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
---------------------------
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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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
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.
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
2
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
6
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
7
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)
8
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.
9
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
10
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.
11
(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;
12
(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.
13
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.
14
(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
15
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;
16
(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
17
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:
18
(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;
19
(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;
20
(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
21
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.
22
(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
23
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
24
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.
25
(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
26
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
27
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,
28
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
29
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
30
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
31
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
32
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
33
(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
34
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 comply with
the rules and regulations promulgated by the SEC, to respond promptly to any
comments of the SEC or its staff and to have the S-4 Registration Statement
declared effective under the Securities Act as promptly as practicable after it
is filed with the SEC. The Company shall promptly furnish to Parent all
information concerning the Company and the Company's shareholders that may be
required or reasonably requested in connection with any action contemplated by
this Section 5.2. If any event relating to the Company occurs, or if the
Company becomes aware of any information, that should be set forth in an
amendment or supplement to the S-4 Registration Statement or the Proxy
Statement/Prospectus, then the Company shall promptly inform Parent thereof and
shall cooperate with Parent in filing such amendment or supplement with the SEC
and, if appropriate, in mailing such amendment or supplement to the shareholders
of the Company.
5.3 COMPANY SHAREHOLDERS MEETING.
(a) The Company shall take all action necessary under all applicable
Legal Requirements to call, give notice of, convene and hold the Company
Shareholders Meeting. The Company Shareholders Meeting will be held as promptly
as practicable and in any event within thirty (30) days after the S-4
Registration Statement is declared effective by the SEC. The Company shall
ensure that the Company Shareholders Meeting is called, noticed, convened, held
and conducted, and that all proxies solicited in connection with the Company
Shareholders Meeting are solicited, in compliance with all applicable Legal
Requirements. The Company's obligation to call, give notice of, convene and
hold the Company Shareholders Meeting in accordance with this Section 5.3(a)
shall not be limited or otherwise affected by the commencement, disclosure,
announcement or submission to the Company of any proposal by a third party to
acquire the Company or substantially all of the assets of the Company, or by any
withdrawal, amendment or modification of the recommendation of the Board of
Directors of the Company with respect to the Merger.
(b) The Board of Directors of the Company shall unanimously recommend
that the Company's shareholders vote in favor of and adopt and approve this
Agreement and the Merger at the Company Shareholders Meeting. The Proxy
Statement/Prospectus shall include a statement to the effect that the Board of
Directors of the Company has unanimously recommended that the Company's
shareholders vote in favor of and adopt and approve this Agreement and the
Merger at the Company Shareholders Meeting. Neither the Board of
35
Directors of the Company nor any committee thereof shall withdraw, amend or
modify, or propose or resolve to withdraw, amend or modify, in a manner adverse
to Parent, the unanimous recommendation of the Board of Directors of the Company
that the Company's shareholders vote in favor of and adopt and approve this
Agreement and the Merger. For purposes of this Agreement, such recommendation
of the Board of Directors shall be deemed to have been modified in a manner
adverse to Parent if such recommendation shall no longer be unanimous.
5.4 PUBLIC ANNOUNCEMENTS. During the Pre-Closing Period, (a) the Company
shall not (and the Company shall not permit any of its Representatives to) issue
any press release or make any public statement regarding this Agreement or the
Merger, or regarding any of the other transactions contemplated by this
Agreement, without Parent's prior written consent, and (b) Parent will use
reasonable efforts to consult with the Company prior to issuing any press
release or making any public statement regarding the Merger.
5.5 POOLING OF INTERESTS. During the Pre-Closing Period, the Company
shall not take any action that could reasonably be expected to have an adverse
effect on the ability of Parent to account for the Merger as a "pooling of
interests."
5.6 AFFILIATE AGREEMENTS. The Company shall use all commercially
reasonable efforts to cause each other Person identified on Exhibit D-2 (and any
other Person that could reasonably be deemed to be an "affiliate" of the Company
for purposes of the Securities Act), to execute and deliver to Parent, as
promptly as practicable after the execution of this Agreement, an Affiliate
Agreement in the form of Exhibit D-1.
5.7 REASONABLE EFFORTS. During the Pre-Closing Period, (a) the Company
shall use all reasonable efforts to cause the conditions set forth in Sections
6.1 through and including 6.9, and Section 6.14, to be satisfied on a timely
basis, and (b) Parent and Merger Sub shall use all reasonable efforts to cause
the conditions set forth in Sections 7.1 and 7.2 to be satisfied on a timely
basis.
5.8 TAX MATTERS. Prior to the Closing, (a) Parent and the Company shall
execute and deliver, to Cooley Godward LLP and to Branton, Wilson & Muns, tax
representation letters (which will be used in connection with the legal opinions
contemplated by Sections 6.5(k) and 7.3(b)), and (b) the Company shall use all
reasonable efforts to cause each holder of more than one percent (1%) of the
capital stock of the Company to execute and deliver to Parent a Continuity of
Interest Certificate in the form of Exhibit E.
5.9 NONCOMPETITION AGREEMENTS. The Company shall use all reasonable
efforts to cause each of the Persons identified on Exhibit F to execute and
deliver to the Company and Parent, at the Closing, a Noncompetition Agreement in
the form of Exhibit G.
5.10 TERMINATION OF AGREEMENTS. Prior to the Closing the Company and the
holders of capital stock of the Company shall enter into one or more agreements,
reasonably satisfactory in form and content to Parent (and conditioned and
effective upon the Closing), terminating all of the such holders' rights under
(i) all agreements pursuant to which Series A Stock, Series B Stock or Series C
Stock were issued and (ii) all agreements pursuant to which any holders of the
36
Company's outstanding capital stock have registration rights, rights of first
refusal, co-sale rights, information rights, inspection rights or the like
(collectively the "Shareholder Agreements").
5.11 FIRPTA MATTERS. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the
United States Treasury Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Section 1.897 - 2(h)(2)
of the United States Treasury Regulations.
5.12 RELEASE. At the Closing, the Company shall use all reasonable efforts
to cause each of its shareholders (other than Parent) to execute and deliver to
the Company a Release in the form of Exhibit H.
5.13 TERMINATION OF EMPLOYEE PLANS. At the Closing, the Company shall
terminate its Plans and shall ensure that no employee or former employee of the
Company has any rights under any of such Plans and that any liabilities of the
Company under such Plans (including any such liabilities relating to services
performed prior to the Closing) are fully extinguished at no cost to the
Company.
5.14 ESCROW AGREEMENT. The Company shall execute and deliver the Escrow
Agreement and use all reasonable efforts to cause the Agent (as defined in
Section 10.1) to execute and deliver the Escrow Agreement.
5.15 ESCROW AGENT. Parent may determine the initial escrow agent under the
Escrow Agreement, so long as the person selected by Parent is a bank, trust
company, escrow company or other person regularly in the business of providing
escrow services. Otherwise, the initial Escrow Agent shall be determined by the
mutual agreement of Parent and the Company. Parent shall also be entitled to
determine the Escrow Agent's acceptance fee.
5.16 AMENDMENT OF ARTICLES OF INCORPORATION. Prior to the Closing Date,
the Company shall duly and properly file with the California Secretary of State
an amendment to its Articles of Incorporation, in form and substance
satisfactory to Parent, confirming that the effective conversion prices for its
Series A, Series B, Series E and Series D Preferred Stock are $1.2215, $0.50,
$1.00 and $1.10, respectively. Prior to such filing, such amendment shall be
approved by the Board of Directors and Shareholders of the Company as required
by California law.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
37
6.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Company in this Agreement and in each of the other
agreements and instruments delivered to Parent in connection with the
transactions contemplated by this Agreement shall have been accurate in all
material respects as of the date of this Agreement (without giving effect to any
"Material Adverse Effect" or other materiality qualifications, or any similar
qualifications, contained or incorporated directly or indirectly in such
representations and warranties), and shall be accurate in all material respects
as of the Scheduled Closing Time as if made at the Scheduled Closing Time
(without giving effect to any update to the Disclosure Schedule and without
giving effect to any "Material Adverse Effect" or other materiality
qualifications, or any similar qualifications, contained or incorporated
directly or indirectly in such representations and warranties).
6.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
the Company is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all respects.
6.3 SHAREHOLDER APPROVAL. The principal terms of the Merger shall have
been duly approved by the affirmative vote of all of the shares of Company
Common Stock, Series A Stock, Series B Stock and Series C Stock entitled to vote
with respect thereto.
6.4 CONSENTS. All Consents required to be obtained in connection with the
Merger and the other transactions contemplated by this Agreement (including the
Consents identified in Part 2.22 of the Disclosure Schedule), in form and
substance satisfactory to Parent, shall have been obtained and shall be in full
force and effect.
6.5 AGREEMENTS AND DOCUMENTS. Parent and the Company shall have received
the following agreements and documents, each of which shall be in full force and
effect:
(a) Affiliate Agreements in the form of Exhibit D-1, executed by the
Persons identified on Exhibit D-2 and by any other Person who could
reasonably be deemed to be an "affiliate" of the Company for purposes of
the Securities Act;
(b) Noncompetition Agreements in the form of Exhibit G, executed by
the individuals identified on Exhibit F and effective for the periods
identified in Exhibit F;
(c) a Release in the form of Exhibit H, executed by the holders of at
least ninety percent (90%) of the outstanding shares of Company Common
Stock and the holders of all of the outstanding shares of Series A Stock,
Series B Stock and Series C Stock (including those Persons who became
holders by virtue of the exercise of Company Warrants prior to the
Effective Time);
(d) the agreements referred to in Section 5.10, executed by the
requisite persons necessary to cause the Shareholder Agreements to be
terminated;
(e) confidential invention and assignment agreements, reasonably
satisfactory in form and content to Parent, executed by all employees and
former employees of the
38
Company and by all consultants and independent contractors and former
consultants and former independent contractors to the Company who have not
already signed such agreements (including the individuals identified in Part
2.9(f) of the Disclosure Schedule);
(f) the statement referred to in Section 5.11(a), executed by the
Company;
(g) Continuity of Interest Certificates in the form of Exhibit E,
executed by the Persons identified in Section 5.8(b);
(h) an estoppel certificate, dated as of a date not more than five
days prior to the Closing Date and satisfactory in form and content to
Parent, executed by any and all lessors of real property leased by the
Company;
(i) a legal opinion of Branton, Wilson & Muns, dated as of the
Closing Date, substantially to the effect of Exhibit I;
(j) a legal opinion of a reputable law firm (reasonably acceptable to
Parent) experienced in government contracts matters, reasonably
satisfactory in form and content to Parent, to the effect that the
execution, delivery and performance of this Agreement and the consummation
of the Merger and the other transactions contemplated by this Agreement do
not and will not contravene, conflict with or result in a violation of or
default under, or give any Governmental Body or other Person the right to
terminate, to exercise any remedy or to obtain any relief under, any
Government Contract to which the Company is a party or under which the
Company has any rights or obligations;
(k) a legal opinion of Cooley Godward LLP, dated as of the Closing
Date, to the effect that the Merger will constitute a reorganization within
the meaning of Section 368 of the Code (it being understood that, in
rendering such opinion, such counsel may rely upon the tax representation
letters referred to in Section 5.8(a) and the Continuity of Interest
Certificates referred to in Section 6.5(g));
(l) a letter from Price Waterhouse LLP, dated as of the Closing Date,
confirming that Parent may account for the Merger as a "pooling of
interests" in accordance with generally accepted accounting principles,
Accounting Principles Board Opinion No. 16 and all published rules,
regulations and policies of the SEC;
(m) a certificate executed by the President of the Company and
containing the representation and warranty of the Company that each of the
representations and warranties set forth in Section 2 is accurate in all
respects as of the Closing Date as if made on the Closing Date and that the
conditions set forth in Sections 6.1, 6.2, 6.3 and 6.4 have been duly
satisfied (the "Closing Certificate");
(n) the Escrow Agreement, executed by the Company, the Agent (as
defined in Section 10.1) and the Escrow Agent (as defined in the Escrow
Agreement); and
39
(o) written resignations of all directors of the Company, effective
as of the Effective Time.
6.6 EMPLOYEES. All of the individuals identified on Exhibit J, and no
more than ninety percent (90%) of the remaining employees of the Company on the
date hereof, shall not have ceased to be employed by, or expressed an intention
to terminate their employment with, the Company.
6.7 LEGENDS. The Company shall have provided Parent with evidence,
reasonably satisfactory to Parent, that all technical data, computer software
and Company Proprietary Assets delivered or otherwise provided or made available
by or on behalf of the Company to Governmental Bodies in connection with
Government Contracts have been marked with all markings and legends (including
any "restricted rights" legend and any "government purpose license rights"
legend) appropriate (under the FAR, under other applicable Legal Requirements or
otherwise) to ensure that no Governmental Body or other Person is able to
acquire any unlimited rights with respect to any of such technical data,
computer software or Company Proprietary Assets and to ensure that the Company
has not lost or relinquished and will not lose or relinquish any material rights
with respect thereto.
6.8 TERMINATION OF EMPLOYEE PLANS. The Company shall have provided Parent
with evidence, reasonably satisfactory to Parent, as to the termination of the
benefit plans referred to in Section 5.13.
6.9 FIRPTA COMPLIANCE. The Company shall have filed with the Internal
Revenue Service the notification referred to in Section 5.11(b).
6.10 EFFECTIVENESS OF REGISTRATION STATEMENT. The S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with respect
to the S-4 Registration Statement.
6.11 LISTING. The shares of Parent Common Stock to be issued in the Merger
shall have been approved for listing (subject to notice of issuance) on the
Nasdaq National Market.
6.12 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
6.13 NO LEGAL PROCEEDINGS. No Person shall have commenced or threatened to
commence any Legal Proceeding (a) challenging or seeking to restrain or prohibit
the consummation of the Merger; (b) relating to the Merger and seeking to obtain
from Parent or any of its subsidiaries any damages that may be material to
Parent; (c) seeking to prohibit or limit in any material respect Parent's
ability to vote, receive dividends with respect to or otherwise exercise
ownership rights with respect to the stock of the Surviving Corporation; or
40
(d) which would affect adversely the right of Parent, the Surviving Corporation
or any subsidiary of Parent to own the assets or operate the business of the
Company.
6.14 EMPLOYMENT AGREEMENTS. Each of (i) Lowell Burnett, Andrew Hibbs and
Dale Sheets shall have entered into an employment agreement with Parent
substantially in the form of Parent's standard form of employment agreement
providing such Person with a salary equal to such Person's current salary with
the Company and providing such Person with severance benefits equal to six
months' salary, and (ii) Mike Law, Peter Czipott, Tim Raynor, Simon Beevor, Mike
Urbach and Victor Burns shall have entered into an employment agreement with
Parent substantially in the form of Parent's standard form of employment
agreement providing such Person with a salary equal to such Person's current
salary with the Company and providing such Person with severance benefits equal
to three months' salary.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement shall have been
accurate in all material respects as of the date of this Agreement (without
giving effect to any materiality or similar qualifications contained in such
representations and warranties), and shall be accurate in all material respects
as of the Scheduled Closing Time as if made at the Scheduled Closing Time
(without giving effect to any materiality or similar qualifications contained in
such representations and warranties).
7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all respects.
7.3 DOCUMENTS. The Company shall have received the following documents:
(a) a legal opinion of Cooley Godward LLP, dated as of the Closing
Date, substantially to the effect of Exhibit K; and
(b) a legal opinion of Branton, Wilson & Muns (or, if Branton, Wilson
& Muns for any reason does not render such legal opinion, a legal opinion
of Cooley Godward LLP), dated as of the Closing Date, to the effect that
the Merger will constitute a reorganization within the meaning of Section
368 of the Code (it being understood that, in rendering such opinion, such
counsel may rely upon the tax representation letters referred to in Section
5.8(a) and the Continuity of Interest Certificates referred to in Section
6.5(g)).
41
7.4 LISTING. The shares of Parent Common Stock to be issued in the Merger
shall have been approved for listing (subject to notice of issuance) on the
Nasdaq National Market.
7.5 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.6 EMPLOYMENT AGREEMENTS. Parent shall have executed and delivered to
each of (i) Lowell Burnett, Andrew Hibbs and Dale Sheets an employment agreement
with Parent substantially in the form of Parent's standard form of employment
agreement providing such Person with a salary equal to such Person's current
salary with the Company and providing such Person with severance benefits equal
to six months' salary, and (ii) Mike Law, Peter Czipott, Tim Raynor, Simon
Beevor, Mike Urbach and Victor Burns an employment agreement with Parent
substantially in the form of Parent's standard form of employment agreement
providing such Person with a salary equal to such Person's current salary with
the Company and providing such Person with severance benefits equal to three
months' salary.
SECTION 8. TERMINATION
8.1 TERMINATION EVENTS. This Agreement may be terminated prior to the
Closing:
(a) by Parent if Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 6 has become impossible
(other than as a result of any failure on the part of Parent or Merger Sub
to comply with or perform any covenant or obligation of Parent or Merger
Sub set forth in this Agreement);
(b) by the Company if the Company reasonably determines that the
timely satisfaction of any condition set forth in Section 7 has become
impossible (other than as a result of any failure on the part of the
Company to comply with or perform any covenant or obligation set forth in
this Agreement or in any other agreement or instrument delivered to
Parent);
(c) by Parent at or after the Scheduled Closing Time if any condition
set forth in Section 6 has not been satisfied by the Scheduled Closing
Time;
(d) by the Company at or after the Scheduled Closing Time if any
condition set forth in Section 7 has not been satisfied by the Scheduled
Closing Time;
(e) by Parent if the Closing has not taken place on or before
December 15, 1997 (other than as a result of any failure on the part of
Parent to comply with or perform any covenant or obligation of Parent set
forth in this Agreement);
42
(f) by the Company if the Closing has not taken place on or before
December 15, 1997 (other than as a result of the failure on the part of the
Company to comply with or perform any covenant or obligation set forth in
this Agreement or in any other agreement or instrument delivered to
Parent);
(g) by Parent if Parent shall have determined that there has occurred
an event or series of events resulting, either individually or in the
aggregate, in a Material Adverse Effect on the Company since the date of
this Agreement; or
(h) by the mutual consent of Parent and the Company.
8.2 TERMINATION PROCEDURES. If Parent wishes to terminate this Agreement
pursuant to Section 8.1(a), Section 8.1(c), Section 8.1(e) or Section 8.1(g),
Parent shall deliver to the Company a written notice stating that Parent is
terminating this Agreement and setting forth a brief description of the basis on
which Parent is terminating this Agreement. If the Company wishes to terminate
this Agreement pursuant to Section 8.1(b), Section 8.1(d) or Section 8.1(f), the
Company shall deliver to Parent a written notice stating that the Company is
terminating this Agreement and setting forth a brief description of the basis on
which the Company is terminating this Agreement.
8.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; PROVIDED, HOWEVER, that:(a) neither the Company nor Parent shall be
relieved of any obligation or liability arising from any prior breach by such
party of any provision of this Agreement;(b) the parties shall, in all events,
remain bound by and continue to be subject to the provisions set forth in
Section 10; and (c) the Company shall, in all events, remain bound by and
continue to be subject to Section 5.4.
SECTION 9. INDEMNIFICATION, ETC.
9.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) The representations and warranties made by the Company (including
the representations and warranties set forth in Section 2 and the
representations and warranties set forth in the Closing Certificate) shall
survive the Closing and shall expire on the first anniversary of the Closing
Date; PROVIDED, HOWEVER, that if, at any time prior to the first anniversary of
the Closing Date, any Indemnitee (acting in good faith) delivers to the Agent
(as defined in Section 10.1) a written notice alleging the existence of an
inaccuracy in or a breach of any of the representations and warranties made by
the Company (and setting forth in reasonable detail the basis for such
Indemnitee's belief that such an inaccuracy or breach may exist) and asserting a
claim for recovery under Section 9.2 based on such alleged inaccuracy or breach,
then the claim asserted in such notice shall survive the first anniversary of
the Closing until such time as such claim is fully and finally resolved. All
representations and warranties made by Parent and Merger Sub shall terminate and
expire as of the Effective Time, and any liability of Parent or Merger Sub with
respect to such representations and warranties shall thereupon cease.
43
(b) The representations, warranties, covenants and obligations of the
Company, and the rights and remedies that may be exercised by the Indemnitees,
shall not be limited or otherwise affected by or as a result of any information
furnished to, or any investigation made by or knowledge of, any of the
Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other item of
information set forth in the Disclosure Schedule or in any update to the
Disclosure Schedule shall be deemed to be a representation and warranty made by
the Company in this Agreement.
9.2 INDEMNIFICATION.
(a) From and after the Effective Time (but subject to Section
9.1(a)), each of the Indemnitees shall be held harmless and indemnified from and
against, and shall be compensated and reimbursed for, any Damages which are
directly or indirectly suffered or incurred by any of the Indemnitees or to
which any of the Indemnitees may otherwise become subject (regardless of whether
or not such Damages relate to any third-party claim) and which arise from or as
a result of, or are directly or indirectly connected with:
(i) any inaccuracy in or breach of any representation or
warranty of the Company set forth in this Agreement or in the Closing
Certificate (without giving effect to any "Material Adverse Effect" or
other materiality qualification or any similar qualification contained or
incorporated directly or indirectly in such representation or warranty);
(ii) any inaccuracy of any representation, warranty, statement,
information or other provision contained in the Disclosure Schedule or in
any other document delivered or otherwise made available to Parent or any
of its Representatives by or on behalf of the Company or any of the
Company's Representatives;
(iii) any breach of any covenant or obligation of the Company
(including the covenants set forth in Sections 4 and 5);
(iv) any litigation, arbitration, controversy, dispute or
disagreement involving the Company and any of EG&G Astrophysics, Rapiscan
Security Products, Inc., Heimann Systems GmbH or any other person
identified in Part 2.21 of the Disclosure Schedule or any of their
respective affiliates (collectively, the "Disputes"); or
(v) any Legal Proceeding relating to any inaccuracy or breach or
other matter of the type referred to in clause "(i)", "(ii)", "(iii)", or
"(iv)" above (including any Legal Proceeding commenced by any Indemnitee
for the purpose of enforcing any of its rights under this Section 9).
(b) If the Surviving Corporation suffers, incurs or otherwise becomes
subject to any Damages as a result of or in connection with any inaccuracy in or
breach of any representation, warranty, covenant or obligation or any of the
Disputes, then (without limiting
44
any of the rights of the Surviving Corporation as an Indemnitee) Parent shall
also be deemed, by virtue of its ownership of the stock of the Surviving
Corporation, to have incurred Damages as a result of and in connection with such
inaccuracy or breach or Dispute.
9.3 THRESHOLD. There shall be no indemnification payment pursuant to
Section 9.2(a) for any inaccuracy in or breach of any of their representations
and warranties set forth in Section 2 until such time as the total amount of all
Damages (including the Damages arising from such inaccuracy or breach and all
other Damages arising from any other inaccuracies in or breaches of any
representations or warranties) that have been directly or indirectly suffered or
incurred by any one or more of the Indemnitees, or to which any one or more of
the Indemnitees has or have otherwise become subject, exceeds $100,000 in the
aggregate. If the total amount of such Damages exceeds $100,000, then the
Indemnitees shall be entitled to be indemnified against and compensated and
reimbursed for all Damages, including such $100,000. Notwithstanding anything
to the contrary set forth in this Section 9.3, the $100,000 minimum threshold
shall not apply to Damages arising under the Disputes.
9.4 SATISFACTION OF INDEMNIFICATION CLAIM.
(a) The escrow under the Escrow Agreement shall serve as security for
the obligations owed the Indemnitees under this Section 9. Any liability (for
indemnification or otherwise) to any Indemnitee under this Section 9 may be
satisfied by the delivery to such Indemnitee, from the shares escrowed pursuant
to the Escrow Agreement, of the number of shares of Parent Common Stock
determined by dividing (i) the aggregate dollar amount of such liability BY (ii)
the Designated Parent Stock Price (as defined in Section 1.5(c)(viii) and as
adjusted as appropriate to reflect any stock split, reverse stock split, stock
dividend, recapitalization or other similar transaction effected by Parent
between the Effective Time and the date such liability is satisfied).
(b) Except with respect to claims based on knowing and intentional
misrepresentations of representations and warranties, Parent and Merger Sub
agree that, after the Closing, the sole recourse of the Indemnitees with respect
to a breach by the Company of its representations or warranties made in this
Agreement or in the Disclosure Schedule or the other indemnification rights set
forth in this Section 9 shall be against the shares held in escrow under the
Escrow Agreement.
9.5 NO CONTRIBUTION. No Person shall have any right of contribution,
right of indemnity or other right or remedy against the Surviving Corporation in
connection with any indemnification obligation or any other liability under or
in connection with this Agreement or the Closing Certificate.
9.6 INTEREST. Any Indemnitee entitled to recover Damages pursuant to this
Section 9 shall also be entitled to interest on the amount of such Damages (for
the period commencing as of the date on which the Agent (as defined in Section
10.1) first received notice of a claim for recovery by such Indemnitee and
ending on the date on which the liability to such Indemnitee is fully satisfied)
at a floating rate equal to the rate of interest publicly announced by Bank of
America, N.T. & S.A. from time to time as its prime, base or reference rate.
45
9.7 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Surviving Corporation, against Parent or against any other Person) with respect
to which there may be any obligation to hold harmless, indemnify, compensate or
reimburse any Indemnitee pursuant to this Section 9, Parent shall have the
right, at its election, to proceed with such claim or Legal Proceeding on its
own. If Parent so proceeds with any such claim or Legal Proceeding:
(a) all reasonable expenses relating to such claim or Legal
Proceeding shall be deemed Damages, subject to recovery by the Indemnitee
under Section 9.2; and
(b) Parent shall have the right to settle, adjust or compromise such
claim or Legal Proceeding with the consent of the Agent (as defined in
Section 10.1); PROVIDED, HOWEVER, that such consent shall not be
unreasonably withheld.
Parent shall give the Agent (as defined in Section 10.1) prompt notice of the
commencement of any such Legal Proceeding against Parent or the Surviving
Corporation; PROVIDED, HOWEVER, that any failure on the part of Parent to so
notify the Agent shall not limit any of the rights of any Indemnitees under this
Section 9 (except to the extent such failure materially prejudices the defense
of such Legal Proceeding).
9.8 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PARENT. No Indemnitee
(other than Parent or any successor thereto or assign thereof) shall be
permitted to assert any indemnification claim or exercise any other remedy under
this Agreement unless Parent (or any successor thereto or assign thereof) shall
have consented to the assertion of such indemnification claim or the exercise of
such other remedy.
SECTION 10. MISCELLANEOUS PROVISIONS
10.1 AGENT. The Company hereby irrevocably appoints Randall R. Lunn as its
and its shareholders' agent for purposes of Section 9 (the "Agent"). Parent
shall be entitled to deal exclusively with the Agent on all matters relating to
Section 9, and shall be entitled to rely conclusively (without further evidence
of any kind whatsoever) on any document executed or purported to be executed on
behalf of the Company or its shareholders by the Agent, and on any other action
taken or purported to be taken on behalf of the Company or its shareholders by
the Agent, as fully binding upon the shareholders of the Company. If the Agent
shall die, become disabled or otherwise be unable to fulfill his
responsibilities as agent of the shareholders of the Company, then the
shareholders of the Company shall, within ten days after such death or
disability, appoint a successor agent and, promptly thereafter, shall notify
Parent of the identity of such successor. Any such successor shall become the
"Agent" for purposes of Section 9 and this Section 10.1. If for any reason
there is no Agent at any time, all references herein to the Agent shall be
deemed to refer to the shareholders of the Company.
10.2 FURTHER ASSURANCES. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other
46
actions, as such other party may reasonably request (prior to, at or after the
Closing) for the purpose of carrying out or evidencing any of the transactions
contemplated by this Agreement.
10.3 FEES AND EXPENSES. Each party to this Agreement shall bear and pay
all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Parent and its Representatives with
respect to the Company's business (and the furnishing of information to Parent
and its Representatives in connection with such investigation and review), (b)
the negotiation, preparation and review of this Agreement (including the
Disclosure Schedule) and all agreements, certificates, opinions and other
instruments and documents delivered or to be delivered in connection with the
transactions contemplated by this Agreement, (c) the preparation and submission
of any filing or notice required to be made or given in connection with any of
the transactions contemplated by this Agreement, and the obtaining of any
Consent required to be obtained in connection with any of such transactions, and
(d) the consummation of the Merger.
10.4 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
10.5 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
IF TO PARENT:
InVision Technologies, Inc.
3420 E. Third Avenue
Foster City, CA 94404
Attention: Chief Financial Officer
Facsimile: (415) 578-0930
with a copy to:
Robert L. Jones, Esq.
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Facsimile: (415) 857-0663
47
IF TO THE COMPANY:
Quantum Magnetics, Inc.
7740 Kenamar Court
San Diego, CA 92121-2425
Attention: President
Facsimile: (619) 566-9388
with a copy to:
Edward C. Muns, Esq.
Branton, Wilson & Muns
701 B Street, Suite 1255
San Diego, CA 92101
Facsimile: (619) 236-8175
IF TO AGENT:
Randall R. Lunn
Techno Venture Management
101 Arch Street
Suite 1950
Boston, MA 02110
Facsimile: (617) 345-9377
10.6 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
10.7 HEADINGS. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
10.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which,
when taken together, shall constitute one agreement.
10.9 GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
California (without giving effect to principles of conflicts of laws).
10.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon: the
Company and its successors and assigns (if any); Parent and its successors
and assigns (if any); and Merger Sub and its successors and assigns (if any).
This Agreement shall inure to the benefit of: the Company; the Company's
shareholders (to the extent set forth in Section 1.5); the holders of assumed
Company Options (to the extent set forth in Section 1.6); Parent; Merger Sub;
the other Indemnitees (subject to Section 9.8); and the respective successors
and assigns (if any) of the foregoing. Parent may freely assign any or all
of its rights under this Agreement
48
(including its indemnification rights under Section 9), in whole or in part,
to any other Person without obtaining the consent or approval of any other
party hereto or of any other Person.
10.11 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and
remedies of the parties hereto shall be cumulative (and not alternative).
The parties to this Agreement agree that, in the event of any breach or
threatened breach by any party to this Agreement of any covenant, obligation
or other provision set forth in this Agreement for the benefit of any other
party to this Agreement, such other party shall be entitled (in addition to
any other remedy that may be available to it) to (a) a decree or order of
specific performance or mandamus to enforce the observance and performance of
such covenant, obligation or other provision, and (b) an injunction
restraining such breach or threatened breach.
10.12 WAIVER.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of
any Person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or
remedy; and no single or partial exercise of any such power, right, privilege
or remedy shall preclude any other or further exercise thereof or of any
other power, right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy
is expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have
any effect except in the specific instance in which it is given.
10.13 AMENDMENTS. This Agreement may not be amended, modified,
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of all of the parties hereto.
10.14 SEVERABILITY. In the event that any provision of this
Agreement, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to Persons or circumstances other than those as
to which it is determined to be invalid, unlawful, void or unenforceable,
shall not be impaired or otherwise affected and shall continue to be valid
and enforceable to the fullest extent permitted by law.
10.15 PARTIES IN INTEREST. Except for the provisions of Sections
1.5, 1.6 and 9, none of the provisions of this Agreement is intended to
provide any rights or remedies to any Person other than the parties hereto
and their respective successors and assigns (if any).
10.16 ENTIRE AGREEMENT. This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof; PROVIDED, HOWEVER, that the
49
Confidentiality Agreement executed on behalf of Parent on and the Company on
June 4, 1997 shall not be superseded by this Agreement and shall remain in
effect in accordance with its terms until the earlier of (a) the Effective
Time, or (b) the date on which such Confidentiality Agreement is terminated
in accordance with its terms.
10.17 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender
shall include the masculine and neuter genders; and the neuter gender shall
include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement
to "Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
50
The parties hereto have caused this Agreement to be executed and
delivered as of September 3, 1997.
INVISION TECHNOLOGIES, INC.,
a Delaware corporation
By: /SERGIO MAGISTRI
----------------------------------------
Sergio Magistri
Chief Executive Officer and President
QP ACQUISITION CORP.,
a California corporation
By: /s/ SERGIO MAGISTRI
----------------------------------------
Sergio Magistri
President
QUANTUM MAGNETICS, INC.,
a California corporation
By: /s/ DALE SHEETS
----------------------------------------
Dale Sheets
President
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, license, disposition or acquisition of all or a
material portion of the Company's business or assets;
(b) the issuance, disposition or acquisition of (i) any capital stock
or other equity security of the Company (other than common stock issued to
employees of the Company, upon exercise of Company Options or otherwise, in
routine transactions in accordance with the Company's past practices), (ii)
any option, call, warrant or right (whether or not immediately exercisable)
to acquire any capital stock or other equity security of the Company (other
than stock options granted to employees of the Company in routine
transactions in accordance with the Company's past practices), or (iii) any
security, instrument or obligation that is or may become convertible into
or exchangeable for any capital stock or other equity security of the
Company; or
(c) any merger, consolidation, business combination, reorganization
or similar transaction involving the Company.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached (including the Disclosure
Schedule), as it may be amended from time to time.
COMPANY. "Company" shall mean Quantum Magnetics, Inc., a California
corporation.
COMPANY CONTRACT. "Company Contract" shall mean any Contract: (a) to
which the Company is a party; (b) by which the Company or any of its assets is
or may become bound or under which the Company has, or may become subject to,
any obligation; or (c) under which the Company has or may acquire any right or
interest.
COMPANY SHAREHOLDERS MEETING. "Company Shareholders Meeting" shall mean a
meeting of the holders of the capital stock of the Company to be held to
consider, act upon and vote upon the approval of the Agreement and the Merger.
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
A-1
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the schedule (dated
as of the date of the Agreement) delivered to Parent on behalf of the Company.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
ESCROW AGREEMENT. "Escrow Agreement" shall mean an escrow agreement in the
form attached hereto as Exhibit L.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
GOVERNMENT BID. "Government Bid" shall mean any quotation, bid or
proposal submitted to any Governmental Body or any proposed prime contractor or
higher-tier subcontractor of any Governmental Body.
GOVERNMENT CONTRACT. "Government Contract" shall mean any prime
contract, Subcontract, letter contract, purchase order or delivery order
executed or submitted to or on behalf of any Governmental Body or any prime
contractor or higher-tier subcontractor, or under which any Governmental Body or
any such prime contractor or subcontractor otherwise has or may acquire any
right or interest. Government Contract includes a cooperative agreement, grant,
and other "transaction."
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state,
A-2
local, municipal, foreign or other government; or (c) governmental or
quasi-governmental authority of any nature (including any governmental division,
department, agency, commission, instrumentality, official, organization, unit,
body or Entity and any court or other tribunal).
INDEMNITEES. "Indemnitees" shall mean the following Persons: (a) Parent;
(b) Parent's current and future affiliates (including the Surviving
Corporation); (c) the respective Representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and (d) the respective successors and assigns of
the Persons referred to in clauses "(a)", "(b)" and "(c)" above; PROVIDED,
HOWEVER, that the shareholders of the Company (other than Parent) shall not be
deemed to be "Indemnitees."
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to
have a "Material Adverse Effect" on the Company if such violation or other
matter (considered together with all other matters that would constitute
exceptions to the representations and warranties set forth in the Agreement or
in the Closing Certificate but for the presence of "Material Adverse Effect" or
other materiality qualifications, or any similar qualifications, in such
representations and warranties) would have a material adverse effect on the
Company's business, condition, assets, liabilities, operations, financial
performance or prospects.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PRE-CLOSING PERIOD. "Pre-Closing Period" means the period beginning on the
date of the Agreement through and including the Effective Time.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; or (b) right to use or exploit any of the
foregoing.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
A-3
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
SUBCONTRACT. "Subcontract" shall mean any subcontract, basic ordering
agreement, letter subcontract, purchase order, delivery order, change,
arrangement or other commitment of any kind, between the Company and any prime
contractor to either the U.S. Government or a State Government or any
subcontractor with respect to a Government Prime Contract.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
U.S. GOVERNMENT. "U.S. Government" shall mean the United States Government
or any department, agency or instrumentality thereof.
A-4
EXHIBIT B
FORM OF AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF SURVIVING CORPORATION
I.
The name of this corporation is QUANTUM MAGNETICS, INC.
II.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
The corporation is authorized to issue only one class of stock, to be
designated Common Stock. The total number of shares of Common Stock presently
authorized is one thousand (1,000), par value one-tenth of one cent ($0.001).
IV.
(a) The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
(b) This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the California Corporations Code) for breach of
duty to the corporation and its shareholders through bylaw provisions or through
agreements with the agents, or through shareholder resolutions, or otherwise, in
excess of the indemnification otherwise permitted by Section 317 of the
Corporations Code, subject to the limits on such excess indemnification set
forth in Section 204 of the Corporations Code.
(c) Any repeal or modification of this Article shall only be prospective
and shall not affect the rights under this Article in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
EXHIBIT C
DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
Directors
---------
Lowell Burnett
Sergio Magistri
Curtis P. DiSibio
Officers
--------
Lowell Burnett Chairman of the Board
Dale Sheets President and Chief Executive Officer
Curtis P. DiSibio Vice President and Chief Financial Officer
David Pillor Vice President, Sales
Andrew Hibbs Chief Technical Officer
Deborah Lawson Cleveland Secretary
EXHIBIT D-1
FORM OF AFFILIATES AGREEMENT
THIS AFFILIATES AGREEMENT (the "Affiliates Agreement") is entered into as
of September __, 1997, between INVISION TECHNOLOGIES, INC., a Delaware
corporation ("Parent"), and the undersigned shareholder (the "Shareholder") of
QUANTUM MAGNETICS, INC., a California corporation (the "Company").
Pursuant to that certain Agreement and Plan of Merger and Reorganization
(the "Reorganization Agreement"), dated as of September 3, 1997, by and among
Parent, QP ACQUISITION CORP., a California corporation and wholly-owned
subsidiary of Parent ("Merger Sub"), and the Company, Parent will acquire the
Company through a merger of Merger Sub with and into the Company (the "Merger")
whereby each share of outstanding Common Stock, Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock of the Company (collectively, the
"Company Capital Stock") shall cease to be existing and shall become and convert
into that number of shares of the common stock of Parent ("Parent Common
Stock"), as set forth in the Reorganization Agreement.
As a result of the Merger and certain related transactions, Shareholder
will receive shares of Parent Common Stock. The Shareholder understands that
the Parent Common Stock being issued in the Merger will be issued pursuant to a
Registration Statement on Form S-4, and that the Shareholder may be deemed an
"Affiliate" of Parent as such term is defined for purposes of paragraphs (c) and
(d) of Rule 145 ("Rule 145") of the General Rules and Regulations of the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), and the Securities and Exchange Commissions Accounting Series
Release Nos. 130 and 135 (the "Pooling Rules"), as amended, and as such the
Shareholder may only transfer, sell or dispose of the Parent Common Stock in
accordance with this Affiliate Agreement, Rule 145 and the Pooling Rules.
The Shareholder understands that the representations, warranties and
covenants set forth herein will be relied upon by Parent and the Company, and
their respective counsel and accounting firms.
1. The Shareholder represents, warrants, understands and agrees that:
(a) The Shareholder has full power and capacity to execute and
deliver this Affiliates Agreement and to make the representations, warranties
and agreements set forth herein and to perform its obligations hereunder.
(b) The Shareholder has carefully read this Affiliates Agreement, and
has discussed with counsel to the extent Shareholder felt necessary the
requirements, limitations and restrictions on his or her ability to sell,
transfer or otherwise dispose of the Parent Common Stock he or she may receive
through the Reorganization Agreement, and fully understands the
1.
requirements limitations and restrictions this Affiliates Agreement places upon
the Shareholder's ability to transfer sell or otherwise dispose of the Parent
Common Stock.
(c) The Shareholder will not, publicly or privately, sell, transfer
or otherwise dispose of, or reduce the Shareholder's interest in or risk
relating to any Parent Common Stock issued to the Shareholder pursuant to the
Merger, or any Parent Common Stock issued to the Shareholder upon exercise of
any instrument exercisable for Parent Common Stock held by Shareholder until
such time as the financial results covering at least thirty (30) days of
post-Merger combined operations of Parent and the Company have been published by
Parent (within the meaning of the Pooling Rules).
(d) Until the earlier of (i) the Closing (as defined in the
Reorganization Agreement) or (ii) the termination of the Reorganization
Agreement, the Shareholder will not sell, transfer or otherwise dispose of, or
reduce the Shareholder's interest in or risk relating to, any Company Capital
Stock or any instrument exercisable for the Company Capital Stock currently
owned by the Shareholder.
(e) Subject to Section 1(c) above, the Shareholder will not sell,
pledge, transfer or otherwise dispose of any of the Parent Common Stock issued
to the Shareholder in the Merger unless at such time either (i) such transfer
shall be in conformity with the provisions of Rule 145, (ii) the Shareholder
shall have furnished to Parent an opinion of counsel reasonably satisfactory to
Parent, to the effect that no registration under the Act would be required in
connection with the proposed offer, sale, pledge, transfer or other disposition,
(iii) a registration statement under the Act covering the proposed offer, sale,
pledge, or other disposition shall be effective under the Act, or (iv) if the
Shareholder is a partnership, such transfer shall be a pro rata distribution
from the Shareholder to its partners without receipt of consideration, in which
case each distributee shall receive stock certificates bearing the legend set
forth in paragraph 3 below.
2. Shareholder understands and agrees that Parent is under no obligation
to register the sale, transfer or other disposition of the Parent Common Stock
(other than pursuant to the Registration Statement to be filed in connection
with the Merger) or to take any other action necessary in order to make
compliance with an exemption from registration available, except to remain
current in its reporting requirements under the Securities Exchange Act of 1934,
as amended, which Parent hereby agrees to do.
3. The Shareholder also understands and agrees that stop transfer
instructions will be given to Parent's transfer agent with respect to the Parent
Common Stock issued to the Shareholder, and there will be placed on the
Certificates representing such Parent Common Stock or any substitutions thereof
(the "Certificates") a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145(d) OF THE SECURITIES ACT OF 1933 APPLIES
AND MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE PROVISIONS OF SUCH
RULE. IN ADDITION, UNTIL [a date one year after the Effective Time],
THE SHARES REPRESENTED BY THIS
2.
CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT DATED AS OF SEPTEMBER __, 1997, BETWEEN THE REGISTERED HOLDER
HEREOF AND INVISION TECHNOLOGIES, INC., COPIES OF WHICH AGREEMENT IS ON FILE
AT THE PRINCIPAL OFFICES OF INVISION TECHNOLOGIES, INC."
4. Parent agrees that such stop transfer instructions and legends
referred to above will be removed (i) with respect to transferred Parent Common
Stock, at such time as Parent is reasonably satisfied that the Shareholder has
complied with the provisions of this Affiliates Agreement with respect to a
transfer and (ii) otherwise at such time as the restrictions of subsection (d)
of Rule 145 shall no longer apply to the Shareholder.
5. The Shareholder further agrees to irrevocably waive and terminate as
of the Closing any rights relating to Parent Common Stock (such as rights to
cause Parent to register such stock) that such Shareholder may possess as the
result of agreements entered into between the Shareholder, other shareholders of
the Company and the Company ("Company Shareholder Agreements") and further
agrees to execute amendments to the Company Shareholder Agreements pursuant to
which they will terminate at the Closing.
6. The Shareholder further agrees that, at any time prior to one year
from the Effective Time (as such term is defined in the Reorganization
Agreement), the Shareholder shall only sell shares of Parent Common Stock
received by the Shareholder in the Merger through Donald & Co. Securities Inc.
("Donald & Co."), acting as broker for such transaction. In addition, in the
event the Shareholder informs Donald & Co. of its intention to sell shares of
Parent Common Stock prior to one year from the Effective Time, Donald & Co.
shall be entitled to inform Parent of the Shareholder's intention to effect such
transaction. Any such sale shall occur only when otherwise permitted under this
Affiliates Agreement.
7. The Shareholder further represents that it is the beneficial owner of
the Company Capital Stock set forth below and the options or warrants to
purchase the Company Capital Stock set forth below.
8. The Shareholder and Parent agree that irreparable damages would occur
in the event that any of the provisions of this Affiliates Agreement were not
performed in accordance with their specific terms, or were otherwise breached.
It is, accordingly, agreed that the parties shall be entitled to injunctive
relief to prevent breaches of the provisions of this Affiliates Agreement, and
to enforce specifically the terms and provisions hereof, in addition to any
other remedy to which they may be entitled at law, in equity, by contract or
otherwise.
9. This Affiliates Agreement shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of California
without reference to choice of law provisions.
10. This Affiliates Agreement shall be binding upon, and shall be
enforceable by and inure solely to the benefit of, the parties hereto and their
respective successors; PROVIDED, HOWEVER, that Donald & Co. shall be entitled to
rely on Section 6 of this Affiliates Agreement,
3.
which shall also inure to the benefit of Donald & Co. This Affiliates
Agreement may not be assigned by any party without the prior written consent of
Parent. Any attempted assignment not in compliance with this Section 10 shall
be void and of no effect.
11. This Affiliates Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, and all of which shall
constitute one and the same instrument.
12. The execution of this Affiliates Agreement is not an admission of the
Shareholder that it is an affiliate of the Company.
13. This Affiliates Agreement shall terminate if the Reorganization
Agreement is terminated without the Merger having occurred.
INVISION TECHNOLOGIES, INC. [SHAREHOLDER]
By:
------------------------ -----------------------
[Name] [Name]
[Title]
Company Securities Beneficially Owned:
Common:
--------------------------------
Series A Preferred:
--------------------
Series B Preferred:
--------------------
Series C Preferred:
--------------------
Options to Purchase Common:
------------
Warrants to Purchase
Series A Preferred:
---------------
Warrants to Purchase
Series C Preferred:
---------------
SIGNATURE PAGE TO AFFILIATES AGREEMENT
4.
EXHIBIT D-2
PERSONS TO EXECUTE AFFILIATE AGREEMENTS
Techno Venture Management
TVM Techno Venture Enterprises No. II Limited Partnership
TVM Intertech Limited Partnership
TVM Eurotech Limited Partnership
TVM Zweite Beteilgung-US Limited Partnership
TVM Techno Venture Investors No. I Limited Partnership
InVision Technologies, Inc.
Lowell Burnett
Randall Lunn
John Downing
Dale Sheets
Sergio Magistri
Andrew Hibbs
EXHIBIT E
CONTINUITY OF INTEREST CERTIFICATE
_______________________________ ("Shareholder") is aware that, pursuant to
that certain Agreement and Plan of Merger and Reorganization (the
"Reorganization Agreement") dated as of September 3, 1997 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"), it is
contemplated that Merger Sub will merge into the Company (the contemplated
merger of Merger Sub into the Company being referred to in this Certificate as
the "Merger"). As a result of the Merger, it is contemplated that holders of
the Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock, in each case with no par value, of the Company (collectively,
the "Company Capital Stock") will receive shares of common stock, par value
$.001 per share, of Parent ("Parent Common Stock") in exchange for their shares
of Company Capital Stock, and that the Company will become a wholly owned
subsidiary of Parent.
1. Shareholder represents, warrants and certifies to Parent, Merger Sub
and the Company as follows:
(a) Shareholder currently is the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of
_________________ shares of Company Capital Stock (the "Shares"), and did not
acquire any of the Shares in contemplation of the Merger.
(b) Shareholder has not engaged in a Sale (as defined below) of any
shares of Company Capital Stock in contemplation of the Merger.
(c) Shareholder has no plan or intention to engage in a sale,
exchange, transfer, distribution, redemption or reduction in any way of
Shareholder's risk of ownership (by short sale or otherwise), or other
disposition, directly or indirectly (such actions being collectively referred to
herein as a "Sale"), of more than fifty percent (50%) of the shares of Parent
Common Stock to be received by Shareholder in the Merger. (For purposes of the
preceding sentence, shares of Company Capital Stock (or the portion thereof)
(i) with respect to which Shareholder will receive consideration in the Merger
other than shares of Parent Common Stock (including, without limitation, cash to
be received in lieu of fractional shares of Parent Common Stock or pursuant to
the exercise of dissenters' rights) and/or (ii) with respect to which a Sale
(A) occurred in contemplation of the Merger or (B) will occur prior to the
Merger, shall be considered shares of Company Capital Stock exchanged for shares
of Parent Common Stock in the Merger and then disposed of pursuant to a plan.)
(d) Shareholder has no plan or intention to exercise appraisal rights
in connection with the Merger.
1.
(e) Shareholder is not aware of, or participating in, any plan or
intention on the part of the shareholders of the Company to engage in a Sale or
Sales of more than fifty percent (50%) of the shares of Parent Common Stock to
be received in the Merger. (For purposes of the preceding sentence, shares of
Company Capital Stock (or the portion thereof) (i) with respect to which a
shareholder of the Company receives consideration in the Merger other than
shares of Parent Common Stock (including, without limitation, cash received
pursuant to the exercise of dissenters' rights or in lieu of a fractional share
of Parent Common Stock) and/or (ii) with respect to which a Sale (A) occurred in
contemplation of the Merger or (B) will occur prior to the Merger, shall be
considered shares of outstanding Company Capital Stock exchanged for shares of
Parent Common Stock in the Merger and then disposed of pursuant to a plan.)
(f) Except to the extent written notification to the contrary is
received by Parent and the Company from Shareholder prior to the consummation of
the Merger, the representations, warranties and certifications contained herein
shall be accurate at all times from the date hereof through the date on which
the Merger is consummated.
(g) Shareholder has consulted with such legal counsel and financial
advisors as he has deemed appropriate in connection with the execution of this
Certificate.
2. Shareholder understands and acknowledges that Parent, Merger Sub, the
Company and the Company's shareholders, as well as legal counsel to Parent,
Merger Sub and the Company (in connection with rendering their opinions that the
Merger will be a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended) will be relying on the accuracy of
the representations, warranties and certifications contained herein.
Shareholder has executed this Certificate on September __, 1997.
-------------------------------
Name:
2.
EXHIBIT F
PERSONS TO SIGN NONCOMPETITION AGREEMENTS
Three Years
-----------
Lowell Burnett
Dale Sheets
Andrew Hibbs
One Year
--------
Mike Law
Peter Czipott
Tim Raynor
Simon Beevor
Mike Urbach
Victor Burns
EXHIBIT G
NONCOMPETITION AGREEMENT
This NON-COMPETITION AGREEMENT (the "Agreement") is made this __ day of
September, 1997, by and among INVISION TECHNOLOGIES, INC., a Delaware
corporation ("Parent"), QP ACQUISITION CORP., a California corporation, ("Merger
Sub"), and ____________ ("Shareholder").
RECITALS
Shareholder is a key employee and shareholder of QUANTUM MAGNETICS, INC., a
California corporation ("the Company"). Parent, Merger Sub and the Company have
entered into an Agreement and Plan of Merger and Reorganization dated as of
September 3, 1997 providing for the acquisition (the "Acquisition") by Parent of
the Company pursuant to a merger of Merger Sub and the Company (the "Merger").
Shareholder plans to vote in favor of the Merger and receive all the benefits of
the Merger and, in connection therewith, Shareholder has agreed pursuant to and
to the extent permitted by Section 16601 of the Business and Professions Code of
the State of California not to compete with the Company in the manner and to the
extent herein set forth. It is a condition to closing the Merger that
Shareholder execute this Agreement, and Shareholder is entering into this
Agreement as an inducement to Parent and Merger Sub to consummate the Merger,
with all of the attendant financial benefits to Shareholder as a shareholder of
the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants herein
contemplated and intending to be legally bound hereby, Merger Sub, Parent and
Shareholder agree as follows:
1. ACKNOWLEDGEMENTS BY SHAREHOLDER. Shareholder acknowledges that by
virtue of his/her position with the Company s/he has developed considerable
expertise in the business operations of the Company and has had access to
extensive confidential information with respect to the Company. Shareholder
recognizes that Merger Sub and Parent would be irreparably damaged, and their
substantial investment in the Company materially impaired, if Shareholder were
to enter into an activity competing with the Company's business in violation of
the terms of this Agreement or if Shareholder were to disclose or make
unauthorized use of any confidential information concerning the business of the
Company. Accordingly, Shareholder expressly acknowledges that s/he is
voluntarily entering into this Agreement and that the terms and conditions of
this Agreement are fair and reasonable to Shareholder in all respects.
2. CONFIDENTIALITY. Shareholder hereby expressly affirms that the
Quantum Magnetics Employee Proprietary Information and Invention Agreement dated
as of ____________, 19__ (the "Confidentiality Agreement") between the
Shareholder and the Company is and shall remain in full force and effect and
specifically agrees that the rights and privileges of the Company under the
Confidentiality Agreement shall inure to the benefit of
1.
Parent and Merger Sub, to the same extent as if they were original parties
thereto, as well as to the Company. Further, Shareholder hereby expressly
agrees that the Company's rights under this Agreement are in addition to, but
not in substitution of, its rights under the Confidentiality Agreement and the
Confidentiality Agreement remains in full force and effect.
3. NON-COMPETITION. Until the later of (a) [one (1) year] [three (3)
years] after completion of the Merger or (b) cessation by Parent or the Company
to make salary, consulting fee or severance payments to Shareholder under a
separate agreement or arrangement, if any ("Payment Termination"), Shareholder
shall not, directly or indirectly, without the prior written consent of Parent,
(i) own, manage, operate, join, control, finance or participate in the
ownership, management, operation, control or financing of, or be connected as an
officer, director, employee, partner, principal, agent, representative,
consultant, licensor, licensee or otherwise with, any business or enterprise
engaged in any business which is competitive with the business of the Company,
within each of the geographical units which are listed in Appendix A hereto (the
"Territory"), or (ii) engage in any other manner, within the Territory, in any
business which is competitive with the business of the Company. For the
purposes of this Section 3, the "business of the Company" shall be defined as
set forth in Appendix B hereto (which also includes a list of companies deemed
by the parties to be in competition with the business of the Company and
therefore covered by the terms of this Noncompetition Agreement).
Notwithstanding the above, Shareholder shall not be deemed to be engaged
directly or indirectly in any business in contravention of subparagraphs (i) or
(ii) above, if (x) Shareholder participates in any such business solely as a
passive investor in up to 1% of the equity securities of a company or
partnership, the securities of which are publicly traded, or (y) Shareholder is
employed by a business or enterprise that is engaged primarily in a business
other than the business of the Company and Shareholder does not apply his
expertise at such business or enterprise to that part of such business or
enterprise that is or could be competitive with the business of the Company.
4. NON-INTERFERENCE. Shareholder further agrees that until the later of
(a) [one (1) year] [three (3) years] years following completion of the Merger or
(b) one (1) year following the Payment Termination, he will not, without the
prior written consent of Parent, (i) interfere with the business of the Company,
Parent or Merger Sub, by soliciting, attempting to solicit, inducing, or
otherwise causing any employee or consultant of the Company, Parent or Merger
Sub to terminate his or her employment as such in order to become an employee,
consultant or independent contractor to or for any competitor of the Company,
Parent or Merger Sub or to or for any company with which Shareholder is
associated in any way; or (ii) induce or attempt to induce any customers,
suppliers, distributors, resellers, or independent contractor of the Company or
Parent to terminate their relationships with, or to take any action that would
be disadvantageous to the business of, the Company or Parent.
5. INDEPENDENCE OF OBLIGATIONS. The covenants of Shareholder set forth
in this Agreement shall be construed as independent of any other agreement or
arrangement between Shareholder, on the one hand, and Merger Sub, the Company or
Parent or any of their subsidiaries, on the other, and the existence of any
claim or cause of action by Shareholder against Merger Sub, the Company or
Parent or any of their subsidiaries shall not constitute a defense to the
enforcement of such covenants against Shareholder.
2.
6. EQUITABLE RELIEF. Shareholder expressly acknowledges that damages
alone will not be an adequate remedy for any breach by Shareholder of the
covenants set forth in Sections 2, 3, and 4 hereof and that the other parties
hereto, in addition to any other remedies which they may have, whether at law,
in equity, by contract or otherwise, shall be entitled, as a matter of right, to
injunctive relief, including specific performance, in any court of competent
jurisdiction with respect to any actual or threatened breach by Shareholder of
any of said covenants.
7. SEVERABILITY, ETC.
a. If any provision of this Agreement or any part of any such
provision is held under any circumstances to be invalid or unenforceable in any
jurisdiction, then (i) such provision or part thereof shall, with respect to
such circumstances and in such jurisdiction, be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent, (ii) the invalidity or unenforceability of such provision or part
thereof under such circumstances and in such jurisdiction shall not affect the
validity or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (iii) such invalidity of
enforceability of such provision or part thereof shall not affect the validity
or enforceability of the remainder of such provision or the validity or
enforceability of any other provision of this Agreement. Each provision of this
Agreement is separable from every other provision of this Agreement, and each
part of each provision of this Agreement is separable from every other part of
such provision.
b. The parties intend that the covenant contained in Section 3 above
shall be construed as a series of separate covenants, one for each geographical
unit specified. Except for geographical coverage, each such separate covenant
shall be deemed identical in terms to the covenant contained in Section 3 above.
If, in any judicial proceeding, a court shall refuse to enforce any of the
separate covenants deemed included in this Agreement, then the unenforceable
covenant shall be deemed eliminated from these provisions for the purpose of
those proceedings to the extent necessary to permit the remaining separate
covenants to be enforced.
8. NOTICES. All notices or other communications hereunder shall be in
writing and deemed given if and when delivered to a party in person, or if and
when mailed by registered or certified mail, return receipt requested, to the
parties at the addresses set forth below or such other addresses as shall be
specified by notice to the other party hereunder:
3.
To Parent or
Merger Sub at:
InVision Technologies, Inc.
3420 E. Third Avenue
Foster City, CA 94404
Attention: Chief Financial Officer
Facsimile: (650) 578-0930
with a copy to:
Robert L. Jones, Esq.
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Facsimile: (650) 857-0663
To Shareholder at:
[Address]
9. WAIVER OF BREACH. The failure or delay by Parent or Merger Sub in
enforcing any provision of this Agreement shall not operate as a waiver thereof,
and the waiver by Parent or Merger Sub or a breach of any provision of this
Agreement by Shareholder shall not operate or be construed as a waiver of any
subsequent breach or violation thereof. All waivers shall be in writing and
signed by the party to be bound.
10. ASSIGNMENT. This Agreement shall be assignable by Parent or Merger
Sub only to any person, firm or corporation which may become a successor in
interest by purchase, merger or otherwise to Parent, Merger Sub or the Company
or the business operated by Parent, Merger Sub or the Company. This Agreement
is not assignable by Shareholder.
11. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Confidentiality
Agreement represent the entire agreement and understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings of the parties in connection therewith (other than the
Confidentiality Agreement). They may not be altered or amended except by an
agreement in writing signed by the parties to be bound.
12. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of Parent and its permitted successors and assigns and Shareholder and
Shareholder's heirs and legal representatives.
4.
13. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California as applied to
contracts entered into between California residents and to be performed entirely
within California.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
[SHAREHOLDER]
---------------------------------------
INVISION TECHNOLOGIES, INC.
BY:
------------------------------------
QP ACQUISITION CORP.
BY:
------------------------------------
5.
APPENDIX A
TERRITORY
(1) All counties of California listed below, (2) all other states and
territories of the United States of America and provinces and territories of
Canada, and (3) any foreign country or territory in which the business of the
Company is carried on, or in which the Company intends to carry on business as
evidenced by the Company's policy of seeking patent protection for its
patentable inventions, including, but not limited to, countries of the European
Economic Community (and in particular, but without limitation, the United
Kingdom, the Federal Republic of Germany, Belgium, France and Italy), Japan,
Indonesia, China, Israel, Philippines, Saudi Arabia and Malaysia.
COUNTIES OF CALIFORNIA:
Alameda Kings Placer Sierra
Alpine Lake Plumas Siskiyou
Amador Lassen Riverside Solano
Butte Los Angeles Sacramento Sonoma
Calaveras Madera San Benito Stanislaus
Colusa Marin San Bernardino Sutter
Contra Costa Mariposa San Diego Tehama
Del Norte Mendocino San Francisco Trinity
El Dorado Merced San Joaquin Tulare
Fresno Modoc San Luis Obispo Tuolumne
Glenn Mono San Mateo Ventura
Humboldt Monterey Santa Barbara Yolo
Imperial Napa Santa Clara Yuba
Inyo Nevada Santa Cruz
Kern Orange Shasta
APPENDIX B
BUSINESS
The design, development, manufacture, marketing and sale of explosive
detection systems and drug detection systems using quadrapole magnetic resonance
technology and/or CAT Scan technology.
Companies which are engaged in the business described above include, but
are not limited to: Vivid Technologies, Inc., EG&G Astrophysics, Heimann
Systems GmbH, Thermedics Detection Ind., and Barringer Technologies Inc.
EXHIBIT H
GENERAL RELEASE
THIS GENERAL RELEASE ("General Release") is being executed and delivered as
of September __, 1997, by each of the parties identified on Annex I hereto (all
of whom are referred to collectively as the "Releasors," and each of whom is
referred to individually as a "Releasor") to and in favor of, and for the
benefit of, INVISION TECHNOLOGIES, INC., a Delaware corporation ("Parent"),
QUANTUM MAGNETICS, INC., a California corporation (the "Company"),and the other
Releasees (as defined in Section 2).
RECITALS
A. Parent, QP ACQUISITION CORP., a California corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and the Company have entered
into
that certain Agreement and Plan of Merger and Reorganization dated as of
September 3, 1997 (the "Reorganization Agreement"), pursuant to which Parent
shall acquire the Company by the merger (the "Merger") of Merger Sub with and
into the Company, with the Company surviving the Merger.
B. Pursuant to the terms of the Reorganization Agreement, each of the
shareholders of the Company, including the Releasors, shall acquire common
stock, par value $0.001 per share, of Parent ("Parent Common Stock") in exchange
for their equity stock in the Company. Capitalized terms not otherwise defined
herein shall have the meaning ascribed to them in the Reorganization Agreement.
C. Parent has required, as a condition to consummating the transactions
contemplated by the Reorganization Agreement, that the Releasors execute and
deliver this General Release.
AGREEMENT
In order to induce Parent to consummate the transactions contemplated by
the Reorganization Agreement, and for other valuable consideration (the receipt
and sufficiency of which are hereby acknowledged by the Releasors), the
Releasors hereby covenant and agree as follows:
1. RELEASE. Each Releasor, for himself and for each of such Releasor's
Associated Parties (as defined in Section 2), hereby generally, irrevocably,
unconditionally and completely releases and forever discharges each of the
Releasees (as defined in Section 2) from, and hereby irrevocably,
unconditionally and completely waives and relinquishes, each of the Released
Claims (as defined in Section 2).
1.
2. DEFINITIONS.
(a) The term "Associated Parties," when used herein with respect to a
Releasor, shall mean and include: (i) such Releasor's predecessors, successors,
executors, administrators, heirs and estate; (ii) such Releasor's past, present
and future assigns, agents and representatives; (iii) each entity that such
Releasor has the power to bind (by such Releasor's acts or signature) or over
which such Releasor directly or indirectly exercises control; and (iv) each
entity of which such Releasor owns, directly or indirectly, at least 50% of the
outstanding equity, beneficial, proprietary, ownership or voting interests.
(b) The term "Releasees" shall mean and include: (i) Parent; (ii)
the Company; (iii) each of the direct and indirect subsidiaries of the Company;
(iv) each other affiliate of the Company; and (v) the successors and past,
present and future assigns, directors, officers, employees, agents, attorneys
and representatives of the respective entities identified or otherwise referred
to in clauses "(i)" through "(iv)" of this sentence, other than the Releasors.
(c) The term "Claims" shall mean and include all past, present and
future disputes, claims, controversies, demands, rights, obligations,
liabilities, actions and causes of action of every kind and nature, including:
(i) any unknown, unsuspected or undisclosed claim; (ii) any claim or right that
may be asserted or exercised by a Releasor in such Releasor's capacity as a
shareholder, director, officer or employee of the Company or in any other
capacity; and (iii) any claim, right or cause of action based upon any breach of
any express, implied, oral or written contract or agreement.
(d) The term "Released Claims" shall mean and include each and every
Claim that (i) any Releasor or any Associated Party of any Releasor may have had
in the past, may now have or may have in the future against any of the
Releasees, and (ii) has arisen or arises directly or indirectly out of, or
relates directly or indirectly to, any circumstance, agreement, activity,
action, omission, event or matter occurring or existing on or prior to the date
of this General Release (excluding only such Releasor's rights, if any, under
the Reorganization Agreement and the Escrow Agreement).
3. CIVIL CODE Section 1542. Each Releasor (a) represents, warrants and
acknowledges that such Releasor has been fully advised by his attorney of the
contents of Section 1542 of the Civil Code of the State of California, and (b)
hereby expressly waives the benefits thereof and any rights such Releasor may
have thereunder. Section 1542 of the Civil Code of the State of California
provides as follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have
materially affected his settlement with the debtor."
Each Releasor also hereby waives the benefits of, and any rights such Releasor
may have under, any statute or common law principle of similar effect in any
jurisdiction.
2.
4. REPRESENTATIONS AND WARRANTIES. Each Releasor represents and warrants
that:
(a) such Releasor has not assigned, transferred, conveyed or
otherwise disposed of any Claim against any of the Releasees, or any direct or
indirect interest in any such Claim, in whole or in part;
(b) to the best of such Releasor's knowledge, no other person or
entity has any interest in any of the Released Claims;
(c) no Associated Party of such Releasor has or had any Claim against
any of the Releasees;
(d) no Associated Party of such Releasor will in the future have any
Claim against any Releasee that arises directly or indirectly from or relates
directly or indirectly to any circumstance, agreement, activity, action,
omission, event or matter occurring or existing on or before the date of this
General Release;
(e) this General Release has been duly and validly executed and
delivered by such Releasor;
(f) this General Release is a valid and binding obligation of such
Releasor and such Releasor's Associated Parties, and is enforceable against such
Releasor and each of such Releasor's Associated Parties in accordance with its
terms;
(g) there is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental body,
governmental agency or arbitrator pending or, to the best of the knowledge of
such Releasor, threatened against such Releasor or any of such Releasor's
Associated Parties that challenges or would challenge the execution and delivery
of this General Release or the taking of any of the actions required to be taken
by such Releasor under this General Release;
(h) neither the execution and delivery of this General Release nor
the performance hereof will (i) result in any violation or breach of any
agreement or other instrument to which such Releasor or any of such Releasor's
Associated Parties is a party or by which such Releasor or any of such
Releasor's Associated Parties is bound, or (ii) result in a violation or any
law, rule, regulation, treaty, ruling, directive, order, arbitration award,
judgment or decree to which such Releasor or any of such Releasor's Associated
Parties is subject; and
(i) no authorization, instruction, consent or approval of any person
or entity is required to be obtained by such Releasor or any of such Releasor's
Associated Parties in connection with the execution and delivery of this General
Release or the performance hereof.
3.
5. INDEMNIFICATION. Without in any way limiting any of the rights or
remedies otherwise available to any Releasee, each Releasor shall indemnify and
hold harmless each Releasee against and from any loss, damage, injury, harm,
detriment, lost opportunity, liability, exposure, claim, demand, settlement,
judgment, award, fine, penalty, tax, fee, charge or expense (including
attorneys' fees) that is directly or indirectly suffered or incurred at any time
by such Releasee, or to which such Releasee otherwise becomes subject at any
time, and that arises directly or indirectly out of or by virtue of, or relates
directly or indirectly to, (a) any failure on the part of such Releasor to
observe, perform or abide by, or any other breach of, any restriction, covenant,
obligation, representation, warranty or other provision contained herein, or (b)
the assertion or purported assertion of any of the Released Claims by such
Releasor or any of such Releasor's Associated Parties.
6. CONFIRMATION OF APPOINTMENT. Each Releasor confirms the appointment
and authority of the Agent in all respects set forth in Section 10.1 of the
Reorganization Agreement. Such appointment confers complete authority upon the
Agent to act on behalf of the Releasor with respect to all matters relating to
Section 9 of the Reorganization Agreement and to the Escrow Agreement. Any
successor to the Agent who is appointed in accordance with the provisions of
Section 10.1 of the Reorganization Agreement shall be deemed to be the "Agent"
for purposes of the Reorganization Agreement and the Escrow Agreement. Each
Releasor agrees that any document executed or action taken by the Agent shall be
binding upon Releasor and all of the other shareholders of the Company. Each
Releasor agrees to and accepts the terms of the Escrow Agreement and
acknowledges that the shares of Parent Common Stock escrowed under the Escrow
Agreement in which the Releasor may have an interest are subject to release upon
the terms of the Escrow Agreement.
7. MISCELLANEOUS.
(a) This General Release sets forth the entire understanding of the
parties relating to the subject matter hereof and supersedes all prior
agreements and understandings among or between any of the Releasors and
Releasees relating to the subject matter hereof.
(b) If any provision of this General Release or any part of any such
provision is held under any circumstances to be invalid or unenforceable in any
jurisdiction, then (i) such provision or part thereof shall, with respect to
such circumstances and in such jurisdiction, be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent, (ii) the invalidity or unenforceability of such provision or part
thereof under such circumstances and in such jurisdiction shall not affect the
validity or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (iii) such invalidity or
enforceability of such provision or part thereof shall not affect the validity
or enforceability of the remainder of such provision or the validity or
enforceability of any other provision of this General Release. If any provision
of this General Release or any part of such provision is held to be
unenforceable against any Releasor, then the unenforceability of such provision
or part thereof against such Releasor shall not affect the enforceability
thereof against any other Releasor. Each provision of this General Release is
separable from every other
4.
provision of this General Release, and each part of each provision of this
General Release is separable from every other part of such provision.
(c) This General Release shall be construed in accordance with, and
governed in all respects by, the laws of the State of California (without giving
effect to principles of conflicts of laws).
(d) Any legal action or other legal proceeding relating to this
General Release or the enforcement of any provision of this General Release may
be brought or otherwise commenced by any Releasee in any state or federal court
located in the State of California. Each Releasor:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the State of
California in connection with any such legal proceeding;
(ii) agrees that each state and federal court located in the
State of California shall be deemed to be a convenient forum; and
(iii) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or federal
court located in the State of California, any claim that such Releasor is
not subject personally to the jurisdiction of such court, that such legal
proceeding has been brought in an inconvenient forum, that the venue of
such proceeding is improper or that this General Release or the subject
matter of this General Release may not be enforced in or by such court.
Nothing contained in this General Release shall be deemed to limit or otherwise
affect the right of any Releasee (1) to commence any legal proceeding or to
otherwise proceed against any of the Releasors or any other person or entity in
any other forum or jurisdiction, or (2) to raise this Release as a defense in
any legal proceeding in any other forum or jurisdiction.
(e) This General Release may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
(f) Each Releasor shall execute and/or cause to be delivered to each
Releasee such instruments and other documents, and shall take such other
actions, as such Releasee may reasonably request for the purpose of carrying out
or evidencing any of the actions contemplated by this General Release.
(g) If any legal action or other legal proceeding relating to this
General Release or the enforcement of any provision hereof is brought by any
Releasor or Releasee, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements to the extent actually
incurred (in addition to any other relief to which the prevailing party may be
entitled).
5.
(h) This General Release shall be effective with respect to, and
shall be binding upon and enforceable against, each Releasor who executes this
General Release, regardless of whether any of the other Releasors executes this
General Release. Each Releasor acknowledges that Annex I may be prepared and/or
revised by Parent or Company after the delivery by such Releasor of an executed
copy hereof and that such Releasor's obligations hereunder shall be independent
of, and effective regardless of, the content of Annex I.
(i) Whenever required by the context, the singular number shall
include the plural, and vice versa; the masculine gender shall include the
feminine and neuter genders; and the neuter gender shall include the masculine
and feminine genders.
(j) Any rule of construction to the effect that ambiguities are to
be resolved against the drafting party shall not be applied in the construction
or interpretation of this General Release.
(k) As used in this General Release, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, and shall be deemed to be followed by the words "without
limitation."
IN WITNESS WHEREOF, the Releasors have caused this General Release to be
executed as of the date first above written.
RELEASOR:
-----------------------------------
Print Name
-----------------------------------
Signature
6.
ANNEX I
RELEASORS
7.
EXHIBIT I
FORM OF LEGAL OPINION OF BRANTON, WILSON & MUNS
As used herein, "Merger Agreement" means the agreement of merger to be
filed pursuant to Section 1.3 of the Reorganization Agreement.
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. The Company has the
corporate power and authority to own, lease and operate its properties and to
carry on its business as now conducted.
2. To the best of such counsel's knowledge, the Company is qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
in the United States in which the ownership of its property or the conduct of
its business requires such qualification and where any statutory fines or
penalties or any corporate disability imposed for the failure to qualify would
materially and adversely affect the Company, its assets, financial condition or
operations.
3. Immediately prior to the Closing, the Company's authorized capital
stock consists of (a) 17,000,000 shares of Common Stock, no par value, of which
3,994,216 are issued and outstanding, and (b) 7,911,340 shares of Preferred
Stock, no par value, of which 2,500,000 are designated as Series A Preferred
Stock, 1,666,669 of which are issued and outstanding; of which 711,340 are
designated as Series B Preferred Stock, all of which are issued and outstanding;
of which 3,500,000 are designated as Series C Preferred Stock, 1,643,556 of
which are issued and outstanding; and of which 1,200,000 are designated as
Series D Preferred Stock, 441,328 of which are issued and outstanding. The
outstanding capital stock of the Company (a) has been duly authorized and
validly issued and is fully paid and nonassessable, (b) is not subject to any
preemptive rights created by statute, or by the Company's Articles of
Incorporation or Bylaws, each as in effect immediately prior to the Effective
Time, or by an agreement to which the Company is a party or may be bound, and
(c) to the best of such counsel's knowledge, are held by the Company's
shareholders free and clear of adverse claims. To such counsel's knowledge,
other than as set forth in Part 2.3 of the Disclosure Schedule, there are no
options, warrants, calls, rights, commitments, conversion rights or agreements
of any character to which the Company is a party or by which the Company is
bound obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, any shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
obligating the Company to grant, extend or enter into any such option, warrant,
call, right, commitment, conversion right or agreement.
4. All corporate action, including approval by the Company's Board of
Directors and its shareholders, required to be taken on the part of the Company
to authorize the Company to execute, deliver and perform its obligations under
the Reorganization Agreement, the Merger Agreement and the Escrow Agreement and
to consummate the Merger has been duly and validly taken.
1.
5. The Reorganization Agreement, the Merger Agreement and the Escrow
Agreement have been duly and validly authorized, executed and delivered by the
Company and are the valid and binding obligations of the Company enforceable in
accordance with their respective terms, except as the indemnification provisions
contained in Section 9 of the Reorganization Agreement and Section 8.2 of the
Escrow Agreement may be limited by applicable laws and except as may be limited
by applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditors' rights, and subject to general equity
principles and to limitations on availability of equitable relief, including
specific performance.
6. The execution and delivery of the Reorganization Agreement, the Merger
Agreement and the Escrow Agreement by the Company, and the consummation by the
Company of the transactions contemplated thereby and compliance by the Company
with the provisions thereof, do not violate any provision of the Articles of
Incorporation or the Bylaws of the Company, and do not constitute a material
default under the provisions of any material agreement known to such counsel to
which the Company is a party or by which it is bound, and do not violate or
contravene (a) any governmental statute, rule or regulation applicable to the
Company or (b) any order, writ, judgment, injunction, decree, determination or
award which has been entered against the Company and of which such counsel is
aware.
7. No government consent, approval, authorization, registration,
declaration or filing is required for the execution and delivery of the
Reorganization Agreement, the Merger Agreement or the Escrow Agreement on behalf
of the Company or for the performance by the Company of the Merger, except for
(a) the filing of the Merger Agreement with the Secretary of State of the State
of California as contemplated by Section 1.3 of the Reorganization Agreement and
as required by the California General Corporation Law and (b) such government
consents, approvals, authorizations, registrations, declarations and filings as
have been obtained or made.
8. To the best of such counsel's knowledge, there is no action,
proceeding or investigation pending or overtly threatened against the Company
before any court or administrative agency that questions the validity of the
Reorganization Agreement, the Merger Agreement or the Escrow Agreement, or,
other than as disclosed in the Disclosure Schedule, that might result, either
individually or in the aggregate, in any material adverse change in the assets,
financial condition, or operations of the Company.
9. Upon filing of the Merger Agreement with the Secretary of State of
California, assuming Parent and Merger Sub have complied with all requirements
of applicable law and the Reorganization Agreement and related agreements
necessary to effect the Merger, the Merger will become effective with the effect
stated in the Merger Agreement and Section 1107 of the California General
Corporation Law.
2.
EXHIBIT J
CERTAIN EMPLOYEES
Lowell Burnett
Dale Sheets
Andrew Hibbs
Mike Law
Peter Czipott
Tim Raynor
Simon Beevor
Mike Urbach
Victor Burns
EXHIBIT K
FORM OF LEGAL OPINION OF COOLEY GODWARD LLP
As used herein, "Merger Agreement" means the agreement of merger to be
filed pursuant to Section 1.3 of the Reorganization Agreement.
1. Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Parent has the corporate
power and authority to own, lease and operate its properties and to carry on its
business as now conducted.
2. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. Merger Sub has the
corporate power and authority to own, lease and operate its properties and to
carry on its business as now conducted.
3. To the best of such counsel's knowledge, each of Parent and Merger Sub
is qualified as a foreign corporation to do business and is in good standing in
each jurisdiction in the United States in which the ownership of its property or
the conduct of its business requires such qualification and where any statutory
fines or penalties or any corporate disability imposed for the failure to
qualify would materially and adversely affect Parent, its assets, financial
condition or operations.
4. The authorized capital stock of Parent consists of twenty million
(20,000,000) shares of Common Stock, $0.001 par value, and five million
(5,000,000) shares of Preferred Stock, $0.001 par value. At the close of
business on the day immediately prior to the Closing Date, [ ] shares of
Parent Common Stock were issued and outstanding and no shares of Parent Common
Stock were held by Parent in its treasury. No shares of Parent Preferred Stock
are issued or outstanding.
5. The authorized capital stock of Merger Sub consists of one thousand
(1,000) shares of Common Stock, $0.001 par value, of which one hundred (100)
shares were issued and outstanding at the close of business on the day
immediately prior to the Closing Date. Immediately prior to the Closing Date,
all of the issued and outstanding shares of Merger Sub were owned of record by
Parent.
6. All corporate action, including approval by Parent's Board of
Directors, required to be taken on the part of Parent to authorize Parent to
execute, deliver and perform its obligations under the Reorganization Agreement
and the Escrow Agreement and to consummate the Merger has been duly and validly
taken. All corporate action, including approval by Merger Sub's Board of
Directors and sole shareholder, required to be taken on the part of Merger Sub
to authorize Merger Sub to execute, deliver and perform its obligations under
the Reorganization Agreement and the Merger Agreement and to consummate the
Merger has been duly and validly taken.
1.
7. The Reorganization Agreement and the Escrow Agreement have been duly
authorized, executed and delivered by Parent, and the Reorganization Agreement
and the Merger Agreement have been duly authorized, executed and delivered by
Merger Sub. The Reorganization Agreement and the Escrow Agreement, with respect
to Parent, and the Reorganization Agreement and the Merger Agreement, with
respect to Merger Sub, is the valid and binding obligation of Parent and/or
Merger Sub, as applicable, enforceable in accordance with their respective
terms, except as the indemnification provisions contained in Section 9 of the
Reorganization Agreement and Section 8.2 of the Escrow Agreement may be limited
by applicable laws and except as may be limited by applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
affecting creditors' rights, and subject to general equity principles and to
limitations on availability of equitable relief, including specific performance.
8. The execution and delivery of the Reorganization Agreement and the
Escrow Agreement by Parent, and the execution and delivery of the Reorganization
Agreement and the Merger Agreement by Merger Sub, and the consummation by Parent
and Merger Sub of the transactions contemplated thereby and compliance by Parent
and Merger Sub with the provisions thereof, do not violate any provisions of
Parent's Amended and Restated Certificate of Incorporation, Merger Sub's
Articles of Incorporation or Parent's or Merger Sub's Bylaws, and do not violate
or contravene any order, writ, judgment, injunction, decree, determination or
award which has been entered against Parent and of which such counsel is aware,
which violation or contravention would materially and adversely affect Parent,
its assets, financial condition or operations.
9. No government consent, approval, authorization, registration,
declaration or filing is required for the execution and delivery of the
Reorganization Agreement, the Escrow Agreement or the Merger Agreement on behalf
of Parent and/or Merger Sub, as applicable, or for the performance by Parent or
Merger Sub of the Merger, except for (a) the filing of the Merger Agreement with
the Secretary of State of the State of California as contemplated by Section 1.3
of the Reorganization Agreement and as required by the California General
Corporation Law and (b) such government consents, approvals, authorizations,
registrations, declarations and filings as have been obtained or made, unless
the failure to obtain or make the same would not materially and adversely affect
Parent, its assets, financial condition or operations.
10. The Parent Common Stock issued in connection with the Merger will be,
upon issuance pursuant to the terms of the Reorganization Agreement and the
Proxy Statement/Prospectus, duly authorized, validly issued, fully paid and
nonassessable.
2.
EXHIBIT L
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is entered into as of September __, 1997 (the
"Closing Date"), by and among: INVISION TECHNOLOGIES, INC., a Delaware
corporation ("Parent"); QUANTUM MAGNETICS, INC., a California corporation (the
"Company"); RANDALL R. LUNN, as agent of the former shareholders of the Company
(the "Agent"); and _____________ (the "Escrow Agent").
RECITALS
A. Parent, the Company and QP ACQUISITION CORP., a California corporation
and a wholly owned subsidiary of Parent ("Merger Sub"), have entered into an
Agreement and Plan of Reorganization dated as of September 3, 1997 (the
"Reorganization Agreement"), pursuant to which Merger Sub is merging with and
into the Company in a transaction in which issued and outstanding capital stock
of the Company will be exchanged for shares of Common Stock, $.001 par value, of
Parent ("Parent Common Stock").
B. The Reorganization Agreement contemplates the establishment of an
escrow arrangement to secure the indemnification and other obligations of the
Company under the Reorganization Agreement and various related agreements.
AGREEMENT
The parties to this Escrow Agreement, intending to be legally bound, agree
as follows:
SECTION 1. DEFINED TERMS
Capitalized terms used and not otherwise defined in this Escrow Agreement
shall have the meanings assigned to them in the Reorganization Agreement.
SECTION 2. CONSENT OF THE SHAREHOLDERS OF THE COMPANY
By virtue of the approval by the shareholders of the Company of the
Reorganization Agreement, the shareholders of the Company receiving shares of
Parent Common Stock in the Merger (the "Shareholders") have, without any further
act of any such Shareholder, consented to (i) the establishment of an escrow
(the "Escrow") pursuant to this Agreement to secure the indemnification
obligations of the Company under Section 9 of the Reorganization Agreement, (ii)
the appointment of the Agent as agent for the Shareholders in all respects as
set forth in Section 10.1 of the Reorganization Agreement, (iii) the taking by
the Agent of any and all
1.
actions, including the execution by the Agent of any and all agreements,
instruments or other documents, and (iv) all of the other terms and conditions
of this Agreement.
SECTION 3. ESCROW
3.1 SHARES AND STOCK POWERS TO BE PLACED IN ESCROW. Parent shall issue
certificates for the aggregate number of shares of Parent Common Stock issuable
by Parent in the Merger pursuant to clause (B) of each of clause (i), (ii),
(iii) and (iv) of Section 1.5(a) of the Reorganization Agreement (the "Escrow
Shares") in the name of the Escrow Agent evidencing the shares of Parent Common
Stock to be held in escrow in accordance with this Escrow Agreement. The Escrow
Shares shall be held by the Escrow Agent in the Escrow in accordance with the
provisions of this Escrow Agreement and shall not be subject to any lien,
attachment, trustee process or any other judicial process of any creditor of any
party hereto or the Shareholders. Parent may from time to time deposit in the
Escrow additional shares of Parent Common Stock pursuant to Sections 1.6 or 1.10
of the Reorganization Agreement and such shares shall be deemed to have been
deposited in the Escrow at the Effective Time. All such shares shall be deemed
Escrow Shares, and the Persons with rights in respect of such Escrow Shares
shall be deemed Shareholders, for all purposes hereunder.
3.2 INDEMNIFICATION. The Company has agreed in Section 9 of the
Reorganization Agreement that each of the Indemnitees shall be held harmless and
indemnified from and against, and shall be compensated and reimbursed for, any
Damages incurred as set forth in Section 9 of the Reorganization Agreement. The
Company, and the Agent on behalf of the Shareholders, expressly agree that the
Escrow Shares (i) shall be security for such indemnity obligation, subject to
the limitations and in the manner provided for in this Agreement and (ii) are
subject to release to Parent or other Indemnitee upon the terms set forth
herein.
3.3 VOTING OF SHARES. The Shareholders shall be entitled to vote their
respective proportionate amount of Escrow Shares set forth on Exhibit A. Parent
shall give the Agent at least as much notice of meetings of shareholders as it
gives its shareholders generally. The Agent shall promptly inform each
Shareholder of each such meeting and of the matters to be considered at such
meeting. The Agent shall, in accordance with the instructions received from the
Shareholders, direct the Escrow Agent in writing as to the exercise of voting
rights pertaining to the Escrow Shares as to which such voting instructions have
been received, and the Escrow Agent shall comply with any such written
instructions. In the absence of such instructions, the Escrow Agent shall not
vote any of the Escrow Shares. The Agent shall have no obligation to solicit
consents or proxies from the Shareholders for purposes of any such vote.
3.4 DIVIDENDS, ETC. Any cash, securities or other property distributable
(whether by way of dividend, stock split or otherwise) in respect of or in
exchange for any Escrow Shares shall not be distributed to the Agent or the
Shareholders, but rather shall be deposited by Parent with the Escrow Agent to
be held in the Escrow. At the time any Escrow Shares are required to be
released from the Escrow to any Person pursuant to this Escrow Agreement, any
cash, securities or other property previously distributed in respect of or in
exchange for such Escrow Shares shall be released from the Escrow to such
Person.
2.
3.5 TRANSFERABILITY. The interests of the Agent and the Shareholders in
the Escrow and in the Escrow Shares shall not be assignable or transferable,
other than by operation of law. No transfer of any of such interests by
operation of law shall be recognized or given effect until Parent shall have
received written notice of such transfer.
3.6 FRACTIONAL SHARES. No fractional shares of Parent Common Stock shall
be retained in or released from the Escrow pursuant to this Escrow Agreement.
In connection with any release of Escrow Shares from the Escrow, any Shareholder
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 shareholder) shall be paid by Parent in cash the dollar amount
(rounded to the nearest whole cent), without interest, determined by multiplying
such fraction by the Designated Parent Stock Price, and such fraction of a share
shall be returned to Parent.
SECTION 4. CLAIM PROCEDURES
4.1 CLAIM NOTICE. If any Indemnitee determines in good faith that there
is or has been a possible breach by the Company of any representation, warranty,
covenant or other provision set forth in the Reorganization Agreement or other
event giving rise to an indemnification obligation under Section 9.2 of the
Reorganization Agreement (collectively, an "Indemnification Event"), and if
Parent shall have consented to such Indemnitee asserting a claim for
indemnification pursuant to Section 9.8 of the Reorganization Agreement and such
Indemnitee wishes to make a claim against the Escrow with respect to such
possible Indemnification Event, then such Indemnitee may deliver to each of the
Agent and the Escrow Agent a written notice of such possible Indemnification
Event (a "Claim Notice") setting forth (i) a brief description of the
circumstances supporting such Indemnitee's belief that such possible
Indemnification Event exists or has occurred, and (ii) a non-binding,
preliminary estimate of the aggregate dollar amount of all Damages that have
arisen and may arise as a direct or indirect result of such possible
Indemnification Event (such aggregate amount being referred to as the "Claim
Amount").
4.2 RESPONSE NOTICE. Within 15 days after the delivery of a Claim Notice
to the Agent, the Agent shall deliver to the Escrow Agent (with a copy to
Parent) a written notice (the "Response Notice") containing: (i) instructions
to the effect that Escrow Shares having a Fair Market Value (as defined in
Section 6) equal to the entire Claim Amount set forth in such Claim Notice are
to be released from the Escrow to such Indemnitee; OR (ii) instructions to the
effect that Escrow Shares having a Fair Market Value equal to a specified
portion (but not the entire amount) of the Claim Amount set forth in such Claim
Notice are to be released from the Escrow to such Indemnitee, together with a
statement that the remaining portion of such Claim Amount is being disputed; OR
(iii) a statement that the entire Claim Amount set forth in such Claim Notice is
being disputed. If no Response Notice is received by the Escrow Agent from the
Agent within 30 days after the delivery of a Claim Notice to the Agent, then the
Agent shall be deemed to have given instructions to the Escrow Agent that Escrow
Shares having a Fair Market Value equal to the entire Claim Amount set forth in
such Claim Notice are to be released to such Indemnitee from the Escrow.
3.
4.3 RELEASE OF ESCROW SHARES TO INDEMNITEES.
(a) If the Agent gives (or is deemed to have given) instructions that
Escrow Shares having a Fair Market Value equal to the entire Claim Amount set
forth in a Claim Notice are to be released from the Escrow to an Indemnitee,
then the Escrow Agent shall be authorized to transfer to such Indemnitee, from
the Escrow, Escrow Shares having a Fair Market Value equal to such Claim Amount.
(b) If a Response Notice delivered by the Agent in response to a
Claim Notice contains instructions to the effect that Escrow Shares having a
Fair Market Value equal to a specified portion (but not the entire amount) of
the Claim Amount set forth in such Claim Notice are to be released from the
Escrow to an Indemnitee, then (i) the Escrow Agent shall be authorized to
transfer to such Indemnitee, from the Escrow, Escrow Shares having a Fair Market
Value equal to such specified portion of such Claim Amount, and (ii) the
procedures set forth in Section 4.3(c) shall be followed with respect to the
remaining portion of such Claim Amount.
(c) If a Response Notice delivered by the Agent in response to a
Claim Notice contains a statement that all or a portion of the Claim Amount set
forth in such Claim Notice is being disputed (such Claim Amount or the disputed
portion thereof being referred to as the "Disputed Amount"), then,
notwithstanding anything contained in Section 5, the Escrow Agent shall continue
to hold in the Escrow (in addition to any other Escrow Shares permitted to be
retained in the Escrow, whether in connection with any other dispute or
otherwise), Escrow Shares having a Fair Market Value equal to 125% of the
Disputed Amount. Such Escrow Shares shall continue to be held in the Escrow
until such time as (i) the applicable Indemnitee and the Agent execute a
settlement agreement containing instructions regarding the release of such
shares, or (ii) the Escrow Agent receives a copy of a court order containing
instructions to the Escrow Agent regarding the release of such Escrow Shares.
The Escrow Agent shall thereupon release such Escrow Shares from the Escrow in
accordance with the instructions set forth in such settlement agreement or court
order. (The parties acknowledge that it is appropriate to retain more than 100%
of the Claim Amount in the Escrow in recognition of the fact that the Indemnitee
may have underestimated the aggregate amount of the actual and potential Damages
arising from a particular Indemnification Event, and to cover interest on such
Claim Amount in accordance with Section 9.6 of the Reorganization Agreement.)
(d) Notwithstanding anything to the contrary set forth in this
Section 4, the Escrow Agent shall not release to an Indemnitee, and no
Indemnitee shall be entitled to receive, any Escrow Shares in respect of
indemnification obligations under Section 9 of the Reorganization Agreement for
claims not in respect of or relating to Disputes ("Non-Dispute Indemnification
Claims") if the total number of Escrow Shares previously released to Indemnitees
together with the number of Escrow Shares being released to such Indemnitee
collectively in respect of Non-Dispute Indemnification Claims shall exceed
77,700 shares; PROVIDED, HOWEVER, that the Escrow Agent shall be entitled to
release, and an Indemnitee shall be entitled to receive, up to such number of
Escrow Shares in respect of a Non-Dispute Indemnification Claim as shall not
cause such 77,700 share aggregate maximum to be exceeded.
4.
SECTION 5. RELEASE OF SHARES TO SHAREHOLDERS
5.1 SHARES TO BE RELEASED. On the date 12 months after the Closing Date
(the "Scheduled Escrow Termination Date"), the Escrow Agent shall release to the
Shareholders from the Escrow all Escrow Shares then held in the Escrow, other
than any Escrow Shares that are to be retained in the Escrow in accordance with
Section 4.3(c). From and after the Scheduled Escrow Termination Date and upon
the resolution of a dispute (and the release of Escrow Shares to Indemnitees in
respect of such dispute, if any) in accordance with Section 4.3(c), Parent shall
release to the Shareholders any Escrow Shares remaining in the Escrow in respect
of such dispute.
5.2 PROCEDURES FOR RELEASING SHARES.
(a) In the event that the Escrow Agent is to release Escrow Shares to
the Shareholders in accordance with Section 5.1, the Escrow Agent shall be
authorized to transfer to each Shareholder, and shall so transfer and release to
each Shareholder, such number of Escrow Shares, subject to Section 3.6, as shall
equal the total number of Escrow Shares to be so transferred and released
multiplied by the fraction (i) having a numerator equal to the number of shares
of Parent Common Stock set forth opposite such Shareholder's name on Exhibit A
hereto and (ii) having a denominator equal to the total number of Escrow Shares
listed on Exhibit A.
(b) Any release of shares to the Shareholders pursuant to Section 5.1
may be effected by mailing a stock certificate to the Shareholders certified
mail, return receipt requested.
SECTION 6. VALUATION OF SHARES HELD IN ESCROW
For purposes of this Escrow Agreement, the "Fair Market Value" of the
Escrow Shares shall be deemed to be equal to the number of Escrow Shares
multiplied by the Designated Parent Stock Price (adjusted as appropriate to
reflect any stock split, reverse stock split, stock dividend or similar
transaction effected by Parent after the Closing Date).
SECTION 7. FEES AND EXPENSES
7.1 ESCROW AGENT FEES AND EXPENSES. Upon execution of this Escrow
Agreement and initial deposit of the Escrow Shares, an acceptance fee of
$___________ will be payable to the Escrow Agent. This acceptance fee will
cover the first year of the Escrow. Thereafter, an annual administrative fee
will be payable in accordance with the Escrow Agent's fee schedules in effect
from time to time. The Escrow Agent will also be entitled to reimbursement for
extraordinary expenses incurred in performance of its duties hereunder.
7.2 PAYMENT OF ESCROW AGENT. Parent shall pay the fees and expenses of
the Escrow Agent for the services to be rendered by the Escrow Agent hereunder.
Parent shall be entitled to reimbursement of one-half of such fees and expenses
from the Shareholders.
5.
7.3 AGENT'S FEES AND EXPENSES. All reasonable expenses (including
attorneys' fees) incurred by the Agent in connection with the performance of its
duties hereunder shall be reimbursed to the Agent by the Shareholders. Parent
shall not be obligated to reimburse the Agent for any fees charged or expenses
(including attorneys' fees) incurred by the Agent in connection with the Agent's
performance of his duties hereunder. The Agent hereby agrees that he shall not
seek payment or reimbursement of any such fees and expenses, if any, from
Parent, the Surviving Corporation or the Company, and that the Agent shall only
seek payment or reimbursement of all such fees and expenses from the
Shareholders.
7.4 REIMBURSEMENT PROCEDURES. Upon a notice in writing delivered to the
Escrow Agent by Parent in respect of Section 7.2 or Section 8.2, or by the Agent
in respect of Section 7.3, the Escrow Agent shall transfer, deliver and assign
to the Person delivering the notice, in reimbursement of fees and expenses
pursuant to Section 7.2, Section 7.3 or Section 8.2, such number of Escrow
Shares held in the Escrow Account which have a Fair Market Value equal to the
amount to be reimbursed. Notwithstanding the foregoing, the Agent's right of
reimbursement from the Escrow Shares shall be in all respects subordinate to
rights of Parent in respect of the Escrow Shares. The Escrow Agent shall
transfer shares to the Agent in reimbursement of its expenses only at such time
as Escrow Shares are otherwise distributable pursuant to the terms of this
Agreement to the Shareholders.
SECTION 8. LIMITATION OF ESCROW AGENT'S LIABILITY
8.1 LIMITATION. The Escrow Agent shall incur no liability with respect to
any action taken or suffered by it in reliance upon any notice, direction,
instruction, consent, statement or other documents believed by it to be genuine
and duly authorized, nor for other action or inaction except its own willful
misconduct or negligence. The Escrow Agent shall not be responsible for the
validity or sufficiency of this Agreement. In all questions arising under the
Escrow Agreement, the Escrow Agent may rely on the advice of counsel, and for
anything done, omitted or suffered in good faith by the Escrow Agent based on
such advice the Escrow Agent shall not be liable to anyone. The Escrow Agent
shall not be required to take any action hereunder involving any expense unless
the payment of such expense is made or provided for in a manner reasonably
satisfactory to it.
8.2 INDEMNIFICATION OF ESCROW AGENT. Parent and the Shareholders, jointly
and severally, shall indemnify the Escrow Agent for, and hold it harmless
against, any loss, liability or expense incurred without negligence or willful
misconduct on the part of Escrow Agent, arising out of or in connection with its
carrying out of its duties hereunder. As among themselves, each of (i) Parent
and (ii) the Shareholders shall be liable for one-half (1/2) of such amounts and
Parent shall be entitled to reimbursement from the Escrow Shares of the
Shareholders' share of any such loss, liability or expense.
6.
SECTION 9. SUCCESSOR ESCROW AGENT
In the event the Escrow Agent becomes unavailable or unwilling to continue
in its capacity herewith, the Escrow Agent may resign and be discharged from its
duties or obligations hereunder by giving resignation to the parties to this
Escrow Agreement, specifying not less than 60 days' prior written notice of the
date when such resignation shall take effect. Parent may appoint a successor
Escrow Agent without the consent of the Agent so long as such successor is a
bank with assets of at least $100 million, and may appoint any other successor
Escrow Agent with the consent of the Agent, which consent shall not be
unreasonably withheld. If, within such notice period, Parent provides to the
Escrow Agent written instructions with respect to the appointment of a successor
Escrow Agent and directions for the transfer of any Escrow Shares then held by
the Escrow Agent to such successor, the Escrow Agent shall act in accordance
with such instructions and promptly transfer such Escrow Shares to such
designated successor.
SECTION 10. GENERAL
10.1 ADJUSTMENT OF EXHIBIT A. If and when Parent deposits additional
Escrow Shares with the Escrow Agent, Parent shall revise Exhibit A to reflect
such deposit. In connection therewith, Parent may as appropriate alter the
identity of the Shareholders listed on Exhibit A and the number of Escrow Shares
set forth opposite the appropriate Shareholders' names, including appropriate
adjustments with respect to the incidence of any prior release of shares of
Parent Common Stock to an Indemnitee as permitted in Section 1.6 of the
Reorganization Agreement. Parent may deliver any revised Exhibit A in
accordance with Section 10.3. Upon such delivery, any such revised Exhibit A
(i) shall be deemed appended to this Agreement in replacement of the prior
Exhibit A and (ii) shall constitute Exhibit A for all purposes under this
Agreement.
10.2 OTHER AGREEMENTS. Nothing in this Escrow Agreement is intended to
limit any of Parent's or any other Indemnitee's rights, or any obligation of the
Company or any Shareholder, under the Reorganization Agreement or under any
other agreement entered into in connection with the transactions contemplated by
the Reorganization Agreement.
10.3 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Escrow Agreement shall be in writing and
shall be deemed properly delivered, given and received when delivered (by hand,
by registered mail, by courier or express delivery service or by facsimile) to
the address or facsimile telephone number set forth beneath the name of such
party below (or to such other address or facsimile telephone number as such
party shall have specified in a written notice given to the other parties
hereto):
7.
if to the Escrow Agent:
[Address]
if to Parent:
InVision Technologies, Inc.
3420 E. Third Avenue
Foster City, CA 94404
Attention: Chief Financial Officer
Facsimile: (415) 578-0930
with a copy to:
Robert L. Jones, Esq.
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Facsimile: (415) 857-0663
if to the Agent:
Randall R. Lunn
Techno Venture Management
101 Arch Street
Suite 1950
Boston, MA 02110
Facsimile: (617) 345-9377
10.4 COUNTERPARTS. This Escrow Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
10.5 HEADINGS. The underlined headings contained in this Escrow Agreement
are for convenience of reference only, shall not be deemed to be a part of this
Escrow Agreement and shall not be referred to in connection with the
construction or interpretation of this Escrow Agreement.
10.6 GOVERNING LAW; VENUE. This Escrow Agreement shall be construed in
accordance with, and governed in all respects by, the internal laws of the State
of California (without giving effect to principles of conflicts of laws). Any
state or federal court in the County of San Mateo in the State of California
shall have exclusive jurisdiction and venue over
8.
any dispute arising out of this Escrow Agreement and the parties hereby consent
to the jurisdiction and venue of such courts.
10.7 SUCCESSORS AND ASSIGNS; PARTIES IN INTEREST.
(a) Subject to Sections 3.5 and 10.7(b), this Escrow Agreement shall
be binding upon: the Company and its successors and assigns (if any); the Agent
and the shareholders of the Company and their respective estates, successors and
assigns (if any); and Parent and its successors and assigns (if any). This
Escrow Agreement shall inure to the benefit of: the Company; the Shareholders;
Parent; the other Indemnitees; and the respective successors (if any) of the
foregoing.
(b) Parent may freely assign any or all of its rights under this
Escrow Agreement, in whole or in part, to any other Person without obtaining the
consent or approval of any other party hereto or of any other Person. None of
the Shareholders, the Agent or the Company shall be permitted to assign any of
his, her or its rights or delegate any of his, her or its obligations under this
Escrow Agreement without Parent's prior written consent.
10.8 WAIVER.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Escrow Agreement, and no delay on the part
of any Person in exercising any power, right, privilege or remedy under this
Escrow Agreement, shall operate as a waiver of such power, right, privilege or
remedy; and no single or partial exercise of any such power, right, privilege or
remedy shall preclude any other or further exercise thereof or of any other
power, right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out of
this Escrow Agreement, or any power, right, privilege or remedy under this
Escrow Agreement, unless the waiver of such claim, power, right, privilege or
remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such Person; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
10.9 AMENDMENTS. This Escrow Agreement may not be amended, modified,
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of Parent, the Agent and the Escrow Agent.
10.10 SEVERABILITY. In the event that any provision of this Escrow
Agreement, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Escrow Agreement, and the
application of such provision to Persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
9.
10.11 ENTIRE AGREEMENT. This Escrow Agreement and the Reorganization
Agreement and the other agreements contemplated in the Reorganization Agreement
set forth the entire understanding of the parties relating to the subject matter
hereof and thereof and supersede all prior agreements and understandings among
or between any of the parties relating to the subject matter hereof and thereof.
10.12 CONSTRUCTION.
(a) For purposes of this Escrow Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Escrow Agreement.
(c) As used in this Escrow Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this Escrow
Agreement to "Sections" are intended to refer to Sections of this Escrow
Agreement.
10.
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as of
the date first above written.
INVISION TECHNOLOGIES, INC.
a Delaware corporation
By:
-------------------------------------
Name:
Title:
QUANTUM MAGNETICS, INC.
a California corporation
By:
-------------------------------------
Name:
Title:
AGENT:
By:
-------------------------------------
Randall R. Lunn
ESCROW AGENT:
By:
-------------------------------------
Name:
Title:
11.
EXHIBIT A
SHAREHOLDERS OF THE COMPANY
NUMBER OF
SHAREHOLDER ESCROW SHARES
Agreement and Plan of Merger and Reorganization - InVision Technologies Inc. and Quantum Magnetics Inc.
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