow will provide each other and any
underwriter of the offering with customary representations, warranties,
covenants, indemnification, and contribution in connection with such
registration. The Company shall provide to any underwriters such documentation
(including certificates, opinions of counsel and "comfort" letters from
auditors) as are customary in connection with underwritten public offerings as
such underwriters may reasonably require.
(b) If the Company's securities of the same type as the
Company Common Stock beneficially owned by Arrow are then authorized for
quotation or trading or listing on the NYSE, Nasdaq National Market System, or
any other securities exchange or automated quotations system, the Company, upon
the request of Arrow, shall promptly file an application, if required, to
authorize for quotation, trading or listing such shares of Company Common Stock
on
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such exchange or system and will use its reasonable efforts to obtain approval,
if required, of such quotation, trading or listing as soon as practicable.
10. Adjustment Upon Changes in Capitalization.
(a) In the event of any change in Company Common Stock by
reason of stock dividends, splitups, mergers, recapitalizations, combinations,
exchange of shares or the like, the type and number of shares or securities
subject to the Company Option, and the purchase price per share provided in
Section 1, shall be adjusted appropriately, and proper provision shall be made
in the agreements governing such transaction so that Arrow shall receive, upon
exercise of the Company Option, the number and class of shares or other
securities or property that Arrow would have received in respect of the Company
Common Stock if the Company Option had been exercised immediately prior to such
event or the record date therefor, as applicable.
(b) In the event that the Company shall enter in an agreement:
(i) to consolidate with or merge into any person, other than Arrow or one of its
subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger; (ii) to permit any person, other than Arrow or one of
its subsidiaries, to merge into the Company and the Company shall be the
continuing or surviving corporation, but, in connection with such merger, the
then-outstanding shares of Company Common Stock shall be changed into or
exchanged for stock or other securities of the Company or any other person or
cash or any other property or the outstanding shares of Company Common Stock
immediately prior to such merger shall after such merger represent less than 50%
of the outstanding shares and share equivalents of the merged company; or (iii)
to sell or otherwise transfer all or substantially all of its assets to any
person, other than Arrow or one of its subsidiaries, then, and in each such
case, the agreement governing such transaction shall make proper provisions so
that upon the consummation of any such transaction and upon the terms and
conditions set forth herein, Arrow shall, upon exercise of the Company Option,
receive for each Company Share with respect to which the Company Option has not
been exercised an amount of consideration in the form of and equal to the per
share amount of consideration that would be received by the holder of one share
of Company Common Stock less the Exercise Price (and, in the event of an
election or similar arrangement with respect to the type of consideration to be
received by the holders of Company Common Stock, subject to the foregoing,
proper provision shall be made so that the holder of the Company Option would
have the same election or similar rights as would the holder of the number of
shares of Company Common Stock for which the Company Option is then
exercisable).
11. Restrictive Legends. Each certificate representing shares
of Company Common Stock issued to Arrow hereunder shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
Certificates representing shares sold in a registered public offering pursuant
to Section 9 shall not be required to bear the legend set forth in this Section
11.
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12. Binding Effect; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Except as expressly provided for in this
Agreement, neither this Agreement nor the rights or the obligations of either
party hereto are assignable, except by operation of law, or with the written
consent of the other party. Nothing contained in this Agreement, express or
implied, is intended to confer upon any person other than the parties hereto and
their respective permitted assigns any rights or remedies of any nature
whatsoever by reason of this Agreement.
13. Specific Performance. The parties recognize and agree that
if for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, the other party shall be entitled to an injunction restraining any
violation or threatened violation of the provisions of this Agreement. In the
event that any action should be brought in equity to enforce the provisions of
this Agreement, neither party will allege, and each party hereby waives the
defense, that there is adequate remedy at law.
14. Entire Agreement. This Agreement and the Purchase
Agreement (including the Exhibits and Schedules thereto) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all other prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter hereof.
15. Further Assurances. Each party will execute and deliver
all such further documents and instruments and take all such further action as
may be necessary in order to consummate the transactions contemplated hereby.
16. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the other provisions of this Agreement, which shall remain in full force and
effect. In the event any court or other competent authority holds any provision
of this Agreement to be null, void or unenforceable, the parties hereto shall
negotiate in good faith the execution and delivery of an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision. Each party agrees that, should any court or other competent authority
hold any provision of this Agreement or part hereof to be null, void or
unenforceable, or order any party to take any action inconsistent herewith, or
not take any action required herein, the other party shall not be entitled to
specific performance of such provision or part hereof or to any other remedy,
including but not limited to money damages, for breach hereof or of any other
provision of this Agreement or part hereof as the result of such holding or
order.
17. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, telegraphed or
telecopied or sent by certified or registered mail, postage prepaid, and shall
be deemed to be given, dated and received when so delivered personally,
telegraphed or telecopied or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such person may subsequently designate by notice given hereunder.
(a) if to Arrow, to:
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Arrow Electronics, Inc.
▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Milbank, Tweed, ▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
and
(b) if to the Company, to:
▇▇▇▇ Industries, Inc.
▇▇▇▇ ▇. ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Irell & ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ Cost, Esq.
▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State without regard to
any applicable conflicts of law rules.
19. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which, taken together, shall constitute one and the same instrument.
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21. Expenses. Except as otherwise expressly provided herein or
in the Purchase Agreement, all costs and expenses incurred in connection with
the transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
22. Amendments; Waiver. This Agreement may be amended by the
parties hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or, in the
case of a waiver, by an instrument signed on behalf of the party waiving
compliance.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
ARROW ELECTRONICS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Executive Vice President
▇▇▇▇ INDUSTRIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: President & CEO
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