AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
INVISION TECHNOLOGIES, INC.,
a Delaware corporation;
QP ACQUISITION CORP.,
a California corporation;
and
QUANTUM MAGNETICS, INC.,
a California corporation
---------------------------
Dated as of September 3, 1997
---------------------------
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TABLE OF CONTENTS
PAGE
SECTION 1. DESCRIPTION OF TRANSACTION . . . . . . . . . . . . . . . . . . 1
1.1 Merger of Merger Sub into the Company . . . . . . . . . . . . . . . 1
1.2 Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Closing; Effective Time . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Articles of Incorporation and Bylaws; Directors and Officers. . . . 2
1.5 Conversion of Shares. . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Employee Stock Options. . . . . . . . . . . . . . . . . . . . . . . 5
1.7 Closing of the Company's Transfer Books . . . . . . . . . . . . . . 6
1.8 Exchange of Certificates. . . . . . . . . . . . . . . . . . . . . . 6
1.9 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.10 Tax Consequences. . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.11 Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . 8
1.12 Further Action. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . 8
2.1 Due Organization; No Subsidiaries; Etc. . . . . . . . . . . . . . . 8
2.2 Articles of Incorporation and Bylaws; Records . . . . . . . . . . . 9
2.3 Capitalization, Etc.. . . . . . . . . . . . . . . . . . . . . . . . 10
2.4 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 11
2.5 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . 12
2.6 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.7 Bank Accounts; Receivables; Inventory . . . . . . . . . . . . . . . 14
2.8 Equipment; Leasehold. . . . . . . . . . . . . . . . . . . . . . . . 14
2.9 Proprietary Assets. . . . . . . . . . . . . . . . . . . . . . . . . 15
2.10 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.11 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.12 Compliance with Legal Requirements. . . . . . . . . . . . . . . . . 22
2.13 Governmental Authorizations . . . . . . . . . . . . . . . . . . . . 22
2.14 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.15 Employee and Labor Matters; Benefit Plans . . . . . . . . . . . . . 23
2.16 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . 26
2.17 Controlled Substances; Explosives . . . . . . . . . . . . . . . . . 26
2.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.19 Related Party Transactions. . . . . . . . . . . . . . . . . . . . . 27
2.20 Legal Proceedings; Orders . . . . . . . . . . . . . . . . . . . . . 27
2.21 Authority; Binding Nature of Agreement. . . . . . . . . . . . . . . 28
2.22 Non-Contravention; Consents . . . . . . . . . . . . . . . . . . . . 28
2.23 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.24 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . 30
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TABLE OF CONTENTS
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PAGE
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB. . . . 30
3.1 SEC Filings; Financial Statements . . . . . . . . . . . . . . . . . 30
3.2 Authority; Binding Nature of Agreement. . . . . . . . . . . . . . . 30
3.3 Valid Issuance; Reservation of Shares . . . . . . . . . . . . . . . 31
SECTION 4. CERTAIN COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . 31
4.1 Access and Investigation. . . . . . . . . . . . . . . . . . . . . . 31
4.2 Operation of the Company's Business . . . . . . . . . . . . . . . . 31
4.3 Notification; Updates to Disclosure Schedule. . . . . . . . . . . . 33
4.4 No Negotiation. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.5 Fees and Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES. . . . . . . . . . . . . . 34
5.1 Filings and Consents. . . . . . . . . . . . . . . . . . . . . . . . 34
5.2 Registration Statement; Proxy Statement/Prospectus. . . . . . . . . 35
5.3 Company Shareholders Meeting. . . . . . . . . . . . . . . . . . . . 35
5.4 Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . 36
5.5 Pooling of Interests. . . . . . . . . . . . . . . . . . . . . . . . 36
5.6 Affiliate Agreements. . . . . . . . . . . . . . . . . . . . . . . . 36
5.7 Reasonable Efforts. . . . . . . . . . . . . . . . . . . . . . . . . 36
5.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.9 Noncompetition Agreements . . . . . . . . . . . . . . . . . . . . . 36
5.10 Termination of Agreements . . . . . . . . . . . . . . . . . . . . . 36
5.11 FIRPTA Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.12 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.13 Termination of Employee Plans . . . . . . . . . . . . . . . . . . . 37
5.14 Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.15 Escrow Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.16 Amendment of Articles of Incorporation. . . . . . . . . . . . . . . 37
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB . 37
6.1 Accuracy of Representations . . . . . . . . . . . . . . . . . . . . 38
6.2 Performance of Covenants. . . . . . . . . . . . . . . . . . . . . . 38
6.3 Shareholder Approval. . . . . . . . . . . . . . . . . . . . . . . . 38
6.4 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.5 Agreements and Documents. . . . . . . . . . . . . . . . . . . . . . 38
6.6 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.7 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.8 Termination of Employee Plans . . . . . . . . . . . . . . . . . . . 40
6.9 FIRPTA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 40
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6.10 Effectiveness of Registration Statement . . . . . . . . . . . . . . 40
6.11 Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.12 No Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.13 No Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 40
6.14 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY . . . . . . 41
7.1 Accuracy of Representations . . . . . . . . . . . . . . . . . . . . 41
7.2 Performance of Covenants. . . . . . . . . . . . . . . . . . . . . . 41
7.3 Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.4 Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.5 No Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.6 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 8. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.1 Termination Events. . . . . . . . . . . . . . . . . . . . . . . . . 42
8.2 Termination Procedures. . . . . . . . . . . . . . . . . . . . . . . 43
8.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 9. INDEMNIFICATION, ETC.. . . . . . . . . . . . . . . . . . . . . 43
9.1 Survival of Representations, Etc. . . . . . . . . . . . . . . . . . 43
9.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.3 Threshold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.4 Satisfaction of Indemnification Claim . . . . . . . . . . . . . . . 45
9.5 No Contribution.. . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.6 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.7 Defense of Third Party Claims . . . . . . . . . . . . . . . . . . . 46
9.8 Exercise of Remedies by Indemnitees Other Than Parent . . . . . . . 46
SECTION 10. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . 46
10.1 Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.2 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . 46
10.3 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.4 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.6 Time of the Essence.. . . . . . . . . . . . . . . . . . . . . . . . 48
10.7 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.10 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 48
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10.11 Remedies Cumulative; Specific Performance . . . . . . . . . . . . . 49
10.12 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.13 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.14 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.15 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . 49
10.16 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.17 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
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EXHIBITS
Exhibit A - Certain definitions
Exhibit B - Form of Amended and Restated Articles of Incorporation of
Surviving Corporation
Exhibit C - Directors and officers of Surviving Corporation
Exhibit D-1 - Form of Affiliate Agreement
Exhibit D-2 - Persons to execute Affiliate Agreements
Exhibit E - Form of Continuity of Interest Certificate
Exhibit F - Persons to sign Noncompetition Agreements
Exhibit G - Form of Noncompetition Agreement
Exhibit H - Form of Release
Exhibit I - Form of legal opinion of Branton, Wilson & Muns
Exhibit J - Certain employees
Exhibit K - Form of legal opinion of Cooley Godward LLP
Exhibit L - Escrow Agreement
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AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement") is
made and entered into as of September 3, 1997, by and among: INVISION
TECHNOLOGIES, INC., a Delaware corporation ("Parent"); QP ACQUISITION CORP., a
California corporation and a wholly owned subsidiary of Parent ("Merger Sub");
and QUANTUM MAGNETICS, INC., a California corporation (the "Company"). Certain
other capitalized terms used in this Agreement are defined in Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub into the Company in accordance with this Agreement and the California
General Corporation Law (the "Merger"). Upon consummation of the Merger, Merger
Sub will cease to exist, and the Company will become a wholly owned subsidiary
of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
C. For accounting purposes, it is intended that the Merger be treated as
a "pooling of interests."
AGREEMENT
The parties to this Agreement agree as follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the California General
Corporation Law.
1.
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1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP, Five Palo Alto Square, Palo Alto, California 94306 at
10:00 a.m. on September 30, 1997, or at such other time and date as Parent may
designate upon not less than five days' prior notice to the Company (the
"Scheduled Closing Time"). (The date on which the Closing actually takes place
is referred to in this Agreement as the "Closing Date.") Contemporaneously with
or as promptly as practicable after the Closing, a properly executed agreement
of merger conforming to the requirements of Chapter 11 of the California General
Corporation Law shall be filed with the Secretary of State of the State of
California. The Merger shall become effective at the time such agreement of
merger is filed with and accepted by the Secretary of State of the State of
California (the "Effective Time").
1.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. Unless
otherwise determined by Parent and the Company prior to the Effective Time:
(a) the Articles of Incorporation of the Surviving Corporation shall
be amended and restated as of the Effective Time to conform to Exhibit B;
(b) the Bylaws of the Surviving Corporation shall be amended and
restated as of the Effective Time to conform to the Bylaws of Merger Sub as
in effect immediately prior to the Effective Time; and
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals identified on
Exhibit C.
1.5 CONVERSION OF SHARES.
(a) Subject to Sections 1.5(b), 1.8(c) and 1.9, at the Effective
Time, by virtue of the Merger and without any further action on the part of
Parent, Merger Sub, the Company or any shareholder of the Company:
(i) each share of Common Stock, no par value, of the Company
(the "Company Common Stock") outstanding immediately prior to the
Effective Time shall be converted into the right to receive (A) such
fraction of a share of common stock (par value $.001 per share) of
Parent ("Parent Common Stock") as is equal to 0.88 multiplied by the
"Applicable Fraction" (as defined in Section 1.5(c)(i)) plus (B) up to
such fraction of a share of Parent Common Stock as is equal to 0.12
multiplied by the Applicable Fraction if and when released, in whole
or in part, from escrow pursuant to the terms of the Escrow Agreement;
(ii) each share of Series A Preferred Stock, no par value, of the
Company (the "Series A Stock") outstanding immediately prior to the
Effective Time shall be converted into the right to receive (A) such
fraction of a share of Parent Common Stock as is equal to 0.88
multiplied by the "Series A Fraction" (as defined in Section
1.5(c)(ii)) plus (B) up to such fraction of a share of Parent Common
Stock as is equal to 0.12 multiplied by the Series A Fraction if and
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when released, in whole or in part, from escrow pursuant to the terms
of the Escrow Agreement;
(iii) each share of Series B Preferred Stock, no par value,
of the Company (the "Series B Stock") outstanding immediately prior to
the Effective Time shall be converted into the right to receive (A)
such fraction of a share of Parent Common Stock as is equal to 0.88
multiplied by the "Series B Fraction" (as defined in Section
1.5(c)(iv)) plus (B) up to such fraction of a share of Parent Common
Stock as is equal to 0.12 multiplied by the Series B Fraction if and
when released, in whole or in part, from escrow pursuant to the terms
of the Escrow Agreement;
(iv) each share of Series C Preferred Stock, no par value, of the
Company (the "Series C Stock") outstanding immediately prior to the
Effective Time shall be converted into the right to receive (A) such
fraction of a share of Parent Common Stock as is equal to 0.88
multiplied by the "Series C Fraction" (as defined in Section
1.5(c)(v)) plus (B) up to such fraction of a share of Parent Common
Stock as is equal to 0.12 multiplied by the Series C Fraction if and
when released, in whole or in part, from escrow pursuant to the terms
of the Escrow Agreement;
(v) each share of the common stock, $0.001 par value, of Merger
Sub outstanding immediately prior to the Effective Time shall be
converted into one share of common stock of the Surviving Corporation.
(b) Each share of Company Common Stock, Series A Stock, Series B
Stock, Series C Stock outstanding immediately prior to the Effective Time and
owned by Parent and each share of Series D Preferred stock, no par value, of the
Company ("Series D Stock") outstanding immediately prior to the Effective Time,
all of which are owned by Parent, shall automatically be canceled and no
conversion shall be made in respect thereof.
(c) For purposes of this Agreement:
(i) The "Applicable Fraction" shall be the fraction: (A) having
a numerator equal to the amount determined by subtracting (1) the
"Aggregate Liquidation Preference" (as defined in Section 1.5(c)(vi))
from (2) the amount determined by multiplying (i) 777,000 by (ii) the
Designated Parent Stock Price (as defined in Section 1.5(c)(viii));
and (B) having a denominator equal to the amount determined by
multiplying (1) the "Adjusted Fully Diluted Company Share Amount" (as
defined in Section 1.5(c)(vii)) by (2) the "Designated Parent Stock
Price" (as defined in Section 1.5(c)(viii));
(ii) The "Series A Fraction" means the sum of: (A) the fraction
determined by dividing (1) $1.50 (representing the liquidation
preference of each share of Series A Stock under the Company's
Articles of Incorporation) by (2) the "Designated Parent Stock Price"
(as defined in Section 1.5(c)(viii)); and (B)
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the fraction determined by multiplying (1) the "Series A Conversion
Rate" (as defined in Section 1.5(c)(iii)) by (2) the "Applicable
Fraction" (as defined in Section 1.5(c)(i));
(iii) The "Series A Conversion Rate" shall be the fraction
determined by dividing (1) the total number of shares of Common Stock
issuable upon the conversion of all shares of Series A Stock
outstanding immediately prior to the Effective Time by (2) the total
number of shares of Series A Stock outstanding immediately prior to
the Effective Time.
(iv) The "Series B Fraction" means the fraction determined by
dividing (A) $0.75 (representing the liquidation preference of each
share of Series B Stock under the Company's Articles of Incorporation)
by (B) the "Designated Parent Stock Price" (as defined in Section
1.5(c)(viii));
(v) The "Series C Fraction" means the sum of: (A) the fraction
determined by dividing (1) $1.00 (representing the liquidation
preference of each share of Series C Stock under the Company's
Articles of Incorporation) by (2) the "Designated Parent Stock Price"
(as defined in Section 1.5(c)(viii)); and (B) the "Applicable
Fraction" (as defined in Section 1.5(c)(i));
(vi) The "Aggregate Liquidation Preference" shall be the amount
equal to the sum of: (A) $1.50 (representing the liquidation
preference of each share of Series A Stock under the Company's
Articles of Incorporation) multiplied by the number of shares of
Series A Stock outstanding immediately prior to the Effective Time;
(B) $0.75 (representing the liquidation preference of each share of
Series B Stock under the Company's Articles of Incorporation)
multiplied by the number of shares of Series B Stock outstanding
immediately prior to the Effective Time; and (C) $1.00 (representing
the liquidation preference of each share of Series C Stock under the
Company's Articles of Incorporation) multiplied by the number of
shares of Series C Stock outstanding immediately prior to the
Effective Time;
(vii) The "Adjusted Fully Diluted Company Share Amount" shall
be the sum of: (A) the number of shares resulting from the
subtraction of (1) the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time and held by Parent
from (2) the aggregate number of shares of Company Common Stock
outstanding immediately prior to the Effective Time (including any
such shares that are subject to a repurchase option or risk of
forfeiture under any restricted stock purchase agreement or other
agreement); (B) the aggregate number of shares of Company Common Stock
issuable upon conversion of all of the Series A Stock and Series C
Stock collectively outstanding immediately prior to the Effective Time
and not held by Parent; and (C) the aggregate number of shares of
Company Common Stock purchasable under or otherwise subject to all
Company Options (as defined in Section 1.6) outstanding immediately
prior to the Effective Time (including all
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shares of Company Common Stock that may ultimately be purchased under
Company Options that are unvested or are otherwise not then
exercisable); and
(viii) The "Designated Parent Stock Price" shall be the
average of the closing sale prices of a share of Parent Common Stock
as reported on the Nasdaq National Market for each of the sixty (60)
consecutive trading days ending (and including) the third trading day
prior to the Company Shareholders Meeting, weighted in accordance with
the number of shares of Parent Common Stock traded on each such
trading day.
(d) If any shares of Company Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other condition under any applicable restricted stock
purchase agreement or other agreement with the Company, then the shares of
Parent Common Stock issued in exchange for such shares of Company Common Stock
will also be unvested and subject to the same repurchase option, risk of
forfeiture or other condition, and the certificates representing such shares of
Parent Common Stock may accordingly be marked with appropriate legends.
(e) All calculations made pursuant to this Section 1.5 shall be
calculated to the nearest fifth decimal place, with five millionths rounded up
to the nearest one-hundred-thousandth.
1.6 EMPLOYEE STOCK OPTIONS. At the Effective Time, each stock option that
is then outstanding under the Company's 1994 Qualified and Nonqualified Stock
Option Plan (the "Company Stock Plan"), whether vested or unvested (a "Company
Option"), shall be assumed by Parent in accordance with the terms (as in effect
as of the date of this Agreement) of the Company Stock Plan and the stock option
agreement by which such Company Option is evidenced. All rights with respect to
Company Common Stock under outstanding Company Options shall thereupon be
converted into rights with respect to Parent Common Stock. Accordingly, from
and after the Effective Time, (a) each Company Option assumed by Parent may be
exercised solely for shares of Parent Common Stock, (b) the number of shares of
Parent Common Stock subject to each such assumed Company Option shall be equal
to the number of shares of Company Common Stock that were subject to such
Company Option immediately prior to the Effective Time multiplied by the
Applicable Fraction, rounded down to the nearest whole number of shares of
Parent Common Stock, (c) the per share exercise price for the Parent Common
Stock issuable upon exercise of each such assumed Company Option shall be
determined by dividing the exercise price per share of Company Common Stock
subject to such Company Option, as in effect immediately prior to the Effective
Time, by the Applicable Fraction, and rounding the resulting exercise price up
to the nearest whole cent, and (d) all restrictions on the exercise of each such
assumed Company Option shall continue in full force and effect, and the term,
exercisability, vesting schedule and other provisions of such Company Option
shall otherwise remain unchanged; PROVIDED, HOWEVER, that each such assumed
Company Option shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, reverse stock split, stock
dividend, recapitalization or other similar transaction effected by Parent after
the Effective Time; PROVIDED FURTHER, that upon the issuance of Parent Common
Stock pursuant to the exercise of an assumed Company Option prior to the
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release of all shares of Parent Common Stock held in escrow pursuant to the
Escrow Agreement, (i) Parent shall issue to the Person exercising such assumed
Company Option only that portion of the shares of Parent Common Stock issuable
upon suchexercise of such assumed Company Option that such holder would have
received had such assumed Company Option been exercised prior to the Effective
Time and converted into shares of Parent Common Stock pursuant to Section
1.5(a)(i), (ii) the remainder of the shares of Parent Common Stock issuable upon
the exercise of such assumed Company Option shall be held in escrow pursuant to
the terms of the Escrow Agreement, and (iii) any such shares of Parent Common
Stock shall be deemed to have been deposited into escrow as of the Effective
Time and appropriate adjustments shall be made in Exhibit A of the Escrow
Agreement with respect to the incidence of any prior release of shares of Parent
Common Stock to an Indemnitee, so that any such Person bears a proportionate
share of any release to an Indemnitee that occurs after the Effective Time. The
Company and Parent shall take all actions that may be necessary (under the
Company Stock Plan and otherwise) to effectuate the provisions of this Section
1.6. Following the Closing, Parent will send to each holder of an assumed
Company Option a written notice setting forth (i) the number of shares of Parent
Common Stock subject to such assumed Company Option, and (ii) the exercise price
per share of Parent Common Stock issuable upon exercise of such assumed Company
Option. Parent shall file with the SEC, within sixty (60) days after the
Closing Date, a registration statement on Form S-8 registering the exercise of
the Company Options assumed by Parent pursuant to this Section 1.6.
1.7 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as shareholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such stock transfer
books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of the Company's capital
stock (a "Company Stock Certificate") is presented to the Surviving Corporation
or Parent, such Company Stock Certificate shall be canceled and shall be
exchanged as provided in Section 1.8.
1.8 EXCHANGE OF CERTIFICATES.
(a) At or as soon as practicable after the Effective Time, Parent
will send to the holders of Company Stock Certificates (i) a letter of
transmittal in customary form and containing such provisions as Parent may
reasonably specify, and (ii) instructions for use in effecting the surrender of
Company Stock Certificates in exchange for certificates representing Parent
Common Stock. Upon surrender of a Company Stock Certificate to Parent for
exchange, together with a duly executed letter of transmittal and such other
documents as may be reasonably required by Parent, the holder of such Company
Stock Certificate shall be entitled to receive in exchange therefor a
certificate representing the number of whole shares of Parent Common Stock that
such holder has the right to receive pursuant to the provisions of this Section
1, and the Company Stock Certificate so surrendered shall be canceled. Until
surrendered as contemplated by this Section 1.8, each Company Stock Certificate
shall be deemed, from and after the Effective Time, to represent only the right
to receive upon such surrender a certificate
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representing shares of Parent Common Stock (and cash in lieu of any fractional
share of Parent Common Stock) as contemplated by this Section 1. If any Company
Stock Certificate shall have been lost, stolen or destroyed, Parent may, in its
discretion and as a condition precedent to the issuance of any certificate
representing Parent Common Stock, require the owner of such lost, stolen or
destroyed Company Stock Certificate to provide an appropriate affidavit and to
deliver a bond (in such sum as Parent may reasonably direct) as indemnity
against any claim that may be made against Parent or the Surviving Corporation
with respect to such Company Stock Certificate.
(b) No dividends or other distributions declared or made with respect
to Parent Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Company Stock Certificate with respect to the
shares of Parent Common Stock represented thereby, and no cash payment in lieu
of any fractional share shall be paid to any such holder, until such holder
surrenders such Company Stock Certificate in accordance with this Section 1.8
(at which time such holder shall be entitled to receive all such dividends and
distributions and such cash payment).
(c) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional shares
shall be issued. In lieu of such fractional shares, any holder of capital stock
of the Company who would otherwise be entitled to receive a fraction of a share
of Parent Common Stock (after aggregating all fractional shares of Parent Common
Stock issuable to such holder) shall, upon surrender of such holder's Company
Stock Certificate(s), be paid in cash the dollar amount (rounded to the nearest
whole cent), without interest, determined by multiplying such fraction by the
Designated Parent Stock Price.
(d) Parent and the Surviving Corporation shall be entitled to deduct
and withhold from any consideration payable or otherwise deliverable to any
holder or former holder of capital stock of the Company pursuant to this
Agreement such amounts as Parent or the Surviving Corporation may be required to
deduct or withhold therefrom under the Code or under any provision of state,
local or foreign tax law. To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise have been
paid.
(e) Neither Parent nor the Surviving Corporation shall be liable to
any holder or former holder of capital stock of the Company for any shares of
Parent Common Stock (or dividends or distributions with respect thereto), or for
any cash amounts, delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law.
1.9 DISSENTING SHARES.
(a) Notwithstanding anything to the contrary contained in this
Agreement, any shares of capital stock of the Company that, as of the Effective
Time, are or may become "dissenting shares" within the meaning of Section
1300(b) of the California Corporations Code shall not be converted into or
represent the right to receive Parent Common Stock in accordance with Section
1.5 (or cash in lieu of fractional shares in accordance with Section 1.8(c)),
and the
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holder or holders of such shares shall be entitled only to such rights
as may be granted to such holder or holders in Chapter 13 of the California
General Corporation Law; PROVIDED, HOWEVER, that if the status of any such
shares as "dissenting shares" shall not be perfected, or if any such shares
shall lose their status as "dissenting shares," then, as of the later of the
Effective Time or the time of the failure to perfect such status or the loss of
such status, such shares shall automatically be converted into and shall
represent only the right to receive (upon the surrender of the certificate or
certificates representing such shares) Parent Common Stock in accordance with
Section 1.5 (and cash in lieu of fractional shares in accordance with Section
1.8(c)).
(b) The Company shall give Parent (i) prompt notice of any written
demand received by the Company prior to the Effective Time to require the
Company to purchase shares of capital stock of the Company pursuant to Chapter
13 of the California General Corporation Law and of any other demand, notice or
instrument delivered to the Company prior to the Effective Time pursuant to the
California General Corporation Law, and (ii) the opportunity to participate in
all negotiations and proceedings with respect to any such demand, notice or
instrument. The Company shall not make any payment or settlement offer prior to
the Effective Time with respect to any such demand unless Parent shall have
consented in writing to such payment or settlement offer.
1.10 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
1.11 ACCOUNTING TREATMENT. For accounting purposes, the Merger is intended
to be treated as a "pooling of interests."
1.12 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation or Parent with
full right, title and possession of and to all rights and property of Merger Sub
and the Company, the officers and directors of the Surviving Corporation and
Parent shall be fully authorized (in the name of Merger Sub, in the name of the
Company and otherwise) to take such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants, to and for the benefit of the
Indemnitees, as follows:
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California and has all necessary
power and authority: (i) to conduct its business in the manner in which its
business is currently being conducted;(ii)
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to own and use its assets in the manner in which its assets are currently owned
and used; and (iii) to perform its obligations under all Company Contracts.
(b) Except as set forth in Part 2.1 of the Disclosure Schedule, the
Company has not conducted any business under or otherwise used, for any purpose
or in any jurisdiction, any fictitious name, assumed name, trade name or other
name, other than the name "Quantum Magnetics, Inc."
(c) The Company is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in Part 2.1 of the
Disclosure Schedule, except where the failure to be so qualified, authorized,
registered or licensed has not had and will not have a Material Adverse Effect
on the Company. The Company is in good standing as a foreign corporation in
each of the jurisdictions identified in Part 2.1 of the Disclosure Schedule.
(d) Part 2.1 of the Disclosure Schedule accurately sets forth (i) the
names of the members of the Company's board of directors, (ii) the names of the
members of each committee of the Company's board of directors, and (iii) the
names and titles of the Company's officers.
(e) The Company does not own any controlling interest in any Entity
and, except for the equity interests identified in Part 2.1 of the Disclosure
Schedule, the Company has never owned, beneficially or otherwise, any shares or
other securities of, or any direct or indirect equity interest in, any Entity.
The Company has not agreed and is not obligated to make any future investment in
or capital contribution to any Entity. The Company has not guaranteed and is
not responsible or liable for any obligation of any of the Entities in which it
owns or has owned any equity interest.
2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered to Parent accurate and complete copies of: (1)the Company's articles
of incorporation and bylaws, including all amendments thereto;(2) the stock
records of the Company; and (3)except as set forth in Part 2.2 of the Disclosure
Schedule, the minutes and other records of the meetings and other proceedings
(including any actions taken by written consent or otherwise without a meeting)
of the shareholders of the Company, the board of directors of the Company and
all committees of the board of directors of the Company. There have been no
formal meetings or other proceedings of the shareholders of the Company, the
board of directors of the Company or any committee of the board of directors of
the Company that are not fully reflected in such minutes or other records.
There has not been any violation of any of the provisions of the Company's
articles of incorporation or bylaws, and the Company has not taken any action
that is inconsistent in any material respect with any resolution adopted by the
Company's shareholders, the Company's board of directors or any committee of the
Company's board of directors. The books of account, stock records, minute books
and other records of the Company are accurate, up-to-date and complete in all
material respects, and have been maintained in accordance with prudent business
practices.
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2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists of: (i)
17,000,000 shares of Common Stock (with no par value), of which 3,994,216 shares
have been issued and are outstanding as of the date of this Agreement; and (ii)
7,911,340 shares of Preferred Stock (with no par value), of which (A) 2,500,000
shares have been designated "Series A Preferred Stock," of which 1,666,669
shares have been issued and are outstanding as of the date of this Agreement;
(B) 711,340 shares have been designated "Series B Preferred Stock," of which
711,340 shares have been issued and are outstanding; (C) 3,500,000 shares have
been designated "Series C Preferred Stock," of which 1,643,556 shares have been
issued and are outstanding as of the date of this Agreement; and (D) 1,200,000
shares have been designated "Series D Preferred Stock," of which 441,328 shares
have been issued and are outstanding. Each outstanding share of Series A Stock,
Series B Stock, Series C Stock and Series D Stock is convertible into one share
of Company Common Stock. All of the outstanding shares of Company Common Stock,
Series A Stock, Series B Stock, Series C Stock and Series D Stock have been duly
authorized and validly issued, and are fully paid and non-assessable. Part 2.3
of the Disclosure Schedule provides an accurate and complete description of the
terms of each repurchase option which is held by the Company and to which any of
such shares is subject.
(b) The Company has reserved 2,200,000 shares of Company Common Stock
for issuance under the Company Stock Plan, of which options to purchase
1,344,119 shares are outstanding as of the date of this Agreement. Part 2.3 of
the Disclosure Schedule accurately sets forth, with respect to each Company
Option that is outstanding as of the date of this Agreement: (i) the name of the
holder of such Company Option; (ii) the total number of shares of Company Common
Stock that are subject to such Company Option and the number of shares of
Company Common Stock with respect to which such Company Option is immediately
exercisable; (iii) the date on which such Company Option was granted and the
term of such Company Option; (iv) the vesting schedule for such Company Option;
(v) the exercise price per share of Company Common Stock purchasable under such
Company Option; and (vi) whether such Company Option has been designated an
"incentive stock option" as defined in Section 422 of the Code.
(c) The Company has warrants (the "Company Warrants") to purchase
211,917 shares of Series A Stock and 642,076 shares of Series C Stock
outstanding as of the date of this Agreement. The Company has reserved 211,917
shares of Series A Stock and 642,076 shares of Series C Stock for issuance upon
exercise of the Company Warrants. Part 2.3 of the Disclosure Schedule
accurately sets forth, with respect to each Company Warrant that is outstanding
as of the date of this Agreement: (i) the name of the holder of such Company
Warrant; (ii) the total number of shares of Series A Stock or Series C Stock (as
the case may be) that are subject to such Company Warrant and the number of
shares of Series A Stock or Series C Stock (as the case may be) with respect to
which such Company Warrant is immediately exercisable; (iii) the date on which
such Company Warrant was granted and the term of such Company Warrant; (iv) the
vesting schedule for such Company Warrant; and (v) the exercise price per share
of Series A Stock or Series C Stock (as the case may be) purchasable under such
Company Warrant. As of the date of this Agreement, as a consequence of the
transactions contemplated by this Agreement or otherwise, all Company Warrants
are
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fully exercisable. All Company Warrants not previously exercised will
terminate at the Effective Time and there will be no right (whether or not then
exercisable) to acquire capital stock or other securities of the Company or any
other Entity under any Company Warrants at or after the Effective Time. All
Company Warrants exercisable for Series C Stock are in the form provided by Dale
Sheets to Deborah Lawson Cleveland by facsimile transmission dated June 26,
1997.
(d) Except as set forth in Part 2.3 of the Disclosure Schedule, there
is no: (i) outstanding subscription, option, call, warrant or right (whether or
not currently exercisable) to acquire any shares of the capital stock or other
securities of the Company; (ii)outstanding security, instrument or obligation
that is or may become convertible into or exchangeable for any shares of the
capital stock or other securities of the Company; (iii) Contract under which the
Company is or may become obligated to sell or otherwise issue any shares of its
capital stock or any other securities; or (iv) to the best of the knowledge of
the Company, condition or circumstance that may give rise to or provide a basis
for the assertion of a claim by any Person to the effect that such Person is
entitled to acquire or receive any shares of capital stock or other securities
of the Company.
(e) All outstanding shares of Company Common Stock, Series A Stock,
Series B Stock, Series C Stock and Series D Stock, and all outstanding Company
Warrants and Company Options, have been issued and granted in compliance with
(i) all applicable securities laws and other applicable Legal Requirements, and
(ii) all requirements set forth in applicable Contracts.
(f) Except as set forth in Part 2.3 of the Disclosure Schedule, the
Company has never repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities of the Company. All securities so reacquired
by the Company were reacquired in compliance with (i) the applicable provisions
of the California General Corporation Law and all other applicable Legal
Requirements, and (ii) all requirements set forth in applicable restricted stock
purchase agreements and other applicable Contracts.
2.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent the following financial
statements and notes (collectively, the "Company Financial Statements"):
(i) The audited balance sheets of the Company as of September
30, 1996 and 1995, and the related audited income statements, statements of
shareholders equity and statements of cash flows of the Company for the
years then ended, together with the notes thereto and the unqualified
report and opinion of Coopers & Lybrand LLP relating thereto; and
(ii) the unaudited balance sheet of the Company as of May 31,
1997 (the "Unaudited Interim Balance Sheet"), and the related unaudited
income statement of the Company for the eight months then ended.
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(b) The Company Financial Statements are accurate and complete in all
material respects and present fairly the financial position of the Company as of
the respective dates thereof and the results of operations and (in the case of
the financial statements referred to in Section 2.4(a)(i)) cash flows of the
Company for the periods covered thereby. The Company Financial Statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered (except that the
financial statements referred to in Section 2.4(a)(ii) do not contain footnotes
and are subject to normal and recurring year-end audit adjustments, which will
not, individually or in the aggregate, be material in magnitude).
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the Disclosure
Schedule, since May 31, 1997:
(a) there has not been any material adverse change in the Company's
business, condition, assets, liabilities, operations, financial performance
or prospects, and, to the best of the knowledge of the Company, no event
has occurred that will, or could reasonably be expected to, have a Material
Adverse Effect on the Company;
(b) there has not been any material loss, damage or destruction to,
or any material interruption in the use of, any of the Company's assets
(whether or not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares
of capital stock or other securities;
(d) the Company has not sold, issued or authorized the issuance of
(i) any capital stock or other security (except for Company Common Stock
issued upon the exercise of outstanding Company Options and Series A Stock
or Series C Stock issued upon the exercise of outstanding Company
Warrants), (ii) any option or right to acquire any capital stock or any
other security, or (iii) any instrument convertible into or exchangeable
for any capital stock or other security;
(e) the Company has not amended or waived any of its rights under, or
permitted the acceleration of vesting under, (i) any provision of the
Company Stock Plan, (ii) any provision of any agreement evidencing any
outstanding Company Option, (iii) any restricted stock purchase agreement,
or (iv) any Company Warrant;
(f) there has been no amendment to the Company's articles of
incorporation or bylaws, and the Company has not effected or been a party
to any Acquisition Transaction, recapitalization, reclassification of
shares, stock split, reverse stock split or similar transaction;
(g) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other Entity;
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(h) the Company has not made any capital expenditure which, when
added to all other capital expenditures made on behalf of the Company since
May 31, 1997, exceeds $10,000;
(i) the Company has not (i) entered into or permitted any of the
assets owned or used by it to become bound by any Contract that is or would
constitute a Material Contract (as defined in Section 2.10(a)), or (ii)
amended or prematurely terminated, or waived any material right or remedy
under, any such Contract;
(j) the Company has not (i) acquired, leased or licensed any right or
other asset from any other Person, (ii) sold or otherwise disposed of, or
leased or licensed, any right or other asset to any other Person, or (iii)
waived or relinquished any right, except for immaterial rights or other
immaterial assets acquired, leased, licensed or disposed of in the ordinary
course of business and consistent with the Company's past practices;
(k) the Company has not written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness;
(l) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of
business and consistent with the Company's past practices;
(m) the Company has not (i) lent money to any Person (other than
pursuant to routine travel advances made to employees in the ordinary
course of business), or (ii) incurred or guaranteed any indebtedness for
borrowed money;
(n) the Company has not (i) established or adopted any Employee
Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar
payment to, or increased the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of
its directors, officers or employees, or (iii) hired any new employee;
(o) the Company has not changed any of its methods of accounting or
accounting practices in any respect;
(p) the Company has not made any Tax election;
(q) the Company has not commenced or settled any Legal Proceeding;
(r) the Company has not entered into any material transaction or
taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(s) the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(r)" above.
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2.6 TITLE TO ASSETS. The Company owns, and has good, valid and marketable
title to, all assets purported to be owned by it, including: (i) all assets
reflected on the Unaudited Interim Balance Sheet; (ii) all assets referred to
in Parts 2.1, 2.7(b), 2.8(b) and 2.9 of the Disclosure Schedule and all of the
Company's rights under the Contracts identified in Part 2.10 of the Disclosure
Schedule; and (iii) all other assets reflected in the Company's books and
records as being owned by the Company. Except as set forth in Part 2.6 of the
Disclosure Schedule, all of said assets are owned by the Company free and clear
of any liens or other Encumbrances, except for (x) any lien for current taxes
not yet due and payable, and (y) minor liens that have arisen in the ordinary
course of business and that do not (in any case or in the aggregate) materially
detract from the value of the assets subject thereto or materially impair the
operations of the Company.
2.7 BANK ACCOUNTS; RECEIVABLES; INVENTORY.
(a) Part 2.7(a) of the Disclosure Schedule provides accurate
information with respect to each account maintained by or for the benefit of the
Company at any bank or other financial institution.
(b) Part 2.7(b) of the Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable, notes receivable and
other receivables of the Company as of May 31, 1997. Except as set forth in
Part 2.7(b) of the Disclosure Schedule, all existing accounts receivable of the
Company (including those accounts receivable reflected on the Unaudited Interim
Balance Sheet that have not yet been collected and those accounts receivable
that have arisen since May 31, 1997 and have not yet been collected) (i)
represent valid obligations of customers of the Company arising from bona fide
transactions entered into in the ordinary course of business and (ii) are
current and will be collected in full when due, without any counterclaim or set
off (net of an allowance for doubtful accounts not to exceed $10,000 in the
aggregate).
(c) All inventory of the Company, whether or not reflected in the
Company Financial Statements, consists of a quality and quantity usable and
salable in the ordinary course of business, except for obsolete items and items
of below-standard quality, all of which have been written off or written down to
net realizable value in the Company Financial Statements or on the accounting
records of the Company as of the Closing Date, as the case may be. All
inventories not written off have been priced at the lower of cost or market on a
first in, first out basis. The quantities of each item of inventory (whether
raw materials, work-in-process, or finished goods) are not excessive, but are
reasonable in the present circumstances of the Company.
2.8 EQUIPMENT; LEASEHOLD.
(a) All material items of equipment and other tangible assets owned
by or leased to the Company are adequate for the uses to which they are being
put, are in good condition and repair (ordinary wear and tear excepted) and are
adequate for the conduct of the Company's business in the manner in which such
business is currently being conducted.
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(b) Part 2.8(b) of the Disclosure Schedule identifies all tangible
assets owned by the Company with an original cost to the Company in excess of
$5,000.
(c) Part 2.8(c) of the Disclosure Schedule identifies all tangible
assets leased to the Company.
(d) The Company does not own any real property or any interest in
real property, except for the leasehold created under the real property lease
identified in Part 2.10 of the Disclosure Schedule.
2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Disclosure Schedule sets forth, with
respect to each Company Proprietary Asset registered with any Governmental Body
or for which an application has been filed with any Governmental Body, (i) a
brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Part
2.9(a)(ii) of the Disclosure Schedule identifies and provides a brief
description of all other Company Proprietary Assets owned by the Company. Part
2.9(a)(iii) of the Disclosure Schedule identifies and provides a brief
description of each Proprietary Asset licensed to the Company by any Person
(except for any Proprietary Asset that is licensed to the Company under any
third party software license generally available to the public at a cost of less
than $5,000), and identifies the license agreement under which such Proprietary
Asset is being licensed to the Company. Except as set forth in Part 2.9(a)(iv)
of the Disclosure Schedule, the Company has good, valid and marketable title to
all of the Company Proprietary Assets identified in Parts 2.9(a)(i) and
2.9(a)(ii) of the Disclosure Schedule, free and clear of all Encumbrances, and
has a valid right to use all Proprietary Assets identified in Part 2.9(a)(iii)
of the Disclosure Schedule. Except as set forth in Part 2.9(a)(v) of the
Disclosure Schedule, the Company is not obligated to make any payment to any
Person for the use of any Company Proprietary Asset. Except as set forth in
Part 2.9(a)(vi) of the Disclosure Schedule, the Company has not developed
jointly with any other Person any Company Proprietary Asset with respect to
which such other Person has any rights.
(b) The Company has taken all measures and precautions necessary to
protect and maintain the confidentiality and secrecy of all Company Proprietary
Assets (except Company Proprietary Assets whose value would be unimpaired by
public disclosure) and otherwise to maintain and protect the value of all
Company Proprietary Assets. Except as set forth in Part 2.9(b) of the
Disclosure Schedule, the Company has not (other than pursuant to license
agreements identified in Part 2.10 of the Disclosure Schedule) disclosed or
delivered to any Person, or permitted the disclosure or delivery to any Person
of, (i) the source code, or any portion or aspect of the source code, of any
Company Proprietary Asset, or (ii) the object code, or any portion or aspect of
the object code, of any Company Proprietary Asset.
(c) None of the Company Proprietary Assets infringes or conflicts
with any Proprietary Asset owned or used by any other Person. The Company is
not infringing, misappropriating or making any unlawful use of, and the Company
has not at any time infringed, misappropriated or made any unlawful use of, or
received any notice or other
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communication (in writing or otherwise) of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of, any Proprietary
Asset owned or used by any other Person. To the best of the knowledge of the
Company, no other Person is infringing, misappropriating or making any unlawful
use of, and no Proprietary Asset owned or used by any other Person infringes or
conflicts with, any Company Proprietary Asset.
(d) Except as set forth in Part 2.9(d) of the Disclosure Schedule:
(i) each Company Proprietary Asset conforms in all material respects with any
specification, documentation, performance standard, representation or statement
made or provided with respect thereto by or on behalf of the Company; and (ii)
there has not been any claim by any customer or other Person alleging that any
Company Proprietary Asset (including each version thereof that has ever been
licensed or otherwise made available by the Company to any Person) does not
conform in all material respects with any specification, documentation,
performance standard, representation or statement made or provided by or on
behalf of the Company, and, to the best of the knowledge of the Company, there
is no basis for any such claim. The Company has established adequate reserves
on the Unaudited Interim Balance Sheet to cover all costs associated with any
obligations that the Company may have with respect to the correction or repair
of programming errors or other defects in the Company Proprietary Assets.
(e) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business has been and is being conducted. Except as set forth in
Part 2.9(e) of the Disclosure Schedule, (i) the Company has not licensed any of
the Company Proprietary Assets to any Person, and (ii) the Company has not
entered into any covenant not to compete or Contract limiting its ability to
exploit fully any of its Proprietary Assets or to transact business in any
market or geographical area or with any Person.
(f) Except as set forth in Part 2.9(f) of the Disclosure Schedule,
(i) all current and former employees of the Company have executed and delivered
to the Company an agreement (containing no exceptions to or exclusions from the
scope of its coverage) that is substantially identical to the form of
Confidential Information and Invention Assignment Agreement previously delivered
to Parent, and (ii) all current and former consultants and independent
contractors to the Company have executed and delivered to the Company an
agreement (containing no exceptions to or exclusions from the scope of its
coverage) that is substantially identical to the form of Consultant Confidential
Information and Invention Assignment Agreement previously delivered to Parent.
2.10 CONTRACTS.
(a) Part 2.10 of the Disclosure Schedule identifies:
(i) each Company Contract relating to the employment of, or the
performance of services by, any employee, consultant or independent
contractor;
(ii) each Company Contract relating to the acquisition, transfer,
use, development, sharing or license of any technology or any Proprietary
Asset;
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(iii) each Company Contract imposing any restriction on the
Company's right or ability (A) to compete with any other Person, (B) to
acquire any product or other asset or any services from any other Person,
to sell any product or other asset to or perform any services for any other
Person or to transact business or deal in any other manner with any other
Person, or (C) develop or distribute any technology;
(iv) each Company Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;
(v) each Company Contract relating to the acquisition, issuance
or transfer of any securities;
(vi) each Company Contract relating to the creation of any
Encumbrance with respect to any asset of the Company;
(vii) each Company Contract involving or incorporating any
guaranty, any pledge, any performance or completion bond, any indemnity or
any surety arrangement;
(viii) each Company Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits, losses,
costs or liabilities;
(ix) each Company Contract relating to the purchase or sale of
any product or other asset by or to, or the performance of any services by
or for, any Related Party (as defined in Section 2.19);
(x) each Company Contract constituting or relating to a
Government Contract or Government Bid;
(xi) any other Company Contract that was entered into outside the
ordinary course of business or was inconsistent with the Company's past
practices;
(xii) any other Company Contract that has a term of more than 60
days and that may not be terminated by the Company (without penalty) within
60 days after the delivery of a termination notice by the Company; and
(xiii) any other Company Contract that contemplates or involves
(A) the payment or delivery of cash or other consideration in an amount or
having a value in excess of $10,000 in the aggregate, or (B) the
performance of services having a value in excess of $10,000 in the
aggregate.
(Contracts in the respective categories described in clauses "(i)" through
"(xiii)" above are referred to in this Agreement as "Material Contracts.")
(b) The Company has delivered to Parent accurate and complete copies
of all written Contracts identified in Part 2.10 of the Disclosure Schedule,
including all amendments
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thereto. Part 2.10 of the Disclosure Schedule provides an accurate description
of the terms of each Company Contract that is not in written form. Each
Contract identified in Part 2.10 of the Disclosure Schedule is valid and in full
force and effect, and, to the best of the knowledge of the Company, is
enforceable by the Company in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
(c) Except as set forth in Part 2.10 of the Disclosure Schedule:
(i) the Company has not violated or breached, or committed any
default under, any Company Contract, and, to the best of the knowledge of
the Company, no other Person has violated or breached, or committed any
default under, any Company Contract;
(ii) to the best of the knowledge of the Company, no event has
occurred, and no circumstance or condition exists, that (with or without
notice or lapse of time) will, or could reasonably be expected to,
(A) result in a violation or breach of any of the provisions of any Company
Contract, (B) give any Person the right to declare a default or exercise
any remedy under any Company Contract, (C) give any Person the right to
accelerate the maturity or performance of any Company Contract, or (D) give
any Person the right to cancel, terminate or modify any Company Contract;
(iii) since September 30, 1993, the Company has not received
any notice or other communication regarding any actual or possible
violation or breach of, or default under, any Company Contract; and
(iv) the Company has not waived any of its material rights under
any Company Contract.
(d) No Person is renegotiating, or has a right pursuant to the terms
of any Company Contract to renegotiate, any amount paid or payable to the
Company under any Material Contract or any other material term or provision of
any Material Contract.
(e) The Contracts identified in Part 2.10 of the Disclosure Schedule
collectively constitute all of the Contracts necessary to enable the Company to
conduct its business in the manner in which its business is currently being
conducted.
(f) Part 2.10 of the Disclosure Schedule identifies and provides a
brief description of each proposed Contract as to which any bid, offer, award,
written proposal, term sheet or similar document has been submitted or received
by the Company since January 1, 1997.
(g) Part 2.10 of the Disclosure Schedule provides an accurate
description and breakdown of the Company's backlog under Company Contracts and
Government Bids.
(h) Except as set forth in Part 2.10(h) of the Disclosure Schedule:
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(i) the Company has not, in obtaining or performing any
Government Contract, violated (A) the Truth in Negotiations Act of 1962, as
amended, (B) the Service Contract Act of 1965, as amended, (C) the Contract
Disputes Act of 1978, as amended, (D) the Office of Federal Procurement
Policy Act, as amended, (E) the Federal Acquisition Regulations (the "FAR")
or any applicable agency supplement thereto, (F) the Cost Accounting
Standards, (G) the Defense Industrial Security Manual (DOD 5220.22-M), (H)
the Defense Industrial Security Regulation (DOD 5220.22-R) or any related
security regulations;
(ii) to the best knowledge of the Company, its directors, and its
officers, none of the Company's directors, officers, employees, agents or
consultants is (or for the last five (5) years has been) under
administrative, civil or criminal investigation, indictment or information,
audit or internal investigation with respect to any alleged irregularity,
misstatement or omission arising under or relating to any Government
Contract or Government Bid;
(iii) Company has not made a voluntary disclosure to the U.S.
Government or any state government with respect to any alleged
irregularity, misstatement or omission arising under or relating to a
Government Contract or Government Bid;
(iv) neither the Company, its directors, nor its officers have
any knowledge of any irregularity, misstatement or omission arising under
or relating to any Government Contract or Government Bid that has led or
could lead, either before or after the Closing Date, to any adverse
consequences or any damage, penalty assessment, recoupment of payment or
disallowance of cost;
(v) neither the Company, its directors, nor its officers have
any reason to believe that any employee, agent, consultant, representative
or affiliate of the Company is in receipt or possession of any competitor
or government proprietary or procurement sensitive information under
circumstances where there is reason to believe that such receipt or
possession is unlawful or unauthorized;
(vi) neither the Company nor any of its directors, officers of is
(or for the last five (5) years has been) suspended or debarred from doing
business with the U.S. Government or any State Government, or has been
declared ineligible for U.S. Government or State Government contracting.
The Company, its directors, and its officers know of no circumstances that
would warrant the initiation of suspension or debarment proceedings or the
finding of nonresponsibility or ineligibility on the part of the Company in
the future;
(vii) no negative determinations of responsibility have been
issued against the Company in connection with any Government Contract or
Government Bid;
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(viii) no direct or indirect costs incurred by the Company
have been questioned or disallowed as a result of a finding or
determination of any kind by any Governmental Body;
(ix) no Governmental Body, and no prime contractor or higher-tier
subcontractor of any Governmental Body, has withheld or set off, or
threatened to withhold or set off, any amount due to the Company under any
Government Contract;
(x) to the best of the knowledge of the Company, there are not
and have not been any irregularities, misstatements or omissions relating
to any Government Contract or Government Bid that have led to or could
reasonably be expected to lead to (A) the recoupment of any payments
previously made to the Company, (B) a finding or claim of fraud, defective
pricing, mischarging or improper payments on the part of the Company, or
(E) the assessment of any penalties or damages of any kind against the
Company;
(xi) there is not and has not been any (A) outstanding claim
against the Company by, or dispute involving the Company with, any prime
contractor, subcontractor, vendor or other Person arising under or relating
to the award or performance of any Government Contract, (B) fact known by
the Company upon which any such claim could reasonably be expected to be
based or which may give rise to any such dispute, (C) final decision of any
Governmental Body against the Company;
(xii) no termination for convenience, termination for
default, cure notice, show cause notice, or notice of breach has been
issued by any Government Body;
(xiii) the Company has not entered into any financing
arrangement or assignment of proceeds with respect to the performance of
any Government Contract;
(xiv) no payment has been made by the Company or by any
Person acting on the Company's behalf to any Person (other than to any bona
fide employee or agent (as defined in subpart 3.4 of the FAR) of the
Company) which is or was contingent upon the award of any Government
Contract or which would otherwise be in violation of any applicable
procurement law or regulation or any other Legal Requirement;
(xv) the Company's cost accounting system is in compliance with
applicable regulations and other applicable Legal Requirements, and has not
been determined by any Governmental Body not to be in compliance with any
Legal Requirement;
(xvi) the Company has complied with all applicable
regulations and other Legal Requirements and with all applicable
contractual requirements relating to the placement of legends or
restrictive markings on technical data, computer software and other
Proprietary Assets;
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(xvii) in each case in which the Company has delivered or
otherwise provided any technical data, computer software or Company
Proprietary Asset to any Governmental Body in connection with any
Government Contract, the Company has marked such technical data, computer
software or Company Proprietary Asset with all markings and legends
(including any "restricted rights" legend and any "government purpose
license rights" legend) permitted (under the FAR or other applicable Legal
Requirements) to ensure that Company has retained the maximum rights
permitted by Government Body regulations;
(xviii) the Company has reached agreement with the cognizant
government representatives approving and "closing" all indirect costs
charged to Government Contracts for 1991, 1992, 1993, 1994 and 1995, and
those years are closed;
(xix) the responsible government representatives have agreed
with the Company on the "forward pricing rates" that the Company is
charging on cost-type Government Contracts and including in Government
Bids;
(xx) the Company is not and will not be required to make any
filing with or give any notice to, or to obtain any Consent from, any
Governmental Body under or in connection with any Government Contract or
Government Bid as a result of or by virtue of (A) the execution, delivery
of performance of this Agreement or any of the other agreements referred to
in this Agreement, or (B) the consummation of the Merger or any of the
other transactions contemplated by this Agreement;
(xxi) the Company has fully complied with all material terms
and conditions of all Government Contracts and Government Bids, including
all clauses, provisions and requirements incorporated expressly, by
reference or by operation of law therein;
(xxii) the Company has fully complied with all requirements of
statute, rule, regulation, order or agreement pertaining to such Government
Contract and Government Bid; and
(xxiii) all representations and certifications executed,
acknowledged or set forth in or pertaining to such Government Contract and
Government Bid were current, accurate and complete as of their effective
date, and the Seller has fully complied with all such representations and
certifications.
2.11 LIABILITIES. The Company has no accrued, contingent or other
liabilities of any nature, either matured or unmatured (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles, and whether due or to become due), except for: (a)
liabilities identified as such in the "liabilities" column of the Unaudited
Interim Balance Sheet; (b) accounts payable or accrued salaries that have been
incurred by the Company since May 31, 1997 in the ordinary course of business
and consistent with the Company's past practices; (c) liabilities under the
Company Contracts identified in Part 2.10 of the Disclosure Schedule, to the
extent the nature and magnitude of such liabilities can
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be specifically ascertained by reference to the text of such Company Contracts;
and (d) the liabilities identified in Part 2.11 of the Disclosure Schedule.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at all
times since September 30, 1993 been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have a Material Adverse Effect on the Company. Except
as set forth in Part 2.12 of the Disclosure Schedule, since September 30, 1993,
the Company has not received any notice or other communication from any
Governmental Body regarding any actual or possible violation of, or failure to
comply with, any Legal Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Disclosure Schedule
identifies each material Governmental Authorization held by the Company, and the
Company has delivered to Parent accurate and complete copies of all Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule. The
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule
are valid and in full force and effect, and collectively constitute all
Governmental Authorizations necessary to enable the Company to conduct its
business in the manner in which its business is currently being conducted. The
Company is, and at all times since September 30, 1993 has been, in substantial
compliance with the terms and requirements of the respective Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule. Since
September 30, 1993, the Company has not received any notice or other
communication from any Governmental Body regarding (a) any actual or possible
violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Authorization.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of the
Company with any Governmental Body with respect to any taxable period ending on
or before the Closing Date (the "Company Returns") (i) have been or will be
filed on or before the applicable due date (including any extensions of such due
date), and (ii) have been, or will be when filed, accurately and completely
prepared in all material respects in compliance with all applicable Legal
Requirements. All amounts shown on the Company Returns to be due on or before
the Closing Date have been or will be paid on or before the Closing Date. The
Company has delivered to Parent accurate and complete copies of all Company
Returns filed since September 30, 1990 which have been requested by Parent.
(b) The Company Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with generally accepted accounting principles. The
Company will establish, in the ordinary course of business and consistent with
its past practices, reserves adequate for the payment of all Taxes for the
period from May 31, 1997 through the Closing Date, and the Company will disclose
the dollar amount of such reserves to Parent on or prior to the Closing Date.
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(c) No Company Return relating to income Taxes has ever been examined
or audited by any Governmental Body. Except as set forth in Part 2.14 of the
Disclosure Schedule, there have been no examinations or audits of any Company
Return. The Company has delivered to Parent accurate and complete copies of all
audit reports and similar documents (to which the Company has access) relating
to the Company Returns. Except as set forth in Part 2.14 of the Disclosure
Schedule, no extension or waiver of the limitation period applicable to any of
the Company Returns has been granted (by the Company or any other Person), and
no such extension or waiver has been requested from the Company.
(d) Except as set forth in Part 2.14 of the Disclosure Schedule, no
claim or Proceeding is pending or has been threatened against or with respect to
the Company in respect of any Tax. There are no unsatisfied liabilities for
Taxes (including liabilities for interest, additions to tax and penalties
thereon and related expenses) with respect to any notice of deficiency or
similar document received by the Company with respect to any Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or similar
document which are being contested in good faith by the Company and with respect
to which adequate reserves for payment have been established). There are no
liens for Taxes upon any of the assets of the Company except liens for current
Taxes not yet due and payable. The Company has not entered into or become bound
by any agreement or consent pursuant to Section 341(f) of the Code. The Company
has not been, and the Company will not be, required to include any adjustment in
taxable income for any tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax laws
as a result of transactions or events occurring, or accounting methods employed,
prior to the Closing.
(e) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Company that, considered individually or
considered collectively with any other such Contracts, will, or could reasonably
be expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 280G or Section 162 of the
Code. The Company is not, and has never been, a party to or bound by any tax
indemnity agreement, tax sharing agreement, tax allocation agreement or similar
Contract.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Disclosure Schedule identifies each salary,
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any employee of the Company ("Employee"), except for Plans which
would not require the Company to make payments or provide benefits having a
value in excess of $10,000 in the aggregate.
(b) Except as set forth in Part 2.15(a) of the Disclosure Schedule,
the Company does not maintain, sponsor or contribute to, and, to the best of the
knowledge of the Company, has not at any time in the past maintained, sponsored
or contributed to, any employee
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pension benefit plan (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not excluded from
coverage under specific Titles or Merger Subtitles of ERISA) for the benefit of
Employees or former Employees (a "Pension Plan").
(c) The Company maintains, sponsors or contributes only to those
employee welfare benefit plans (as defined in Section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of Employees or former Employees which are described in Part
2.15(c) of the Disclosure Schedule (the "Welfare Plans"), none of which is a
multiemployer plan (within the meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to Parent:
(i) an accurate and complete copy of such Plan (including all
amendments thereto);
(ii) an accurate and complete copy of the annual report, if
required under ERISA, with respect to such Plan for the last two years;
(iii) an accurate and complete copy of the most recent
summary plan description, together with each Summary of Material
Modifications, if required under ERISA, with respect to such Plan, and
all material employee communications relating to such Plan;
(iv) if such Plan is funded through a trust or any third party
funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate
and complete copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating to
such Plan, including service provider agreements, insurance contracts,
minimum premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and recordkeeping
agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with
respect to such Plan (if such Plan is intended to be qualified under
Section 401(a) of the Code).
(e) The Company is not required to be, and, to the best of the
knowledge of the Company, has never been required to be, treated as a single
employer with any other Person under Section 4001(b)(1) of ERISA or Section
414(b), (c), (m) or (o) of the Code. The Company has never been a member of an
"affiliated service group" within the meaning of Section 414(m) of the Code. To
the best of the knowledge of the Company, the Company has never made a complete
or partial withdrawal from a multiemployer plan, as such term is defined in
Section 3(37) of ERISA, resulting in "withdrawal liability," as such term is
defined in
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Section 4201 of ERISA (without regard to subsequent reduction or waiver of such
liability under either Section 4207 or 4208 of ERISA).
(f) The Company does not have any plan or commitment to create any
additional Welfare Plan or any Pension Plan, or to modify or change any existing
Welfare Plan or Pension Plan (other than to comply with applicable law) in a
manner that would affect any Employee.
(g) Except as set forth in Part 2.15(g) of the Disclosure Schedule,
no Welfare Plan provides death, medical or health benefits (whether or not
insured) with respect to any current or former Employee after any such
Employee's termination of service (other than (i) benefit coverage mandated by
applicable law, including coverage provided pursuant to Section 4980B of the
Code, (ii) deferred compensation benefits accrued as liabilities on the
Unaudited Interim Balance Sheet, and (iii) benefits the full cost of which are
borne by current or former Employees (or the Employees' beneficiaries)).
(h) With respect to each of the Welfare Plans constituting a group
health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in all
material respects.
(i) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
but not limited to ERISA and the Code.
(j) Each of the Plans intended to be qualified under Section 401(a)
of the Code has received a favorable determination from the Internal Revenue
Service, and the Company is not aware of any reason why any such determination
letter should be revoked.
(k) Except as set forth in Part 2.15(k) of the Disclosure Schedule,
neither the execution, delivery or performance of this Agreement, nor the
consummation of the Merger or any of the other transactions contemplated by this
Agreement, will result in any payment (including any bonus, golden parachute or
severance payment) to any current or former Employee or director of the Company
(whether or not under any Plan), or materially increase the benefits payable
under any Plan, or result in any acceleration of the time of payment or vesting
of any such benefits.
(l) Part 2.15(l) of the Disclosure Schedule contains a list of all
salaried employees of the Company as of the date of this Agreement, and
correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions. The Company is not a party to any collective bargaining
contract or other Contract with a labor union involving any of its Employees.
All of the Company's employees are "at will" employees.
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(m) Part 2.15(m) of the Disclosure Schedule identifies each Employee
who is not fully available to perform work because of disability or other leave
and sets forth the basis of such leave and the anticipated date of return to
full service.
(n) The Company is in compliance in all material respects with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, wages, bonuses and terms and conditions of employment, including
employee compensation matters.
(o) Except as set forth in Part 2.15(o) of the Disclosure Schedule,
the Company has good labor relations, and the Company does not have any reason
to believe that (i) the consummation of the Merger or any of the other
transactions contemplated by this Agreement will have a material adverse effect
on the Company's labor relations, or (ii) any of the Company's employees intends
to terminate his or her employment with the Company.
2.16 ENVIRONMENTAL MATTERS. The Company is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. The Company has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that the Company is not in
compliance with any Environmental Law, and, to the best of the knowledge of the
Company, there are no circumstances that may prevent or interfere with the
Company's compliance with any Environmental Law in the future. To the best of
the knowledge of the Company, no current or prior owner of any property leased
or controlled by the Company has received any notice or other communication (in
writing or otherwise), whether from a Government Body, citizens group, employee
or otherwise, that alleges that such current or prior owner or the Company is
not in compliance with any Environmental Law. All Governmental Authorizations
currently held by the Company pursuant to Environmental Laws are identified in
Part 2.16 of the Disclosure Schedule. (For purposes of this Section 2.16: (i)
"Environmental Law" means any federal, state, local or foreign Legal Requirement
relating to pollution or protection of human health or the environment
(including ambient air, surface water, ground water, land surface or subsurface
strata), including any law or regulation relating to emissions, discharges,
releases or threatened releases of Materials of Environmental Concern, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Materials of Environmental Concern;
and (ii) "Materials of Environmental Concern" include chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products and any
other substance that is now or hereafter regulated by any Environmental Law or
that is otherwise a danger to health, reproduction or the environment.)
2.17 CONTROLLED SUBSTANCES; EXPLOSIVES. The Company is in compliance in
all material respects with all applicable laws relating to (i) the possession,
use and storage of drugs and other controlled substances of a similar nature
(collectively, "Controlled Substances") and (ii) the possession, use and storage
of explosive materials and devices (collectively, "Explosives"), in each case
which compliance includes the possession by the Company of all permits and other
Governmental Authorizations required under such applicable laws and compliance
with the terms and conditions thereof. All Governmental Authorizations
currently
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held by the Company pursuant to such applicable laws are identified in Part 2.13
of the Disclosure Schedule. The Company maintains inventory controls and use
and storage procedures to ensure that all Controlled Substances and Explosives
will not be lost, stolen or otherwise go unaccounted for. The Company is in
possession of all Controlled Substances and Explosives which it has obtained or
used in the course of its business, other than such Controlled Substances and
Explosives that the Company has returned to Governmental Bodies from which such
Controlled Substances and Explosives had been obtained. No employee of the
Company or other Person has suffered any injury as a result of the use or
handling any Controlled Substances or Explosives on the premises of the Company
or while engaging in their employment activities with the Company.
2.18 INSURANCE. Part 2.18 of the Disclosure Schedule identifies all
insurance policies maintained by, at the expense of or for the benefit of the
Company and identifies any material claims made thereunder, and the Company has
delivered to Parent accurate and complete copies of the insurance policies
identified on Part 2.18 of the Disclosure Schedule. Each of the insurance
policies identified in Part 2.18 of the Disclosure Schedule is in full force and
effect. Since September 30, 1993, the Company has not received any notice or
other communication regarding any actual or possible (a) cancellation or
invalidation of any insurance policy, (b) refusal of any coverage or rejection
of any claim under any insurance policy, or (c) material adjustment in the
amount of the premiums payable with respect to any insurance policy.
2.19 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.19 of the
Disclosure Schedule: (a) no Related Party has, and no Related Party has at any
time since September 30, 1993 had, any direct or indirect interest in any
material asset used in or otherwise relating to the business of the Company; (b)
no Related Party is, or has at any time since September 30, 1993 been, indebted
to the Company; (c) since September 30, 1993, no Related Party has entered into,
or has had any direct or indirect financial interest in, any material Contract,
transaction or business dealing involving the Company; (d) no Related Party is
competing, or has at any time since September 30, 1993 competed, directly or
indirectly, with the Company; and (e) no Related Party has any claim or right
against the Company (other than rights under Company Options, rights under
Company Warrants and rights to receive compensation for services performed as an
employee of the Company). (For purposes of the Section 2.19 each of the
following shall be deemed to be a "Related Party": (i) shareholders of the
Company; (ii) each individual who is, or who has at any time since September 30,
1993 been, an officer or director of the Company; (iii) each member of the
immediate family of each of the individuals referred to in clauses "(i)" and
"(ii)" above; and (iv) any trust or other Entity (other than the Company) in
which any one of the individuals referred to in clauses "(i)", "(ii)" and
"(iii)" above holds (or in which more than one of such individuals collectively
hold), beneficially or otherwise, a material voting, proprietary or equity
interest.)
2.20 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 2.21 of the Disclosure Schedule,
there is no pending Legal Proceeding, and (to the best of the knowledge of the
Company) no Person has threatened to commence any Legal Proceeding: (i) that
involves the Company or any of the assets owned or used by the Company or any
Person whose liability the Company has or may
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have retained or assumed, either contractually or by operation of law; or (ii)
that challenges, or that may have the effect of preventing, delaying, making
illegal or otherwise interfering with, the Merger or any of the other
transactions contemplated by this Agreement. To the best of the knowledge of
the Company, except as set forth in Part 2.21 of the Disclosure Schedule, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that could reasonably be expected to, give rise to or
serve as a basis for the commencement of any such Legal Proceeding.
(b) Except as set forth in Part 2.21 of the Disclosure Schedule, no
Legal Proceeding has ever been commenced by or has ever been pending against the
Company.
(c) There is no order, writ, injunction, judgment or decree to which
the Company, or any of the assets owned or used by the Company, is subject. To
the best of the knowledge of the Company, no director, officer or other employee
of the Company is subject to any order, writ, injunction, judgment or decree
that prohibits such director, officer or other employee from engaging in or
continuing any conduct, activity or practice relating to the Company's business.
2.21 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company has the absolute
and unrestricted right, power and authority to enter into and to perform its
obligations under this Agreement; and the execution, delivery and performance by
the Company of this Agreement have been duly authorized by all necessary action
on the part of the Company and its board of directors. This Agreement
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
2.22 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.22 of the
Disclosure Schedule, neither (1) the execution, delivery or performance of this
Agreement or any of the other agreements referred to in this Agreement, nor (2)
the consummation of the Merger or any of the other transactions contemplated by
this Agreement, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of the Company's articles of incorporation or bylaws, or
(ii) any resolution adopted by the Company's shareholders, the Company's
board of directors or any committee of the Company's board of directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or
obtain any relief under, any Legal Requirement or any order, writ,
injunction, judgment or decree to which the Company, or any of the assets
owned or used by the Company, is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend,
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cancel, terminate or modify, any Governmental Authorization that is held by
the Company or that otherwise relates to the Company's business or to any of
the assets owned or used by the Company;
(d) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Company Contract that is
or would constitute a Material Contract, or give any Person the right to
(i) declare a default or exercise any remedy under any such Company
Contract, (ii) accelerate the maturity or performance of any such Company
Contract, or (iii) cancel, terminate or modify any such Company Contract;
or
(e) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by the Company (except for minor
liens that will not, in any case or in the aggregate, materially detract
from the value of the assets subject thereto or materially impair the
operations of the Company).
Except as set forth in Part 2.22 of the Disclosure Schedule, the Company is not
and will not be required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, or (y) the consummation of the Merger or any of
the other transactions contemplated by this Agreement.
2.23 FULL DISCLOSURE.
(a) This Agreement (including the Disclosure Schedule) does not, and
the Closing Certificate (as defined in Section 6.5(m)) will not, (i) contain any
representation, warranty or information that is false or misleading with respect
to any material fact, or (ii) omit to state any material fact required to be
stated therein or necessary in order to make the representations, warranties and
information contained and to be contained herein and therein (in the light of
the circumstances under which such representations, warranties and information
were or will be made or provided) not false or misleading.
(b) None of the information supplied or to be supplied by or on
behalf of the Company for inclusion or incorporation by reference in the
registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of Parent Common Stock in the Merger (the "S-4
Registration Statement") will, at the time the S-4 Registration Statement
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. None of the
information supplied or to be supplied by or on behalf of the Company for
inclusion or incorporation by reference in the Proxy Statement/Prospectus to be
filed with the SEC as part of the S-4 Registration Statement (the "Proxy
Statement/Prospectus"), will, at the time the Proxy Statement/Prospectus is
mailed to the shareholders of the Company, at the time of the Company
Shareholders Meeting or as of the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they are made, not
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misleading. The Proxy Statement/Prospectus will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder.
2.24 NO BROKERS OR FINDERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or any of the other transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to
the Company as follows:
3.1 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered to the Company accurate and complete copies
(excluding copies of exhibits) of each report, registration statement (on a form
other than Form S-8) and definitive proxy statement filed by Parent with the SEC
between April 23, 1996 and the date of this Agreement (the "Parent SEC
Documents"). As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing): (i) each of the Parent SEC Documents complied in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act (as the case may be); and (ii) none of the Parent SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The consolidated financial statements contained in the Parent SEC
Documents: (i) complied as to form in all material respects with the published
rules and regulations of the SEC applicable thereto; (ii) were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered, except as may be indicated in the notes to
such financial statements and (in the case of unaudited statements) as permitted
by Form 10-Q of the SEC, and except that unaudited financial statements may not
contain footnotes and are subject to year-end audit adjustments; and (iii)
fairly present the consolidated financial position of Parent and its
subsidiaries as of the respective dates thereof and the consolidated results of
operations of Parent and its subsidiaries for the periods covered thereby.
3.2 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
the absolute and unrestricted right, power and authority to perform their
obligations under this Agreement; and the execution, delivery and performance by
Parent and Merger Sub of this Agreement (including the contemplated issuance of
Parent Common Stock in the Merger in accordance with this Agreement) have been
duly authorized by all necessary action on the part of Parent and Merger Sub and
their respective boards of directors. No vote of Parent's
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stockholders is needed to approve the Merger. This Agreement constitutes the
legal, valid and binding obligation of Parent and Merger Sub, enforceable
against them in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
3.3 VALID ISSUANCE; RESERVATION OF SHARES. Subject to Section 1.5(c), the
Parent Common Stock to be issued in the Merger will, when issued in accordance
with the provisions of this Agreement, be validly issued, fully paid and
nonassessable. Parent has reserved for issuance, or will have reserved for
issuance prior to the Closing, a sufficient number of shares of Parent Common
Stock to cover the Company Options to be assumed by Parent at the Closing
pursuant to Section 1.6 upon exercise of such rights in accordance with their
terms.
SECTION 4. CERTAIN COVENANTS OF THE COMPANY
4.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time (the "Pre-Closing Period"), the Company
shall, and shall cause its Representatives to: (a) provide Parent and Parent's
Representatives with reasonable access to the Company's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to the Company; and (b)
provide Parent and Parent's Representatives with copies of such existing books,
records, Tax Returns, work papers and other documents and information relating
to the Company, and with such additional financial, operating and other data and
information regarding the Company, as Parent may reasonably request.
4.2 OPERATION OF THE COMPANY'S BUSINESS. During the Pre-Closing Period:
(a) the Company shall conduct its business and operations in the
ordinary course and in substantially the same manner as such business and
operations have been conducted prior to the date of this Agreement;
(b) the Company shall use reasonable efforts to preserve intact its
current business organization, keep available the services of its current
officers and employees and maintain its relations and good will with all
suppliers, customers, landlords, creditors, employees and other Persons
having business relationships with the Company;
(c) the Company shall keep in full force all insurance policies
identified in Part 2.18 of the Disclosure Schedule;
(d) the Company shall cause its officers to report regularly in
writing (but in no event less frequently than weekly) to Parent concerning
the status of the Company's business;
(e) the Company shall not declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of capital
stock, and shall not
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repurchase, redeem or otherwise reacquire any shares of capital stock or
other securities (except that the Company may repurchase Company Common
Stock from former employees pursuant to the terms of existing restricted
stock purchase agreements);
(f) the Company shall not sell, issue or authorize the issuance of
(i) any capital stock or other security, (ii) any option or right to
acquire any capital stock or other security, or (iii) any instrument
convertible into or exchangeable for any capital stock or other security
(except that the Company shall be permitted (x) to issue Company Common
Stock to employees upon the exercise of outstanding Company Options, (y) to
issue to holders of outstanding Company Warrants Series A Stock or Series C
Stock issuable upon the exercise of such Company Warrants, and (z) to issue
shares of Company Common Stock upon the conversion of shares of the
Company's outstanding Preferred Stock);
(g) the Company shall not amend or waive any of its rights under, or
permit the acceleration of vesting under, (i) any provision of the Company
Stock Plan, (ii) any provision of any agreement evidencing any outstanding
Company Option, (iii) any provision of any restricted stock purchase
agreement, or (iv) any provision of any agreement evidencing any
outstanding Company Warrant;
(h) the Company shall not amend or permit the adoption of any
amendment to the Company's articles of incorporation or bylaws, or effect
or permit the Company to become a party to any Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock
split or similar transaction;
(i) the Company shall not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
(j) the Company shall not make any capital expenditure, except for
capital expenditures that, when added to all other capital expenditures
made on behalf of the Company during the Pre-Closing Period, do not exceed
$10,000 per month;
(k) the Company shall not (i) enter into, or permit any of the assets
owned or used by it to become bound by, any Contract that is or would
constitute a Material Contract, or (ii) amend or prematurely terminate, or
waive any material right or remedy under, any such Contract;
(l) the Company shall not (i) acquire, lease or license any right or
other asset from any other Person, (ii) sell or otherwise dispose of, or
lease or license, any right or other asset to any other Person, or (iii)
waive or relinquish any right, except for assets acquired, leased, licensed
or disposed of by the Company pursuant to Contracts that are not Material
Contracts;
(m) the Company shall not (i) lend money to any Person (except that
the Company may make routine travel advances to employees in the ordinary
course of business), or (ii) incur or guarantee any indebtedness for
borrowed money (except that
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the Company may make routine borrowings in the ordinary course of business
under its line of credit with Silicon Valley Bank, N.A.);
(n) the Company shall not (i) establish, adopt or amend any Employee
Benefit Plan, (ii) pay any bonus or make any profit-sharing payment, cash
incentive payment or similar payment to, or increase the amount of the
wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees, (iii)
hire any new employees, or (iv) enter into new employment or consulting
agreements or modify existing employment or consulting agreements;
(o) the Company shall not change any of its methods of accounting or
accounting practices in any material respect;
(p) the Company shall not make any Tax election;
(q) the Company shall not commence or settle any material Legal
Proceeding; and
(r) the Company shall not agree or commit to take any of the actions
described in clauses "(e)" through "(q)" above.
Notwithstanding the foregoing, the Company may take any action described in
clauses "(e)" through "(r)" above if Parent gives its prior written consent to
the taking of such action by the Company.
4.3 NOTIFICATION; UPDATES TO DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, the Company shall promptly notify
Parent in writing of:
(i) the discovery by the Company of any event, condition, fact
or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty
made by the Company in this Agreement if (A) such representation or
warranty had been made as of the time of the occurrence, existence or
discovery of such event, condition, fact or circumstance, or (B) such
event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of the
Company; and
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(iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 6 or
Section 7 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to
be disclosed pursuant to Section 4.3(a) requires any change in the Disclosure
Schedule, or if any such event, condition, fact or circumstance would require
such a change assuming the Disclosure Schedule were dated as of the date of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, then the Company shall promptly deliver to Parent an update to the
Disclosure Schedule specifying such change. No such update shall be deemed to
supplement or amend the Disclosure Schedule for the purpose of (i) determining
the accuracy of any of the representations and warranties made by the Company in
this Agreement, or (ii) determining whether any of the conditions set forth in
Section 6 has been satisfied.
4.4 NO NEGOTIATION. During the Pre-Closing Period, the Company shall not
(and the Company shall ensure that its Representatives shall not), directly or
indirectly:
(a) solicit or encourage the initiation of any inquiry, proposal or
offer from any Person (other than Parent) relating to a possible
Acquisition Transaction;
(b) participate in any discussions or negotiations or enter into any
agreement with, or provide any non-public information to, any Person (other
than Parent) relating to or in connection with a possible Acquisition
Transaction; or
(c) consider, entertain or accept any proposal or offer from any
Person (other than Parent) relating to a possible Acquisition Transaction.
The Company shall promptly notify Parent in writing of any material inquiry,
proposal or offer relating to a possible Acquisition Transaction that is
received by the Company or any of its Representatives during the Pre-Closing
Period.
4.5 FEES AND EXPENSES. The Company shall not incur, nor permit any other
Person to incur, any fees, costs and expenses of the type referred to in Section
10.3, by or for the benefit of the Company (including all such fees, costs and
expenses incurred prior to the date of this Agreement and including the amount
of all special bonuses and other amounts that may become payable to any officers
of the Company or other Persons in connection with the consummation of the
transactions contemplated by this Agreement) that shall exceed $50,000 in the
aggregate.
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES
5.1 FILINGS AND CONSENTS. As promptly as practicable after the execution
of this Agreement, each party to this Agreement (a) shall make all filings (if
any) and give all notices (if any) required to be made and given by such party
in connection with the Merger and the other transactions contemplated by this
Agreement, and (b) shall use all commercially reasonable
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efforts to obtain all Consents (if any) required to be obtained (pursuant to any
applicable Legal Requirement or Contract, or otherwise) by such party in
connection with the Merger and the other transactions contemplated by this
Agreement. The Company shall (upon request) promptly deliver to Parent a copy
of each such filing made, each such notice given and each such Consent obtained
by the Company during the Pre-Closing Period.
5.2 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. As promptly as
practicable after the date of this Agreement, the Company and Parent shall
prepare and cause to be filed with the SEC the S-4 Registration Statement,
together with the Proxy Statement/Prospectus and any other documents required by
the Securities Act or the Exchange Act in connection with the Merger. Each of
Parent and the Company shall use all reasonable efforts to cause the S-4
Registration Statement (including the Proxy Statement/Prospectus) to com