<PAGE>
As filed with the Securities and Exchange Commission on June ___, 1997.
Registration No. 333-_________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------------------
DFI/AERONOMICS INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7372 58-2322049
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
</TABLE>
4751 Best Road, Suite 300
Atlanta, Georgia 30337
(404) 763-5454
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
James L. Edwards
DFI/Aeronomics Incorporated
4751 Best Road, Suite 300
Atlanta, Georgia 30337
(404) 763-5454
(404) 763-1027 (Fax)
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
<TABLE>
<S> <C>
John C. Yates, Esq. Philip J. Wilson, Esq.
Grant W. Collingsworth, Esq. Wilson, Marshall & Taylor,P.C
Morris, Manning & Martin, L.L.P. One Embarcadero Place
1600 Atlanta Financial Center 2100 Geng Road, Suite 220
3343 Peachtree Road, N.E. Palo Alto, California 94303
Atlanta, Georgia 30326 (415) 424-9700
(404) 233-7000 (415) 424-9769 (Fax)
(404) 365-9532 (Fax)
</TABLE>
--------------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Title of each class of Amount Proposed maximum Proposed maximum Amount of
securities to be registered to be offering price per aggregate offering registration
registered(1) share(2) price(2) fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Voting Common 17,026,071 $.2656 $4,522,125 $1,371
Stock, $.0001 par value
per share
- ------------------------------------------------------------------------------------------------------------------------------------
Class B Nonvoting Common 214,423 $.50 $107,212 $33
Stock, $.0001 par value
per share
====================================================================================================================================
</TABLE>
(1) Number of shares to be issued in the mergers described herein estimated
solely for the purpose of calculating the registration fee.
(2) Computed in accordance with Rule 457(f) solely for the purpose of
calculating the registration fee on the basis of one-third of the respective
par values of the Series A Common Stock and Series B Common Stock of
Aeronomics Incorporated and the Class A Voting Common Stock and the Class B
Nonvoting Common Stock of Decision Focus Incorporated.
--------------------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
The Index to Exhibits is located at Page II-6.
<PAGE>
[DECISION FOCUS INCORPORATED LETTERHEAD]
August __, 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Decision Focus Incorporated ("DFI") to be held at 10:00 a.m., local time, on
August ___, 1997, at the headquarters of DFI located at 650 Castro Street, Suite
300, Mountain View, California 94041.
At the Special Meeting of Shareholders, holders of the Class A Voting
Common Stock and Class B Nonvoting Common Stock of DFI (together, the "Common
Stock") will be asked to consider, approve and adopt an Agreement and Plan of
Reorganization pursuant to which (i) DFI will be merged with and into
DFI/Aeronomics Incorporated ("DFI/Aeronomics"), with DFI/Aeronomics being the
surviving corporation (the "DFI Merger"), and (ii) Aeronomics Incorporated will
be merged with and into DFI/Aeronomics, with DFI/Aeronomics being the surviving
corporation.
If the Agreement and Plan of Reorganization is approved and the DFI Merger
is consummated, each share of DFI's Class A Voting Common Stock will be
converted into the right to receive 102.4968 shares of the Class A Voting Common
Stock of DFI/Aeronomics, and each share of DFI's Class B Nonvoting Common Stock
will be converted into the right to receive 102.4968 shares of the Class B
Nonvoting Common Stock of DFI/Aeronomics.
DO NOT SEND IN YOUR STOCK CERTIFICATES UNTIL YOU HAVE RECEIVED A LETTER OF
TRANSMITTAL, WHICH WILL BE SENT TO YOU IF THE DFI MERGER IS CONSUMMATED.
The affirmative vote of the holders of at least a majority of the
outstanding shares of the Common Stock is necessary to approve the Agreement and
Plan of Reorganization. Only shareholders of record as of the close of business
on July ___, 1997, are entitled to vote at the Special Meeting of Shareholders.
The participants in the Decision Focus Incorporated Stock Ownership Plan and
Money Purchase Pension Plan (the "Plan") will be permitted to direct the voting
of all the shares held by the Plan (allocated and unallocated shares). The Plan
Trustee will solicit from each participant instructions with respect to voting
those shares allocated to that participant. The Plan Trustee will vote all
shares in the Plan in accordance with the participants' instructions, on a pro
rata basis (e.g., if the Trustee receives instructions to vote in favor of the
DFI Merger from participants whose allocations of shares under the Plan
represent 90% of the Plan's allocated shares, the Plan Trustee will vote 90% of
the allocated and unallocated shares in favor of the proposal).
Details of the proposed DFI Merger are set forth in the accompanying Joint
Proxy Statement and Prospectus, which you should read carefully.
The Board of Directors of DFI has unanimously approved the terms of the
proposed DFI Merger and recommends that the holders of DFI's Common Stock vote
to approve and adopt the Agreement and Plan of Reorganization. The Board of
Directors has carefully reviewed and considered the terms and conditions of the
proposed DFI Merger and has considered a number of factors in reaching its
determination.
Regardless of whether you plan to attend the Special Meeting of
Shareholders, we urge you to read the enclosed materials carefully and complete,
sign, date and mail promptly the enclosed proxy solicited on behalf of the Board
of Directors. You may, of course, attend the Special Meeting of Shareholders
and vote in person, even if you have previously returned your proxy card.
Sincerely,
Robert L. Phillips,
Chief Executive Officer
<PAGE>
DECISION FOCUS INCORPORATED
650 Castro Street, Suite 300
Mountain View, California 94041
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST ____, 1997
To the Shareholders of Decision Focus Incorporated:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Special Meeting") of Decision Focus Incorporated ("DFI"), a California
corporation, will be held at the headquarters at 650 Castro Street, Suite 300,
Mountain View, California, on the _____ day of August, 1997, at 10:00 a.m.
(local time) for the following purpose:
1. To consider and act upon the approval and adoption of a proposed
Agreement and Plan of Reorganization, dated as of June 3, 1997 (the
"Merger Agreement"), among DFI, Aeronomics Incorporated ("Aeronomics") and
DFI/Aeronomics Incorporated ("DFI/Aeronomics"), pursuant to which (i) DFI
will be merged with and into DFI/Aeronomics, with DFI/Aeronomics being the
surviving corporation and the outstanding shares of DFI's capital stock
being converted into shares of DFI/Aeronomics' capital stock, and (ii)
Aeronomics will be merged with and into DFI/Aeronomics, with
DFI/Aeronomics being the surviving corporation and the outstanding shares
of Aeronomics' capital stock being converted into shares of
DFI/Aeronomics' capital stock.
2. To transact any and all other business that may properly come
before the meeting or any adjournment(s) thereof.
The Board of Directors has fixed the close of business on July ___, 1997,
as the record date (the "Record Date") for the determination of shareholders
entitled to notice of and to vote at such meeting or any adjournment(s)
thereof. Only shareholders of record at the close of business on the Record
Date are entitled to notice of and to vote at such meeting.
You are cordially invited to attend the meeting; whether or not you expect
to attend the meeting in person, however, you are urged to mark, sign, date,
and mail the enclosed form of proxy promptly so that your shares of stock may
be represented and voted in accordance with your wishes and in order that the
presence of a quorum may be assured at the meeting. Your proxy will be
returned to you if you should be present at the meeting and should request its
return in the manner provided for revocation of proxies on the initial page of
the enclosed proxy statement.
BY ORDER OF THE BOARD OF DIRECTORS
William M. Wells, Secretary
July __, 1997
<PAGE>
[AERONOMICS INCORPORATED LETTERHEAD]
August __, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Aeronomics Incorporated ("Aeronomics") to be held at 10:00 a.m., local time, on
August ___, 1997, at the headquarters of Aeronomics located at 4751 Best Road,
Suite 300, Atlanta, Georgia 30337-5609.
At the Special Meeting of Stockholders, holders of the Series A Voting
Common Stock of Aeronomics will be asked to consider, approve and adopt an
Agreement and Plan of Reorganization pursuant to which (i) Aeronomics will be
merged with and into DFI/Aeronomics Incorporated ("DFI/Aeronomics"), with
DFI/Aeronomics being the surviving corporation (the "Aeronomics Merger"), and
(ii) Decision Focus Incorporated ("DFI") will be merged with and into
DFI/Aeronomics, with DFI/Aeronomics being the surviving corporation.
If the Agreement and Plan of Reorganization is approved and the Aeronomics
Merger is consummated, each share of Aeronomics' Series A Voting Common Stock
will be converted into the right to receive 1.8605 shares of the Class A Voting
Common Stock of DFI/Aeronomics; each share of Aeronomics' Series B Nonvoting
Common Stock will be converted into the right to receive 1.8233 shares of the
Class A Voting Common Stock of DFI/Aeronomics; and each share of Aeronomics'
Convertible Preferred Stock will be converted into the right to receive 1.8605
shares of the Convertible Preferred Stock of DFI/Aeronomics.
DO NOT SEND IN YOUR STOCK CERTIFICATES UNTIL YOU HAVE RECEIVED A LETTER OF
TRANSMITTAL, WHICH WILL BE SENT TO YOU IF THE AERONOMICS MERGER IS CONSUMMATED.
The affirmative vote of the holders of at least a majority of the
outstanding shares of the Series A Voting Common Stock is necessary to approve
the Agreement and Plan of Reorganization. Only stockholders of record as of
the close of business on July ___, 1997, are entitled to vote at the Special
Meeting of Stockholders. The holders of all of the outstanding shares of
Aeronomics' Series A Voting Common Stock have indicated their intention of
voting in favor of the approval of the Agreement and Plan of Reorganization at
the Special Meeting of Stockholders. Accordingly, the approval of the
Agreement and Plan of Reorganization at the Special Meeting of Stockholders is
expected to occur.
Details of the proposed Aeronomics Merger are set forth in the
accompanying Joint Proxy Statement and Prospectus, which you should read
carefully.
The Board of Directors of Aeronomics has unanimously approved the terms of
the proposed Aeronomics Merger and recommends that the holders of Aeronomics'
Series A Voting Common Stock vote to approve and adopt the Agreement and Plan
of Reorganization. The Board of Directors has carefully reviewed and
considered the terms and conditions of the proposed Aeronomics Merger and has
considered a number of factors in reaching its determination.
Regardless of whether you plan to attend the Special Meeting of
Stockholders, we urge you to read the enclosed materials carefully and
complete, sign, date and mail promptly the enclosed proxy
<PAGE>
solicited on behalf of the Board of Directors. You may, of course, attend the
Special Meeting of Stockholders and vote in person, even if you have previously
returned your proxy card. Please do not hesitate to contact Jim Edwards or me
if you have any questions.
Sincerely,
Robert G. Cross
Chairman of the Board and Chief
Executive Officer
<PAGE>
AERONOMICS INCORPORATED
4751 Best Road, Suite 300
Atlanta, Georgia 30337
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST ____, 1997
To the Stockholders of Aeronomics Incorporated:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Special Meeting") of Aeronomics Incorporated ("Aeronomics"), a Delaware
corporation, will be held at the headquarters of Aeronomics located at 4751
Best Road, Suite 300, Atlanta, Georgia on the _____ day of August, 1997, at
10:00 a.m. (local time) for the following purpose:
1. To consider and act upon the approval and adoption of a proposed
Agreement and Plan of Reorganization, dated as of June 3, 1997 (the
"Merger Agreement"), among Aeronomics, Decision Focus Incorporated ("DFI")
and DFI/Aeronomics Incorporated ("DFI/Aeronomics"), pursuant to which (i)
Aeronomics will be merged with and into DFI/Aeronomics, with
DFI/Aeronomics being the surviving corporation and the outstanding shares
of Aeronomics' capital stock being converted into shares of
DFI/Aeronomics' capital stock and (ii) DFI will be merged with and into
DFI/Aeronomics, with DFI/Aeronomics being the surviving corporation, and
the outstanding shares of DFI's capital stock being converted into shares
of DFI/Aeronomics' capital stock.
2. To transact any and all other business that may properly come
before the meeting or any adjournment(s) thereof.
The Board of Directors has fixed the close of business on July ___, 1997,
as the record date (the "Record Date") for the determination of stockholders
entitled to notice of and to vote at such meeting or any adjournment(s)
thereof. Only stockholders of record at the close of business on the Record
Date are entitled to notice of and to vote at such meeting.
You are cordially invited to attend the meeting; whether or not you expect
to attend the meeting in person, however, you are urged to mark, sign, date,
and mail the enclosed form of proxy promptly so that your shares of stock may
be represented and voted in accordance with your wishes and in order that the
presence of a quorum may be assured at the meeting. Your proxy will be
returned to you if you should be present at the meeting and should request its
return in the manner provided for revocation of proxies on the initial page of
the enclosed proxy statement.
BY ORDER OF THE BOARD OF DIRECTORS
James L. Edwards, Secretary
July __, 1997
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE ____, 1997
PROSPECTUS AND JOINT PROXY STATEMENT
THIS DOCUMENT SERVES AS A PROSPECTUS FOR THE SHARES OF THE COMMON STOCK OF
DFI/AERONOMICS INCORPORATED TO BE ISSUED IN THE MERGERS DESCRIBED HEREIN, A
PROXY STATEMENT FOR A SPECIAL MEETING OF SHAREHOLDERS OF DECISION FOCUS
INCORPORATED AND A PROXY STATEMENT FOR A SPECIAL MEETING OF STOCKHOLDERS OF
AERONOMICS INCORPORATED.
---------------------------
The accompanying proxy is solicited by the Boards of Directors of
Aeronomics Incorporated, a Delaware corporation ("Aeronomics") and Decision
Focus Incorporated, a California corporation ("DFI") for use in connection with
(i) a Special Meeting of Stockholders of Aeronomics (the "Aeronomics Meeting")
and (ii) a Special Meeting of Shareholders of DFI (the "DFI Meeting"), each of
which are to be held on August ___, 1997. At the Aeronomics Meeting and the
DFI Meeting (collectively, the "Special Meetings"), the holders of Aeronomics'
Series A Voting Common Stock (the "Aeronomics Voting Common Stock") and the
holders of DFI's Common Stock will consider and act upon the approval and
adoption of a proposed Agreement and Plan of Reorganization, dated as of June
3, 1997 (the "Merger Agreement"), among Aeronomics, DFI and DFI/Aeronomics
Incorporated, a Delaware corporation (the "Company"), pursuant to which (i)
Aeronomics will be merged with and into the Company, with the Company being the
surviving corporation (the "Aeronomics Merger") and the outstanding shares of
Aeronomics' capital stock being converted into shares of the Company's capital
stock, and (ii) DFI will be merged with and into the Company, with the Company
being the surviving corporation (the "DFI Merger") and the outstanding shares
of DFI's capital stock being converted into shares of the Company's capital
stock. The Aeronomics Merger and the DFI Merger are referred to collectively
as the "Mergers."
No public market currently exists, or has ever existed, for the capital
stock of either the Company, Aeronomics or DFI.
See "Risk Factors" on page 11 for a discussion of certain factors that
should be considered in connection with the Mergers.
This Joint Proxy Statement and Prospectus and the accompanying proxies are
first being mailed to the stockholders of Aeronomics and the shareholders of
DFI on or about August _____, 1997.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement and Prospectus is _________, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and does
not have any securities traded on any national securities exchange or listed on
any established quotation system. The Company will not distribute annual
reports to its stockholders.
-2-
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Summary ................................................................... 5
Risk Factors .............................................................. 12
Integration of Business ................................................ 12
Project Risks .......................................................... 12
Competition ............................................................ 12
Potential for Contract Liability ....................................... 12
Dependence on Proprietary Rights ....................................... 13
Dependence on Key Personnel ............................................ 13
Need to Attract and Retain Professional Staff .......................... 13
Absence of Public Market ............................................... 14
Certain Anti-Takeover Provisions ....................................... 14
Dividend Policy ........................................................ 14
Special Meeting of Aeronomics Stockholders ................................ 14
Date, Time and Place ................................................... 14
Purpose of the Meeting ................................................. 15
Special Meeting of DFI Shareholders ....................................... 16
Date, Time and Place ................................................... 16
Purpose of the Meeting ................................................. 16
The Merger ................................................................ 17
Introduction ........................................................... 17
Background of and Reasons for the Merger ............................... 17
Report of Houlihan Lokey ............................................... 19
Terms of the Merger .................................................... 20
Effective Time of the Merger ........................................... 23
Exchange of Certificates ............................................... 23
Regulatory Matters ..................................................... 23
Accounting Treatment ................................................... 23
Appraisal Rights ....................................................... 23
Interests of Certain Persons in the Mergers ............................ 25
Federal Income Tax Treatment ........................................... 25
Material Difference between Rights of Holders of Aeronomics
Common Stock and Rights of Holders of the Company's Common Stock ....... 25
Material Differences between Rights of Holders of DFI
Common Stock and Rights of Holders of the Company's Common Stock ....... 26
Information about the Company ............................................. 32
Business of the Company ................................................ 32
Plan of Operation of the Company ....................................... 38
Directors and Executive Officers of the Company ........................ 39
Certain Transactions ................................................... 40
Equity Securities of the Company ....................................... 40
Common Stock ........................................................... 41
Convertible Preferred Stock ............................................ 41
Indemnification of Directors and Officers .............................. 44
Security Ownership of Management and Principal Stockholders of the
Company ................................................................ 45
Information about Aeronomics .............................................. 46
Business of Aeronomics ................................................. 46
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Management's Discussion and Analysis of Financial Condition and
Result of Operations of Aeronomics ..................................... 47
Capital Stock of Aeronomics ............................................ 50
Executive Compensation ................................................. 51
Information About DFI ..................................................... 53
Business of DFI ........................................................ 53
Management's Discussion and Analysis of Financial Condition and
Results of Operations of DFI ........................................... 53
Capital Stock .......................................................... 55
Security Ownership of Management and Principal Stockholders of DFI ..... 55
Executive Compensation ................................................. 56
Legal Matters ............................................................. 57
Experts ................................................................... 57
Index to Financial Statements ............................................. F-1
</TABLE>
Appendix A - Agreement and Plan of Reorganization
Appendix B - Section 262 of the Delaware General Corporation Law
Appendix C - Section 1300-1304 of the California General Corporation Law
ii
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Joint Proxy Statement and Prospectus (this "Proxy Statement").
This summary is not intended to be complete and is qualified in all respects by
reference to the detailed information appearing elsewhere in this Proxy
Statement and the appendices hereto.
The Companies
DFI/Aeronomics Incorporated.....The Company is a newly formed corporation
created for the purpose of merging with
Aeronomics and DFI and succeeding to the
respective businesses of Aeronomics and DFI. As
of the date of this Proxy Statement, the Company
owns only nominal assets and has not conducted
any business other than related to the Mergers.
The Company's principal executive offices are
located at 4751 Best Road, Suite 300, Atlanta,
Georgia 30337 (telephone number (404) 763-5454)
and 650 Castro Street, Suite 300, Mountain View,
California 94041 (telephone number (415) 960-
3450).
Aeronomics Incorporated........Aeronomics provides computer software and
consulting services to assist businesses in
maximizing revenues through predicting customer
demand and optimizing the price and availability
of their products. Aeronomics' principal
executive offices are located at 4751 Best Road,
Suite 300, Atlanta, Georgia 30337.
Decision Focus Incorporated.....DFI provides computer software, contract
research, software development, management
consulting and expert testimony services to a
wide range of clients, primarily in the
transportation, hotel, travel and energy
industries. DFI's principal executive offices
are located at 650 Castro Street, Suite 300,
Mountain View, California 94041.
The Aeronomics Meeting
Date, Time and Place of the
Special Meeting.................The Aeronomics Meeting is scheduled to be held
at the principal executive offices of Aeronomics
at 4751 Best Road, Suite 300, Atlanta, Georgia
30337. The meeting will take place at 10:00 a.m.
(local time) on August __, 1997.
Record Date and Shares
Entitled to Vote................Only holders of record of shares of the
Aeronomics Voting Common Stock at the close of
business on July ____, 1997 are entitled to vote
at the Aeronomics Meeting. There were 698 shares
of the Aeronomics Voting Common Stock
outstanding on the Record Date and entitled to
vote at the Aeronomics Meeting.
-5-
<PAGE>
Vote Required...................Assuming the presence of a quorum at the
Aeronomics Meeting, the affirmative vote of a
majority of the outstanding shares of the
Aeronomics Voting Common Stock is required for
the approval and adoption of the Aeronomics
Merger.
Proxies.........................Proxies are being solicited by the Board of
Directors of Aeronomics as described herein.
Recommendations.................The Board of Directors of Aeronomics has
approved the Aeronomics Merger and unanimously
recommends that the stockholders approve the
Aeronomics Merger.
The DFI Meeting
Date, Time and Place of the
Special Meeting.................The DFI Meeting is scheduled to be held at the
principal executive offices of DFI at 650 Castro
Street, Suite 300, Mountain View, California
94041. The meeting will take place at 10:00 a.m.
(local time) on August ___, 1997.
Record Date and Shares
Entitled to Vote................Only holders of record of shares of DFI's Class
A Voting Common Stock (the "DFI Voting Common
Stock") and DFI's Class B Nonvoting Common Stock
(the "DFI Nonvoting Common Stock") at the close
of business on July ___, 1997 are entitled to
vote at the DFI Meeting. There were 85,165
shares of the DFI Voting Common Stock and 5,694
shares of the DFI Nonvoting Common Stock
outstanding on the Record Date and entitled to
vote at the DFI Meeting.
Vote Required...................Assuming the presence of a quorum at the DFI
Meeting, the affirmative vote of a majority of
the outstanding shares of the DFI Voting Common
Stock and DFI Nonvoting Common Stock
(collectively, the "DFI Common Stock") is
required for the approval and adoption of the
DFI Merger. The participants in the Decision
Focus Incorporated Stock Ownership Plan and
Money Purchase Pension Plan (the "DFI ESOP")
will be permitted to direct the voting of all
the shares held by the DFI ESOP (allocated and
unallocated shares). The Trustee of the DFI ESOP
will solicit from each participant instructions
with respect to voting those shares allocated to
that participant. The Trustee will vote all
shares in the DFI ESOP in accordance with the
participants' instructions, on a pro rata basis
(e.g. if the Trustee receives instructions to
vote in favor of the DFI Merger from
participants whose allocations of shares under
the DFI ESOP represent 90% of the DFI ESOP's
allocated shares, the Trustee will vote 90% of
the allocated and unallocated shares in favor of
the proposal).
-6-
<PAGE>
Proxies.........................Proxies are being solicited by the Board of
Directors of DFI as described herein
Recommendations.................The Board of Directors of DFI has approved the
DFI Merger and unanimously recommends that the
shareholders approve the DFI Merger.
The Mergers
Background and Reasons
for the Mergers.................For a description of the events leading to the
approval of the Mergers by the Board of
Directors of DFI and Aeronomics, see "The
Merger-Background of and Reasons for the
Mergers."
DFI Merger......................At the Effective Time (as defined below), DFI
shall be merged with and into the Company. The
Company shall be the surviving corporation of
the DFI Merger and shall continue its corporate
existence under the laws of the State of
Delaware. By virtue of the DFI Merger and
without any further action of any party, each
share of DFI Voting Common Stock outstanding as
of the Effective Time shall be converted into
the right to receive 102.4968 shares of the
Company's Class A Voting Common Stock, $0.0001
par value per share (the "Company's Voting
Common Stock"), and each share of DFI's Class B
Nonvoting Common Stock (the "DFI Nonvoting
Common Stock") shall be converted into the right
to receive 102.4968 shares of the Company's
Class B Nonvoting Stock, $0.0001 par value per
share (the "Company's Nonvoting Common Stock").
The Company's Voting Common Stock and the
Company's Nonvoting Common Stock are referred to
collectively as the "Company's Common Stock."
Aeronomics Merger...............At the Effective Time, Aeronomics shall be
merged with and into the Company. The Company
shall be the surviving corporation of the
Aeronomics Merger and shall continue its
corporate existence under the laws of the State
of Delaware. By virtue of the Aeronomics Merger
and without any further action of any party,
each share of Aeronomics Voting Common Stock
outstanding as of the Effective Time shall be
converted into the right to receive 1.8605
shares of the Company's Voting Common Stock;
each share of Aeronomics' Series B Nonvoting
Common Stock (the "Aeronomics Nonvoting Common
Stock") outstanding as of the Effective Date
shall be converted into the right to receive
1.8233 shares of the Company's Voting Common
Stock; and each share of Aeronomics' Convertible
Preferred Stock (the "Aeronomics Preferred
Stock") outstanding as of the Effective Time
shall be converted into the right to receive
1.8605 shares of the Redeemable, Convertible
Preferred Stock, $.0001 par value, of the
Company (the "Company's Preferred Stock").
-7-
<PAGE>
DFI Options.....................Each outstanding stock option of DFI, whether
exercisable or unexercisable, to purchase shares
of DFI's Voting Common Stock (a "DFI Voting
Option") or DFI's Nonvoting Common Stock (a "DFI
Nonvoting Option") will be assumed by the
Company and will constitute an option to
acquire, on substantially the same terms and
conditions as were applicable under such DFI
Voting Option or DFI Nonvoting Option (a "DFI
Option") immediately prior to the Effective
Time, a number of shares of the Company's Voting
Common Stock (in the case of a DFI Voting
Option) or the Company's Nonvoting Common Stock
(in the case of a DFI Nonvoting Option) (in each
case rounded down to the next whole share) equal
to the product of 102.4968 and the number of
shares of DFI Common Stock subject to such DFI
Option immediately prior to the Effective Time
at a price per share equal to the aggregate
exercise price for the shares of DFI Common
Stock subject to such DFI Option divided by the
number of full shares of the Company's Common
Stock deemed to be purchasable pursuant to such
DFI Option, rounded to the nearest cent.
Aeronomics Options..............Each outstanding stock option of Aeronomics,
whether exercisable or unexercisable, to
purchase shares of Aeronomics Nonvoting Common
Stock will be assumed by the Company and will
constitute an option to acquire, on
substantially the same terms and conditions as
were applicable under such option immediately
prior to the Effective Time, a number of shares
of the Company's Nonvoting Common Stock (rounded
down to the next whole share) equal to the
product of 1.8605 and the number of shares of
Aeronomics Nonvoting Common Stock subject to
such Aeronomics Option immediately prior to the
Effective Time, at a price per share equal to
the aggregate exercise price for the shares of
Aeronomics Nonvoting Common Stock subject to
such Aeronomics Option divided by the number of
full shares of the Company's Nonvoting Common
Stock deemed to be purchasable pursuant to such
Aeronomics Option, rounded to the nearest cent.
Report of Houlihan Lokey........Aeronomics and DFI retained Houlihan Lokey
Howard & Zukin ("Houlihan Lokey"), an investment
banking firm, to conduct a valuation of
Aeronomics and DFI and to recommend reasonable
exchange rates at which the shares of capital
stock of DFI and Aeronomics would be converted
into shares of the Company's capital stock. The
Board of Directors of DFI and Aeronomics
considered the recommendation of Houlihan Lokey
and adopted them as Aeronomics as the conversion
rates used in the Merger Agreement. See "The
Merger -Report of Houlihan Lokey."
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Effective Time of the Mergers...The Mergers will become effective upon the
proper filing of the requisite documents with
the Secretary of State of the States of Delaware
and California. After approval and adoption of
the Merger Agreement by the requisite votes at
the Special Meetings and the satisfaction or
waiver of the conditions to the Mergers
described below, the parties will conduct a
closing for purposes of executing and delivering
the documents and certificates as may be
required under the Merger Agreement, and the
requisite merger documents will be filed
immediately following the closing. It is
presently contemplated that the date of such
closing will occur either on the same day as the
Special Meetings or the following business day.
The date on which the Mergers become effective
is referred to herein as the "Effective Time."
See "The Merger-Effective Time of the Merger."
Exchange of Certificates.......Promptly after the consummation of the Mergers,
the Company will mail to each of the former
holders of Aeronomics' capital stock and DFI's
capital stock a form letter of transmittal and
instructions for use in effecting the surrender
of the certificates representing such shares.
Upon surrender to the Company of such
certificates, together with such letter of
transmittal duly executed, the Company shall
deliver to the surrendering holder thereof
certificates representing the shares of the
Company's Common Stock to which such
surrendering holder is entitled. See "The
Merger - Terms of the Merger."
Prohibition of Certain
Activities......................The Merger Agreement generally provides that
prior to the Effective Time, each of DFI,
Aeronomics and the Company will conduct their
respective businesses only in the ordinary
course and will not, without the prior consent
of the other parties to the Merger Agreement,
effect certain material changes in its business
or engage in certain extraordinary transactions.
See "The Merger-Terms of the Merger. "
Conditions to the Merger........The respective obligations of the parties to the
Merger Agreement to effect the Mergers are
subject to the satisfaction or waiver of certain
conditions. See "The Merger - Terms of the
Merger."
Termination.....................DFI, Aeronomics and the Company may terminate
the Merger Agreement by written agreement at any
time prior to the Effective Time. The Merger
Agreement may be terminated by DFI prior to the
Effective Time if (i) the Effective Time does
not occur on or before September 30, 1997, or
(ii) if there has been any material
misrepresentation or material breach of or
failure to satisfy timely on the part of
Aeronomics any condition or any warranty,
representation or agreement contained in the
Merger Agreement, if such breach or failure is
not cured within
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five business days of receipt of written notice
thereof from DFI. The Merger Agreement may be
terminated by Aeronomics if (i) the Effective
Time does not occur on or before September 30,
1997, or (ii) if there has been any material
misrepresentation or material breach of or
failure to satisfy timely on the part of DFI any
condition or any material warranty,
representation or agreement contained in the
Merger Agreement, if such breach or failure is
not cured within five business days of receipt
of written notice thereof from Aeronomics.
Regulatory Matters..............No federal, state or other regulatory approvals
are required to be obtained, nor any regulatory
requirements complied with, by any party to the
Merger Agreement, except for the requirements of
the Delaware General Corporation Law (the
"DGCL") and the California Corporations Code
(the "CCC") in connection with the consummation
of the Mergers and the requirements of
applicable securities laws. See "The Merger -
Terms of the Merger."
Accounting Treatment............Each of the Mergers will be accounted for as a
pooling of interests transaction. The ability of
the Company to account for the Mergers as a
pooling of interests is a condition to each of
the Mergers. See "The Merger - Accounting
Treatment."
Appraisal Rights................The Aeronomics Stockholders will have appraisal
rights pursuant to Section 262 of the DGCL. The
DFI Shareholders will have appraisal rights
pursuant to Chapter 13 of the CCC. See "The
Merger - Dissenters Rights."
Federal Income Tax
Consequences....................Each of the Mergers is intended to meet the
requirements of a nontaxable reorganization
under the Internal Revenue Code of 1986, as
amended. See "The Merger - Federal Income Tax
Consequences."
Financial Information...........Financial statements of Aeronomics, consolidated
financial statements of DFI and pro forma
financial statements of the Company after giving
effect to the Mergers are set forth in this
Proxy Statement. See "Index to Financial
Statements."
Ownership of the Aeronomics
Voting Common Stock by
Affiliates......................Approximately 53% of the Aeronomics Voting
Common Stock issued and outstanding as of the
Record Date and entitled to vote with respect to
the Aeronomics Merger is beneficially owned by
directors and executive officers of Aeronomics,
and such persons have indicated their intention
of voting in favor of the Aeronomics Merger at
the Aeronomics Meeting. The affirmative vote of
a majority of the shares of the Aeronomics
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Voting Common Stock issued and outstanding as of
the Record Date is required for the approval of
the Aeronomics Merger. Therefore, the approval
of the Aeronomics Merger at the Aeronomics
Meeting is expected to occur.
Ownership of the DFI
Voting Common Stock by
Affiliates......................Approximately 37% of the DFI Common Stock issued
and outstanding as of the Record Date and
entitled to vote with respect to the DFI Merger
is held by directors and executive officers of
DFI, and such persons have indicated their
intention of voting in favor of the DFI Merger
at the DFI Meeting. The affirmative vote of a
majority of the shares of the DFI Common Stock
issued and outstanding as of the Record Date is
required for the approval of the DFI Merger.
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RISK FACTORS
The holders of DFI's capital stock and Aeronomics' capital stock should
carefully consider the following risks associated with the Mergers and the
receipt of the Company's capital stock:
Integration of Businesses
The Mergers involve the integration of two companies that have previously
operated independently. There can be no assurance the Company will not
encounter difficulties in integrating the operations of DFI and Aeronomics or
that the benefits expected from such integration will be realized. Furthermore,
there can be no assurance that the operations, management and personnel of
Aeronomics and DFI will be compatible or that the Company will not experience
the loss of key personnel. Any delays or unexpected costs incurred in
connection with such integration could have a material adverse effect on the
Company's business and results of operations.
Project Risks
Many of the Company's engagements will involve projects that are critical
to the operations of its customers' businesses and that provide benefits that
may be difficult to quantify. The Company's failure or inability to meet a
customer's expectations in the performance of its services could result in the
incurrence by the Company of a financial loss and could damage the Company's
reputation and adversely affect its ability to attract new business. In
addition, an unanticipated difficulty in completing a project could have a
material adverse effect on the Company's business and results of operations.
Fees for the Company's engagements typically will be based on the project
schedule, the level of customer involvement and the scope of the project as
agreed upon with the customer at the project's inception. The Company
generally will seek to obtain an adjustment in its fees in the event of any
significant change in any of the assumptions upon which the original estimate
was based. However, there can be no assurance that the Company will be
successful in obtaining any such adjustment in the future, and failure to
obtain such an adjustment could have a material adverse effect on the Company's
business and results of operations.
Competition
The Company believes that the market for its products and services is
growing and will become more populated with potential competitors in the
future. The Company's clients will generally consist of large corporations,
and many of the Company's competitors are expected to aggressively pursue
business from those entities. Many of these competitors will have
significantly greater financial, technical, and marketing resources and
generate greater revenue than the Company. There can be no assurance that the
Company will not lose clients to such competitors. The Company believes that
its ability to compete also depends in part on a number of factors outside its
control, including the ability of its competitors to hire and retain
professional and technical employees, the price at which others offer
comparable services and the extent of its competitors' responsiveness to client
needs.
Potential for Contract Liability
The Company's products and consulting services will involve key aspects of
its clients' business systems and practices. Neither Aeronomics nor DFI have
ever been the subject of a damages claim related to its products or consulting
services. However, business losses or other difficulties incurred by a
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client could result in a claim for damages against the Company, regardless of
the Company's responsibility for such losses or difficulties. The Company will
attempt to contractually limit its liability for damages arising from negligent
acts, errors, mistakes or omissions in rendering its professional consulting
services. Despite this precaution, there can be no assurance that the
limitations of liability set forth in its contracts would be enforceable or
would otherwise protect the Company from liability for damages. Furthermore,
the Company would be liable in the event of any successful claim for damages
arising from the actions of DFI or Aeronomics occurring prior to the Mergers.
The Company expects to obtain general liability insurance coverage, including
coverage for errors or omissions. However, there can be no assurance that such
coverage will continue to be available on acceptable terms, or will be
available in sufficient amounts to cover one or more large claims, or that the
issuer will not disclaim coverage as to any future claim. The successful
assertion of one or more large claims against the Company that exceed available
insurance coverage or changes in the Company's insurance policies, including
premium increases or the imposition of large deductible or co-insurance
requirements, could materially and adversely affect the Company's business,
operating results and financial condition.
Dependence on Proprietary Rights
The Company's ability to compete effectively will depend in part on its
ability to protect its proprietary rights in its various intellectual
properties. To do so, the Company will rely, and Aeronomics and DFI in the
past have relied, upon a combination of patent, copyright and trade secret
laws, nondisclosure and other contractual arrangements, and technical measures.
There can be no assurance that the steps taken by DFI and Aeronomics in the
past, or the steps taken by the Company in the future, to protect their
respective proprietary rights will be adequate to deter misappropriation of
such proprietary rights or that the Company will be able to detect unauthorized
use and take appropriate steps to enforce its rights. Neither Aeronomics nor
the Company presently hold any patents or registered copyrights, and DFI
currently has two pending patent applications. Although the Company believes
that the intellectual property rights of Aeronomics and DFI do not infringe on
the intellectual property rights of others, there can be no assurance that such
a claim will not be asserted against the Company in the future, that assertion
of such claims will not result in litigation or that the Company would prevail
in such litigation. Any such claims, regardless of their outcome or merit,
could result in substantial cost to the Company and divert management's
attention from the Company's operations and could therefore have a material
adverse effect on the Company's business and results of operations.
Dependence on Key Personnel
The Company's success will depend in large part upon the continued
services of a number of key employees, including its executive officers. The
loss of the services of any of its executive officers or one or more of the
Company's other key personnel could have a material adverse effect on the
Company. In addition, if one or more of the Company's key employees resigns
from the Company to join a competitor or to form a competing company, the loss
of such personnel and any resulting loss of existing or potential clients to
any such competitor could have a material adverse effect on the Company's
business, financial condition and results of operations.
Need to Attract and Retain Professional Staff
The Company's business will be labor intensive. The Company's success
will depend in large part upon its ability to attract, retain, train and
motivate highly-skilled employees. There is significant competition for
employees with the skills required to perform the services the Company will
require. There can be no assurance that the Company will be successful in
attracting a sufficient number of
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<PAGE>
highly-skilled employees in the future, or that it will be successful in
retaining, training and motivating the employees it is able to attract, and any
inability to do so could impair the Company's ability to adequately manage and
complete its existing projects and to bid for or obtain new projects. If the
Company 's employees are unable to achieve expected performance levels, the
Company's business and results of operations could be adversely affected.
Absence of Public Market
There has been no public market for any of the securities of Aeronomics or
DFI, and no public market for the Company's securities will develop as a result
of this offering. The Company is under no obligation to register an additional
offering of its common stock in order to develop a public market therefor, and
it does not intend to do so in the foreseeable future. Accordingly, it is
unlikely that a holder of the Company's common stock would be able to readily
dispose of such securities, and these securities should be considered to be a
long-term investment with little or no liquidity in the foreseeable future.
However, the Company's employee stock ownership plan will provide its
participants with certain put rights with respect to the shares of capital
stock issued through such plan, which would provide such participants with some
potential liquidity. Furthermore, the Company's Bylaws provide that the
Company's Common Stock is subject to a "right of first refusal." The right of
first refusal requires a stockholder who receives an offer from a third party
to purchase his shares of the Company's Common Stock to first offer to sell
such shares to the Company upon identical terms as the third party offer.
Consequently, such right of first refusal may adversely impact a stockholder's
ability to sell his shares of Common Stock.
Because there has been no public market for the securities of Aeronomics
or DFI, the respective conversion rates used in the Mergers have been
determined by the Board of Directors of DFI and Aeronomics, based on the
valuation analysis. There can be no assurance that such conversion rates
reflect the actual fair market value of the respective securities. See "The
Mergers -Report of Houlihan Lokey."
Certain Anti-Takeover Provisions
The Company's Certificate of Incorporation establishes a classified Board
of Directors, which may discourage a future acquisition of the Company not
approved by the Board of Directors in which stockholders might receive an
attractive value for their shares or that a substantial number or even a
majority of the Company's stockholders might believe to be in their best
interest. As a result, stockholders who desire to participate in such a
transaction may not have the opportunity to do so. Such a provision could also
discourage bids for the shares of capital stock at a premium.
Dividend Policy
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. See "Plan of Operation."
SPECIAL MEETING OF AERONOMICS STOCKHOLDERS
Date, Time and Place
The Aeronomics Meeting is scheduled to be held at the principal executive
office of Aeronomics at 4751 Best Road, Suite 300, Atlanta, Georgia 30337.
The meeting will take place at 10:00 a.m. (local time) on August ___, 1997.
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Purpose of the Meeting
The purpose of the Aeronomics Meeting is to consider and act upon the
approval and adoption of the proposed Merger Agreement, pursuant to which (i)
DFI will be merged with and into the Company, with the Company being the
surviving corporation and the outstanding shares of DFI's capital stock being
converted into shares of the Company's capital stock, and (ii) Aeronomics will
be merged with and into the Company, with the Company being the surviving
corporation and the outstanding shares of Aeronomics' capital stock being
converted into shares of the Company's capital stock.
Quorum And Voting. The record date for the determination of stockholders
entitled to notice of and to vote at the Aeronomics Meeting was the close of
business on July ___, 1997 (the "Record Date"). On the Record Date, there were
698 shares of Aeronomics Voting Common Stock issued and outstanding, 4,378,615
shares of Aeronomics Nonvoting Common Stock issued and outstanding, and 443,019
shares of Aeronomics Preferred Stock issued and outstanding.
Each holder of Aeronomics Voting Common Stock is entitled to one vote per
share on all matters to be acted upon at the Aeronomics Meeting. The holders
of the Aeronomics Nonvoting Common Stock and the Aeronomics Preferred Stock are
not entitled to vote at the Aeronomics Meeting. The presence, in person or by
proxy, of the holders of a majority of the issued and outstanding Aeronomics
Voting Common Stock entitled to vote at the meeting is necessary to constitute
a quorum to transact business. If a quorum is not present or represented at
the Aeronomics Meeting, the stockholders entitled to vote thereat, present in
person or by proxy, may adjourn the Aeronomics Meeting from time to time
without notice or other announcement until a quorum is present or represented.
Assuming the presence of a quorum, the affirmative vote, in person or by proxy,
of the holders of a majority of the outstanding shares of the Aeronomics Voting
Common Stock is required for approval of the Aeronomics Merger. The consent of
the holder of the Aeronomics Preferred Stock to the Aeronomics Merger is also
required under the terms of the Aeronomics Preferred Stock, which consent has
been obtained.
Solicitation And Revocability Of Proxies. When proxies in the
accompanying form are properly executed and received, the shares represented
thereby will be voted at the Aeronomics Meeting in accordance with the
directions noted thereon; if no direction is indicated, such shares will be
voted in favor of the Aeronomics Merger.
Aeronomics does not intend to present any business at the Aeronomics
Meeting for a vote other than the matters set forth in the notice of such
meeting and has no information that others will do so. If other matters
requiring a vote of the stockholders properly come before the Aeronomics
Meeting, it is the intention of the persons named in the accompanying form of
proxy to vote the shares represented by the proxies held by them in accordance
with their judgment on such matters.
Any Aeronomics Stockholder giving a proxy has the unconditional right to
revoke his proxy at any time prior to the voting thereof either in person at
the Aeronomics Meeting by delivering a duly executed proxy bearing a later date
or by giving written notice of revocation to Aeronomics addressed to James L.
Edwards, Secretary, Aeronomics Incorporated, 4751 Best Road, Suite 300,
Atlanta, Georgia 30337; no such revocation shall be effective, however, until
such notice of revocation has been received by Aeronomics at or prior to the
Aeronomics Meeting.
In addition to the solicitation of proxies by use of the mail, officers
and regular employees of Aeronomics may solicit the return of proxies, either
by mail, telephone, telegraph, or through personal contact. Such officers and
employees will not be additionally compensated but will be reimbursed for out-
of-pocket expenses.
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SPECIAL MEETING OF DFI SHAREHOLDERS
The DFI Meeting is scheduled to be held at the principal executive office
of DFI at 650 Castro Street, Suite 300, Mountain View, California 94041. The
meeting will take place at 10:00 a.m. (local time) on August ____, 1997.
Purpose of the Meeting
The purpose of the DFI Meeting is to consider and act upon the approval
and adoption of the proposed Merger Agreement, pursuant to which (i) DFI will
be merged with and into the Company, with the Company being the surviving
corporation and the outstanding shares of DFI's capital stock being converted
into shares of the Company's capital stock and (ii) Aeronomics will be merged
with and into the Company, with the Company being the surviving corporation and
the outstanding shares of Aeronomics' capital stock being converted into shares
of the Company's capital stock.
Quorum And Voting. The record date for the determination of shareholders
entitled to notice of and to vote at the DFI Meeting was the close of business
on July ___, 1997 (the "Record Date"). On the Record Date, there were 85,165
shares of DFI Voting Common Stock issued and outstanding and 5,694 shares of
DFI Nonvoting Common Stock issued and outstanding.
Under the CCC and DFI's Articles of Incorporation, the affirmative vote of
the holders a majority of the outstanding shares of the DFI Voting Common Stock
and the DFI Nonvoting Common Stock, voting together as a single class, is
required to approve DFI Merger. Each holder of DFI Common Stock is entitled to
one vote per share on this matter. The holders of the DFI Nonvoting Common
Stock are not entitled to vote upon any other business to be transacted at the
DFI Meeting. The presence, in person or by proxy, of the holders of a majority
of the issued and outstanding DFI Common Stock entitled to vote at the meeting
is necessary to constitute a quorum to transact business with respect to the
DFI Merger. If a quorum is not present or represented at the DFI Meeting, the
shareholders entitled to vote thereat, present in person or by proxy, may
adjourn the DFI Meeting from time to time without notice or other announcement
until a quorum is present or represented. Assuming the presence of a quorum,
the affirmative vote, in person or by proxy, of the holders of a majority of
the outstanding shares of the DFI Common Stock are required for approval of the
DFI Merger.
The participants in the DFI ESOP will be permitted to direct the voting of
all the shares held by the DFI ESOP (allocated and unallocated shares). The
Trustee of the DFI ESOP will solicit from each participant instructions with
respect to voting those shares allocated to that participant. At the DFI
Meeting, the Trustee will vote all shares in the DFI ESOP in accordance with
the participants' instructions, on a pro rata basis (e.g., if the Trustee
receives instructions to vote in favor of the DFI Merger from participants
whose allocations of shares under the DFI ESOP represent 90% of the DFI ESOP's
allocated shares, the Trustee will vote 90% of the allocated and unallocated
shares in favor of the proposal). The instructions of each DFI ESOP
participant to the Trustee will remain confidential.
Solicitation And Revocability Of Proxies. When proxies in the
accompanying form are properly executed and received, the shares represented
thereby will be voted at the DFI Meeting in accordance with the directions
noted thereon; if no direction is indicated, such shares will be voted in favor
of the DFI Merger. DFI does not intend to present any business at the DFI
Meeting for a vote other than the matters set forth in the notice of such
meeting and has no information that others will do so. If other matters
requiring a vote of the shareholders properly come before the DFI Meeting, it
is the intention of
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the persons named in the accompanying form of proxy to vote the shares
represented by the proxies held by them in accordance with their judgment on
such matters.
Any DFI shareholder giving a proxy has the unconditional right to revoke
his proxy at any time prior to the voting thereof either in person at the DFI
Meeting by delivering a duly executed proxy bearing a later date or by giving
written notice of revocation to DFI addressed to William Wells, Secretary,
Decision Focus Incorporated, 650 Castro Street, Suite 300, Mountain View,
California 94041-2055; no such revocation shall be effective, however, until
such notice of revocation has been received by DFI at or prior to the DFI
Meeting.
In addition to the solicitation of proxies by use of the mail, officers
and regular employees of DFI may solicit the return of proxies, either by mail,
telephone, telegraph, or through personal contact. Such officers and employees
will not be additionally compensated but will be reimbursed for out-of-pocket
expenses.
THE MERGERS
Introduction
DFI, Aeronomics and the Company have entered into the Merger Agreement
pursuant to which (i) DFI will be merged with and into the Company, with the
Company being the surviving corporation and the outstanding shares of DFI's
capital stock being converted into shares of the Company's capital stock, and
(ii) Aeronomics will be merged with and into the Company, with the Company
being the surviving corporation and the outstanding shares of Aeronomics'
capital stock being converted into shares of the Company's capital stock.
Background of and Reasons for the Mergers
Aeronomics is in the business of developing computer software systems and
providing consulting services in the area of revenue and yield management
through pricing and inventory allocation for its clients in a variety of
industries, but with a particular emphasis on the airline, hotel and rental car
industries. DFI is in the business of providing computer software, contract
research, software development, management consulting and expert testimony
services in the area of revenue and yield management to clients in a variety of
industries, but with a particular emphasis on the transportation, hotel and
energy industries.
Each of the companies are leading service providers in the field of
revenue management, and each company was familiar with the other in that
context. The management of each company has been cognizant of the growth in
the market for revenue management products and services and the potential entry
into such market by larger competitors. Consequently, each management team had
formulated their strategic response to the growth and change in the revenue
management market.
In November 1996, representatives of Aeronomics and DFI met informally to
discuss the possibility of merging the two companies to form an entity that
could compete more effectively in the revenue management market. Over the
course of meetings and other discussions between their representatives through
January 1997, the management of each company came to the conclusion that a
business combination of Aeronomics and DFI would be in the best interests of
both companies. On March 7, 1997, DFI and Aeronomics entered into a non-binding
letter of intent to effect a business combination. Thereafter, each company
conducted a due diligence review of the other, reviewed the proposed
transaction with their respective advisors, legal counsel and members of their
respective Boards
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of Directors, negotiated the terms of the Merger Agreement and gave
consideration to the possible financial basis and other terms upon which such
business combination might be consummated. Aeronomics and DFI also engaged the
investment banking firm of Houlihan Lokey to conduct valuations of Aeronomics
and DFI and to recommend reasonable exchange rates for the Mergers. See "--
Report of Houlihan Lokey."
At a special meeting on May 30, 1997, the Board of Directors of Aeronomics
considered the proposed combination in detail with its management and legal
counsel. At a special meeting on June 2, 1997, the Board of Directors of DFI
considered the proposed combination in detail with its management and legal
counsel. At each meeting, the Mergers were unanimously approved by all members
of the respective Boards of Directors, subject to the approval of stockholders
and the further conditions set forth in the Merger Agreement.
Following the Mergers, the Company expects to be a leading provider of
software and management consulting services in the area of revenue management
and related fields. The Company expects to have more than 260 employees and
offices in Mountain View, California; Atlanta, Georgia; Vancouver, British
Columbia; Washington D.C.; Sydney, Australia; and London, England. The
Company's clients and customers are expected to include major corporations in a
wide variety of industries including passenger airlines, hotels, rental cars,
power marketers, cruise lines, freight carriers, and broadcasting companies.
The Company intends to provide a broad range of services including management
consulting, business process development, customized system development, and a
suite of software products focused on the area of revenue management and
related fields.
The primary focus of the Company will be to help customers increase
profitability by improving the way that they manage the sales of broad
portfolios of products and services in complex markets. This area is sometimes
called "Yield Management" or "Revenue Management". The management of both DFI
and Aeronomics believe that this field of expertise will be a growth area over
the next decade. Each company individually considers itself as a leader in
Revenue Management services, systems, and products. The purpose of the Mergers
is to create a single company that is poised to become a market leader in this
growing field, thereby creating value for its shareholders.
The reasons that the Board of Directors of Aeronomics and DFI believe the
Mergers will be advantageous to both companies, include:
. Better ability to meet competition. Both companies have established
successful businesses in providing services and systems to clients
worldwide. However, this very success has attracted increased attention
from large international competitors. Many of these competing firms are
multi-billion dollar global companies with considerably greater
financial resources than possessed by either DFI or Aeronomics
individually. The management of each of the companies believes that the
Mergers will create a new company of a size, geographical scope, and
financial position that will allow it to compete more effectively with
these large competitors than either company could do individually.
. Ability to perform larger projects. Both companies individually have
been actively pursuing and selling larger projects to their clients.
However, each individual company has been constrained in the size and
scope of the efforts that it can realistically deliver. Because of its
size and larger resource base, each management team believes that the
Company will be able to deliver larger projects of greater scope than
either DFI or Aeronomics could individually, which would increase the
potential market for the Company's products and services.
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. Combination of technologies. Both companies individually have developed
proprietary core technologies addressing the same challenges faced by
businesses in different industries. These technologies include
standardized consulting services, business process templates,
sophisticated mathematical algorithms, and reusable software
components. Combining the technologies developed by both companies will
better enable the Company to establish itself as the "technology
leader" in its field. In addition, it will allow the Company to be a
single provider of the key technologies and business process consulting
skills needed to help its clients institute successful Revenue
Management programs.
. Consolidated software and process development. Both companies
individually have invested in developing reusable software modules that
enable the rapid development of Revenue Management systems in various
industries. These efforts have been somewhat complementary with DFI
focusing primarily on forecasting and optimization algorithms (the
Marginal Value Engine(TM) and the Forecasting Engine) and Aeronomics
focusing primarily on user interface and reporting functions.
Consolidating these two efforts will better enable more rapid
development of a library of components to comprehensively address the
Revenue Management challenges faced in different industries than either
company could achieve individually.
Although the Company may realize some cost savings through the
consolidation of business offices and other support capabilities, the overall
cost savings from the Mergers are not anticipated to be substantial. Rather, the
Mergers are motivated by the perceived increased business opportunities that
will be available to the Company.
REPORT OF HOULIHAN LOKEY
Pursuant to an engagement letter dated March 19, 1997 (the "Engagement
Letter"), Aeronomics and DFI retained Houlihan Lokey to conduct a valuation of
Aeronomics and DFI and to recommend fair exchange rates at which the shares of
capital stock of Aeronomics and DFI would be converted into shares of the
Company's capital stock. Houlihan Lokey is a nationally recognized firm and, as
part of its investment banking activities, Houlihan Lokey is regularly engaged
in the valuation of businesses in connection with merger transactions and other
types of acquisitions, and for corporate and other purposes. Aeronomics and DFI
selected Houlihan Lokey on the basis of its experience and expertise in matters
similar to the Mergers. Houlihan Lokey confirmed in writing its valuation
analysis and fair exchange rate recommendations in writing as of April 15, 1997
(the "Valuation Analysis").
A copy of Houlihan Lokey's Valuation Analysis, which sets forth some of the
assumptions made, matters considered and limitations of review by Houlihan Lokey
will be provided by the Company to any interested stockholder of Aeronomics or
shareholders of DFI upon request. The stockholders of Aeronomics and the
shareholders of DFI are urged to read the Valuation Analysis in its entirety,
and the following summary of the Valuation Analysis is qualified in its entirety
by reference to the full text of the Valuation Analysis.
Houlihan Lokey's Valuation Analysis is addressed to the Boards of Directors
of DFI and Aeronomics only and does not constitute a fairness opinion. Houlihan
Lokey was not retained as an investment advisor to the Boards of Directors of
DFI or Aeronomics with respect to alternatives to the Mergers, and its Valuation
Analysis does not constitute a recommendation to any stockholder of Aeronomics
or shareholder of DFI as to how such holder should vote with respect to the
Mergers or whether to accept the consideration to the offered in the Mergers.
No limitations were imposed by Aeronomics or DFI or their respective Boards
of Directors on the scope of Houlihan Lokey's investigation or the procedures to
be followed by Houlihan Lokey, except that Houlihan Lokey was not authorized to
solicit, and did not solicit, any indications of interest from any third party
with respect to a purchase of all or a part of the respective businesses of
Aeronomics or DFI. Houlihan Lokey was not requested to and did not make any
recommendation to Aeronomics or DFI or their respective Boards of Directors as
to the form of consideration to be offered to the Aeronomics stockholders or the
DFI shareholders in the Mergers, which was determined through negotiations
between Aeronomics and DFI. In preparation of its Valuation Analysis, Houlihan
Lokey was not engaged as an agent or fiduciary of the stockholders of Aeronomics
or the shareholders of DFI or any other third party. Houlihan Lokey's Valuation
Analysis is not an opinion as to the structure, terms or effect of any aspect of
the Mergers and does not in any manner address Aeronomics' or DFI's underlying
business decision to enter into the Mergers.
In connection with its Valuation Analysis, Houlihan Lokey, among other
things (i) reviewed audited financial statements of Aeronomics and DFI for the
fiscal years ended December 31, 1992, 1993, 1994, 1995, and 1996; (ii) reviewed
historical financial results of Aeronomics and DFI by operating division
prepared by management; (iii) reviewed forecasts and projections for Aeronomics
and DFI prepared or supplied by their respective managements for the fiscal year
December 31, 1997; (iv) held discussions with the respective managements of
Aeronomics and DFI regarding the businesses, operations and prospects of
Aeronomics and DFI; (v) compared the results of operations and certain market
valuation statistics of Aeronomics and DFI with those of certain publicly traded
companies which Houlihan Lokey deemed to be reasonably comparable to Aeronomics
and DFI; (vi) reviewed the financial terms, to the extent publicly available, of
certain comparable transactions; (vii) performed such other financial studies,
analyses, inquiries and investigations as it deemed appropriate; and (viii)
reviewed a valuation of DFI as of December 31, 1996 prepared by John L. Scripps
and a valuation opinion as of December 31, 1996 of John L. Scripps regarding an
appraisal of DFI.
In preparation of its Valuation Analysis, Houlihan Lokey assumed and relied
upon, without independent verification, the accuracy and completeness of all
information supplied or otherwise made available to it by Aeronomics and DFI or
obtained by it from other sources, and upon the assurances of the managements of
Aeronomics and DFI, that they were unaware of any information or facts that
would make the information provided to Houlihan Lokey incomplete or misleading.
Houlihan Lokey also assumed that the financial forecasts furnished by the
respective managements of Aeronomics and DFI were reasonably prepared and
reflected the best current available estimates and judgment of the respective
managements of Aeronomics and DFI as to the expected future financial
performance of Aeronomics and DFI and that they provided a reasonable basis upon
which Houlihan Lokey could prepare its Valuation Analysis. Houlihan Lokey's
Valuation Analysis was necessarily based upon economic, market and other
conditions as they existed on, and the information made available to it as of
the date of its Valuation Analysis and Houlihan Lokey has disclaimed any
undertaking or obligation to advise any person of any change in any fact or
matter affecting its opinion. Houlihan Lokey also assumed that there were no
material changes in Aeronomics' or DFI's assets, financial condition, results of
operations, businesses or prospects since the respective dates of their last
financial statements made available to Houlihan Lokey. Houlihan Lokey has
relied on (i) the statements of Aeronomics' and DFI's counsel regarding
Aeronomics' and DFI's legal status, as well as legal issues and litigation
affecting and/or involving Aeronomics and DFI; (ii) the statements of Aeronomics
and DFI regarding conversion of certain capital stock and post-merger capital
structures; and (iii) Aeronomics' and DFI's financial statements prepared by the
respective managements of Aeronomics and DFI and, with respect to audited
financial statements, the opinions of Aeronomics' and DFI's independent
accountants.
Houlihan Lokey's Valuation Analysis provided indications of value of
Aeronomics and DFI as of April 15, 1997 and reasonable exchange ratios. Houlihan
Lokey considered a number of widely-used valuation methodologies, and relied
primarily on the capitalization of historical and future earnings, cash flow and
revenues approaches.
In determining the level of earnings and cash flow of DFI and Aeronomics to
capitalize, Houlihan Lokey made a number of adjustments to historical and future
projected earnings and cash flow based on its financial analysis and other
factors. Adjustments to DFI's historical and projected earnings and cash flow
included, but were not limited to, adjustments reflecting DFI ESOP
contributions, costs related to the termination of employment of certain DFI
employees, and other non-recurring or extraordinary expenses. Adjustments to
Aeronomics' historical and projected earnings and cash flow included, but were
not limited to, revenues and expenses associated with a book authored by
Aeronomics' Chairman, bonus compensation paid to certain employees, and other
non-recurring or extraordinary expenses.
Houlihan Lokey applied capitalization ratios (multiples) of earnings, cash
flow and revenues based upon, among other things, certain public companies it
deemed comparable to DFI and Aeronomics. Those companies included Applied
Intelligence Group, CACI International, M/AR/C, Metzler Group, Renaissance
Solutions, Sabre Group Holdings, Thomas Group, American Management Systems,
Computer Data Systems, Computer Sciences Corporation, JDA Software Group,
Kronos, Prophet 21 and Ross Systems. Houlihan Lokey prepared a comparative risk
analysis which compared DFI and Aeronomics to the public companies on the basis
of, among other things, the nature of the business, future prospects, risk
factors, historical and future growth rates, profitability, leverage, capital
spending requirements, size and other factors. Based on this comparative
analysis, Houlihan Lokey selected multiples of historical and expected future
revenues, earnings before interest and taxes (EBIT), earnings before interest,
taxes, depreciation and amortization (EBITDA), and net income.
Houlihan Lokey did not consider any discounts for minority interest or lack
of marketability in its analysis. In determining the per-share fair market
value of the common stock of DFI and Aeronomics, it did consider differences in
voting rights enjoyed by each class of stock.
Based primarily on the valuation approach described above, Houlihan Lokey
arrived at its conclusions on the fair market value of the total equity of DFI
and Aeronomics as of April 15, 1997. Next, Houlihan Lokey arrived at its
conclusions on the fair market value of the common stock of DFI and Aeronomics
based on each companies' respective capital structures, including consideration
of all outstanding stock options and preferred stock. Finally, Houlihan Lokey
arrived at recommended reasonable exchange ratios for each of the securities
based on the per-share fair market values.
The summary set forth above does not purport to be a complete description
of the presentation by Houlihan Lokey to the Boards of Directors of Aeronomics
and DFI, the Valuation Analysis or of the depth of the analysis performed by
Houlihan Lokey. The preparation of a valuation analysis is not necessarily
susceptible to partial analysis or summary description. Houlihan Lokey believes
that its Valuation Analysis and the summary set forth above must be considered
as a whole and that selected portions of its Valuation Analysis and of the
factors considered, without considering all analysis, assumptions and factors,
would create an incomplete view of the process underlying its presentation to
the Boards of Directors of Aeronomics and DFI and its Valuation Analysis. In
addition, Houlihan Lokey may have given various analyses more or less weight
than other analyses, and may have deemed various assumptions more or less
probable than other assumptions. The fact that any specific analysis,
assumption or factor has been referred to in the summary above is not meant to
indicate that such analysis, assumption or factor was given greater weight than
any other analysis, assumption or factor.
In preparing its Valuation Analysis, Houlihan Lokey made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Aeronomics
and DFI. The Valuation Analysis performed by Houlihan Lokey is not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than those suggested by the Valuation Analysis. The
Valuation Analysis does not purport to be an appraisal or to reflect the prices
at which Aeronomics and DFI might actually be sold or acquired or the prices at
which any securities may trade at the present time or at any time in the future.
Houlihan Lokey did not make an independent evaluation, appraisal or physical
inspection of the assets or individual properties of Aeronomics and DFI, nor was
Houlihan Lokey furnished with any such appraisals.
Houlihan Lokey's Valuation Analysis and presentations to the Boards of
Directors of Aeronomics and DFI were among the many factors taken into
consideration by such Boards in making its determination to approve the Merger.
Pursuant to the Engagement Agreement, DFI and Aeronomics paid to Houlihan
Lokey a retainer fee of $22,500 and, upon delivery of the Valuation Analysis,
DFI and Aeronomics paid Houlihan Lokey a fee equal to $22,500, for a total fee
of $45,000. The fee was not conditioned upon the outcome of the Valuation
Analysis. DFI and Aeronomics have also agreed to reimburse Houlihan Lokey for
its reasonable out-of-pocket expenses. DFI and Aeronomics have also agreed to
indemnify Houlihan Lokey against certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
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Terms of the Mergers
General. The following is a summary of the material terms of the Merger
Agreement. The Mergers will result in the Company succeeding to the combined
businesses of Aeronomics and DFI. The detailed terms and conditions of the
Mergers are contained or described in the Merger Agreement and the exhibits
thereto, which are included in this Memorandum as Appendix A. The summary of
the Merger contained in this Memorandum is qualified in its entirety by the
Merger Agreement and the exhibits thereto. The Merger Agreement sets forth the
representations and warranties of the parties, certain agreements between the
parties pending the Mergers, the conditions precedent to the Mergers, the terms
of the Mergers, the method of effecting the Mergers, the manner of converting
the shares of Aeronomics' capital stock and DFI's capital stock into shares of
the Company's capital stock and certain other provisions.
After approval and adoption of the Merger Agreement by the requisite votes
at the Special Meetings and the satisfaction or waiver of the conditions to the
Mergers described below, the parties will conduct a closing for purposes of
executing and delivering the documents and certificates as may be required
under the Merger Agreement (the date of such closing is referred to as the
"Closing Date"). It is presently contemplated that the Closing Date will,
subject to the terms and conditions of the Merger Agreement, occur on the same
day as the Special Meeting or the following business day. The Company will be
the surviving corporation in each of the Mergers and will continue its
existence under the laws of the State of Delaware.
The Mergers are each also subject to certain conditions, some of which are
beyond the control of any of the parties to the Merger Agreement. See
"Conditions to the Mergers." Consequently, there can be no assurance that the
Mergers will take place, even though the Merger Agreement contains the
agreement of each of the parties thereto to use their reasonable efforts to
consummate the Mergers.
DFI Merger. On the Closing Date, DFI shall be merged with and into the
Company. The Company shall be the surviving corporation of the DFI Merger and
shall continue its corporate existence under the laws of the State of Delaware.
By virtue of the DFI Merger and without any further action of
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any party, each share of the DFI Voting Common Stock outstanding as of the
Effective Time shall be converted into the right to receive 102.4968 shares of
the Company's Voting Common Stock. Each share of the DFI Nonvoting Common Stock
shall be converted into the right to receive 102.4968 shares of the Company's
Nonvoting Common Stock.
Aeronomics Merger. On the Closing Date, Aeronomics shall be merged with
and into the Company. The Company shall be the surviving corporation of the
Aeronomics Merger and shall continue its corporate existence under the laws of
the State of Delaware. By virtue of the Aeronomics Merger and without any
further action of any party, each share of the Aeronomics Voting Common Stock
outstanding as of the Effective Time shall be converted into the right to
receive 1.8605 shares of the Company's Voting Common Stock; each share of the
Aeronomics Nonvoting Common Stock outstanding as of the Effective Time shall be
converted into the right to receive 1.8233 shares of the Company's Voting
Common Stock and each share of the Aeronomics Preferred Stock outstanding as of
the Effective Time shall be converted into the right to receive 1.8605 shares
of the Company's Convertible Preferred Stock.
DFI Options. Each outstanding DFI Voting Option and DFI Nonvoting Option,
whether exercisable or unexercisable, will be assumed by the Company and will
constitute an option to acquire, on substantially the same terms and conditions
as were applicable under such option immediately prior to the Effective Time, a
number of shares of the Company's Voting Common Stock (in the case of a DFI
Voting Option) or the Company's Nonvoting Common Stock (in the case of a DFI
Nonvoting Option) (in each case rounded down to the next whole share) equal to
the product of 102.4968 and the number of shares of DFI Common Stock subject to
such DFI Option immediately prior to the Effective Time at a price per share
equal to the aggregate exercise price for the shares of DFI Common Stock
subject to such DFI Option divided by the number of full shares of the
Company's Common Stock deemed to be purchasable pursuant to such DFI Option,
rounded to the nearest cent.
Aeronomics Options. Each outstanding stock option of Aeronomics, whether
exercisable or unexercisable, to purchase shares of Aeronomics Nonvoting Common
Stock will be assumed by the Company and will constitute an option to acquire,
on substantially the same terms and conditions as were applicable under such
option immediately prior to the Effective Time, a number of shares of the
Company's Nonvoting Common Stock (rounded down to the next whole share) equal
to the product of 1.8605 and the number of shares of Aeronomics Nonvoting
Common Stock subject to such Aeronomics Option immediately prior to the
Effective Time, at a price per share equal to the aggregate exercise price for
the shares of Aeronomics Nonvoting Common Stock subject to such Aeronomics
Option divided by the number of full shares of the Company's Nonvoting Common
Stock deemed to be purchasable pursuant to such Aeronomics Option, rounded to
the nearest cent.
Adjustments to the Conversion Rates. The respective conversion rates
described above were determined based on the outstanding capital stock and
options to acquire the capital stock of Aeronomics and DFI as of April 15,
1997. The Merger Agreement provides that in the event any changes in such
outstanding capital stock or options prior to the Effective Time, the parties
will negotiate in good faith to adjust the respective conversion rates in a
proportional manner. In addition, such conversion rates will be adjusted to
reflect further accretion of the value of the Aeronomics Preferred Stock from
April 15, 1997 until the Closing Date. No such adjustments are expected to
result in a material change to such conversion rates.
Conduct of Business Prior to the Merger. The Merger Agreement generally
provides that prior to the Effective Time each of Aeronomics and DFI will
conduct their respective businesses only in the
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ordinary course and that neither Aeronomics nor DFI, without the prior consent
of the other party, will effect certain material changes in their respective
businesses or extraordinary transactions.
Conditions to the Merger. The obligation of Aeronomics to consummate the
Aeronomics Merger is subject to the satisfaction or waiver of certain
conditions, including among others, the following: (i) each of the
representations and warranties of DFI and the Company contained in the Merger
Agreement shall be true and correct on the Closing Date; (ii) all of the
covenants and agreements of DFI and the Company contained in the Merger
Agreement and required to be performed by DFI and the Company before the
Closing Date shall have been performed in all material respects; (iii) DFI
shall have delivered a Certificate of the Secretary of DFI certifying as to
certain matters; (iv) DFI shall have delivered all applicable certificates of
good standing; (v) DFI shall have delivered an opinion of its legal counsel;
(vi) DFI shall have delivered a letter from Arthur Andersen, LLP, stating
that, in accordance with generally accepted accounting principles, the DFI
Merger qualifies to be treated as a "pooling of interests" for accounting
purposes; (vii) the DFI Merger shall have been adopted and approved by the
requisite vote of shareholders of DFI, (viii) DFI shall not have received
notice from holders of more than 10% of the outstanding shares of DFI's capital
stock that such holders have asserted or intend to assert any appraisal rights
as dissenting shareholders, and (ix) there shall be no legal proceeding or
order prohibiting or seeking to prohibit the consummation of the Mergers, and
(x) since March 31, 1997, there shall have been no change in or effect that is
or is reasonably likely to be materially adverse to the business, operations,
properties, condition (financial or otherwise), assets, liabilities or
prospects of DFI.
The obligation of DFI to consummate the DFI Merger is subject to the
satisfaction or waiver of certain conditions, including among others, the
following: (i) each of the representations and warranties of Aeronomics and the
Company contained in the Merger Agreement shall be true and correct on the
Closing Date; (ii) all of the covenants and agreements of Aeronomics and the
Company contained in the Merger Agreement and required to be performed by
Aeronomics and the Company before the Closing Date shall have been performed in
all material respects; (iii) Aeronomics shall have delivered a Certificate of
the Secretary of Aeronomics certifying as to certain matters; (iv) Aeronomics
shall have delivered all applicable certificates of good standing; (v)
Aeronomics shall have delivered an opinion of its legal counsel; (vi)
Aeronomics shall have delivered a letter from KPMG Peat Marwick, LLP stating
that, in accordance with generally accepted accounting principles, the
Aeronomics Merger qualifies to be treated as a "pooling of interests" for
accounting purposes; (vii) the Aeronomics Merger shall have been adopted and
approved by the requisite vote of the stockholders of Aeronomics, (viii)
Aeronomics shall not have received notice from holders of more than 10% of the
outstanding shares of Aeronomics' capital stock that such holders have asserted
or intend to assert any appraisal rights as dissenting shareholders, and (ix)
there shall be no legal proceeding or order prohibiting or seeking to prohibit
the consummation of the Mergers, and (x) since March 31, 1997, there shall have
been no change in or effect that is or is reasonably likely to be materially
adverse to the business, operations, properties, condition (financial or
otherwise), assets, liabilities or prospects of Aeronomics.
Right of Termination. The Merger Agreement may be terminated, and the
Mergers may be abandoned, prior to the Closing Date upon the occurrence of any
of the following:
(i) the mutual agreement of Aeronomics and DFI;
(ii) by DFI at its election if there has been any material
misrepresentation or material breach of or failure to satisfy timely on the
part of Aeronomics any condition or any warranty, representation or agreement
contained in the Merger Agreement, if such breach or failure is not cured
within five business days of receipt of written notice thereof from DFI;
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(iii) by Aeronomics at its election if there has been any material
misrepresentation or material breach of or failure to satisfy timely on the
part of DFI any condition or any material warranty, representation or agreement
contained in the Merger Agreement, if such breach or failure is not cured
within five business days of receipt of written notice thereof from Aeronomics;
or
(iv) by either DFI, on the one hand, or Aeronomics, on the other hand,
immediately upon notice, if the Closing shall not have taken place by September
30, 1997.
Effective Time of the Merger
It is currently anticipated that if all conditions precedent to the Merger
are satisfied or waived by such time, the Closing Date will occur on the same
day as the Special Meetings or the following business day. The Effective Time
of the Merger is expected to occur on the Closing Date.
Exchange of Certificates
At and after the Effective Time, no transfer of shares of the capital
stock of Aeronomics or DFI outstanding prior to the Effective Time shall be
made on the respective stock transfer books of Aeronomics or DFI. Promptly
after the consummation of the Mergers, the Company shall mail to each of the
former holders of Aeronomics' capital stock and DFI's capital stock a form
letter of transmittal and instructions for use in effecting the surrender of
the certificates representing such shares. The letter of transmittal will
contain instructions concerning the surrender of such certificates.
Certificates should not be surrendered until the letter of transmittal is
received by the stockholder. Upon surrender of such certificates, together
with such letter of transmittal duly executed, the Company shall deliver to the
surrendering holder thereof certificates representing the shares of the
Company's capital stock to which such surrendering holder is entitled.
Regulatory Matters
No federal, state or other regulatory approvals are required to be
obtained, nor any regulatory requirements complied with, by any party to the
Merger Agreement, except for the requirements of the DGCL and CCC in connection
with the consummation of the Mergers, and the requirements of applicable
securities laws.
Accounting Treatment
The Mergers will be accounted for as "pooling of interests" transactions.
The ability of the Company to account for the Mergers as a pooling of interests
is a condition to each of the Mergers.
Appraisal Rights
The holders of Aeronomics' capital stock will have appraisal rights
pursuant to Section 262 of the DGCL. A copy of Section 262 of the DGCL, which
describes the procedures that must be followed by an Aeronomics stockholder in
order to exercise his or her appraisal rights, is included in this Proxy
Statement as Appendix B. The following is a summary of appraisal rights and
does not purport to be a complete statement of the procedure outlined in the
relevant provisions of the DGCL. This summary is qualified in its entirety by
the information included in Appendix B.
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Under the DGCL, each holder of shares of capital stock of Aeronomics who
does not vote in favor of the Aeronomics Merger and who follows the procedures
set forth in Section 262 will be entitled to have his shares of Aeronomics
capital stock purchased by the Company for cash at their fair market value. The
fair market value of shares of Aeronomics Common Stock will be determined
excluding any element of value arising from the Aeronomics Merger. Each
stockholder electing to demand appraisal of his shares must deliver to
Aeronomics, before the taking of the vote on the Aeronomics Merger, a written
demand for appraisal of his shares. This demand should inform Aeronomics of the
identity of the stockholder and that the stockholder intends to demand the
appraisal of his shares. Within 10 days after the Effective Time, Aeronomics
shall notify each stockholder who has complied with these requirements and has
not voted in favor of or consented to the Aeronomics Merger of the date that
the Aeronomics Merger has become effective. Within 120 days after the effective
date of the Aeronomics Merger, any stockholder who has made a valid written
demand for appraisal and who has not voted in favor of approval of the
Aeronomics Merger, may file a petition in the Delaware Court of Chancery,
demanding a determination of the value of the stock of all dissenting
stockholders. Failure to follow the applicable procedures as described in the
appendices hereto will result in the forfeiture of such appraisal rights.
The holders of DFI's capital stock will have appraisal rights pursuant to
Chapter 13 of the CCC. A copy of selected portions of Chapter 13 of the CCC,
which describes the procedures that must be followed by a DFI shareholder in
order to exercise his or her appraisal rights, is included in this Proxy
Statement as Appendix C. The following is a summary of appraisal rights and
does not purport to be a complete statement of the procedure outlined in the
relevant provisions of the CCC. This summary is qualified in its entirety by
the information included in Appendix C.
Under the CCC, if the DFI Merger is approved by the required vote of DFI's
shareholders, each holder of shares of DFI's capital stock who does not vote in
favor of the DFI Merger and who follows the procedures set forth in Section
1300 will be entitled to have his shares of DFI's capital stock purchased by
DFI for cash at their fair market value. The fair market value of shares of
DFI's Common Stock will be determined as of the day before the first
announcement of the terms of the DFI Merger, excluding any appreciation or
depreciation resulting from the proposed Merger. Within 10 days after approval
of the DFI Merger by DFI's shareholders, DFI must mail a notice of such
approval (the "Approval Notice") to all shareholders who have not voted in
favor of the DFI Merger, together with a statement of the price determined by
DFI to represent the fair market value of the applicable Dissenting shares, a
brief description of the procedures to be followed in order for the shareholder
to pursue dissenters' rights, and a copy of Sections 1300 through 1304 of the
California General Corporation Law. The statement of price by DFI constitutes
an offer by DFI to purchase all dissenting shares at the stated amount. A
shareholder of DFI electing to exercise appraisal rights must, within 30 days
after the date on which the Approval Notice is mailed to such shareholder, mail
or deliver a written demand to DFI stating that such holder is demanding
purchase of his or her shares of DFI's capital stock and a statement as to what
the shareholder claims to be the fair market value of such shares. If DFI
denies that the shares are dissenting shares, or if DFI and the shareholder
fail to agree upon the fair market value of shares of DFI Common Stock, then
within six (6) months after the date the Approval Notice was mailed to
shareholders, any shareholder who has made a valid written purchase demand and
who has not voted in favor of approval and adoption of the DFI Merger, may file
a complaint in superior court requesting a determination as to whether the
shares are dissenting shares or as to the fair market value of such holder's
shares of DFI Common Stock, or both. Failure to follow the applicable
procedures as described in the exhibits hereto will result in the forfeiture of
such appraisal rights.
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Interests of Certain Persons in the Mergers
In considering the recommendations of the Board of Directors of Aeronomics
and DFI with respect to the proposed Merger Agreement, the stockholders of
Aeronomics and DFI should be aware that certain members of such Boards of
Directors of each company have certain interests in the Mergers that are in
addition to the interests of the stockholders of Aeronomics and DFI in general,
which are set forth below.
Messrs. Cross, Hall and Johnson, who constitute a majority of Aeronomics'
Board of Directors, are also members of the Company's Board of Directors. In
addition, Messrs. Cross and Hall are executive officers of the Company.
Messrs. Boyd, Phillips and Wells, who constitute three of the seven members of
DFI's Board of Directors, are also members of the Company's Board of Directors.
In addition, Messrs. Boyd and Phillips are executive officers of the Company.
DFI and Aeronomics are each authorized to indemnify their respective
officers and directors to the extent permitted by applicable law. However, the
Company is required by its Certificate of Incorporation to indemnify its
officers and directors to the fullest extent permitted by the DGCL.
Federal Income Tax Treatment
Each of the Mergers is intended to meet the requirements of a nontaxable
reorganization under the Internal Revenue Code of 1986, as amended. If so
treated, no gain or loss will be recognized by the holders of Aeronomics'
capital stock or DFI's capital stock upon the receipt of the Company's capital
stock pursuant to the Mergers. The holders of Aeronomics' capital stock will
have a tax basis for the shares of the Company's capital stock received in the
Aeronomics Merger equal to the tax basis for the shares of Aeronomics' capital
stock surrendered in exchange therefor. The holders of DFI's capital stock
will have a tax basis for the shares of the Company's capital stock received in
the DFI Merger equal to the tax basis for the shares of DFI's capital stock
surrendered in exchange therefor.
EACH AERONOMICS STOCKHOLDER AND DFI SHAREHOLDER IS URGED TO CONSULT WITH
HIS OR HER PERSONAL TAX ADVISOR REGARDING THE FEDERAL, STATE AND LOCAL TAX
CONSIDERATIONS AND REPORTING CONSEQUENCES OF THE RECEIPT OF THE COMPANY'S
CAPITAL STOCK.
Material Differences Between Rights of Holders of Aeronomics Common Stock and
Rights of Holders of the Company's Common Stock
Because the Company and Aeronomics are each Delaware corporations, the
Aeronomics Merger will have no effect on the state law that governs the rights
of their respective stockholders. However, the Company's Certificate of
Incorporation and Bylaws do differ in some material respects from that of
Aeronomics. The following is a summary of certain significant differences
between the rights which the Aeronomics Stockholders presently have and the
rights which stockholders of the Company will have following consummation of
the Aeronomics Merger.
Classified Board of Directors. The DGCL expressly permits (but does not
require) a board of directors to be divided into classes, with each class
having a term of office longer than one year. Aeronomics does not have a
classified Board of Directors, and each director is elected annually. The
Company does have a classified Board of Directors. Classifying the Board of
Directors makes it difficult for stockholders to effect a change in control of
the Board of Directors, as, short of resignation or
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removal for cause of a director, the term of only one class of directors will
expire at any annual meeting. This may have the effect of discouraging a future
acquisition of the Company that is not approved by the Board of Directors. The
Company's Certificate of Incorporation provides that the Board of Directors
shall be classified into two classes, with the terms of office of the directors
of one class to expire each year. See "Information About the Company--Directors
and Executive Officers of the Company."
Indemnification. The DGCL generally permits indemnification of officers,
directors, employees and agents of a Delaware corporation against expenses
(including attorneys' fees) incurred in the defense or settlement of a
derivative or third-party action, provided there is a determination by a
disinterested quorum of the directors or independent legal counsel or a majority
of a quorum of the stockholders that the person seeking indemnification acted in
good faith and in a manner reasonably believed to be in, or not opposed to, the
best interests of the corporation. Without court approval, however, no
indemnification may be made in respect of any derivative action in which such
person is adjudged liable for negligence or misconduct in the performance of his
or her duty to the corporation. The DGCL requires indemnification of expenses
when the individual being indemnified has successfully defended the action on
the merits or otherwise. For more information regarding the indemnification of
the Company's directors and officers, see "Information About the Company --
Indemnification of Directors and Officers."
The Certificate of Incorporation of the Company provides that the Company
shall indemnify its directors and officers to the fullest extent permitted by
the DGCL. The Certificate of Incorporation of Aeronomics permits it to indemnify
its directors and officers to the fullest extent permitted by the DGCL, but it
is not required to do so.
Right of First Refusal. The Company's Bylaws provide that the Company's
Common Stock is subject to a right of first refusal. The right of first refusal
requires a stockholder who receives an offer from a third party to purchase his
or her shares of the Company's Common Stock to first offer to sell such shares
to the Company upon identical terms as the third party offer. The capital stock
of Aeronomics is not subject to a right of first refusal under its Bylaws.
However, all of Aeronomics' capital stock is subject to rights of first refusal
under shareholder agreements and incentive stock option agreements.
Material Differences Between Rights of Holders of DFI Common Stock and Rights of
Holders of the Company's Common Stock
Although it is impractical to note each and every difference between the
laws of the State of California, DFI's state of incorporation, and the laws of
the State of Delaware, the Company's state of incorporation, the following is a
summary of certain significant differences between the rights which the DFI
shareholders presently have and the rights which stockholders of the Company
will have under the DGCL and the Company's Certificate of Incorporation and
Bylaws.
Cumulative Voting. Under the DGCL, cumulative voting in the election of
directors is not mandatory and is available only if a corporation's certificate
of incorporation so permits. Under the CCC, any shareholder may cumulate his or
her votes for directors upon notice of the intention to do so. Cumulative voting
is a form of proportional representation facilitating minority representation on
the board of directors. With cumulative voting, a shareholder may vote the
number of shares held by the shareholder, multiplied by the number of vacancies
on the board to be filled by the election, in any manner that the shareholder
wishes. The shareholder may cast all of his or her votes for a single director
or allocate the votes among several directors. This flexibility allows minority
shareholders to elect
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directors by cumulating votes for one director, thereby giving the director the
number of votes required for election. In straight voting, each shareholder may
only vote the number of shares actually entitled to vote for each director.
Directors are elected by a plurality of votes, thus allowing a majority
shareholder to elect all of the directors. The Certificate of Incorporation of
the Company does not provide for cumulative voting.
Classified Board of Directors. The CCC requires that each director be
elected annually and prohibits a classified board. The DGCL expressly permits
(but does not require) a board of directors to be divided into classes, with
each class having a term of office longer than one year. The Company does have a
classified Board of Directors. Classifying the Board of Directors makes it
difficult for stockholders to effect a change in the control of the Board of
Directors, as, short of resignation or removal for cause of a director, the term
of only one class of directors will expire at any annual meeting. This may have
the effect of discouraging a future acquisition of the Company that is not
approved by the Board of Directors. The Company's Certificate of Incorporation
provides that the Board of Directors shall be classified into two classes, with
the terms of office of the directors of one class to expire each year. See
"Information About the Company -- Directors and Executive Officers of the
Company."
Removal of Directors. Under the CCC, a director may be removed without
cause by a majority of the outstanding shares, provided that the votes cast
against such removal would not be sufficient to elect the director under
cumulative voting rules. Under the DGCL, a director may be removed with or
without cause by a majority of the outstanding shares entitled to vote at an
election of directors. However, unless the certificate of incorporation
otherwise provides, in the case of a Delaware corporation whose board is
classified, a director may be removed only for cause. The Company's Certificate
of Incorporation does not provide for removal of directors without cause.
Change in Number of Directors. Under the DGCL, the authorized number of
directors may be changed by the directors acting alone, unless the number of
directors is fixed in the certificate of incorporation, or the directors are not
provided with authority to amend the bylaws. In either case, shareholder
approval is required. The Company's Bylaws permit the directors to fix the
number of directors between five and nine, and the number is currently fixed at
seven, which number may be changed by the directors acting alone, or by the
stockholders.
Under the CCC, the directors may, if authorized by the bylaws, change the
authorized number of directors to fix the number within the bounds of a stated
minimum and maximum number (the maximum number can be no greater than two times
the minimum number minus one, but the minimum and maximum numbers themselves may
only be changed by the shareholders). The Bylaws of DFI permit the directors to
fix the number of directors between five and nine, and the number is currently
fixed at seven.
Loans to Directors, Officers and Employees. Under the DGCL, a corporation
may make loans to or guarantee the obligations of or otherwise assist the
officer or employees of the corporation or its subsidiaries (including directors
who are also officers or employees) without stockholder approval when such
action, in the judgment of the directors, may reasonably be expected to benefit
the corporation. Under the CCC, any such loan or guarantee to or for the benefit
of a director of officer of the corporation or its parent requires a majority
vote of shareholders (excluding the vote of any benefited director or officer),
other than loans pursuant to employee benefit plans approved by the
shareholders. However, under the CCC, the shareholders of a corporation may
approve a bylaw providing that a disinterested majority of the board of
directors may approve loans to officers without shareholder approval if the
board determines that such loans may reasonably be expected to benefit the
corporation. The Bylaws of DFI do not contain such a provision.
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Shareholder Voting. With certain exceptions, the CCC requires that a
merger or reorganization, certain sales of assets, and similar transactions be
approved by a majority vote of each class of shares outstanding, even if such
shares are otherwise nonvoting. By contrast, the DGCL generally does not require
class voting except in certain transactions involving an amendment to the
certificate of incorporation which adversely affects a specific class of shares.
The CCC also requires that holders of nonredeemable common stock receive
nonredeemable common stock in a merger of the corporation with the holder of
more than 50% but less than 90% of such common stock or its affiliate unless
either (i) all the holders of such common stock consent to the transaction or
(ii) the transaction has been approved by the appropriate state regulatory
agency at a "fairness" hearing. This provision may have the effect of making a
"cash out" merger by a majority shareholder more difficult to accomplish. The
DGCL has no comparable provision.
The CCC also provides that when a tender offer or a proposal for
reorganization or for a sale of assets is made by an interested party (generally
a controlling or managing party of the corporation), an affirmative opinion in
writing as to the fairness of the consideration to be paid to the shareholders
must be delivered to shareholders. This fairness opinion requirement does not
apply to the merger of a subsidiary into a parent corporation which owns at
least 90% of the shares of each class, or if the subject corporation does not
have shares held of record by 1,000 or more persons, or if the transaction has
been qualified under California state securities laws. Further, if a tender of
shares or a shareholder vote is sought pursuant to an interested party's
proposal and a later proposal is made by another party at least 10 days prior to
the date of acceptance of the interested party's proposal, the shareholder must
be informed of the later offer and afforded a reasonable opportunity to withdraw
any vote, consent, or proxy, or withdraw any tendered shares.
Appraisal Rights. The DGCL does not require appraisal rights with respect
to (i) the sale, lease, or exchange or all or substantially all the assets of a
corporation, (ii) a merger by a corporation, the shares of which are either
listed on a national securities exchange or held by more than 2,000 stockholders
if such stockholders receive shares of the surviving corporation or of a listed
or widely held corporation, or (iii) stockholders of a corporation surviving a
merger if no vote of such stockholders is required to approve the merger. The
CCC does, in general, afford appraisal rights in a sale of assets or
reorganization, and its exclusions from appraisal rights in mergers are somewhat
different than those in the DGCL.
Inspections of Shareholder List. The CCC provides for an absolute right
of inspection of the shareholder list for persons holding five percent or more
of a corporation's aggregate voting shares or persons holding one percent or
more of such shares who have filed a Schedule 14B with the Securities and
Exchange Commission relating to the election of directors. The CCC further
provides that such absolute inspection rights apply to a corporation formed
under the laws of any other state if the principal executive offices are in
California, or if the corporation customarily holds meetings of its board in
California. Both the CCC and the DGCL allow any shareholder to inspect the
shareholder list for a purpose reasonably related to such person's interest as a
shareholder. However, the DGCL contains no provision comparable to the absolute
right of inspection provided by the CCC to certain shareholders.
Filling Vacancies on the Board of Directors. Under the DGCL, vacancies
and newly created directorships may be filled by a majority of directors then in
office unless otherwise provided in the certificate of incorporation or bylaws;
provided, that if, at the time of filling any vacancy or newly created
directorship, the directors then in office constitute less than a majority of
the entire authorized board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may,
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upon the application of any stockholder or stockholders holding at least 10% of
the total number of shares at the time outstanding having the right to vote for
such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Under the CCC, a vacancy created by removal of a director may be filled by
the board only if so authorized by a corporation's articles of incorporation or
by a bylaw approved by the corporation's shareholders. DFI's Bylaws permit
directors to fill vacancies created by removal of a director if such vacancy
would reduce the number of directors then in office below a quorum. In addition,
the CCC provides that, if after the filling of any vacancy by the directors, the
directors then in office who have been elected by the shareholders shall
constitute less than a majority of the directors then in office (i) any holder
or holders of an aggregate of five percent or more of the total number of shares
at the time outstanding having the right to vote for such directors may call a
special meeting of the shareholders or (ii) the California Superior Court of the
proper county shall, upon the application of such shareholder or shareholders,
summarily order a special meeting of shareholders to be held to elect the entire
board of directors. The term of office of any director shall terminate upon such
election of a successor.
Payment of Dividends. The DGCL permits the payment of dividends out of
paid-in and earned surplus or out of net profits for the current and preceding
fiscal years. Under the CCC, any such distributions are limited either to
retained earnings or to an amount which leaves a corporation with tangible
assets at least equal to its tangible liabilities and current assets at least
equal to its current liabilities.
Indemnification and Limitation of Liability. The DGCL generally permits
indemnification of officers, directors, employees and agents of a Delaware
corporation against expenses (including attorneys' fees) incurred in the defense
or settlement of a derivative or third-party action, provided there is a
determination by a disinterested quorum of the directors or independent legal
counsel or a majority of a quorum of the stockholders that the person seeking
indemnification acted in good faith and in a manner reasonably believed to be
in, or not opposed to, the best interests of the corporation. Without court
approval, however, no indemnification may be made in respect of any derivative
action in which such person is adjudged liable for negligence or misconduct in
the performance of his or her duty to the corporation. The DGCL requires
indemnification of expenses when the individual being indemnified has
successfully defended the action on the merits or otherwise. For information
regarding the indemnification of the Company's directors and officers, see
"Information About the Company -- Indemnification of Directors and Officers."
The CCC similarly permits indemnification of expenses in a derivative or
third-party action, except that with respect to derivative actions (1) no
indemnification may be made without court approval when a person is adjudged
liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, and then only to the extent that the court
shall determine, and (2) no indemnification may be made without court approval
in respect of amounts paid or expenses incurred in settling or otherwise
disposing of a threatened or pending action.
Indemnification is permitted by the CCC only for acts taken in good faith
and believed to be in the best interests of the corporation and its
shareholders, as determined by a majority vote of a disinterested quorum of the
directors, independent legal counsel (if a quorum of independent directors is
not obtainable), a majority vote of a quorum of the shareholders (excluding
shares owned by the indemnified party), or the court handling the action. As
indicated above, the DGCL permits such indemnification for acts reasonably
believed to be "not opposed to" the interests of the Delaware
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corporation. The CCC requires indemnification when the individual being
indemnified has successfully defended the action on the merits (as opposed to
the DGCL which requires indemnification relating to a successful defense on the
merits or otherwise).
Expenses incurred by an officer or director in defending an action may be
paid in advance under the DGCL and the CCC, provided, however, that such
director or officer agrees to repay such amounts if it is ultimately determined
that he or she is not entitled to indemnification. In addition, both states
authorize a corporation's purchase of indemnity insurance for the benefit of its
officers, directors, employees and agents whether or not the corporation would
have the power to indemnify against the liability covered by the policy.
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, bylaws,
or other corporate action beyond that specifically authorized by statute and may
include in their articles of incorporation a provision that eliminates or limits
director monetary liability in derivative actions except for liability based on:
(i) intentional misconduct or knowing and culpable violation of the law; (ii)
acts or omissions that a director believes contrary to the best interests of the
corporation or its shareholders, or that involve the absence of good faith on
the part of the director; (iii) receipt of an improper personal benefit; (iv)
acts or omissions that show reckless disregard for the director's duty to the
corporation or its shareholders, where the director, in the ordinary course of
performing a director's duties, should be aware of a risk of serious injury to
the corporation or its shareholders; (v) acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation and its shareholders; (vi) interested transactions
between the corporation and a director in which a director has a material
financial interest; or (vii) liability for improper distributions, loans or
guarantees. One effect for a corporation of including the above provisions in
its articles of incorporation is that shareholders might give up a cause of
action against a director for breach of fiduciary duty which may include grossly
negligent business decisions involving takeover proposals for the corporation.
DFI's Articles of Incorporation do not permit indemnification beyond that
expressly mandated by the CCC. The indemnification and limitation of liability
provisions of the CCC, and not the DGCL, will apply to actions of the directors
and officers of DFI made prior to its merger into the Company.
Stockholder Approval of Certain Business Combinations. Under Section 203
of the DGCL ("Section 203"), certain "business combinations" with "interested
stockholders" of Delaware corporations are subject to a three-year moratorium
unless specified conditions are met.
Section 203 prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for three years following the date
that a person becomes an "interested stockholder." With certain exceptions, an
"interested stockholder" is a person who owns 15% or more of the corporation's
outstanding voting stock, or who is an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the previous three years, whether owned directly
or through his or her affiliates and associations.
"Business combination" is defined broadly to include mergers with, or
caused by, an interested stockholder, sales or other dispositions of assets of
the corporation or a subsidiary equal to 10% or more of the value of the
corporation's consolidated assets or its outstanding stock,. transfers of stock
of the corporation or a subsidiary to the interested stockholder (except for
transfers in a conversion or exchange or a pro rata distribution which does not
increase the interested stockholder's proportionate ownership of
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a class or series) or any receipt by the interested stockholder (except
proportionately as a stockholder) of any loans, advances, guarantees, pledges or
other financial benefits.
The three-year moratorium imposed on business combinations by Section 203
does not apply if:
(1) prior to a person becoming an interested stockholder the Board of
Directors approves the business or combination or the transaction which
resulted in the person becoming an interested stockholder, or
(2) the interested stockholder owns 85% of the corporation's voting
stock upon consummation of the transaction which made him or her an interested
stockholder (excluded from the 85% calculation are shares owned by directors
who are also officers and shares held by employee stock plans which do not
permit employees to decide confidentially whether to accept a tender offer), or
(3) on or after the date a person becomes an interested stockholder, the
board approves the business combination and it is also approved at a meeting by
two-thirds of the voting stock not owned by the interested stockholder.
Section 203 only applies to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, quoted on NASDAQ
or held of record by more than 2,000 stockholders. However, a Delaware
corporation may elect not to be governed by Section 203 by a provision in its
original certificate of incorporation or an amendment thereto. The Company has
elected not to be governed by Section 203. As a result, Section 203 will not
apply to the Company.
Application of General Corporation Law of California to Delaware
Corporations. Under Section 2115 of the California General Corporation Law
("Section 2115") certain foreign corporations (i.e. corporations not organized
under California law) may be placed in a special category referred to as "pseudo
foreign corporations" if they have characteristics of ownership and operation
which indicate that they have significant contacts with California. Unless one
of the statutory exemptions to Section 2115 applies, Delaware corporations or
other foreign corporations that fall with this pseudo foreign corporation
category become subject to a number of significant provisions of the California
General Corporation Law including provisions relating to the election and
removal of directors, cumulative voting, super majority voting requirements,
prohibition on classified board of directors, standard of liability of
directors, distributions, dividends and repurchases of shares, shareholder
meetings, approval of certain corporate transactions, appraisal rights and
inspection of corporate records.
A foreign corporation transacting business in California is a pseudo
foreign corporation subject to Section 2115 if the average of its property
factor, payroll factor and sales factor (as such terms are defined in the
California Revenue and Taxation Code) is more than 50% during its last full
income year and if more than 50% of its outstanding voting securities are held
of record by persons having addresses in California. California law exempts,
however, from pseudo foreign status those companies whose shares are traded on
the New York Stock Exchange, American Stock Exchange, or on the NASDAQ National
Market System and that have more than 800 shareholders. The Company will not be
a pseudo foreign corporation subject to Section 2115 immediately following the
Effective Time although it is possible that the Company could become subject to
Section 2115 at some future time.
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INFORMATION ABOUT
THE COMPANY
Business of the Company
Introduction. The Company is a Delaware corporation incorporated in June
1997, for the purpose of merging with Aeronomics and DFI and succeeding to the
respective businesses of Aeronomics and DFI. As of the date of this Proxy
Statement, the Company owns only nominal assets and has not conducted any
business other than related to the Mergers. References under this caption
"Business of the Company" to the Company's business operations refer to the
combined business operations of DFI and Aeronomics after giving effect to the
Mergers.
Industry Overview. The nature of business is transforming radically as
consumer markets become more fragmented and competition in all industries
intensifies. Market responsiveness, in terms of speed and the ability to
customize product offerings, is essential to success. Companies are seeking new
and innovative ways to address the increasingly independent consumer behavior by
offering "tailored" products to discrete market segments. These tailored
products may bundle various services or offer perceptual distinctions such as
convenience, last minute availability, status, or other product attributes which
could command a premium price. Conversely, low-price products may be developed
to penetrate new market segments. Rapid advances in information technology are
enabling companies to identify the desires of various market segments at "micro-
market" levels, tailor appropriate products and prices to these market segments
and distribute their availability for sale almost instantaneously to a global,
electronic marketplace. As the proliferation of these tailored product offerings
intensifies; marketing, operations, and pricing decisions become more complex.
Profit-maximizing firms must have the ability to predict ever-changing
customer demand and optimize the price and availability of their products to the
continually fragmenting marketplace of individualistic consumers. The dynamic
process of coordinating forecasts of customer demand at minutely segmented
market levels with real-time product and price and availability changes is known
as "Revenue Management." The objective of Revenue Management is to maximize a
company's revenues from its existing asset base. It can be described as the
science of selling the right product to the right customer at the right time for
the right price. Revenue Management is a disciplined science that employs
sophisticated mathematical algorithms in an advanced information technology
environment to (i) accurately forecast consumer behavior, (ii) price and control
a firm's products, and (iii) communicate this information to sales and
distribution channels.
The origins of Revenue Management can be traced to the airline industry
where it was initially called "yield management." As a result of airline
deregulation in the 1970's, airlines began to realize that their "product" was
more than just a seat. It included a number of distinctive attributes such as
the ability to purchase the seat on demand, the city pair served, the routing of
the aircraft (non-stop, multi-stop or connecting flights), the time the seat
would be used (month, day and hour) and other distinguishing factors. They also
realized that various passenger segments would place different values on those
product attributes. The challenge addressed by Revenue Management was to
maximize revenue from diverse market segments by controlling the unit price of
each seat, the number of seats made available at any given price, and the
coordination of other product attributes such as restrictions on purchase dates,
refundability, and penalties for no-shows. This required the creation of massive
databases and sophisticated mathematical models to analyze passenger behavior
and optimize the airline's response as passengers reacted to the changes in
product availability and price. Revenue Management is now an essential business
discipline in the airline industry. Virtually every major airline has a
computerized
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Revenue Management system which makes tens of thousands of pricing and product
availability decisions every day.
The concept of Revenue Management began to spread to other travel-related
companies such as hotels, rental car companies, and cruise lines in the 1980's.
More recently, other companies that face complex and rapidly changing markets
for their goods and services have begun to utilize Revenue Management
techniques. These include freight, broadcasting, and electric power. The Company
believes that participants in other industries such as telecommunications,
healthcare, manufacturing and retailing are exploring these concepts.
The Company expects to offer a comprehensive range of services and
software to help clients improve their profitability through the use of Revenue
Management. The fundamental concept behind Revenue Management is for a company
to utilize its assets to provide the services and products that its customers
require and to manage the prices and availabilities of those services and
products in order to maximize profitability. The scope and type of the decisions
involved in making these decisions can vary widely from industry to industry.
For example, the critical Revenue Management decisions for a passenger airline
include pricing to various market segments, real-time evaluation of booking
requests, longer-term evaluation of group sales opportunities, and evaluation of
short-term opportunities to swap aircraft types based on changes in demand. In
contrast, the critical Revenue Management decisions for an electric-power broker
include managing the portfolio of energy and capacity sales and purchases in the
face of uncertain future demands and prices. The Company plans to provide
software products and consulting services tailored to the specific Revenue
Management needs of each of its target industries but drawing on a common
library of reusable software modules and fundamental techniques.
Consulting Services. The Company believes that instituting an effective
Revenue Management program requires fundamental changes in the way its clients
bundle product attributes, as well as the way it prices, sells and controls the
distribution and availability of its products. This means management commitment
to changes in organization as well as investment in systems. The Company's
consulting services will be embodied in a disciplined approach to Revenue
Management, which will be marketed as the "CriticalPath (TM)" to Revenue
Management success. This approach includes educational seminars and consulting
activities, known as a "SuccessPlan (TM)", which lay a business and technical
foundation for implementing necessary change. Through these consulting services,
recommendations are made to enhance a client's business processes,
organizational structure and systems. Typically, when recommended technical
strategies and software application requirements are produced, a client's
incremental revenue potential is quantified and short-term and long-term
implementation plans are established based on the highest return on investment.
The Company will also offer services in connection with the implementation
of its software applications. Implementation services will include project
management, integration with existing systems, customization of the Revenue
Management software applications, and training on the software applications as
well as Revenue Management principles. Post-implementation support will be
offered to assure system performance, provide enhancements and to address new
functionality requirements. Business consultancy support will be offered to
assist in the effective implementation of processes and systems. The Company
will offer clients and non-clients services that measure the gain from Revenue
Management and quantify the remaining revenue opportunity. From this assessment,
recommendations can be made for additional improvements in business performance
and profitability from further innovation in such critical decision areas as
pricing, asset utilization and capital investment.
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Software. The Company expects to offer a wide variety of software to
enable its clients to generate incremental revenue by forecasting customer
demand and optimizing product price and availability. The Company will generally
use a client/server software architecture that facilitates performance and
portability. The Company's software will be based on open architecture and
industry standards to assist integration with third-party systems or clients'
existing technology infrastructure. The design of the systems will generally
provide three core sets of processes: (i) user interface presentation and system
navigation, (ii) forecasting and optimization, and (iii) data handling and
report generation.
. User interface presentation and system navigation. The presentation and
navigation components of the Company's software will be implemented
using Windows GUI guidelines. Since there is no "one-size-fits-all"
definition of the business problem facing the Company's clients, client
interaction will be used to define user interface requirements for the
specific application and verify ease of use. The systems include
features such as pull-down menus, common command structure, context-
sensitive "help" screens, mouse support and graphical presentation of
data. These features will accommodate the use of sophisticated
mathematical modeling of the problem by a broad set of users without an
advanced level of technical knowledge.
. Forecasting and optimization. The Company's systems will use a variety
of methodologies to forecast customer demand for various products. The
typical forecast generator is a time-series forecaster that consists of
a configurable algorithm with parameters set by test sets of sample
client data to estimate trend and seasonality effects. A general
purpose Forecast Engine has been developed to predict net demand for a
client's products at the micro-market level for a variety of
industries. It uses advanced forecasting techniques to blend historical
data with current demand to minimize forecast error and maximize the
efficiency needed to update large forecasts on a daily, or more
frequent, basis. The Forecast Engine employs object-oriented
technologies to achieve superior accuracy and to provide efficiencies
in the transportability of the module independent of the particular
application. The Forecast Engine has been deployed in the air cargo
industry, cruise line industry and container shipping industries. The
Company believes the model can produce superior results in a variety of
industries.
The Company's optimization modules determine the optimal product
availability levels to maximize a client's profitability given the
demand for the client's products, the resources available, and "real-
world" constraints. The Company has developed a general purpose set of
optimization algorithms called the Marginal Value Engine (TM) (the
"MVE"). The MVE outputs a set of "protection levels," which constitute
a system of rules that tells the client which sales to accept and which
to reject. Since the MVE identifies the critical variables in this
problem to be the marginal values of each resource (rather than the
individual protection levels), the MVE achieves a significant reduction
in problem size so that the protection levels for complex systems can
be derived in minutes rather than days.
. Data handling and report generation. The databases to be provided by
the Company employ advanced SQL relational technology to give
functionality and efficiency to automate routine business functions.
The data loading processes will be automated and the systems come with
a comprehensive set of tools to assist in administration and to
automate routine tasks such as data archiving. Multi-level security
will be provided in all systems as well as fault-tolerance and
automated backup. The system will come with an easy-to-use report
writer that provides
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a simple, graphical way for users to customize their own reports. The
reports can be stored and scheduled to run on a periodic basis.
Marketing and Sales. The Company believes that its primary market
opportunities lie with potential clients that sell broad portfolios of products
and/or services in complex, dynamic and segmentable markets. The Company's
target markets will have typically undergone or will be undergoing major change
due to deregulation, technology or market upheaval. The Company's strategy is to
be a leader in helping organizations apply technology and disciplined business
practices to more effectively utilize all their resources in order to drive
profitable growth. The Company will use Revenue Management as the vehicle to
deliver innovative practices and technology that assist clients in maximizing
return from assets by capitalizing on perishable opportunities in the
marketplace. The Company will broaden the use of Revenue Management techniques
through continued exploration and innovation in existing and emerging markets
and leverage those innovations both vertically and horizontally to generate
growth.
The Company will work to simultaneously expand the scope and application
of Revenue Management in industries where it is currently well-established and
extend its application to new industries. For industries in which it is well
established, the Company will develop standardized branded methodologies and
software. Where appropriate, these methodologies and software will be licensed
to third-party distributors for worldwide distribution. The Company has recently
executed two such third-party distribution agreements for software products --
one for a hotel product and one for a passenger airline product.
The Company will actively market and explore opportunities to apply
Revenue Management in industries where it has previously not been utilized. In
such explorations it will, to the extent possible, draw upon the methodologies
and software that it has previously developed. However, applications to new
industries will often require development of new techniques specifically
tailored to the unique characteristics of that industry. The Company will
utilize its most senior, experienced staff to develop these techniques. Where
applicable, these new techniques will form the basis for new standardized
methodologies and software, which the Company will add to its library and, if
appropriate, ultimately license for distribution.
The Company will continue to invest in enhancing and improving its
methodologies and software, both to improve the ability to address the Revenue
Management issues faced by its customers and to respond to new Revenue
Management challenges resulting from changes in market conditions, customer
requirements, and distribution channels.
The Company will continue its efforts to establish Revenue Management as
an indispensable business practice for all companies to increase incremental
revenue without significant cost. The Company's Chairman of the Board, Robert G.
Cross, has recently published the first book on the subject of Revenue
Management, which is entitled Revenue Management, Hard-Core Tactics for Market
Domination. The book will be available starting in the fall of 1997 in many
foreign languages including German, French, Portuguese, Japanese and Korean. A
second book is planned for publication in 1999. The Company will continue to
exhibit leadership in the industry by authoring articles in various trade
magazines on the benefits of Revenue Management and making public appearances to
speak on the issue. It will communicate its market leadership position with
clients and prospective clients through the publication of Scorecard, The
Revenue Management Quarterly.
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Marketing and sales efforts will be focused on industry verticals, which
will be led by Business Area Leaders. A Business Area Leader will determine
the growth strategy for the industry, develop sales plans and targets, be
responsible for sales in the industry and assure client satisfaction. Sales
efforts for all the Company's business (except for products in the distribution
phase) will be managed directly through its professional staff and the
Company's senior management. The initial target industry verticals include (i)
Passenger Airlines, (ii) Freight, (iii) Travel and Leisure, (iv) Energy, and
(v) Emerging Markets. Target clients within those verticals will be
prioritized according to opportunity for the Company to create high value for
them through Revenue Management techniques.
Customers. The Company's typical target client will be a company with
annual revenues in excess of $500 million that could anticipate annual gains
from Revenue Management in excess of $5 million. DFI and Aeronomics currently
have established clients in all of the initial industry verticals discussed
above. During 1996, no customer of DFI or Aeronomics accounted for more than
10% of the combined revenues of DFI and Aeronomics for 1996. Accordingly, the
Company does not anticipate that it will be materially dependent on any single
client. Current and recent clients of DFI and Aeronomics, by industry
vertical, include:
<TABLE>
<CAPTION>
Passenger Airlines Travel and Leisure
<S> <C>
British Airways Forte Hotels
Continental Airlines Hilton Hotels Corporation
Delta Air Lines Marriott Corporation
KLM Royal Dutch Airlines Omni Hotels
Japan Airlines ITT Sheraton
Northwest Airlines Alamo Rent A Car
Qantas Airways Hertz Rental Car
Scandinavian Airlines System National Car Rental
United Airlines Royal Caribbean
Virgin Atlantic Airways International
<CAPTION>
Freight Energy Emerging Markets
<S> <C> <C>
Continental Airlines Cargo Central Illinois Public American Broadcasting
KLM Cargo Services Company
Sea-Land Services Commonwealth Edison Canadian Broadcasting
United Parcel Service Oklahoma Gas & Electric Corporation
Yellow Freight Pennsylvania Power & Bell Atlantic
Light Oracle Corporation
Southern Companies Volvo/GM
Resort Condominiums
International
</TABLE>
Competition. The market for Revenue Management products and services is
comprised of a rapidly growing number of participants, is subject to rapid
changes and is highly competitive. The Company's primary competitors are
currently small and fragmented, but the Company expects that general management
consulting firms and the consulting practices of the "Big Six" accounting firms
will eventually offer Revenue Management products and services. Large systems
integrators such as IBM and EDS may also become competitors in the future. In
addition, clients and potential clients may elect to increase internal
resources to satisfy their need for Revenue Management solutions. Many of the
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Company's competitors will have significantly greater financial, technical and
marketing resources and greater name recognition than the Company.
Research and Product Development. Historically, Aeronomics and DFI have
each developed their product offerings on a project by project basis.
Consequently, neither Aeronomics nor DFI have devoted any significant amount of
resources specifically to product development. The Company intends to examine
these policies and expects that it will establish a specific product
development group. However, the amount of resources expected to be expended on
product development cannot be determined at this time.
Proprietary Rights. The Company's ability to compete effectively will
depend in part on its ability to protect its proprietary rights in its various
intellectual properties. To do so, the Company will rely, and Aeronomics and
DFI in the past have relied, upon a combination of copyright and trade secret
laws, nondisclosure and other contractual arrangements, and technical measures.
There can be no assurance that the steps taken by DFI and Aeronomics in the
past, or the steps taken by the Company in the future, to protects their
respective proprietary rights will be adequate to deter misappropriation of
such proprietary rights or that the Company will be able to detect unauthorized
use and take appropriate steps to enforce its rights. Neither Aeronomics nor
the Company presently hold any patents or registered copyrights, and DFI is the
owner of two patents. Although the Company believes that the intellectual
property rights of Aeronomics and DFI do not infringe on the intellectual
property rights of others, there can be no assurance that such a claim will not
be asserted against the Company in the future, that assertion of such claims
will not result in litigation or that the Company would prevail in such
litigation. Any such claims, regardless of their outcome or merit, could
result in substantial cost to the Company and divert management's attention
from the Company's operations and could therefore have a material adverse
effect on the Company's business or results of operations.
Employees. Upon consummation of the Mergers, the Company expects to have
approximately 265 full-time employees and five part-time employees.
Legal Proceedings. Neither the Company, DFI nor Aeronomics are currently
a party to any material legal proceedings, nor does the Company expect to be a
party to any material legal proceedings following consummation of the Mergers.
Properties. As a result of the Mergers, the Company will maintain its
principal executive offices in facilities located in Mountain View, California
and Atlanta, Georgia. The Atlanta facility consists of approximately 45,000
square feet of leased office space under a lease that will expire in August
2003. The Mountain View facility consists of approximately 57,000 square feet
of leased office space under a lease that will expire in April 2002. The
Company will also maintain leased office space in Vancouver, Canada; London,
England; Sydney, Australia and Washington, D.C. Management believes that such
facilities are sufficient to meet its needs for the foreseeable future and that
alternatives or additional space, as necessary, will be available on reasonable
terms.
Plan of Operation of the Company
Both Aeronomics and DFI have experienced significant revenue growth for
their software and services in certain vertical markets and anticipate that
this trend will continue after the Mergers.
The Company will focus on taking advantage of the anticipated growth in
its current core industries of energy, passenger and freight transportation,
hotels, rental cars and cruise lines as well as
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expanding its software and services to other industries both domestically and
internationally. The Company will offer a variety of software development and
consulting services based on standard set of methodologies in order to achieve
leverage of its skilled personnel. The Company also intends to be a leader in
innovation as it develops techniques for both its existing client base and new
industries. This wide array of service offerings will enable the Company to
provide a variety of possible solutions for its clients.
The Company's strategy following the Mergers will include the following
key initiatives:
. The Company will focus on certain key vertical markets in which it
currently has a presence or anticipates significant growth
opportunities in the future. This focus will be achieved through the
development of industry deliverables and a strong direct sales force.
In the near term, the Company will focus on energy, passenger and
freight transportation, hotels, rental cars, cruise lines and broadcast
media. The Company will continue to seek other opportunities outside
these vertical markets where significant growth opportunity can be
realized.
. The Company will increase its commitment to international markets by
increasing personnel at key international locations to focus on sales,
marketing and service delivery activities.
. The Company will provide innovative solutions for its clients based on
standard set of methodologies in order to leverage its knowledgeable
and skilled personnel.
In addition, the Mergers will provide the Company with a strong management
team with substantial experience in Revenue Management. Mr. Cross and Dr. Boyd
will serve as Chairman of the Board and Vice Chairman of the Board,
respectively, of the Company. Dr. Phillips will serve as President and Chief
Executive Officer and Mr. Hall will assume the position of Executive Vice
President and Chief Operating Officer. The Company does not intend to reduce
the size of its workforce as a result of the Mergers.
The Company believes that its current cash and cash equivalents combined
with future cash flows from operating activities should be sufficient to
support the Company's existing operations for the next twelve months. However,
lower than expected cash flows from operations or greater than expected
expenses following the Mergers could require the Company to seek additional
financing. In order to finance the Company's growth, the Company intends to
renegotiate the existing debt agreements of Aeronomics and DFI and will seek to
expand the combined $3,500,000 in revolving credit facilities. There can be no
assurance that the Company will be successful in expanding its revolving credit
facilities or renegotiating the debt agreements on terms that are favorable to
the Company. As it deems appropriate based on its cash needs and operating
performance, the Company will explore opportunities for additional financing,
whether through debt, equity or some combination thereof.
The Company has estimated its integration costs to be approximately
$500,000. These costs include travel, telecommunications and other costs
associated with the corporate name changes. These integration costs are
expected to be incurred primarily during the third and fourth quarters of 1997.
The Company does not intend to pay any cash dividends with respect to any
class of its capital stock for the foreseeable future. The Company intends to
retain any earnings for use in the operation of its business. The terms of the
Company's Preferred Stock restricts it from paying dividends with respect to
the Company's Common Stock while shares of the Company's Preferred Stock remain
outstanding
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unless the holders of a majority of the outstanding shares of the Company's
Preferred Stock consent to such dividend.
Directors and Executive Officers of the Company
<TABLE>
<CAPTION>
Director Term
Name Age Position Expiring
---- --- -------- --------
<S> <C> <C> <C>
Robert G. Cross 47 Chairman of the Board of 1999
Directors
Dean W. Boyd 55 Vice Chairman of the Board of 1999
Directors
Robert L. Phillips 42 Chief Executive Officer, 1999
President and Director
Lawrence W. Hall 38 Executive Vice President, 1998
Chief Operating Officer and
Director
Charles A. Johnson 47 Director 1999
William M. Wells 36 Director 1998
</TABLE>
The business backgrounds and experience of the directors and principal
executive officers of the Company are set forth below.
Robert G. Cross has served as Aeronomics' Chairman and Chief Executive
Officer since founding Aeronomics in 1984. Mr. Cross also served as
Aeronomics' President from 1984 to 1994. Prior to 1984, Mr. Cross worked for
Delta Air Lines where he was responsible for the design and implementation of
Delta's revenue management program. Mr. Cross is the author of a book on
Revenue Management entitled Revenue Management, Hard-Core Tactics for Market
Domination and is the publisher of Scorecard/TM/, The Revenue Management
Quarterly. Mr. Cross is an attorney with membership in both the Texas and
Georgia Bar Associations.
Dr. Dean W. Boyd is a founder of, and currently serves as Chairman of the
Board of, DFI. During the 20 years since he helped found DFI, Dr. Boyd has
served as Secretary, Business Area Manager, President, and, from 1990 through
1996, as Chief Executive Officer of DFI. Dr. Boyd currently serves as a senior
consultant for DFI. Dr. Boyd has worked extensively with clients from around
the world in all of DFI's practice areas. Dr. Boyd has a degree in Electrical
Engineering from the Massachusetts Institute of Technology and a Ph.D. in
Engineering-Economic Systems from Stanford University.
Dr. Robert L. Phillips is President and Chief Executive Officer of DFI and
has served in such capacity since September 1996. Prior to accepting this
position, Dr. Phillips was a Senior Vice President and managed DFI's
transportation and travel-related practice. During his 20 years with DFI, Dr.
Phillips' consulting practice has included work with companies in a variety of
industries including passenger and cargo airlines, rental cars, hotels,
container shipping, trucking, energy, and manufacturing. Dr. Phillips holds a
Ph.D. in Engineering-Economic Systems from Stanford University and
undergraduate degrees in Mathematics and Economics from Washington State
University.
Lawrence W. Hall joined Aeronomics in July 1993 as a consultant within the
hotel division. In December 1994, Mr. Hall was appointed President and Chief
Operating Officer. Prior to July 1993, Mr. Hall served ITT Sheraton
Corporation for ten years in various positions with his last five years as
Director, Hotel Systems and Telecommunications. Mr. Hall has held positions on
the American Hotel &
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<PAGE>
Motel Association Technology Committee, the Marketing Advisory Committee at
Cornell University, and as a director of Cresent Industries.
William M. Wells is a Vice President and Secretary of DFI. Mr. Wells has
been with DFI for eight years, with his areas of expertise including
forecasting, scheduling, integrated planning, capital management, pricing and
logistics. Mr. Wells holds a B.A. in History, Physics and Mathematics from
Rutgers University and an M.A. in Applied Mathematics from the University of
California at Berkeley.
Charles A. Johnson has been a director of the Company since July 1995.
Since 1993, Mr. Johnson has been a general partner of Noro-Moseley Partners
III, L.P., an Atlanta-based venture capital firm. From 1992 to 1993, Mr.
Johnson was an independent consultant. In 1983, Mr. Johnson co-founded Sales
Technologies, Inc., a start-up software company that was acquired by Dun &
Bradstreet in January 1989. Mr. Johnson served as Chief Executive Officer of
Sales Technologies, Inc. from August, 1983 until February 1992. Prior to
founding Sales Technologies, Inc., Mr. Johnson was a management consultant with
McKinsey & Company and held a number of sales and marketing positions with
Procter & Gamble.
There are no family relationships among any of the directors or executive
officers of the Company.
For executive compensation information regarding the directors and
executive officers of the Company, please see the information under the
captions "Information About Aeronomics--Management-Executive Compensation" and
"Information About DFI--Management--Executive Compensation."
Certain Transactions
As of March 31, 1997, all of Aeronomics' outstanding promissory notes and
capital lease agreements are guaranteed by Robert G. Cross, Chairman and Chief
Executive Officer of Aeronomics. Upon consummation of the Mergers, the Company
anticipates that it will enter into new debt agreements that will include
additional debt covenants in place of the shareholder guarantees. The Company
is currently in negotiations with its banking partners but not does believe
that this will have a material effect on its sources of capital.
Mr. Cross is a party to a publishing agreement with The William Shinker
Division of Bantam Doubleday Dell Publishing Group, Inc. to publish a
manuscript entitled Revenue Management, Hard-Core Tactics for Market
Domination. Mr. Cross has assigned his rights to the publishing agreement to
Aeronomics during his service to Aeronomics. Royalty advances in the amount of
$320,000 have been paid to Aeronomics and apply against future unit volume
sales.
Equity Securities of the Company
The authorized capital stock of the Company consists of 43,000,000 shares
of the Company's Voting Common Stock, 5,000,000 shares of the Company's
Nonvoting Common Stock and 2,000,000 shares of the Company's Preferred Stock.
As of the date of this Proxy Statement, no shares of the Company's capital
stock have been issued. After giving effect to the Mergers, assuming no
appraisal rights are exercised, there are expected to be outstanding 17,026,071
shares of the Company's Voting Common Stock held by 78 persons, 214,423 shares
of the Company's Nonvoting Common Stock held by 44 persons, and 824,237 shares
of the Company's Preferred Stock held by one person.
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<PAGE>
No public trading market currently exists, or is expected to develop in
the foreseeable future, with respect to the capital stock of the Company.
Common Stock.
The Company has authorized two classes of Common Stock: (i) Voting Common
Stock, and (ii) Nonvoting Common Stock. The sole distinguishing characteristic
between the two classes is that the holders of the Voting Common Stock will
have voting rights, while the holders of the Nonvoting Common Stock will not.
Unless expressly stated otherwise, any references in this Proxy Statement to
the "Company's Common Stock" shall refer to both classes of stock. Holders of
the Company's Voting Common Stock are entitled to one vote for each share held
on all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of the
Company's Voting Common Stock entitled to vote in any election of directors may
elect all of the directors standing for election by holders of the Company's
Voting Common Stock, with the exception of one director entitled to be elected
by the holders of the Company's Preferred Stock.
Holders of the Company's Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. On the liquidation, dissolution or winding up of
the Company, the holders of the Company's Common Stock are entitled to receive
ratably the net assets of the Company available after the payment of all debts
and other liabilities and subject to the prior rights of any outstanding
Preferred Stock. Holders of the Company's Common Stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of the
Company's Common Stock are, and the shares to be sold by the Company in this
offering will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of the Company's Common Stock are
subject to, and may be adversely affected by, the rights of the holders of the
Company's Preferred Stock.
Right of First Refusal. The Company's Common Stock is subject to a right
of first refusal. The right of first refusal requires a stockholder who
receives an offer from a third party to purchase his or her shares of the
Company's Common Stock to first offer to sell such shares to the Company upon
identical terms as the third party offer.
Convertible Preferred Stock.
Dividends. The holder of each share of the Company's Preferred Stock will
be entitled to receive, when and as declared by the Board of Directors of the
Company, out of funds legally available for that purpose, dividends in cash
equal to $.1944 per share of the Company's Preferred Stock per each fiscal
quarter of the Company. Such dividends shall be cumulative and shall accrue
from the original date of issuance of the Aeronomics Preferred Stock. Without
the consent of the holders of a majority of the outstanding shares of the
Company's Preferred Stock, no dividends may be paid with respect to the
Company's Common Stock while shares of the Company's Preferred Stock remain
outstanding. In no event may dividends be paid with respect to the Company's
Common Stock unless all accrued dividends with respect to the Company's
Preferred Stock shall have been paid.
Voting Rights. All holders of the Company's Preferred Stock shall vote
together as a single class to elect one member of the board of directors of the
Company, with the holders of the Company's Voting Common Stock electing all
remaining members of the board. For such purpose, each holder of the
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Company's Preferred Stock shall be entitled to the number of votes equal to the
number of shares of the Company's Common Stock into which such share of the
Company's Preferred Stock would be convertible on the record date for the vote
or consent of stockholders. The holders of the Company's Preferred Stock shall
not be entitled to any other voting rights other than the election of
directors, unless required by law. In the event the Company fails for any
reason to honor the redemption, conversion, or preemptive rights of the
Company's Preferred Stock, or fails to comply with the protective provisions
applicable to the Company's Preferred Stock and such failure continues for a
period of 30 consecutive days, then for so long as the failure remains uncured,
the holders of the Company's Preferred Stock shall be entitled at any annual
meeting of the stockholders or any special meeting called for such purpose,
voting together as a single class, to elect the smallest number of members of
the board of directors necessary to constitute a majority, and the holders of
the Company's Voting Common Stock, voting as a single class, shall elect the
remaining directors. At any time after the Company cures any failure mentioned
above, then the terms of office of all persons who were elected as directors by
reason of such failure will immediately terminate and the number of directors
shall be reduced accordingly.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the Company, or upon the sale of substantially all of the assets
of the Company or upon a merger of the Company in which the Company is not the
surviving entity (collectively a "Distribution Event"), the assets of the
Company available for distribution to its stockholders will be distributed
first to holders of the Preferred Stock, (i) in the case of a liquidation,
dissolution or winding up of the Company, from any funds legally available for
distribution to stockholders, and (ii) in the case of a sale or merger, from
the proceeds available for distribution or payable to the stockholders by
reason of such sale or merger, that portion of such funds equal to a fraction
(x) the numerator of which is the number of votes to which the holder of such
share of Preferred Stock is entitled by virtue of holding such share with
respect to the election of the single director of the Company and (y) the
denominator of which is the aggregate of the number of votes to which all
holders of the Company's Preferred Stock and the Company's Voting Common Stock
are entitled to vote by virtue of holding such shares of stock. In no event
shall the amount payable to holders of the Company's Preferred Stock in the
event of a Distribution Event be less than (i) the original issuance price of
such shares, compounded at the rate of 20% per annum from the date of purchase
until the date of distribution, less (ii) the aggregate amount of all dividends
actually declared and paid on the Company's Preferred Stock from the date of
issuance thereof. In the case of a Distribution Event, no accrued but
undeclared dividends shall be payable with respect to the Company's Preferred
Stock. The Aeronomics Merger will not constitute a Distribution Event.
Conversion. The Company's Preferred Stock is convertible, at the holder's
option, into fully paid and nonassessable whole shares of the Company's
Nonvoting Common Stock at an initial conversion rate of one share of the
Company's Nonvoting Common Stock per one share of the Company's Preferred
Stock. The Company's Preferred Stock shall be automatically converted into
the Company's Nonvoting Common Stock upon the consummation of the Company's
initial public offering, provided that (i) such offering shall have an
aggregate offering price to the public of not less than $15,000,000 and a
public offering price per share of not less than 2 1/2 times the "conversion
price" then in effect (which as of the date of this Proxy Statement is equal to
$2.43) and (ii) all accrued but unpaid dividends with respect to the Company's
Preferred Stock shall be paid in full prior to such conversion. The conversion
rate of the Company's Preferred Stock is subject to anti-dilution adjustments
for issuance of the Company's Nonvoting Common Stock by the Company at a price
that is less than the conversion price then in effect.
Redemption. At any time after the fifth anniversary of the original issue
date of the Company's Preferred Stock, the Company shall, upon the written
request of any holder of the Company's Preferred Stock, redeem all shares of
the Company's Preferred Stock held by such holder specified in such written
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request as shares to be redeemed at a redemption price equal to the appraised
value of such shares. However, in no event shall the redemption price be less
than (i) the original issuance price of such shares, plus a per annum rate of
return for the period such shares have been outstanding equal to 20% of the
original issuance price of such shares, less (ii) the aggregate amount of all
dividends actually declared and paid on such shares from the date of issuance
thereof, and no accrued but undeclared dividend shall be payable with respect
to such shares.
Preemptive Rights. The holders of the Company's Preferred Stock shall
have the right of first refusal to purchase any new common stock or preferred
stock of the Company and any rights, options or warrants to purchase any common
stock or preferred stock, and any securities of any type whatsoever that are,
or may become, convertible into common stock or preferred stock (collectively,
"New Securities"). Preemptive rights shall not, however, be exercisable in
relation to certain issuances of common stock or preferred stock, including
limited numbers of issuances of common stock pursuant to the Company's employee
benefit plans. Other than as provided above, each holder shall be entitled to
purchase its pro-rata portion of any issued New Securities for the price and
upon the general terms on which such New Securities are issued. All preemptive
rights shall terminate immediately prior to a "Qualified Public Offering" of
the Company. For such purposes, a Qualified Public Offering is defined as the
effective date of a registration statement filed by the Company under the
Securities Act of 1933, as amended (the "Securities Act"), covering the
underwritten offer and sale of any series or class of common stock of the
Company to the public having an offering price to the public of not less than
$15,000,000 and a public offering price per share of not less than 2 1/2 times
the then effective conversion price per share of the Company's Preferred Stock.
Protective Provisions. Without first obtaining the affirmative vote or
written consent of the holders of not less than two-thirds of the outstanding
shares of the Company's Preferred Stock, the Company is not permitted to: (i)
merge or consolidate with or into any other corporation or other entity (other
than a wholly-owned subsidiary corporation with the requisite stockholder
approval and where the stockholders, prior to such event, shall immediately
thereafter comprise a majority interest of all holders of voting securities of
the Company); (ii) sell or otherwise dispose, in any manner, of all or
substantially all of its properties or assets; (iii) voluntarily dissolve,
liquidate or wind up or carry out any partial liquidation, distribution or
transaction in the nature of a partial liquidation or distribution; (iv) create
or authorize the creation or increase the authorized amount of any additional
class or series of stock, unless such stock ranks junior to the Company's
Preferred Stock as to dividends, redemption and the distribution of assets upon
liquidation, dissolution or winding up of the Company; (v) increase the
authorized amount of the Company's Preferred Stock; increase the authorized
amount of any additional class or series of shares of stock, unless the same
ranks junior to the Company's Preferred Stock as to dividends, redemption and
the distribution of assets on a liquidation, dissolution or winding up of the
Company; or create or authorize any obligation or security convertible into
shares of the Company's Preferred Stock or convertible into shares of any other
class or series of stock, whether voting or nonvoting, regardless of whether
any such creation, authorization or increase shall be by means of amendment to
the certificate of incorporation, or by merger, consolidation or otherwise;
(vi) amend or appeal any provisions of, or add any provision to, the Company's
certificate of incorporation or bylaws, or file any certificate of
designations, preferences and rights of any series of stock of the Company, if
such action would alter or change the preferences, rights, privileges or powers
of, or the restrictions provided for the benefit of, the Company's Preferred
Stock; (vii) pay any dividends with respect to any common stock; (viii) issue
any additional voting capital stock of the Company; or (ix) amend the
provisions of the Company's certificate of incorporation relating to the
foregoing.
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Indemnification of Directors and Officers
Pursuant to Section 102(b)(7) of the DGCL, the Company has included in its
Certificate of Incorporation a provision that eliminates the personal liability
of a director to the Company or its stockholders for monetary damages for
breach of his fiduciary duty as a director except for (i) any breach of the
duty of loyalty to the Company or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) payment of an improper dividend or improper repurchase or improper
redemption of the Company's stock under Section 174 of the DGCL, or (iv) any
transaction from which the director derived an improper personal benefit. The
Company's Certificate of Incorporation further provides that in the event the
DGCL is amended to allow the further elimination or limitation of the liability
of directors, then the liability of the Company's directors shall be eliminated
or limited to the fullest extent permitted by the amended DGCL.
Section 145 of the DGCL permits a corporation to indemnify certain
persons, including officers and directors, who are (or are threatened to be
made) parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of the fact
that such person is or was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such officer,
director, employee or agent acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the Company's best interests and, with
respect to any criminal action or proceeding, provided he had no reasonable
cause to believe that his conduct was unlawful.
The DGCL further permits a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation or is or was serving in such role
in another enterprise at the request of the corporation. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred
by him, provided the officer or director acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the corporation's best
interests. However, no such person will be indemnified as to matters for which
he is found to be liable to the corporation unless, and only to the extent
that, indemnification is ordered by a court.
The Certificate of Incorporation of the Company provides that the Company
shall indemnify its directors and officers to the fullest extent permitted by
the DGCL.
Delaware corporations also are authorized to obtain insurance to protect
officers and directors from certain liabilities, including liabilities against
which the corporation cannot indemnify its directors and officers. The Company
intends to obtain such insurance.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
-44-
<PAGE>
Security Ownership of Management and Principal Stockholders of the Company
The following table sets forth certain information, immediately after
giving effect to the Mergers, with respect to (i) each person expected to be a
beneficial owner of more than five percent of the Company's Common Stock or
Preferred Stock after the Mergers, (ii) each director and executive officer of
the Company, and (iii) all directors and executive officers of the Company as a
group. Unless otherwise indicated, each person or group has sole voting and
investment power with respect to all such shares. Unless otherwise indicated,
the number of shares and percentage of ownership of Common Stock or Preferred
Stock for each of the named stockholders and all directors and executive
officers as a group assumes that shares of Common Stock that may be acquired
within 60 days are outstanding.
<TABLE>
<CAPTION>
Number of
Name Class of Stock Shares Percent of Class
---- ---------------- ------ ----------------
<S> <C> <C> <C>
Noro-Moseley Partners III, L.P/(1)/...... Preferred 824,237 100.0%
Voting Common 108 *
Robert G. Cross/(2)/..................... Voting Common 2,461,957 14.1%
Patricia B. Cross/(2)/................... Voting Common 2,350,736 13.5%
Robert L. Phillips/(3)/.................. Voting Common 386,823 2.2%
Nonvoting Common 102 *
Dean W. Boyd/(3)/........................ Voting Common 328,400 1.9%
Nonvoting Common 102 *
Lawrence W. Hall/(2)/.................... Voting Common 36,466 *
Nonvoting Common 251,168/(4)/ 14.7%
Charles A. Johnson/(5)/.................. - - -
William M. Wells/(3)/.................... Voting Common 128,326 *
Nonvoting Common 102 *
All directors and executive
officers as a group (7 persons).......... Preferred 824,237 100.0%
Voting Common 5,692,816 32.6%
Nonvoting Common 251,474/(4)/ 14.7%
</TABLE>
- ------------------
* represents less than one percent.
(1) The address for Noro-Moseley Partners III, L.P. is 9 North Parkway Square,
4200 Northside Parkway, N.W., Atlanta, GA 30327.
(2) The address for Messrs. Cross and Hall and Mrs. Cross is 4751 Best Road,
Suite 300, Atlanta, GA 30337.
(3) The address for Messrs. Boyd, Phillips and Wells is 650 Castro Street,
Suite 300, Mountain View, CA 94041.
(4) Includes options to acquire 251,168 shares exercisable within 60 days of
the date of this Proxy Statement.
(5) Does not include shares owned of record by Noro-Moseley Partners III,
L.P., of which Mr. Johnson may be deemed the beneficial owner. The address
for Mr. Johnson is 9 North Parkway Square, 4200 Northside Parkway, N.W.,
Atlanta, GA 30327.
INFORMATION ABOUT AERONOMICS
Business of Aeronomics
Aeronomics was founded in 1984 and provides software and consulting
services to businesses which help them maximize revenues through predicting
customer demand and optimizing the price and availability of their products.
The dynamic process of coordinating forecasts of customer demand at minutely
segmented market levels with real-time product price and availability changes
is known as
-45-
<PAGE>
Revenue Management. The objective of Revenue Management is to maximize a
company's revenues from its existing asset base.
In its early years, Aeronomics was primarily a consulting firm which used
the internal resources of its clients or third party programmers for software
development to employ Aeronomics' intellectual capital. Over time, Aeronomics
has become a developer of large, customized Revenue Management software
applications. In order to leverage its intellectual capital and to position
itself to grow rapidly with a high degree of consistent quality and
reliability, Aeronomics has recently developed a disciplined approach to
Revenue Management, which it has branded as the CriticalPath(TM) to Revenue
Management success. The CriticalPath(TM) is a consistent methodology that takes
a client through a set of well defined steps for the purpose of increasing the
probability of success of a Revenue Management program. These steps are:
awareness, education, foundation, implementation, assurance, assessment and
enhancement. For each step within the CriticalPath, Aeronomics has established
comprehensive sets of branded methodologies and software components designed to
accelerate the adoption of Revenue Management techniques for its clients and
maximize their return on investment. Aeronomics believes that this packaging of
Revenue Management knowledge gives it a competitive advantage in obtaining new
clients and leverage advantage in enabling Aeronomics to grow rapidly with
bright people who are not necessarily skilled in Revenue Management.
Significant components of the CriticalPath(TM) include:
RMVision(TM) This is a one day seminar presented by an Aeronomics Revenue
Management expert to the ten most senior officers of the client. The
purpose is to enlighten senior managers about the potential for Revenue
Management at their company and to provide them with a vision about how
Revenue Management can benefit their company.
Baseline(TM) This component supports the client's ascent up the Aeronomics
CriticalPath(TM) while allowing Aeronomics the chance to gauge the
likelihood of Revenue Management success with that specific client by
determining how Revenue Management can potentially generate revenue based
their ability to address the seven core concepts of Revenue Management.
Aeronomics conducts on-site interviews, collects and analyzes relevant
information and documents the findings so a cross-functional team of
Revenue Management specialists can review them and make recommendations as
to what will be required of the client to generate incremental revenue
using Revenue Management techniques.
SuccessPlan(TM) This component follows the CriticalPath(TM) by using the
information gleaned from the BaseLine(TM) to identify, evaluate and
address Revenue Management related issues with the intent of laying a
sound business and technical foundation upon which a successful Revenue
Management program can be built. Aeronomics' consultants make
recommendations to enhance business practices and processes, organization
structure and systems, technical architecture strategy, and overall
revenue management application strategy. They will quantify potential
revenue benefits attributable to enhancements. Software integration
requirements and an implementation plan to include hardware, software,
applications, resource, education and training requirements, along with a
timeline and price estimate for future work are also included.
SuccessPack(TM) This component is designed to help our client successfully
implement Revenue Management in their organization through a package of
products and services which address the people, automation, coordination,
and knowledge of the client. It is a package of Revenue Management
services and software built on an established core of software
applications and delivery processes. Customization will be performed to
meet the specific needs of the client. It
-46-
<PAGE>
can take from 6 months to 12 months depending on customization and
integration requirements as specified in SuccessPlan(TM).
RevenueMomemtum(TM) This component is designed to help the client maintain
the effective implementation of Revenue Management so that it becomes a
permanent practice within the organization. It is a package of ongoing
technical, business and education services which assure continued success
for the client and sustained revenue benefits.
RevenueMonitor(TM) This component is used to quantify the revenue benefits
the client has actually generated utilizing Revenue Management and
identify the remaining revenue opportunity yet to be achieved. Aeronomics
conducts one or a series of detailed studies to determine the revenue
impact of current Revenue Management practices. Simulation analysis will
be utilized to determine the amount of incremental revenue captured. The
analysis will also quantify remaining revenue potential and identify the
sources of such opportunities.
Aeronomics' strategy has been to become the world's leader in providing
Revenue Management solutions. It has also assumed a leadership role in
creating market awareness of and demand for Revenue Management services. In
doing so, it publishes Scorecard(TM), The Revenue Management Quarterly, and its
Chairman, Robert G. Cross, has published the first book on the subject,
entitled Revenue Management, Hard-Core Tactics for Market Domination.
Aeronomics has performed services and developed large customized systems for
over 100 clients. Past clients of Aeronomics include Delta Air Lines, Japan
Airlines, Northwest Airlines, Virgin Atlantic Airlines, Marriott Corporation,
Hilton Hotels, Embassy Suites, Walt Disney World, Royal Caribbean
International, National Car Rental System, Alamo Rent A Car, Europcar, the
American Broadcasting Company, and the Canadian Broadcasting Corporation.
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Aeronomics
General
Aeronomics provides software and consulting services to businesses
primarily in the travel related industries to help them maximize revenues
through predicting customer demand and optimizing price and availability of
products. Aeronomics provides these software and consulting services through a
disciplined process which Aeronomics has branded as CriticalPath(TM) to revenue
management success. See "Business of Aeronomics." Management's Discussion and
Analysis should be read in conjunction with Aeronomics' historical financial
statements included elsewhere herein.
Aeronomics estimates that it will incur direct transaction costs of
approximately $300,000 associated with the Aeronomics Merger, consisting of
attorney and accounting fees and other costs related to the Aeronomics Merger.
These nonrecurring costs will be charged to operations in the period in which
the Aeronomics Merger is consummated. Aeronomics integration costs estimated
at $250,000 will be expensed as incurred, which is anticipated to be primarily
during the third and fourth quarters of 1997.
At March 31, 1997, Aeronomics has a project backlog of approximately
$8,000,000. This backlog represents future client billings for projects
currently under contract in which Aeronomics is providing software and
consulting services. These software and consulting services are scheduled for
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<PAGE>
completion at various times over the next 18 months. The project backlog does
not reflect all of the new business Aeronomics intends to sell or all of the
revenues to be realized in 1997.
Results of Operations.
Three Months Ended March 31, 1997 compared to Three Months Ended March 31, 1996.
Revenues. Revenues for the first three months of 1997 were $4,601,000, an
increase of $1,966,000 over the $2,635,000 reported for the first three months
of 1996. The increase in revenues between the comparable periods resulted from
the significant incremental revenue generated by the software and services sold
to rental car companies. Each of the industry segments that Aeronomics serves
had revenue increases for the first three months of 1997 with rental car and
cruise lines up $1,319,000; airlines up $346,000; hotels up $188,000 and others
up $113,000. International revenues increased by $430,000, an increase of 52%,
to $1,259,000, or 27% of total revenues. International revenues consisted
primarily of services provided to clients in Europe, Japan, Australia, New
Zealand and Canada.
Cost of Revenue. Cost of revenue increased to $3,232,000 for the three
months ended March 31, 1997 from $1,980,000 for the three months ended March 31,
1996, an increase of $1,252,000 or 63%. Cost of revenue includes costs that can
be directly associated with the generation of revenue for a customer project and
includes items such as direct labor, facilities expense, supplies, hardware and
software costs as well as travel costs not reimbursed by the client. Cost of
revenue increased primarily due to additional personnel and their associated
costs resulting from an increase in the number of software and consulting
projects. As a percentage of revenue, cost of revenue decreased slightly to 70%
for the three months ended March 31, 1997 from 75% for the three months ended
March 31, 1996 due to operational efficiencies from higher volumes.
Selling and Marketing. Selling and marketing expenses were $693,000 for
the first three months of 1997 as compared to $331,000 reported for the first
three months of 1996, an increase of $362,000 or 109%. Selling and marketing
expenses increased as a result of the Company's reorganization in June 1996,
which established a full-time dedicated sales force.
General and Administrative. General and administrative expenses were
$558,000 for the first three months of 1997 as compared to $470,000 reported
for the first three months of 1996, an increase of $88,000 or 19%. General and
administrative expenses increased primarily due to additional personnel and
their associated costs.
Net Income. Net income increased to $134,000 for the first three months
of 1997 from $3,000 for the first three months of 1996. As a percentage of
revenue, net income increased to 3% for the first three months of 1997 as
compared to 0.1% for the same period of the prior year.
Year Ended December 31, 1996 compared to Year Ended December 31, 1995.
Revenues. Revenues for the year ended December 31, 1996 were $15,051,000,
an increase of $7,684,000 over the $7,366,000 reported for the year ended
December 31, 1995. The increase in revenues between the comparable periods
resulted from the significant incremental revenue generated by the software and
services sold to airlines, cruise lines and rental car companies. The revenue
increases for the year 1996 compared to 1995 consisted of the following: rental
car and cruise lines up $5,772,000; airlines up $2,756,000; hotels down $212,000
and others down $632,000. International revenues
-48-
<PAGE>
increased by $1,472,000, an increase of 81%, to $3,283,000 or 22% of total
revenues. International revenues consisted primarily of services provided to
clients in Europe, Japan, Australia, New Zealand and Canada.
Cost of Revenue. Cost of revenue was $10,961,000 for the year ended
December 31, 1996 as compared to $5,377,000 for the year ended December 31,
1995. As a percentage of revenue, cost of revenue remained at 73% for both
years.
Selling and Marketing. Selling and marketing expenses were $1,917,000 for
the year ended December 31, 1996 as compared to $1,270,000 reported for the year
ended December 31 1995, an increase of $647,000 or 51%. Selling and marketing
expenses increased as a result of Aeronomics' reorganization in June 1996, which
established a full-time dedicated sales force, and the increase in sales bonus
expense due to the higher volume of contracts in 1996 as compared to 1995.
General and Administrative. General and administrative expenses were
$1,392,000 for the year ended December 31, 1996 as compared to $937,000 reported
for the year ended December 31 1995, an increase of $455,000 or 49%. General and
administrative expenses increased primarily due to additional personnel and
their associated costs. As a percentage of revenue, general and administrative
costs decreased to 9% in 1996 from 13% for 1995.
Other Income. Other income for the year ended December 31, 1996 was
comprised primarily of $240,000 in advance royalties received by Aeronomics for
publication of Revenue Management, Hard-Core Tactics for Market Domination
written by the Company's chairman, Robert G. Cross.
Income Taxes. Aeronomics recorded $467,000 in income tax expense for the
year December 31, 1996 with an effective tax rate of 48%. Income tax expense for
1996 includes a foreign tax credit carryforward of $65,000 and an offsetting
valuation allowance on deferred tax assets of $65,000. Aeronomics recorded a
benefit of $108,000 in 1995 due to its net operating loss position and has
received a refund on income taxes previously paid.
Net Income. Net income increased to $512,000 for the year ended December
31, 1996 from a net loss of $159,000 for the year ended December 31, 1995, an
increase of $672,000. As a percentage of revenue, net income increased to 3% for
the year ended December 31, 1996 as compared to (2%) for the year ended December
31, 1995.
Liquidity and Capital Resources.
Aeronomics' primary sources of cash have been operating activities,
borrowings and the sale of Aeronomics Voting Common Stock and Aeronomics
Preferred Stock to Noro-Moseley Partners III, L.P. in 1995. Cash flows from
operations were ($259,000) for the three months ended March 31, 1997; $1,141,000
for the year ended December 31, 1996, and ($277,000) for the year ended December
31, 1995. Aeronomics' primary uses of cash have been for working capital
purposes and capital expenditures. Aeronomics has no outstanding firm
commitments for capital expenditures with the exception of the liquidation of
the Aeronomics' Preferred Stock. Aeronomics does intend to purchase a new
client/server computer in the amount of $220,000 and to finance the purchase
with a promissory note.
At March 31, 1997, Aeronomics had short-term and long-term debt of
$1,375,000 compared to short-term and long-term debt of $845,000 at December 31,
1996. Short-term and long-term debt
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<PAGE>
consists of promissory notes and capital lease agreements used to finance
computer equipment purchased by Aeronomics as well as cubicles used in its
office space expansion. Aeronomics also has a $1,500,000 line of credit with the
Bank of Coweta, an affiliate of Synovus Bank of Georgia. Aeronomics' line of
credit matures on September 30, 1997, carries an interest rate of prime rate
plus 1% and limits the borrowings to 70% of its outstanding accounts receivables
balance. Aeronomics had borrowings against its credit line of $1,103,000 at
March 31, 1997 and $303,000 at December 31, 1996.
Aeronomics believes that working capital and amounts available under its
line of credit are sufficient to meet its anticipated capital and liquidity
needs. Aeronomics does not believe that inflation historically has had a
material effect on its results of operations.
Capital Stock of Aeronomics
No public market has ever existed with respect to the capital stock of
Aeronomics. The outstanding shares of Aeronomics Voting Common Stock are held of
record by four persons, the outstanding shares of Aeronomics Nonvoting Common
Stock are held of record by 44 persons and the outstanding shares of Aeronomics
Preferred Stock are held by one person. Aeronomics has not declared or paid
dividends with respect to any class of its capital stock during its two most
recently completed fiscal years. The terms of the Aeronomics Preferred Stock
restrict it from paying dividends with respect to the Aeronomics Common Stock
while shares of the Aeronomics Preferred Stock are outstanding unless the
holders of a majority of the Aeronomics Preferred Stock consent to such
dividend.
Security Ownership of Management and Principal Stockholders of Aeronomics
The following table sets forth certain information, as of June 1, 1997,
with respect to (i) each person known by Aeronomics to be a beneficial owner of
more than five percent of its capital stock, (ii) each director and executive
officer of Aeronomics, and (iii) all directors and executive officers of
Aeronomics as a group. Unless otherwise indicated, each person or group has sole
voting and investment power with respect to all such shares. Unless otherwise
indicated, the number of shares and percentage of ownership of capital stock for
each of the named stockholders and all directors and executive officers as a
group assumes that shares of capital stock that the stockholder or directors and
executive officers as a group may acquire within 60 days are outstanding.
<TABLE>
<CAPTION>
Number of Shares Percent of
---------------- ----------
Name Class of Stock Class
---- -------------- -----
<S> <C> <C> <C>
Noro-Moseley Partners III, Preferred 443,019 100.0%
L.P./(1)/................................... Voting Common 58 8.3%
Robert G. Cross/(2)/......................... Voting Common 270 38.7%
Nonvoting Common 1,350,000 27.1%
Patricia B. Cross/(2)/....................... Voting Common 270 38.7%
Nonvoting Common 1,289,000 25.9%
Paul S. Swope, Jr./(2)/...................... Voting Common 100 14.3%
</TABLE>
-50-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percent of
---------------- ----------
Name Class of Stock Class
---- -------------- -----
<S> <C> <C> <C>
Nonvoting Common 511,826/(3)/ 10.3%
Graham E. Young/(2)/......................... Nonvoting Common 481,750/(4)/ 9.7%
Richard D. Niggley/(2)/...................... Nonvoting Common 236,187/(5)/ 4.7%
Lawrence W. Hall/(2)/........................ Nonvoting Common 155,000/(6)/ 3.1%
James L. Edwards/(2)/........................ Nonvoting Common 29,333/(7)/ *
Charles A. Johnson/(8)/
All directors and executive Voting Common 370 53.0%
officers as a group (6
persons)/(8)(9)/............................. Nonvoting Common 2,282,346/(9)/ 45.8%
</TABLE>
- --------------------------
* represents less than one percent.
/(1)/ The address for Noro-Moseley Partners III, L.P. is 9 North Parkway,
4200 Northside Parkway, N.W., Atlanta, GA 30327.
/(2)/ The address for Messrs. Cross, Swope, Young, Hall and Edwards is 4751
Best Road, Suite 300, Atlanta, GA 30337.
/(3)/ Includes options for 24,000 shares exercisable within 60 days from the
date of this Proxy Statement.
/(4)/ Includes options for 11,500 shares exercisable within 60 days from the
date of this Proxy Statement.
/(5)/ Includes options for 34,000 shares exercisable within 60 days from the
date of this Proxy Statement.
/(6)/ Includes options for 135,000 shares exercisable within 60 days from the
date of this Proxy Statement.
/(7)/ Includes options for 29,333 shares exercisable within 60 days from the
date of this Proxy Statement.
/(8)/ Does not include shares owned of record by Noro-Moseley Partners III,
L.P., of which Mr. Johnson may be deemed the beneficial owner. The
address for Mr. Johnson is 9 North Parkway, 4200 Northside Parkway,
N.W., Atlanta, GA 30327.
/(9)/ Includes options to acquire 222,333 shares exercisable within 60 days
from the date of this Proxy Statement.
Executive Compensation
The following table sets forth certain summary information with respect to
the compensation for services rendered to Aeronomics earned in 1996 by the
directors and executive officers of the Company who earned in excess of $100,000
(the "Aeronomics Named Executive Officers").
-51-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name and Principal Other
Position with Annual All Other
the Company Year Salary($) Bonus($) Compensation($) Compensation($)
----------- ---- -------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Robert G. Cross 1996 $120,000 $189,059 $2,618 $3,000(1)
Chairman of the
Board of
Directors
Lawrence W. Hall 1996 $115,000 $80,750 $1,005 $3,000(1)
Executive Vice-
President, Chief
Operating Officer
& Director
</TABLE>
- ---------------------------
(1) Consists of contributions by Aeronomics allocated to such person's
account in the Aeronomics Incorporated 401(k) and Profit Sharing Plan.
Option Grants in Last Fiscal Year
The following table sets forth information concerning options granted to
the Aeronomics Named Executive Officers during the year ended December 31, 1996.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees Exercise or Base Expiration
Name Granted (#) in Fiscal Year Price($/Sh) Date
- ---- ------------- -------------- ----------------- ----------
<S> <C> <C> <C> <C>
Robert G. Cross -- -- -- --
Lawrence W. Hall 15,000/(1)/ 4.1% $3.30 12/31/00
60,000/(1)/ 16.4% $4.60 12/31/01
</TABLE>
_________________
(1) Consists of shares of Aeronomics Nonvoting Common Stock.
-52-
<PAGE>
Options Exercises in Last Fiscal Year and Year-End Option Values
The following table sets forth the aggregate dollar value of all options
exercised and the total number of unexercised options held, on December 31,
1996, by the Aeronomics Named Executive Officers.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End(#) at FY-End($)
Shares Acquired on Exercisable/ Exercisable/
Name Exercise(#) Value Realized($) Unexercisable Unexercisable
- ---- ------------------ ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Robert G. Cross -- -- -- --
Lawrence W. Hall 20,000 $59,000 135,000/(1)/ $175,500/(1)/
</TABLE>
(1) All such options are currently exercisable.
INFORMATION ABOUT DFI
Business of DFI
Founded in 1977 with headquarters in Mountain View, California, DFI
specializes in the practical application of management sciences to help
businesses use their information to make better decisions throughout their
organizations. DFI provides consulting services and designs, develops, and
licenses decision support systems designed to improve profitability and
performance of its clients in management areas including integrated planning,
pricing strategy, revenue and yield management, capital asset investment
planning, asset utilization planning and management, logistics, and inventory
management. DFI provides high quality, customized systems, tools, and services
to its worldwide clientele, using an integrated, system-wide approach to
maximizing their clients' revenue, profitability, and customer satisfaction. In
addition, DFI provides its clients with continuing support and training for its
systems and tools.
For example, DFI's revenue management and pricing decision support systems
for companies in the airline, freight, hospitality, energy, and other industries
utilize information technology, management sciences, and business experience for
the purpose of improving product and service pricing and optimizing utilization
of assets ranging from cargo containers and rental cars to energy distribution
systems. These systems are typically used by client personnel to make thousands
of pricing, product availability, and asset allocation decisions every day.
DFI is a privately held, employee-owned company. Substantially all
employees are shareholders either directly or via an employee stock ownership
plan. DFI employs a staff of over 140 in its Mountain View headquarters and in
other offices located in Washington, DC and London, England. Of its total staff,
approximately 110 are consulting and technical professionals who provide
consulting services and design, develop, and implement decision support systems,
as well as providing training and support services. Of these, about two-thirds
have substantial academic credentials and provide expertise in business and in
quantitative disciplines such as management science and operations research; the
remaining third are specialists in software engineering and information
technology, with both academic
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<PAGE>
and professional credentials in computer sciences, software engineering, and
related disciplines. Over 75% of DFI's consulting professionals have graduate
degrees in pertinent disciplines.
Management's Discussion and Analysis of Financial Condition and Results of
Operations of DFI
General
DFI provides management consulting, software, contract research, software
development and expert testimony services to a wide range of clients, which are
primarily in the transportation/travel related and energy industries.
Management's Discussion and Analysis should be read in conjunction with DFI's
historical financial statements included elsewhere herein.
DFI estimates that it will incur direct transaction costs of approximately
$300,000 associated with the DFI Merger, consisting of attorney and accounting
fees and other costs related to the DFI Merger. These nonrecurring costs will be
charged to operations in the period in which the DFI Merger is consummated. DFI
integration costs estimated at $250,000 will be expensed as incurred, which is
anticipated to be primarily during the third and fourth quarters of 1997.
Results of Operations
Three Months Ended March 31, 1997 compared to Three Months Ended March 31, 1996.
Revenues. Revenues were $5,137,000 for the three months ended March 31,
1997 compared to $5,120,000 for the three months ended March 31, 1996, an
increase of $17,000 or 0.3%.
Cost of Revenues. The cost of revenues were $2,810,000 for the three months
ended March 31, 1997 as compared to $3,010,000 for the three months ended March
31, 1996, a decrease of $200,000 or 7%. This decrease was primarily attributed
to a greater mix of high fee projects in 1997.
Selling and Marketing. Selling and marketing expenses were $347,000 for the
three months ended March 31, 1997 as compared to $413,000 for the three months
ended March 31, 1996, a decrease of $66,000 or 16%. This decrease is attributed
to DFI placing greater emphasis on long term revenue management and related
engagements for large private accounts which require a lower marketing effort
relative to the revenue generated.
General and Administrative. General and Administrative expenses were
$1,909,000 for the first three months of 1997 as compared to $1,491,000 for the
first three months of 1996, an increase of $418,000 or 28%. The increase
primarily results from higher recruiting costs and professional development
costs.
Interest Income (or Expense). Net interest expense for the three months
ended March 31, 1997 was $5,000 as compared to net interest income of $16,000
for the three months ended March 31, 1996, a net change of $21,000. The net
increase in interest expense is attributed to increases in DFI's note payable to
Bank of America and an increase in amounts borrowed under DFI's revolving bank
line of credit.
Income Taxes. Income taxes were $29,000 for the three months ended March
31, 1997 as compared to $95,000 for the three months ended March 31, 1996, a
decrease of $66,000 or 69%. The changes in taxes are due to variations in
taxable income.
-54-
<PAGE>
Net Income. Net income decreased to $38,000 for the first three months of
1997 from $126,000 for the first three months of 1996. As a percentage of
revenue, Net income decreased to 1% for the first three months of 1997 as
compared to 2% for the same period of the prior year.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995.
Revenues. Revenues for the year ended December 31, 1996 were $19,895,000
as compared to $21,423,000 for the year ended December 31, 1995, a decrease of
$1,528,000 or 7%. This decrease is attributed to lower revenues in the Energy
and related industries which was partially offset by revenue increases in the
Transportation and Travel Related industries.
Cost of Revenues. Cost of revenues for the year ended December 31, 1996
were $11,407,000 as compared to $12,812,000 for the year ended December 31,
1995, a decrease of $1,405,000 or 11%. Compared to revenues, the
disproportionate decrease in cost of revenues is attributed to a decrease in
other direct costs, primarily comprised of travel costs, which have a relatively
small mark up.
Selling and Marketing. Selling and marketing expenses were $1,675,000 for
the year ended December 31, 1996 as compared to $2,059,000 for the year ended
December 31, 1995, a decrease of $384,000 or 19%. This decrease is attributed to
DFI placing greater emphasis on long term revenue management and related
engagements for large private accounts which require a lower marketing effort
relative to the revenue generated.
General and Administrative. General and administrative expenses were
$6,842,000 for the year ended December 31, 1996 compared to $5,262,000 for the
year ended December 31, 1995, an increase of $1,580,000 or 30%. This increase is
due to expenses related to DFI's Information Technology program, increases in
legal fees, recruiting costs and professional development costs.
Interest Income (or Expense). Net interest income for the year ended
December 31, 1996 was $39,000 as compared to net interest expense of $12,000 for
the year ended December 31, 1995, a net change of $51,000. The net increase in
interest income is attributed to an increase in the notes receivable from the
DFI ESOP.
Income Taxes. Income taxes were $4,000 for the year ended December 31, 1996
as compared to $551,000 for the year ended December 31, 1995, a decrease of
$547,000 or 99%. The changes in taxes are due to variations in taxable income.
Net Income. Net income decreased to $6,000 for the year ended December 31,
1996 from $727,000 for the year ended December 31, 1995. As a percentage of
revenue, Net income decreased to 0% for the year ended December 31, 1996 as
compared to 3% for the year ended December 31, 1995.
Liquidity and Capital Resources
DFI's liquidity is primarily provided by the utilization of a short-term
$2,000,000 revolving bank line of credit from Bank of America and by internally
generated funds. Sources of internally generated funds include a retention of a
portion of earnings and depreciation.
The need for short term borrowings under the line of credit generally
increases during the first and third quarter of each year. This is attributed to
bonus payments in the first quarter and bonus plus
-55-
<PAGE>
pension contribution payments in the third quarter. Historically, the cash flow
from operations have been used to repay these bank borrowings.
Long term financing is provided by a note payable to Bank of America. This
financing has primarily been used to fund notes receivable from the DFI ESOP.
During 1996, the note payable was restructured resulting in $947,000 in
proceeds. These proceeds, plus additional available funds, were loaned to the
DFI ESOP in 1996 resulting in an increase in the notes receivable from the DFI
ESOP.
Capital requirements consist primarily of expenditures for expanding and
replacing DFI's computer equipment. They also include the repurchase of common
stock. During 1996, the purchase of property and equipment totaled $894,000
compared to $405,000 in 1995. The increase is attributed to investments in high
end UNIX based development and data base servers, software development tools,
and data base management systems. In addition, DFI Common Stock repurchases
totaled $717,000 in 1996 and $148,000 in 1995. The DFI Common Stock repurchases
are principally related to separation agreements with former employees. The
funds for these expenditures have been provided from operations and bank
borrowings.
DFI may be required to repurchase shares of DFI Common Stock at the option
of its shareholders pursuant to certain put rights contained in buy/sell
agreements or as part of the shares held in the DFI ESOP. Such put rights may be
exercised by a shareholder only upon the termination of such shareholders'
employment with DFI. Based on DFI's historical practice, DFI does not believe
that such repurchase obligations will have a significant impact on its capital
resources or liquidity.
Capital Stock
No trading market has ever existed with respect to the capital stock of
DFI. The outstanding shares of DFI's Voting Common Stock are held of record by
37 persons, and the outstanding shares of DFI's Nonvoting Common Stock are held
of record by 44 persons. DFI has never declared or paid dividends with respect
to any class of its capital stock. DFI is prohibited from paying cash dividends
under the terms of its revolving credit line.
Security Ownership of Management and Principal Stockholders of DFI
The following table sets forth certain information, as of June 11, 1997,
with respect to (i) each person known by DFI to be a beneficial owner of more
than five percent of its capital stock, (ii) each director and executive officer
of DFI, and (iii) all directors and executive officers of DFI as a group. Unless
otherwise indicated, each person or group has sole voting and investment power
with respect to all such shares. Unless otherwise indicated, the number of
shares and percentage of ownership of capital stock for each of the named
stockholders and all directors and executive officers as a group assumes that
shares of capital stock that the stockholder or directors and executive officers
as a group may acquire within 60 days are outstanding.
-56-
<PAGE>
<TABLE>
<CAPTION>
Name Class of Stock Number of Shares Percent of Class
---- -------------- ---------------- ----------------
<S> <C> <C> <C>
Robert L. Phillips/(1)/......................... Voting Common 3,774/(2)/ 4.4%
Nonvoting Common 1 *
Dean W. Boyd/(1)/............................... Voting Common 3,204/(3)/ 3.8%
Nonvoting Common 1 *
William M. Wells/(1)/........................... Voting Common 1,252/(4)/ 1.5%
Nonvoting Common 1 *
Robert A. Marshalla/(1)/........................ Voting Common 2,642/(5)/ 3.1%
Nonvoting Common 1 *
David Cohan/(1)/................................ Voting Common 2,777/(6)/ 3.3%
Nonvoting Common 1 *
Carol H. Redfield/(1)/.......................... Voting Common 1,511/(7)/ 1.8%
Nonvoting Common 1 *
Anne E. Smith/(1)/.............................. Voting Common 1,531/(8)/ 1.8%
Nonvoting Common 1 *
All directors and
executive officers as a Voting Common 32,988/(9)/ 38.7%
group (17 persons)/(9)/......................... Nonvoting 16 *
</TABLE>
_______________________
* represents less than one percent.
(1) The address for Messrs. Boyd, Phillips, Wells, Marshalla and Cohan and
for Ms. Redfield and Ms. Smith is 650 Castro Street, Suite 300,
Mountain View, CA 94041
(2) Includes 785 shares allocated to Dr. Phillips' account under the DFI
ESOP.
(3) Includes 244 shares allocated to Dr. Boyd's account under the DFI ESOP.
(4) Includes 443 shares allocated to Mr. Wells' account under the DFI ESOP.
(5) Includes 169 shares allocated to Dr. Marshalla's account under the DFI
ESOP.
(6) Includes 705 shares allocated to Dr. Cohan's account under the DFI
ESOP.
(7) Includes 487 shares allocated to Ms. Redfield's account under the DFI
ESOP.
(8) Includes 143 shares allocated to Dr. Smith's account under the DFI
ESOP.
(9) Includes 6,845 shares allocated to such persons' accounts under the DFI
ESOP.
Executive Compensation
The following table sets forth certain summary information with respect to
the compensation for services rendered to DFI earned in 1996 by the directors
and executive officers of the Company who earned in excess of $100,000 (the "DFI
Named Executive Officers").
-57-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name and Principal
Position with
the Company Year Salary($) Bonus($) All Other Compensation($)
----------- ---- -------- -------- -------------------------
<S> <C> <C> <C> <C>
Robert L. Phillips 1996 $155,309 $66,242 $32,418/(1)/
Chief Executive
Officer, President
and Director
Dean W. Boyd 1996 $161,309 $109,818 $13,731/(1)/
Vice Chairman
of the Board
of Directors
William M. Wells 1996 $92,772 $10,083 $22,181/(1)/
Director
</TABLE>
- -----------------------------
(1) Consists of contributions by the Company allocated to such person's
account in the DFI ESOP.
Options Exercises in Last Fiscal Year and Year-End Option Values
The following table sets forth the aggregate dollar value of all options
exercised and the total number of unexercised options held, on December 31,
1996, by the DFI Named Executive Officers.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End(#) at FY-End($)
Shares Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable/(//1)/
- ---- ----------- ----------- ------------- --------------------
<S> <C> <C> <C> <C>
Dean W. Boyd 19 $757 -/157 -/$9,920
Robert L. Phillips -- -- -- --
William M. Wells 100 $5,723 -/470 -/$81,799
</TABLE>
-----------------------
(1) Based on December 31, 1996 market value of $174.04 per share.
LEGAL MATTERS
The validity of the issuance of the shares of the Company's Common Stock
being offered will be passed upon for the Company by Morris, Manning & Martin,
L.L.P., Atlanta, Georgia.
-58-
<PAGE>
EXPERTS
The financial statements of Aeronomics Incorporated as of December 31,
1996, and for each of the years in the two-year period ended December 31, 1996,
have been included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein and upon
the authority of said firm as experts in accounting and auditing. The financial
statements of DFI included elsewhere in the Proxy Statement have been audited by
Shilling & Kenyon, Inc., independent auditors, as set forth in their reports
with respect thereto. Such financial statements have been included herein in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
-59-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Financial Statements of Aeronomics Incorporated:
Report of Independent Auditors................................................ F-2
Balance Sheets as of December 31, 1996 and March 31, 1997 (unaudited)......... F-3
Statements of Operations for the Years Ended December 31, 1995 and 1996 and
the Three-Month Periods Ended March 31, 1996 (unaudited) and 1997
(unaudited)................................................................... F-4
Statements of Shareholders' Deficit for the Years Ended December 31, 1995
and 1996 and the Three-Month Period Ended March 31, 1997 (unaudited).......... F-5
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 and
the Three-Month Periods Ended March 31, 1996 (unaudited) and 1997
(unaudited)................................................................... F-6
Notes to Financial Statements................................................. F-7
Financial Statements of Decision Focus Incorporated:
Report of Independent Auditors................................................ F-21
Balance Sheets as of December 31, 1996 and March 31, 1997 (unaudited)......... F-22
Statements of Income for the Years Ended December 31, 1995 and 1996 and the
Three-Month Periods Ended March 31, 1996 (unaudited) and 1997 (unaudited)..... F-24
Statements of Stockholders' Deficit for the Years Ended December 31, 1995 and
1996 and the Three-Month Period Ended March 31, 1997
(unaudited)................................................................... F-25
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 and
the Three-Month Periods Ended March 31, 1996 (unaudited) and 1997
(unaudited)................................................................... F-26
Notes to Financial Statements................................................. F-28
Unaudited Pro Forma Consolidated Condensed Financial Statements of
DFI/Aeronomics Incorporated:
Unaudited Pro Forma Consolidated Condensed Balance Sheet as of March 31,
1997.......................................................................... F-37
Unaudited Pro Forma Consolidated Condensed Statements of Operations for the
Years Ended December 31, 1995 and 1996 and the Three-Month Periods Ended
March 31, 1996 and 1997....................................................... F-38
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
Aeronomics Incorporated:
We have audited the accompanying balance sheet of Aeronomics Incorporated as of
December 31, 1996, and the related statements of operations, shareholders'
deficit, and cash flows for each of the years in the two-year period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aeronomics Incorporated as of
December 31, 1996, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
KMPG PEAT MARWICK LLP
Atlanta, Georgia
April 8, 1997
F-2
<PAGE>
AERONOMICS INCORPORATED
Balance Sheets
--------------
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
---- ----
(unaudited)
<S> <C> <C>
Assets (notes 4 and 5)
----------------------
Current assets:
Cash and cash equivalents (note 8(b)) $ 1,659,736 2,370,775
Trade receivables:
Trade and contract, less allowance
for doubtful accounts of $69,036
in 1996 and 1997 3,205,010 2,977,704
Unbilled costs and accrued earnings
on uncompleted contracts (note 2) 1,042,678 780,678
Income tax refund receivable - 108,002
Deferred income tax asset (note 7) 85,098 85,098
Prepaid expenses and other current
assets 120,758 80,440
---------- ---------
Total current assets 6,113,280 6,402,697
---------- ---------
Property and equipment, at cost (note 3) 3,353,353 3,716,167
Less accumulated depreciation and
amortization 1,714,155 1,827,254
---------- ---------
Property and equipment, net 1,639,198 1,888,913
---------- ---------
$ 7,752,478 8,291,610
========== =========
Liabilities and Shareholders' Deficit
-------------------------------------
Current liabilities:
Trade accounts payable $ 768,275 869,455
Note payable to bank (note 4) 302,800 1,102,799
Current installments of long-term debt
and capital lease obligations (note 5) 231,586 335,843
Billings in excess of costs and accrued
earnings on uncompleted contracts (note 2) 1,609,372 949,029
Income tax payable (note 7) 462,748 -
Accrued expenses 1,324,666 1,416,467
---------- ---------
Total current liabilities 4,699,447 4,673,593
Long-term debt and capital lease obligations,
excluding current installments (note 5) 613,561 1,038,731
---------- ---------
Total Liabilities 5,313,008 5,712,324
---------- ---------
Preferred stock, redeemable, convertible;
$.0001 par value. Authorized 1,000,000 shares,
443,019 shares issued and outstanding (note 6) 2,533,354 2,633,352
Shareholders' deficit (notes 4,5, and 6):
Common stock:
Series A: $.01 par value. Authorized
10,000,000 shares, issued and
outstanding 698 in 1996 and in 1997 7 7
Series B: $.0001 par value. Authorized
10,000,000 shares, issued and
outstanding 4,375,615 in 1996 and
4,378,615 in 1997 438 438
Additional paid-in capital - 6,000
Accumulated deficit (94,329) (60,511)
---------- ---------
Total shareholders' deficit (93,884) (54,066)
---------- ---------
Commitments (notes 2,4,5,6, and 8) $ 7,752,478 8,291,610
========== =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
AERONOMICS INCORPORATED
Statements of Operations
------------------------
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31 March 31,
------------ ---------
1995 1996 1996 1997
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue (note 9) $ 7,366,488 15,050,674 $ 2,634,624 4,601,215
Cost of revenue 5,376,530 10,960,819 1,980,303 3,231,933
---------- ---------- ---------- ---------
Gross Profit 1,989,958 4,089,855 654,321 1,369,282
---------- ---------- ---------- ---------
Operating expenses:
Selling and marketing 1,269,962 1,916,868 330,766 692,726
General and administrative 937,388 1,392,044 470,482 558,183
---------- ---------- ---------- ---------
Total operating expenses 2,207,350 3,308,912 801,248 1,250,909
---------- ---------- ---------- ---------
Operating income (loss) (217,392) 780,943 (146,927) 118,373
Interest income (expense), net (84,163) (72,158) (11,059) (30,664)
Other income 34,143 270,082 161,233 136,107
---------- ---------- ---------- ---------
Income (loss) before income taxes (267,412) 978,867 3,247 223,816
Income tax expense (benefit) - (note 7) (108,000) 466,599 - 90,000
---------- ---------- ---------- ---------
Net income (loss) $ (159,412) 512,268 $ 3,247 133,816
========== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
AERONOMICS INCORPORATED
Statements of Shareholders' Deficit
-----------------------------------
Years ended December 31, 1995 and 1996, and the three months ended March 31, 1997 (unaudited)
---------------------------------------------------------------------------------------------
Common Stock Common Stock
----------- ------------ Retained
Series A Series B Additional earnings Total
-------- -------- paid-in Treasury (accumulated shareholders'
Shares Amount Shares Amount capital Stock deficit) (deficit)
------ ------ ------ ------ ------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994 1,000 $10 4,453,143 $445 113,542 (515,726) 396,080 (5,649)
Issuance of Series A
common stock in private
placement transaction,
net of costs (note 6 (c)) 58 1 - - 262 - - 263
Accrual of dividends and
accretion of discount on
redeemable preferred
stock (note 6 (c)) - - - - - - (174,460) (174,460)
Exercise of stock options,
net of shares tendered
(note 6 (d)) - - 81,939 9 27,241 - - 27,250
Net loss - - - - - - (159,412) (159,412)
------ ------ ------ ------ ------ ------ -------- --------
Balance at December 31,
1995 1,058 11 4,535,082 454 141,045 (515,726) 62,208 (312,008)
Accrual of dividends and
accretion of discount on
redeemable preferred
stock (note 6 (c)) - - - - - - (399,996) (399,996)
Exercise of stock options,
net of shares tendered
(note 6 (d)) - - 137,646 14 105,838 - - 105,852
Retirement of treasury
stock (360) (4) (297,113) (30) (246,883) 515,726 (268,809) -
Net Income - - - - - - 512,268 512,268
------ ------ ------ ------ ------ ------ ------- -------
Balance at December 31,
1996 698 7 4,375,615 438 - - (94,329) (93,884)
Accrual of dividends and
accretion of discount on
preferred stock (unaudited) - - - - - - (99,998) (99,998)
Exercise of stock options
(unaudited) - - 3,000 - 6,000 - - 6,000
Net income (unaudited) - - - - - - 133,816 133,816
------ ------ ------ ------ ------ ------ ------- -------
Balance at March 31, 1997
(unaudited) 698 $ 7 4,378,615 $ 438 6,000 - (60,511) (54,066)
=== = ========= === ===== ------ ======= =======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
AERONOMICS INCORPORATED
Statements of Cash Flows
------------------------
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31,
------------------------- ------------------------------
1995 1996 1996 1997
------------ ----------- --------------- -------------
<S> <C> <C> <C> <C>
(unaudited) (unaudited)
Cash flows from operating activities:
Net income (loss) $ (159,412) 512,268 $ 3,247 133,816
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 276,341 358,744 70,605 113,458
Loss on disposal of equipment - - - 2,626
Deferred income tax benefit (108,000) (109,098) - -
(Increase) decrease in:
Trade and contract receivables (510,196) (2,380,310) (1,035,550) 227,306
Unbilled costs and accrued earnings on uncompleted
contracts 93,364 (418,012) (21,052) 262,000
Income tax refund receivable 69,080 68,600 - (108,002)
Other assets (34,983) (64,973) 26,180 40,318
Increase (decrease) in:
Accounts payable (80,803) 380,471 52,177 101,180
Billings in excess of costs and accrued earnings on
uncompleted contracts 370,120 1,141,423 233,618 (660,343)
Income tax payable - 462,748 - (462,748)
Other accrued expenses (192,223) 1,189,609 503,974 91,801
---------- ---------- ----------- ---------
Net cash (used in) provided by operating activities (276,712) 1,141,470 (166,801) (258,588)
---------- ---------- ----------- ---------
Cash used in investing activities - capital expenditures (293,907) (1,162,884) (193,728) (365,799)
---------- ---------- ----------- ---------
Cash flows from financing activities:
Borrowings under (repayment of) note payable to bank, net 263,000 (392,201) 50,079 799,999
Proceeds from issuance of long-term debt 78,079 460,194 310,641 611,293
Principal payments on long-term debt (455,359) (244,230) (120,067) (81,866)
Proceeds from issuance of Series A common stock and
redeemable preferred stock 1,959,161 - - -
Proceeds from exercise of stock options 27,250 105,852 - 6,000
---------- ---------- ----------- ---------
Net cash provided by (used in) financing activities 1,872,131 (70,385) 240,653 1,335,426
---------- ---------- ----------- ---------
Net increase (decrease) in cash and cash equivalents 1,301,512 (91,799) (119,876) 711,039
Cash and cash equivalents at beginning of period 450,023 1,751,535 1,751,535 1,659,736
---------- ---------- ----------- ---------
Cash and cash equivalents at end of period $ 1,751,535 1,659,736 $ 1,631,659 2,370,775
========== ========== =========== =========
Cash paid during the period for interest $ 121,734 151,236 $ 31,477 50,035
========== ========== =========== =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
AERONOMICS INCORPORATED
Notes to Financial Statements
December 31, 1995 and 1996
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Business and Basis of Presentation
----------------------------------
Aeronomics Incorporated (the "Company") provides revenue management
solutions, primarily computer software applications and consulting
services, to airlines, hotels, rental car companies, and other industries
which enables clients to maximize their revenues by forecasting demand
and optimizing the price and availability of their products and services.
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities as of the date of the financial
statements and revenues and expenses for the reporting periods to prepare
these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
Information as of March 31, 1997 and for the three months ended March 31,
1996 and 1997 is unaudited. In the opinion of management, all adjustments
considered necessary for the fair presentation of the unaudited financial
statements of the Company as of March 31, 1997 and for the three months
ended March 31, 1996 and 1997 have been included.
(b) Revenue and Cost Recognition
----------------------------
The Company's revenues are derived primarily from fixed-price customer
contracts which generally include licensing computer software to
customers and providing consulting services which provide customers with
a tailored software and revenue management solution. Revenues from fixed-
price contracts are recognized on the percentage-of-completion method,
measured by the percentage of contract costs incurred to date to
estimated total contract costs for each contract. Contract costs include
all direct and indirect costs. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Revenues derived from contracts to provide services on a time
and materials basis are recognized as the related services are performed.
The asset "unbilled costs and accrued earnings on uncompleted contracts"
represents revenues recognized in excess of amounts billed. The liability
"billings in excess of
(Continued)
F-7
<PAGE>
AERONOMICS INCORPORATED
Notes to Financial Statements
costs and accrued earnings on uncompleted contracts" represents
billings in excess of revenues recognized.
(c) Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
(d) Property and Equipment
----------------------
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets.
(e) Software Development
--------------------
The Company's policy is to expense all software development costs
associated with establishing technological feasibility which the Company
defines as completion of beta testing. Because of the insignificant
amount of costs incurred by the Company between completion of beta
testing and customer release, the Company has not capitalized any
software development costs in the accompanying financial statements.
(f) Income Taxes
------------
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases
and net operating loss and tax credit carryforwards. Deferred income tax
assets and liabilities are measured using the enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred income tax assets and liabilities of a change in tax rates is
recognized in the statement of operations in the period that includes the
enactment date.
(Continued)
F-8
<PAGE>
AERONOMICS INCORPORATED
Notes to Financial Statements
(g) Stock-Based Compensation
------------------------
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense generally would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"), which
encourages entities to recognize as compensation expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma disclosures for
employee stock options grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 has been applied. The
Company has elected to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosures under the provisions of SFAS No. 123
(see note 6(d)).
(h) Impairment of Long-Lived Assets
-------------------------------
The Company adopted Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of ("SFAS No. 121"), on January 1, 1996. SFAS No.
121 requires that long-lived assets and certain identifiable intangibles
held and used by a company be reviewed for possible impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. SFAS No. 121 also requires that long-
lived assets and certain identifiable intangibles held for sale, other
than those related to discontinued operations, be reported at the lower
of carrying amount or fair value less cost to sell. The Company's
adoption of SFAS No. 121 did not have an impact on its 1996 financial
statements.
(i) Reclassifications
-----------------
Certain amounts in the accompanying 1995 financial statements have been
reclassified to conform to the presentation adopted in the 1996 financial
statements.
(Continued)
F-9
<PAGE>
AERONOMICS INCORPORATED
Notes to Financial Statements
(2) Costs and Accrued Earnings on Uncompleted Contracts
---------------------------------------------------
Costs and accrued earnings on uncompleted contracts at December 31, 1996
are summarized as follows:
<TABLE>
<S> <C>
Cumulative costs incurred and accrued
earnings on uncompleted contracts $ 9,496,606
Less Cumulative billings 10,063,300
-----------
$ (566,694)
===========
These amounts are shown in the accompanying balance sheet as follows:
Unbilled costs and accrued earnings on
uncompleted contracts $ 1,042,678
Billings in excess of costs and accrued
earnings on uncompleted contracts (1,609,372)
-----------
$ (566,694)
===========
</TABLE>
(3) Property and Equipment
----------------------
Property and equipment consist of the following at December 31, 1996:
<TABLE>
<S> <C>
Leasehold improvements $ 190,233
Furniture and fixtures 690,796
Computer equipment 2,158,934
Computer software 313,390
----------
3,353,353
Less accumulated depreciation and
amortization 1,714,155
----------
Property and equipment, net $ 1,639,198
==========
</TABLE>
(Continued)
F-10
<PAGE>
AERONOMICS INCORPORATED
Notes to Financial Statements
(4) Note Payable to Bank
--------------------
The Company maintains a revolving credit facility which provides $1,500,000
in borrowing availability, subject to the terms of the facility, at an
interest rate of prime rate plus 1% with interest payable monthly and all
amounts due by the maturity date on September 30, 1997. The facility is
secured by all tangible and intangible assets of the Company and the
personal guarantee of a shareholder. At December 31, 1996, the Company had
borrowings of $302,800, pursuant to the terms of the facility at an
interest rate of 9.10%.
(5) Long-Term Debt and Capital Lease Obligations
--------------------------------------------
Long-term debt and capital lease obligations at December 31, 1996 consists
of the following:
<TABLE>
<CAPTION>
<S> <C>
Notes payable to a commercial bank,
with monthly payments ranging from
$2,167 to $8,333 plus interest at the
prime rate plus 1%, due through
August 1999; secured by the assets
and the equipment of the Company and a
personal guarantee by a shareholder $437,287
Discounted note payable to individual,
with monthly payments of $2,700 through
December 1996, $2,970 through December 1997,
$3,300 through December 1998, and $3,500
through December 2003, including imputed
interest at 8.19% 213,091
Capital lease obligations due February
2001 with monthly payments ranging from
$147 to $2,546, including imputed interest
at 13.50% 194,769
---------
Total long-term debt and capital
lease obligations 845,147
Less current installments of long-term
debt and capital lease obligations 231,586
---------
Long-term debt and capital lease
obligations, excluding current
installments $ 613,561
=========
</TABLE>
On January 30, 1997, the Company entered into an additional capital lease
obligation in the amount of $111,196 with monthly payments of $2,891
including imputed interest of 11.32%.
(Continued)
F-11
<PAGE>
AERONOMICS INCORPORATED
Notes to Financial Statements
On March 12, 1997, the Company entered into an additional promissory note
in the amount of $500,097 with a commercial bank at an interest rate of
prime rate plus 1%. The promissory note matures March 11, 2000, and is
secured by the assets and equipment of the Company and a personal guarantee
by a shareholder.
The future maturities of long-term debt and capital lease obligations at
December 31, 1996, including the $111,196 and $500,097 in subsequent
borrowings described above, for the next five years and thereafter are
summarized as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1997 $ 358,864
1998 445,788
1999 365,006
2000 167,099
2001 42,656
Thereafter 77,027
----------
$1,456,440
==========
</TABLE>
(6) Shareholders' Deficit and Redeemable Preferred Stock
----------------------------------------------------
(a) Classes of Common Stock
-----------------------
Holders of Series B Common Stock, $.0001 par value, generally have
identical rights as the holders of Series A Common Stock, $.01 par
value, with the exception of voting rights. Holders of Series B Common
Stock, $.0001 par value, are not entitled to vote on any matter unless
otherwise required by law.
Each share of the Series B Common Stock, $.0001 par value, shall be
automatically converted to one share of Series A Common Stock, $.01
par value, upon the closing of an underwritten public offering, as
defined.
(b) Amendment to the Articles of Incorporation
------------------------------------------
(i) Authorized Shares and Series A Common Stock
-------------------------------------------
On July 24, 1995, the Company's Articles of Incorporation were
amended to designate the Company's $1 par value common stock as
Series A, changing its par value from $1 to $.01, and to increase
the number of authorized shares of stock that the Company can
issue to 21 million shares which includes authority to issue up to
10 million shares of the newly designated $.01 par value Series A
(Continued)
F-12
<PAGE>
AERONOMICS INCORPORATED
Notes to Financial Statements
Common Stock, 10 million shares of the $.0001 par value Series B
Common Stock, and 1 million shares of a $.0001 par value
Redeemable Preferred Stock with designations, powers, preferences,
and rights as described below. All shareholders' deficit amounts
included herein have been retroactively restated to reflect the
change in par value.
(ii) Redeemable Preferred Stock
--------------------------
The Redeemable Preferred Stock includes dividend rights which
provide for the holders to be paid dividends at an annual rate of
$0.3616 per share on a quarterly basis when and if declared by the
Company's Board of Directors. Such dividends are cumulative and
accrue from the original issue date and prohibit the Company from
paying dividends on its common stock until all dividends have been
paid on the Redeemable Preferred Stock.
The Redeemable Preferred Stock also includes liquidation rights
which provide, upon liquidation of the Company, for the holders to
be paid an amount equal to original amount invested plus a 20%
compounded annual return less any dividends paid under the
dividends rights described above. The Redeemable Preferred Stock
is nonvoting, except that the holders are entitled to elect one
member to the Company's Board of Directors.
The holders of the Redeemable Preferred Stock may convert their
shares into the Series B Common Stock at any time. The conversion
price is equivalent to one share of Series B Common Stock for each
share of Redeemable Preferred Stock subject to adjustment.
Furthermore, the terms of the Redeemable Preferred Stock require
conversion to Series B Common Stock in the event of an initial
public offering meeting certain criteria. The holders of the
Redeemable Preferred Stock also received certain other rights
including, but not limited to, certain registration rights with
respect to their investment.
The holders of Redeemable Preferred Stock are entitled to require
the Company to redeem their shares for cash five years from the
date of issuance. The redemption price shall be the appraised
value of the Company, as defined in the agreement, but in no event
will the redemption price be less than the original invested
amount plus a 20% compounded annual return on the invested amount
less any dividends paid.
(Continued)
F-13
<PAGE>
AERONOMICS INCORPORATED
Notes to Financial Statements
(c) Sale of Redeemable Preferred and Common Stock
---------------------------------------------
On July 25, 1995, the Company sold 443,019 shares of the newly
designated Redeemable Preferred Stock and 58 shares of Series A Common
Stock, resulting in net proceeds to the Company of $1,959,161. The
Company has allocated the net proceeds based upon the relative fair
values of the stock issued, which resulted in $1,958,898 being allocated
to the Redeemable Preferred Stock and $263 being allocated to the Series
A Common Stock. The Company has also reflected the accrual of dividends
and the accretion of the original issue discount (difference between
invested amount plus accrued dividends and the redemption amount) on the
Redeemable Preferred Stock through an increase in its carrying value and
a charge to retained earnings. The original issue discount is being
accreted using the straight-line method from the original issuance date
through the redemption date of July 2000.
(d) Stock Option Plan
-----------------
The Company maintains the Aeronomics Incorporated Incentive Stock Option
Plan (the "Option Plan") to provide key employees with additional
incentive to promote the Company's financial success and to remain in
the employ of the Company. The Company has reserved 733,530 shares of
its Series B Common Stock for issuance under the terms of the Option
Plan. The Option Plan provides for the granting of options to employees
to acquire Series B Common Stock at an exercise price determined by the
Company's Board of Directors, but in no event shall the exercise price
of the options granted be less than the estimated fair market value of
the underlying common stock at the date of grant. Stock options granted
prior to February 5, 1996 have three-year terms and vest and become
fully exercisable immediately upon the date of grant. On February 5,
1996, the Option Plan was amended to increase the stock option terms to
five years and provide for vesting over a three-year period from the
employee's anniversary date.
In December 1996, the Company's Board of Directors voted to increase the
number of shares of the Company's Series B Common Stock reserved for
issuance under the terms of the Option Plan from 733,530 shares to
926,530 shares. In January 1997, the Company's Board of Directors voted
to increase the number of shares of the Company's Series B Common Stock
reserved for issuance under the terms of the Option Plan from 926,530
shares to 1,126,530 shares and voted to grant 118,936 option shares to
employees of the Company.
The per share weighted-average fair value of stock options granted
during 1995 and 1996 was $.33 and $1.02 on the date of grant using the
Black Scholes option-pricing model with the following weighted-average
assumptions: 1995 -dividend yield of 0%,
(Continued)
F-14
<PAGE>
AERONOMICS INCORPORATED
Notes to Financial Statements
expected volatility of 0%, risk-free interest rate of 5.9% and an expected
life of three years; 1996 - dividend yield of 0%, expected volatility of
0%, risk-free interest rate of 5.9% and an expected life of five years.
The Company applies APB Opinion No. 25 in accounting for its Option Plan
and, accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net (loss) income would have been
(increased) reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C> <C>
Net (loss) income As reported $(159,412) 512,268
Pro forma (266,961) 234,881
<CAPTION>
The following table summarizes Option Plan activity for the years ended
December 31, 1995 and 1996:
Exercise price
Shares per share
------ ---------
<S> <C> <C>
Options outstanding at December 31, 1994 292,500 $0.50-$1.00
Granted 325,000 $2.00-$3.25
Canceled (73,500) $0.50-$2.00
Exercised (88,000) $0.50-$2.00
---------
Options outstanding at December 31, 1995 456,000 $1.00-$3.25
Granted 366,700 $3.30-$4.60
Canceled (18,000) $2.00-$3.30
Exercised (148,516) $1.00-$3.30
---------
Options outstanding at December 31, 1996 656,184 $2.00-$4.60
=========
Options available for grant at
December 31, 1996 38,830
======
</TABLE>
At December 31, 1996, the weighted-average remaining contractual life
of outstanding options was 2.98 years. At December 31, 1995 and 1996, the
number of options exercisable was 456,000 and 540,447, respectively, and the
weighted-average exercise price of those options was $1.74 and $3.01,
respectively.
(Continued)
F-15
<PAGE>
AERONOMICS INCORPORATED
Notes to Financial Statements
(7) Income Taxes
------------
The provision for income taxes includes income taxes deferred because of
temporary differences between the financial statement and tax bases of
assets and liabilities.
Income tax (benefit) expense for the years ended December 31, 1995 and 1996
consists of:
<TABLE>
<CAPTION>
1995 1996
---------- --------
<S> <C> <C>
Current:
Federal $ - 382,019
State - 80,729
Foreign - 112,949
---------- --------
- 575,697
---------- --------
Deferred:
Federal (96,600) (91,854)
State (11,400) (17,244)
---------- --------
(108,000) (109,098)
---------- --------
$ (108,000) 466,599
========== ========
</TABLE>
The following is a summary of the difference between the income tax
(benefit) expense as shown in the statements of operations and the income
tax (benefit) expense that would result from applying the statutory Federal
income tax rate of 34% to (loss) income before income taxes:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Income tax (benefit) expense at statutory
Federal income tax rate $ (90,920) 332,815
Increase (decrease) resulting from:
State income tax (benefit) expense,
net of Federal income tax effect (7,524) 41,900
Increase in valuation allowance for
deferred income tax assets - 64,949
Other, net (9,556) 26,935
---------- -------
Actual income tax (benefit) expense $ (108,000) 466,599
========== =======
</TABLE>
(Continued)
F-16
<PAGE>
AERONOMICS INCORPORATED
Notes to Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and liabilities at
December 31, 1996 are presented below:
<TABLE>
<CAPTION>
<S> <C>
Deferred income tax assets:
Foreign tax credit carryforward $ 64,949
Allowance for doubtful accounts 26,234
Bonus accrual 34,545
Section 481 change in accounting method from
the cash to accrual method and deferred
revenue recognition for tax 154,211
Accrued expenses 299,250
----------
Gross deferred income tax assets 579,189
Valuation allowance (64,949)
----------
Deferred income tax assets, net
of valuation allowance 514,240
----------
Deferred income tax liabilities:
Contract accounting (356,020)
Property and equipment, principally
due to differences in depreciation (73,122)
----------
Total deferred income tax liabilities (429,142)
----------
Net deferred income tax asset $ 85,098
==========
</TABLE>
Under SFAS No. 109, deferred income tax assets and liabilities are
recognized for differences between the financial statement carrying amounts
and the tax bases of assets and liabilities which will result in future
deductible or taxable amounts and for net operating loss and tax credit
carryforwards. A valuation allowance is then established to reduce the
deferred income tax assets to the level at which it is "more likely than
not" that the tax benefits will be realized. Realization of tax benefits of
deductible temporary differences and operating loss and tax credit
carryforwards depends on having sufficient taxable income within the
carryback and carryforward periods. Sources of taxable income that may
allow for the realization of tax benefits include (1) taxable income in the
current year or prior years that is available through carryback, (2) future
taxable income that will result from the reversal of existing taxable
temporary differences, and (3) future taxable income generated by future
operations. The Company has a foreign income tax credit carryforward of
$64,949 at December 31, 1996. The ultimate realization of the deferred
(Continued)
F-17
<PAGE>
AERONOMICS INCORPORATED
Notes to Financial Statements
income tax asset related to the foreign tax credit is dependent upon the
generation of foreign taxable income. Because of the uncertainties that the
Company will generate taxable income sufficient to realize the benefits of
the Company's foreign tax credit carryforward, the Company has provided a
valuation allowance against substantially all of the foreign tax credit
carryforward. The Company believes that realization of the net deferred
income tax assets recorded at December 31, 1996 is more likely than not,
considering the valuation allowance.
(8) Commitments
-----------
(a) Employee Benefit Plan
---------------------
The Company maintains a contributory defined contribution 401(k)
profit sharing plan (the "Plan") for the benefit of all eligible
employees. The Company amended the Plan in April 1996 to include
employer contributions. The Plan requires the Company to match the
participant's contribution on a dollar-for-dollar basis up to 2% of
the participant's annual wages. The Company accrued and paid $96,538
to the Plan during 1996.
(Continued)
F-18
<PAGE>
AERONOMICS INCORPORATED
Notes to Financial Statements
(b) Lease Commitments
-----------------
The Company is obligated under noncancelable operating lease
agreements for office facilities and equipment through 2001. The
Company's obligation under its office facilities lease agreement
requires the Company to assign to the lessor a certificate of deposit
of $94,878 in which $18,975 would be released each year on September
1, beginning September 1, 1994. As a result, $37,950 of the Company's
cash and cash equivalents is restricted at December 31, 1996.
Future minimum lease payments under all noncancelable operating lease
agreements with remaining terms in excess of one year in the aggregate
and for the next five years are shown as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1997 $ 880,158
1998 578,756
1999 50,958
2000 8,322
2001 1,338
---------
$ 1,519,532
=========
</TABLE>
Rental expense for cancelable and noncancelable operating leases was
approximately $547,000 and $691,000 for the years ended
December 31, 1995 and 1996, respectively.
(9) Major Customers and International Revenue
-----------------------------------------
(a) Major Customers
---------------
For the year ended December 31, 1995, two customers accounted for 23%
and 14% of revenue, respectively.
For the year ended December 31, 1996, three customers accounted for
18%, 15%, and 11% of revenue, respectively.
(Continued)
F-19
<PAGE>
AERONOMICS INCORPORATED
Notes to Financial Statements
(b) International Revenue
---------------------
Revenue and percentage to total revenue for selected geographic
regions for the years ended December 31, 1995 and 1996 are summarized
as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
Amount Percentage Amount Percentage
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
United States $ 5,555,684 75% $ 11,767,471 78%
Europe 1,051,485 14% 1,638,993 11%
Japan - - 873,495 6%
Australia and New Zealand 197,150 3% 646,132 4%
Canada 562,169 8% 124,583 1%
----------- ---- ------------ ----
Total $ 7,366,488 100% $ 15,050,674 100%
=========== ==== ============ ====
</TABLE>
(10) Subsequent Event (Unaudited)
----------------------------
On June 3, 1997, the Company signed a merger agreement with Decision Focus
Incorporated by which the two companies will be merged into a newly formed
company pursuant to the merger agreement. The Company believes that the
transaction will be accounted for as a pooling of interests and is
anticipated to close in the third quarter of 1997.
F-20
<PAGE>
Independent Auditors' Report
To the Stockholders
Decision Focus, Incorporated and Subsidiaries
We have audited the accompanying consolidated balance sheet of Decision Focus,
Incorporated and subsidiaries as of December 31, 1996, and the related
consolidated statements of income, stockholders' deficit and cash flows for each
of the years in the two year period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Decision Focus,
Incorporated and subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for each of the years in the two year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
SHILLING & KENYON, INC.
San Jose, California
February 25, 1997
F-21
<PAGE>
Decision Focus Incorporated and Subsidiaries
Consolidated Balance Sheets
Assets
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
------------ -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 432,683 $ 231,197
Accounts receivables - Notes 3,
4 and 10 4,967,156 4,485,701
Unbilled receivables - Notes 3,
4 and 10 720,650 1,714,285
Refundable income taxes 492,173 134,241
Other receivables 37,805 56,774
Prepaid expenses 313,066 235,068
--------------- ----------
Total current assets 6,963,533 6,857,266
--------------- ----------
PROPERTY AND EQUIPMENT - Notes 3 and 4
Computer equipment 3,852,400 3,967,217
Office furniture and fixtures 742,381 744,333
Leasehold improvements 74,461 132,710
--------------- ----------
4,669,242 4,844,260
Less accumulated depreciation and
amortization 3,437,794 3,588,740
--------------- ----------
1,231,448 1,255,520
--------------- ----------
OTHER ASSETS
Note receivable - Note 2 200,000 200,000
Deposits 29,259 29,259
Deferred income taxes - Note 7 16,000 16,000
--------------- ----------
245,259 245,259
--------------- ----------
$8,440,240 $8,358,045
=============== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE>
Decision Focus Incorporated And Subsidiaries
Consolidated Balance Sheets
Liabilities And Stockholders' Deficit
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
------------ -------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Note payable to bank - Note 3 $350,000 $1,000,000
Current portion of long-term debt 418,907 416,223
Accounts payable 115,921 127,361
Advance payments from customers 294,736 116,079
Accrued expenses - Notes 5 and 8 3,218,018 2,761,273
Income taxes payable 16,401 53,013
Deferred income taxes - Note 7 39,208 39,208
------------ -------------
Total current liabilities 4,453,191 4,513,157
------------ -------------
LONG-TERM DEBT, less current portion -
Note 4 1,611,776 1,409,080
------------ -------------
REDEEMABLE COMMON STOCK - Notes 8 and 9
Common stock under Buy/Sell
Agreements 1,822,142 1,816,354
Common stock held in ESOP 9,424,440 9,424,440
Less notes receivable from ESOP (2,466,667) (2,366,667)
------------ -------------
8,779,915 8,874,127
------------ -------------
COMMITMENTS - Note 6
STOCKHOLDERS' DEFICIT - Notes 3, 4, 8
and 9
Common stock, Class A, $1.50
par value, 1,000,000 shares
authorized 131,856 131,856
Common stock, Class B, $1.50
par value, 500,000 shares
authorized 3,843 3,183
Paid-in capital 1,025,901 1,021,598
Retained earnings 3,680,340 3,645,838
Less redeemable common stock (11,246,582) (11,240,794)
------------ -------------
(6,404,642) (6,438,319)
------------ -------------
$8,440,240 $8,358,045
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
DECISION FOCUS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31,
(unaudited)
------------------------- ----------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES -- Note 10 $21,422,997 $19,895,108 $5,119,721 $5,137,236
COST OF REVENUES
Salaries and wages 10,452,357 9,922,553 2,584,728 2,457,720
Other 2,359,385 1,484,358 425,404 351,909
----------- ----------- ---------- ----------
12,811,742 11,406,911 3,010,132 2,809,629
----------- ----------- ---------- ----------
GROSS MARGIN 8,611,255 8,488,197 2,109,589 2,327,607
----------- ----------- ---------- ----------
OPERATING EXPENSES
Selling and Marketing 2,058,824 1,674,586 413,221 346,678
General and Administrative 5,262,315 6,842,490 1,490,637 1,908,537
----------- ----------- ---------- ----------
7,321,139 8,517,076 1,903,858 2,255,215
----------- ----------- ---------- ----------
OPERATING INCOME (LOSS) 1,290,116 (28,879) 205,731 72,392
INTEREST INCOME (EXPENSE), NET (11,986) 39,097 15,611 (5,442)
----------- ----------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,278,130 10,218 221,342 66,950
PROVISION FOR INCOME TAXES -- Note 7 551,000 4,000 95,000 29,000
----------- ----------- ---------- ----------
NET INCOME $ 727,130 $ 6,218 $ 126,342 $ 37,950
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
Decision Focus Incorporated And Subsidiaries
Consolidated Statements of Stockholders' Deficit
Years Ended December 31, 1995 and 1996 and for the Three Months Ended March 31,
1997 (Unaudited)
<TABLE>
<CAPTION>
Common Stock
------------------------------------------- Redeemable Total
Class A Class B Paid-in Retained Common Stockholders'
Shares Amount Shares Amount Capital Earnings Stock Deficit
-------- ------------- -------- -------- ----------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995 87,000 $130,500 7,580 $11,371 $ 656,675 $3,730,599 $ (9,926,125) $(5,396,980)
Issuance of 1,338 Shares of
Class B Common Stock - - 1,338 2,007 157,162 - - 159,169
Repurchase Shares of Common
Stock - Note 9 (804) (1,206) (98) (147) (15,781) (130,404) - (147,538)
Conversion of Shares of
Class A Common Stock (1,876) (2,814) 1,876 2,814 - - - -
Change in Redeemable Common
Stock - - - - - - (1,053,111) (1,053,111)
Tax Benefit from Stock
Options Exercised - - - - 33,395 - - 33,395
Net Income - - - - - 727,130 - 727,130
------- ------------ ------ ------- ---------- ---------- ------------ -----------
BALANCE, December 31, 1995 84,320 126,480 10,696 16,045 831,451 4,327,325 (10,979,236) (5,677,935)
Issuance of Restricted Shares
of Common Stock - Note 9 938 1,407 12 18 156,000 - - 157,425
Issuance of 691 Shares of
Class B Common Stock - - 691 1,037 78,105 - - 79,142
Repurchase Shares of Common
Stock - Note 9 (2,112) (3,169) (4,079) (6,119) (54,170) (653,203) - (716,661)
Conversion of Shares of
Class B Common Stock 4,758 7,138 (4,758) (7,138) - - - -
Change in Redeemable Common
Stock - - - - - - (267,346) (267,346)
Tax Benefit from Stock
Options Exercised - - - - 14,515 - - 14,515
Net Income - - - - - 6,218 - 6,218
------- ------------ ------ ------- ---------- ---------- ------------ -----------
BALANCE, December 31, 1996 87,904 131,856 2,562 3,843 1,025,901 3,680,340 (11,246,582) (6,404,642)
Repurchase Shares of Common
Stock - - (440) (660) (4,303) (72,452) - (77,415)
Change in Redeemable Common
Stock - - - - - - 5,788 5,788
Net Income - - - - - 37,950 - 37,950
------- ------------ ------ ------- ---------- ---------- ------------ -----------
BALANCE, March 31, 1997
(Unaudited) 87,904 $131,856 2,122 $ 3,183 $1,021,598 $3,645,838 $(11,240,794) $(6,438,319)
======= ============ ====== ======= ========== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE>
Decision Focus Incorporated And Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31,
(unaudited)
----------------------- ----------------------
1995 1996 1996 1997
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 727,130 $ 6,218 $ 126,342 $ 37,950
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 494,496 561,708 122,625 154,974
Bad debt expense 5,000 - - -
Loss (gain) on disposal of assets 2,382 (5,280) - -
Deferred income taxes (157,053) 213,909 - -
Tax benefit from stock options
exercised 33,395 14,515 - -
Change in operating assets and
liabilities:
Receivables (894,776) 1,630,301 1,359,136 (531,149)
Refundable income taxes 53,547 (381,671) 82,921 357,932
Prepaid expenses 6,513 (177,411) 51,639 77,998
Deposits (2,500) (19,128) - -
Accounts payable 372,986 (316,293) (414,985) 11,440
Advance payments from customers 175,400 (299,116) (192,356) (178,657)
Accrued expenses 53,908 31,711 (687,397) (456,745)
Income taxes payable 16,401 12,079 36,612
---------- ----------- ---------- ---------
Net cash provided by operating
activities 870,428 1,275,864 460,004 (489,645)
---------- ----------- ---------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property and equipment (405,427) (893,768) (141,269) (179,046)
Issuance of note receivable (200,000) - -
Increase in notes receivable
from ESOP (6,030) (1,540,637) (229,365) -
Payments on notes receivable
from ESOP 395,000 429,583 98,750 100,000
Proceeds from sale of property
and equipment 17,007 12,144 - -
---------- ----------- ---------- ---------
Net cash provided by (used for)
investing activities 550 (2,192,678) (271,884) (79,046)
---------- ----------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
Decision Focus Incorporated And Subsidiaries
Consolidated Statements of Cash Flows
(Continued)
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31,
(unaudited)
-------------------------------------------------------
1995 1996 1996 1997
---------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
- ---------------------------
Net increase in note payable to bank - 350,000 - 650,000
Principal payments on long-term debt (415,513) (317,486) (104,017) (205,380)
Proceeds from long-term debt 4,439 946,667 - -
Issuance of common stock 159,169 236,567 13,174 -
Repurchase of common stock (147,538) (716,661) (320,946) (77,415)
--------- --------- --------- ---------
Net cash provided by (used for)
financing activities (399,443) 499,087 (411,789) 367,205
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH 471,535 (417,727) (223,669) (201,486)
CASH, beginning of period 378,875 850,410 850,410 432,683
--------- --------- --------- ---------
CASH, end of period $ 850,410 $ 432,683 $ 626,741 $ 231,197
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION
Cash paid during the period for:
1995 1996 1996 1997
---- ---- ---- ----
Income taxes $ 618,000 $ 141,000 $ - $ -
========= ========= ========= =========
Interest $ 164,000 $ 136,000 $ 28,000 $ 57,000
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE>
Decision Focus Incorporated And Subsidiaries
Notes To Consolidated Financial Statements
December 31, 1995 And 1996
NOTE 1: Description Of Operations And Summary Of Significant Accounting
---------------------------------------------------------------
Policies
--------
(a) Decision Focus Incorporated (the Company) was incorporated under
the laws of the State of California in January, 1977. The Company provides
management consulting, software, contract research, software development, and
expert testimony services to a wide range of clients, which are primarily in
the transportation/travel related and energy industries. The majority of the
Company's customers are in the United States, however, the Company does have
foreign customers, mainly in Europe, which are primarily in the transportation
industry.
The Company currently maintains offices in Washington D.C. and
London and the central corporate office in Mountain View, California. The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries which have insignificant activity.
All inter-company accounts and transactions have been eliminated in
consolidation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of reported amounts of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
Information as of March 31, 1997 and for the three months ended
March 31, 1996 and 1997 is unaudited. In the opinion of management, all
adjustments considered necessary for the fair presentation of the unaudited
financial statements of the Company as of March 31, 1997 and for the three
months ended March 31, 1996 and 1997 have been included.
(b) The Company recognizes revenue on its uncompleted long-term
contracts by the "percentage of completion" method. Under this method,
revenues are determined by the relationship that total contract costs incurred
to date bear to total estimated costs. Any anticipated losses on contracts
are recognized in the period the loss becomes known.
(c) Property and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets which range from 3 to 9 years. Leasehold improvements are amortized
over the shorter of the lease term or estimated useful lives.
(d) For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
F-28
<PAGE>
Decision Focus Incorporated And Subsidiaries
Notes To Consolidated Financial Statements
(Continued)
December 31, 1995 and 1996
NOTE 1: Description Of Operations And Summary Of Significant Accounting
---------------------------------------------------------------
Policies (Continued)
--------------------
Cash equivalents are maintained with high quality financial institutions, the
composition and maturities of which are regularly monitored by management.
(e) Concentration of credit risk with respect to accounts receivable
are considered to be limited due to the Company's customer base and the
diversity of its geographic revenue areas. The Company performs ongoing
credit evaluations of its customers' financial condition.
(f) The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
(g) In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based Compensation" which is
effective for the Company's 1996 year end. SFAS No. 123 allows companies
which have stock-based compensation arrangements with employees to adopt a new
fair-value basis of accounting for stock options and other equity instruments,
or to continue to apply the existing accounting rules under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," with additional financial statement disclosures. The Company
plans to continue to account for stock-based compensation arrangements under
APB Opinion No. 25. The Company does not anticipate SFAS No. 123 will have a
material impact on its financial position, results of operations or cash
flows.
(h) Certain reclassifications have been made to the 1995 consolidated
financial statements to conform to 1996 presentation.
NOTE 2: Note Receivable
---------------
The Company has an unsecured $200,000 note receivable with interest at
10%. The entire principal balance is due and payable on November 1, 1999.
In connection with the above note, the Company entered into a software
distribution and license agreement dated November, 1996, with a software
company. Commencing with shipment of the software, the agreement calls for
royalty payments to the Company in the amount of seventy percent (70%) of
gross receipts/license until the Company has earned $10,000,000. Royalty
payments shall be reduced to sixty-five percent (65%) of gross
receipts/license, thereafter. In addition, the Company shall receive royalty
payments in the
F-29
<PAGE>
Decision Focus Incorporated And Subsidiaries
Notes To Consolidated Financial Statements
(Continued)
December 31, 1995 and 1996
amount of ten percent (10%) of all support fees for a period of two years
commencing on the second anniversary of the release of the software. The
exclusivity with regards to the software is terminated if the Company does not
receive cumulative royalty payments as scheduled in the agreement.
NOTE 3: Note Payable To Bank
--------------------
The Company has a $2,000,000 revolving bank line of credit that is
secured by receivables and property and equipment. The line bears interest at
the bank's prime rate, (8.25% at December 31, 1996) and expires September 1,
1998.
The line of credit agreement provides for the issuance of standby
letters of credit up to $250,000. The Company had two outstanding letters of
credit at December 31, 1996 of approximately $92,500.
The agreement requires, among other things, that the Company maintain
a trading assets ratio of at least 3 to 1 and a maximum debt to tangible net
worth ratio of less than 1 to 1, as defined.
<TABLE>
<CAPTION>
NOTE 4: Long Term Debt
--------------
Long term debt consists of the following:
1996
----
<S> <C>
Note payable to Bank of America, due in
semi-annual principal payments of $200,000,
with interest at the bank'sprime rate plus
.15%, secured by receivables and property
and equipment, due September, 2001 (See
Note 8) $2,000,000
Notes payable to employees, with interest
rates of 4% and 4.5%, due January, 1999 30,683
-----------
2,030,683
Less current portion 418,907
-----------
$1,611,776
==========
Future maturities on long-term debt are
as follows:
Year Ending
December 31,
- -----------
1998 $ 410,860
1999 400,916
2000 400,000
2001 400,000
-----------
$1,611,776
==========
</TABLE>
F-30
<PAGE>
Decision Focus Incorporated And Subsidiaries
Notes To Consolidated Financial Statements
(Continued)
December 31, 1995 and 1996
<TABLE>
<CAPTION>
NOTE 5: Accrued Expenses
----------------
Accrued expenses consist of the following:
1996
----
<S> <C>
Salaries, commissions and bonuses $1,467,213
Accrued ESOP and profit sharing
expenses - Note 8 708,194
Accrued benefits expense 484,269
Estimated employees' foreign taxes 500,659
Other 57,683
------------
$3,218,018
============
</TABLE>
NOTE 6: Commitments
-----------
The Company has three non-cancelable operating leases for its
facilities which expire at various dates through April, 2002. The Company
subleases one of the facilities under various sublease agreements which expire
at various dates through August, 1999. The Company also has an office
equipment lease which expires September, 1998. Future minimum lease
commitments net of sublease income are approximately as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997 $1,592,000
1998 1,600,000
1999 1,635,000
2000 1,791,000
2001 1,816,000
Thereafter 606,000
----------
$9,040,000
==========
</TABLE>
Rent expense for the years ended December 31, 1995 and 1996 was
approximately $1,578,000 and $1,526,000, respectively.
F-31
<PAGE>
DECISION FOCUS INCORPORATED AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Continued)
December 31, 1995 and 1996
NOTE 7: Provision For Income Taxes
--------------------------
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C> <C>
Current
Federal $545,053 (176,041)
State 160,134 (50,269)
Foreign 2,866 16,401
--------- --------
708,053 (209,909)
--------- --------
Deferred
Federal (120,053) 162,640
State (37,000) 51,269
--------- --------
(157,053) 213,909
--------- --------
$551,000 $ 4,000
========= ========
</TABLE>
The provision for income taxes at the Company's effective tax rate
differed from the provision for income taxes at the Federal statutory rate as
follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Federal statutory tax rate 35.0% 35.0%
State taxes, net of federal tax benefit 6.3 6.0
Non-deductible expenses and other 1.8 (1.9)
------ ------
43.1% 39.1%
====== ======
</TABLE>
The tax effects of temporary differences that give rise to the deferred
tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Deferred tax assets:
Compensation and vacation accrual $ 159,000
Depreciation 16,000
State taxes 2,792
----------
Total deferred tax assets 177,792
----------
</TABLE>
F-32
<PAGE>
DECISION FOCUS INCORPORATED AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Continued)
December 31, 1995 and 1996
<TABLE>
<CAPTION>
NOTE 7: Provision For Income Taxes (Continued)
--------------------------------------
<S> <C>
Deferred tax liabilities:
Accounts receivable deferral (201,000)
-----------
Total deferred tax liabilities (201,000)
-----------
Net deferred tax liabilities $ (23,208)
===========
</TABLE>
NOTE 8: Employee Benefit Plans
----------------------
The Company provides a combination Employee Stock Ownership Plan and
Money Purchase Pension Plan to substantially all employees. Under the Plan,
contributions become vested to participants at increments of 20% per year of
service with full vesting attained after five years.
In 1993, the Company established an Employee Stock Ownership Plan
(ESOP) and a related trust as an amendment and restatement of the Company's
previous Profit Sharing Plan. Under this plan, the Company may loan up to
$2,600,000 to the ESOP for the purchase of stock. The Company has a bank note
payable of $2,000,000 at December 31, 1996, which it loaned to the ESOP for the
purchase of stock. Since the ESOP debt is guaranteed by the Company, it is
reflected in the consolidated balance sheet as long term debt. (See Note 4.) In
addition, the Company loaned an additional $1,209,527 to the ESOP during the
year ended December 31, 1996. The Company is obligated to repurchase shares from
the ESOP if the participant is terminated, retires or upon death or disability.
The number of shares subject to repurchase was 54,151 at December 31, 1996. This
obligation will be adjusted at each balance sheet date for changes in the fair
market value of the stock. The obligation is reduced by the amount the Company
has loaned the ESOP.
ESOP contributions are determined annually by the Board of Directors
and may not exceed 15% of eligible employees compensation plus the amount of
interest payments on security acquisition loans. Company contributions were
approximately $824,000 and $1,086,000 for the years ended December 31, 1995 and
1996, respectively.
The Money Purchase Pension Plan was adopted as of January 1, 1993, as
an amendment and restatement of the Company's previous Money Purchase Pension
Plan. Contributions under this plan are 10% of total covered employee
compensation. Company contributions were approximately $568,000 and $719,000 for
the years ended December 31, 1995 and 1996, respectively.
F-33
<PAGE>
DECISION FOCUS INCORPORATED AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Continued)
December 31, 1995 and 1996
NOTE 9: Stockholders' Deficit
---------------------
The Company has two classes of common stock authorized for issuance.
The only distinction between the two classes of common stock is that class A is
voting common stock and class B is non-voting.
The Company has a non-qualified stock option plan that covers
substantially all employees. Under the provisions of the plan, options may be
granted to employees to purchase Class B common stock. The option price under
the plan is determined by the Board of Directors and will not be less than 85%
of the fair market value of the stock on the date the option is granted. Options
are exercisable in increments of 20% per year of service for a five year period.
Options which are not exercised during a period of 90 days after the vesting
date will be terminated. The Company has the right of first refusal to purchase
at fair market value shares issued under the plan.
At December 31, 1996, no shares were vested and 17,219 shares were
available for future grant.
<TABLE>
<CAPTION>
A summary of stock option activity follows:
Average
Class B Option Option
Shares Price Price
-------- ---------------- --------
<S> <C> <C> <C>
BALANCE, January 1, 1995 10,745 $108.48 - 125.83 $ 119.21
Options granted 825 125.42 125.42
Options exercised (1,218) 108.48 - 125.83 117.47
Options terminated (1,000) 108.48 - 125.83 110.64
-------- ---------------- --------
BALANCE, December 31, 1995 9,352 108.48 - 125.83 118.95
Options exercised (691) 108.48 - 125.83 114.53
Options terminated (3,879) 108.48 - 125.83 120.69
-------- ---------------- --------
BALANCE, December 31, 1996 4,782 $108.48 - 125.83 $ 118.17
======== ================ ========
</TABLE>
The Company has adopted the disclosure only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the stock option plan.
Had compensation cost for the Company's stock option plan been determined based
on the fair value at the grant date consistent with the provisions of SFAS No.
123, the Company's net income would not have been materially impacted.
F-34
<PAGE>
DECISION FOCUS INCORPORATED AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Continued)
December 31, 1995 and 1996
NOTE 9: Stockholders' Deficit (Continued)
---------------------------------
The Company granted 950 shares of restricted common stock to several
employees during 1996. Ownership of the shares are transferred to the employee
upon completing four years of service after the grant date. The Company has
accrued compensation expense of $18,646 for the year ended December 31, 1996.
(None in 1995.)
The Company repurchased 902 and 6,191 shares of common stock from
several former employees during the years ended December 31, 1995 and 1996,
respectively.
During 1995, the Company entered into separation agreements with two
former employees. As part of these agreements, the Company agreed to repurchase
5,716 shares of common stock at various dates through May, 1999 at prices
approximating the current fair market value. Of this amount, 804 and 2,642
shares were repurchased during the years ended December 31, 1995 and 1996,
respectively. In addition, 1,060, 1,060 and 150 shares will be repurchased
during the years ended December 31, 1997, 1998 and 1999, respectively.
In addition, the Company has buy/sell agreements with all its
stockholders. Under the buy/sell agreements, each stockholder has certain put
rights which require the Company, at the option of the stockholder, to purchase
their respective shares of Class A and Class B common stock at book value, as
defined. At December 31, 1996, 34,046 shares (exclusive of ESOP shares) were
subject to redemption at book value which amounted to $1,822,142.
NOTE 10: Major Customers
---------------
The Company provides a substantial portion of its services to two major
customers, one in the passenger airline industry and the other in the energy
industry. During the years ended December 31, 1995 and 1996, revenues from those
customers aggregated approximately $8,222,000 and $4,731,000, respectively, with
the largest customer accounting for approximately $4,470,000 and $2,469,000,
respectively. At December 31, 1995 and 1996, amounts due from these customers
included in accounts receivable and unbilled receivables were approximately
$2,981,000 and $968,000, respectively.
Foreign revenues, primarily from Europe, for the years ended
December 31, 1995 and 1996 amounted to approximately $2,633,000 and $4,648,000,
respectively. Accounts receivable and unbilled receivables from these foreign
customers at December 31, 1995 and 1996 were approximately $699,000 and
$981,000, respectively.
F-35
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
The following unaudited pro forma consolidated condensed financial statements
are presented assuming the Merger will be accounted for as a pooling of
interests.
The unaudited pro forma consolidated condensed financial balance sheet reflects
the consolidated historical balance sheets of Decision Focus Incorporated and
Aeronomics Incorporated at March 31, 1997 and gives effect to the Merger. The
unaudited pro forma consolidated condensed statements of operations for the
years ended December 31, 1995 and 1996 and for the three months ended March 31,
1996 and 1997 reflect the historical operating results of each company for such
periods presented and gives effect to the Merger.
The pro forma financial statements are not necessarily indicative of the
results that would have been obtained had the Merger occurred on the dates
indicated nor are they necessarily indicative of the results of future
operations. These pro forma financial statements should be read in conjunction
with the historical financial statements and notes thereto of Decision Focus
Incorporated and Aeronomics Incorporated included herein.
F-36
<PAGE>
DFI/AERONOMICS INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
Historical
------------------------------
Decision Focus Aeronomics Pro forma Pro forma
Incorporated Incorporated Adjustments Consolidated
--------------- ------------- ---------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 231,197 $ 2,370,775 $2,601,972
Trade receivables: -
Trade and contract, less allowance for doubtful accounts 4,485,701 2,977,704 7,463,405
Unbilled costs and accrued earnings on uncompleted contracts 1,714,285 780,678 2,494,963
Income tax refund receivable 134,241 108,002 242,243
Deferred income tax asset - 85,098 85,098
Prepaid expenses and other current assets 291,842 80,440 372,282
------------- ------------ ------------- -------------
Total current assets 6,857,266 6,402,697 - 13,259,963
------------- ------------ ------------- -------------
Property and equipment, at cost 4,844,260 3,716,167 8,560,427
Less accumulated depreciation and amortization (3,588,740) (1,827,254) (5,415,994)
------------- ------------ ------------- -------------
Property and equipment, net 1,255,520 1,888,913 - 3,144,433
------------ ----------- ------------ -------------
Other assets 245,259 - 245,259
------------- ------------ ------------- -------------
$ 8,358,045 $ 8,291,610 $ 0 $16,649,655
============= ============ ============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Trade accounts payable $ 127,361 $ 869,455 $996,816
Note payable to bank 1,000,000 1,102,799 2,102,799
Current installments of long-term debt and capital lease obligations 416,223 335,843 752,066
Billings in excess of costs and accrued earnings on uncompleted
contracts 116,079 949,029 1,065,108
Income tax payable 53,013 - 53,013
Accrued expenses 2,761,273 1,416,467 (b) 600,000 4,777,740
Deferred income taxes 39,208 - 39,208
------------- ------------ ------------- -------------
Total current liabilities 4,513,157 4,673,593 600,000 9,786,750
------------- ------------ ------------- -------------
Long-term debt and capital lease obligations, excluding currrent
installments 1,409,080 1,038,731 2,447,811
------------- ------------ ------------- -------------
Total liabiliities 5,922,237 5,712,324 600,000 12,234,561
------------- ------------ ------------- -------------
Redeemable, convertible preferred stock - 2,633,352 2,633,352
Redeemable common stock:
Shares held in ESOP, net of receiveable from ESOP 7,057,773 - (a) 3,808,440 10,866,213
Shares under buy/sell agreements 1,816,354 - (a) (1,816,354) -
Shareholders' deficit
Class A voting common stock 131,856 7 (a) (130,715) 1,148
Class B nonvoting common stock 3,183 438 (a) (3,600) 21
Additional paid in capital 1,021,598 6,000 (a) (1,027,598) -
Retained earnings (accumulated deficit) 3,645,838 (60,511)(b) (600,000) (9,085,640)
(a) (12,070,967)
Less redeemable common stock (11,240,794) (a) 11,240,794 -
------------- ------------ ------------- -------------
Total shareholders' deficit (6,438,319) (54,066) (2,592,086) (9,084,471)
------------- ------------ ------------- -------------
$ 8,358,045 $ 8,291,610 - $16,649,655
============= ============ ============= =============
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed financial
statements.
F-37
<PAGE>
DFI / AERONOMICS INCORPORATED
Unaudited Pro Forma Consolidated Condensed Statement of Operations
For the Quarter Ended March 31, 1997
<TABLE>
<CAPTION>
Historical
-------------------------------
Decision Focus Aeronomics Pro forma
Incorporated Incorporated Consolidated
-------------- -------------- -------------
<S> <C> <C> <C>
Revenue $5,137,236 $4,601,215 $9,738,451
Cost of revenue 2,809,629 3,231,933 6,041,562
-------------- -------------- -------------
Gross Profit 2,327,607 1,369,282 3,696,889
Operating Expenses
Selling and marketing 346,678 692,726 1,039,404
General and administrative 1,908,537 558,183 2,466,720
-------------- -------------- -------------
Total operating expenses 2,255,215 1,250,909 3,506,124
-------------- -------------- -------------
Operating income 72,392 118,373 190,765
Interest income (expense), net (5,442) (30,664) (36,106)
Other income - 136,107 136,107
-------------- -------------- -------------
Income before income taxes 66,950 223,816 290,766
Income tax expense 29,000 90,000 119,000
-------------- -------------- -------------
Net income $ 37,950 $ 133,816 $ 171,766
============== ============== =============
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-38
<PAGE>
DFI / AERONOMICS INCORPORATED
Unaudited Pro Forma Consolidated Condensed Statement of Operations
For the Quarter Ended March 31, 1996
<TABLE>
<CAPTION>
Historical
-------------------------------
Decision Focus Aeronomics Pro forma
Incorporated Incorporated Consolidated
-------------- -------------- -------------
<S> <C> <C> <C>
Revenue $5,119,721 $2,634,624 $7,754,345
Cost of revenue 3,010,132 1,980,303 4,990,435
-------------- -------------- -------------
Gross Profit 2,109,589 654,321 2,763,910
Operating Expenses
Selling and marketing 413,221 330,766 743,987
General and administrative 1,490,637 470,482 1,961,119
-------------- -------------- -------------
Total operating expenses 1,903,858 801,248 2,705,106
-------------- -------------- -------------
Operating income (loss) 205,731 (146,927) 58,804
Interest income (expense), net 15,611 (11,059) 4,552
Other income - 161,233 161,233
-------------- -------------- -------------
Income before income taxes 221,342 3,247 224,589
Income tax expense 95,000 - 95,000
-------------- -------------- -------------
Net income $ 126,342 $ 3,247 $ 129,589
============== ============== =============
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-39
<PAGE>
DFI/AERONOMICS INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED CODENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Historical
-------------------------------
Decision Focus Aeronomics Pro forma
Incorporated Incorporated Consolidated
-------------- -------------- ---------------
<S> <C> <C> <C>
Revenue $19,895,108 $15,050,674 $34,945,782
Cost of revenue 11,406,911 10,960,819 22,367,730
-------------- -------------- ---------------
Gross Profit 8,488,197 4,089,855 12,578,052
Operating Expenses
Selling and marketing 1,674,586 1,916,868 3,591,454
General and administrative 6,842,490 1,392,044 8,234,534
-------------- -------------- ---------------
Total operating expenses 8,517,076 3,308,912 11,825,988
-------------- -------------- ---------------
Operating income (loss) (28,879) 780,943 752,064
Interest income (expense), net 39,097 (72,158) (33,061)
Other income - 270,082 270,082
-------------- -------------- ---------------
Income before income taxes 10,218 978,867 989,085
Income tax expense 4,000 466,599 470,599
-------------- -------------- ---------------
Net income $6,218 $512,268 $518,486
============= ============= ==============
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-40
<PAGE>
DFI/AERONOMICS INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Historical
-------------------------------
Decision Focus Aeronomics Pro forma
Incorporated Incorporated Consolidated
-------------- -------------- ---------------
<S> <C> <C> <C>
Revenue $21,422,997 $7,366,488 $28,789,485
Cost of revenue 12,811,742 5,376,530 18,188,272
-------------- -------------- ---------------
Gross Profit 8,611,255 1,989,958 10,601,213
Operating Expenses
Selling and marketing 2,058,824 1,269,962 3,328,786
General and administrative 5,262,315 937,388 6,199,703
-------------- -------------- ---------------
Total operating expenses 7,321,139 2,207,350 9,528,489
-------------- -------------- ---------------
Operating income (loss) 1,290,116 (217,392) 1,072,724
Interest income (expense), net (11,986) (84,163) (96,149)
Other income - 34,143 34,143
-------------- -------------- ---------------
Income (loss) before income taxes 1,278,130 (267,412) 1,010,718
Income tax expense (benefit) 551,000 (108,000) 443,000
-------------- -------------- ---------------
Net income (loss) $727,130 ($159,412) $567,718
============= ============= ==============
</TABLE>
See accompanying notes to pro forma consolidated condensed financial statements.
F-41
<PAGE>
DFI / AERONOMICS INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1. PERIODS COMBINED
The Decision Focus Incorporated balance sheet as of March 31, 1997, has been
combined with the Aeronomics Incorporated balance sheet as of March 31, 1997,
giving effect to the Merger as a pooling of interests.
The Decision Focus Incorporated statements of operations for each of the years
in the two-year period ended December 31, 1996 and the three months ended March
31, 1996 and 1997, have been combined with the Aeronomics Incorporated
statements of operations for each of the years in the two-year period ended
December 31, 1996, and the three months ended March 31, 1996 and 1997.
NOTE 2. BASIS OF PRESENTATION
(a). Pro forma Basis of Presentation
Decision Focus Incorporated's voting common stock is redeemable due to certain
put rights in the buy/sell agreements. After the Merger, the buy/sell
agreements are terminated according to the terms of the agreements and the
shares held are no longer redeemable. The pro forma adjustment to the
redeemable common stock in the DFI ESOP reflects an increase in the market value
of the stock per the opinion letter of Houlihan Lokey dated April 15, 1997.
The pro forma consolidated condensed financial statements reflect the issuance
of shares of DFI / Aeronomics Incorporated voting common stock, nonvoting common
stock, and redeemable, convertible preferred stock in exchange for the
aggregrate shares of Decision Focus Incorporated capital stock outstanding as of
March 31, 1997 and shares of Aeronomics Incorporated capital stock outstanding
as of March 31, 1997 in connection with the Merger, based on the exchange ratios
as described below.
(continued)
F-42
<PAGE>
DFI / AERONOMICS INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Also as part of the Merger, Decision Focus Incorporated's and Aeronomics
Incorporated's outstanding options to acquire voting and nonvoting common stock
will convert into DFI / Aeronomics Incorporated options to acquire voting and
nonvoting common stock using the exchange ratios described below.
<TABLE>
<CAPTION>
Exchange Ratio
Security Decision Focus Aeronomics
<S> <C> <C>
Class A Voting
Common 102.4968 1.8605
Class B Nonvoting
Common 102.4968 1.8233
Preferred Stock 1.8605
Options 102.4968 1.8605
</TABLE>
The following table presents the number of shares of capital stock outstanding
as of March 31, 1997 for each company and the number of shares of capital stock
for DFI / Aeronomics Incorporated after consumation of the Merger using the
exchange ratios described above:
<TABLE>
<CAPTION>
Security Aeronomics Decision Focus DFI/AI Shares
Shares Shares Outstanding
Outstanding Outstanding
<S> <C> <C> <C>
Class A
Common 698 88,210 17,026,071
Class B
Common 4,378,615 2,092 214,423
Redeemable,
Convertible
Preferred 443,019 824,237
Options 805,829 4,253 1,935,164
</TABLE>
Aeronomics Incorporated's Series B Nonvoting Common Stock will be converted to
DFI / Aeronomics Incorporated's Class A Voting Common Stock as part of the
Merger.
(b). Merger Transaction Costs
Decision Focus Incorporated and Aeronomics Incorporated estimate they will incur
direct transaction costs of approximately $600,000 associated with the Merger
consisting of transaction fees for the investment bankers, attorneys,
accountants and financial printing. These nonrecurring costs will be charged to
operations by DFI / Aeronomics Incorporated in the period in which the Merger is
consummated. The unaudited pro forma consolidated condensed balance sheet gives
effect to the estimated direct transaction costs of $600,000 as if such costs
had been incurred as of March 31, 1997 but the effects of these costs have not
been reflected in the unaudited pro forma consolidated condensed statements of
operations.
Following the Merger, DFI / Aeronomics Incorporated estimates that it will incur
costs of approximately $500,000 related to the integration of Aeronomics
Incorporated's and Decision Focus Incorporated's operations. These costs have
not been reflected in the accompanying unaudited pro forma consolidated
condensed balance sheet or the unaudited pro forma consolidated condensed
statements of operations.
NOTE 3. CONFORMING ADJUSTMENTS
There have been no adjustments required to conform the accounting policies of
the combined company.
F-43
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 3, 1997
AMONG
DFI/AERONOMICS INCORPORATED,
AERONOMICS INCORPORATED
AND
DECISION FOCUS INCORPORATED
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. TRANSACTIONS ON THE CLOSING DATE. 1
1.1. THE MERGERS 1
1.2. CONVERSION OF DFI STOCK 3
1.3. CONVERSION OF AERONOMICS STOCK 4
1.4. CONVERSION OF DFI OPTIONS 6
1.5. CONVERSION OF 7
AERONOMICS OPTIONS 7
1.6. CONVERSION RATE 7
1.7. TAX-FREE REORGANIZATION 7
2. CLOSING. 7
3. REPRESENTATIONS AND WARRANTIES OF AERONOMICS. 8
3.1. ORGANIZATION AND QUALIFICATION 8
3.2. AUTHORIZATION OF AGREEMENT 8
3.3. CAPITALIZATION 9
3.4. FINANCIAL CONDITION 10
3.5. NO UNDISCLOSED LIABILITIES 11
3.6. TAX MATTERS 12
3.7. LITIGATION 12
3.8. VIOLATIONS OF LAW 13
3.9. PROPERTIES AND ASSETS 13
3.10. PROPRIETARY RIGHTS 14
3.11. INSURANCE 16
3.12. CONTRACTS AND OTHER INSTRUMENTS 16
</TABLE>
<PAGE>
<TABLE>
<S> <C>
3.13. LABOR AND EMPLOYMENT AGREEMENTS 17
3.14. EMPLOYEE BENEFIT PLANS 18
3.15. OFFICERS, DIRECTORS AND EMPLOYEES 20
3.16. AGREEMENT NOT IN BREACH OF CERTAIN INSTRUMENTS 21
3.17. REGULATORY APPROVALS 21
3.18. BROKERAGE 21
3.19. BANK ACCOUNTS 21
3.20. ENVIRONMENTAL MATTERS 21
3.21. EMPLOYEE CONFIDENTIALITY AGREEMENTS 22
3.22. U.S. REAL PROPERTY HOLDING COMPANY 22
3.23. REGISTRATION STATEMENT; JOINT PROXY STATEMENT 22
3.24. DISCLOSURE 23
4. REPRESENTATIONS AND WARRANTIES OF DFI. 23
4.1. ORGANIZATION AND QUALIFICATION 23
4.2. AUTHORIZATION OF AGREEMENT 23
4.3. CAPITALIZATION 24
4.4. FINANCIAL CONDITION 25
4.5. NO UNDISCLOSED LIABILITIES 26
4.6. TAX MATTERS 27
4.7. LITIGATION 27
4.8. VIOLATIONS OF LAW 28
4.9. PROPERTIES AND ASSETS 28
4.10. PROPRIETARY RIGHTS 29
4.11. INSURANCE 31
4.12. CONTRACTS AND OTHER INSTRUMENTS 31
4.13. LABOR AND EMPLOYMENT AGREEMENTS 32
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
4.14 EMPLOYEE BENEFIT PLANS 33
4.15. OFFICERS, DIRECTORS AND EMPLOYEES 35
4.16. AGREEMENT NOT IN BREACH OF CERTAIN INSTRUMENTS 36
4.17. REGULATORY APPROVALS 36
4.18. BROKERAGE 36
4.19. BANK ACCOUNTS 36
4.20. ENVIRONMENTAL MATTERS 36
4.21. EMPLOYEE CONFIDENTIALITY AGREEMENTS 37
4.22. U.S. REAL PROPERTY HOLDING COMPANY 37
4.23. REGISTRATION STATEMENT; JOINT PROXY STATEMENT 37
4.24. DISCLOSURE 38
5. REPRESENTATIONS AND WARRANTIES OF NEWCO. 38
5.1. ORGANIZATION AND QUALIFICATION 38
5.2. AUTHORIZATION OF AGREEMENT 38
5.3. CAPITALIZATION 39
5.4. OFFICERS, DIRECTORS AND EMPLOYEES 39
5.5. AGREEMENT NOT IN BREACH OF CERTAIN INSTRUMENTS 39
5.6. REGULATORY APPROVALS 39
5.7. BROKERAGE 39
6. COVENANTS AND AGREEMENTS OF AERONOMICS. 39
6.1. CERTIFICATE OF INCORPORATION AND BYLAWS 40
6.2. CORPORATE EXISTENCE AND RIGHTS 40
6.3. ACCESS AND INFORMATION BEFORE THE CLOSING 40
6.4. CURRENT INFORMATION 40
6.5. CONSENTS 41
6.6. CONTRACTS 41
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
6.7. INSURANCE 41
6.8. TERMINATION OF AGREEMENTS 41
6.9. AERONOMICS STOCKHOLDERS MEETING 41
7. COVENANTS AND AGREEMENTS OF DFI. 42
7.1. ARTICLES OF INCORPORATION AND BYLAWS 42
7.2. CORPORATE EXISTENCE AND RIGHTS 42
7.3. ACCESS AND INFORMATION BEFORE THE CLOSING 42
7.4. CURRENT INFORMATION 43
7.5. CONSENTS 43
7.6. CONTRACTS 43
7.7. INSURANCE 43
7.8. TERMINATION OF AGREEMENTS 43
7.9. DFI SHAREHOLDERS MEETING 43
8. ADDITIONAL AGREEMENTS. 44
8.1. SECURITIES LAW COMPLIANCE 44
8.2. TAX TREATMENT 44
8.3. PREFERRED STOCK 44
8.4. CONSUMMATION OF AGREEMENT 45
9. CONDITIONS TO OBLIGATIONS OF AERONOMICS 45
9.1. CORRECTNESS OF REPRESENTATIONS AND WARRANTIES 45
9.2. PERFORMANCE OF COVENANTS AND AGREEMENTS 45
9.3. SECRETARY'S CERTIFICATE 45
9.4. GOOD STANDING CERTIFICATE 46
9.5. OPINION OF COUNSEL FOR DFI 46
9.6. POOLING LETTER 46
</TABLE>
-iv-
<PAGE>
<TABLE>
<S> <C>
9.7. ADDITIONAL CLOSING DOCUMENTS 46
9.8. SHAREHOLDER APPROVAL 46
9.9. DISSENTING SHARES 46
9.10. NO LEGAL BAR 46
9.11. MATERIAL ADVERSE EFFECT 47
10. CONDITIONS TO OBLIGATIONS OF DFI. 47
10.1. CORRECTNESS OF REPRESENTATIONS AND WARRANTIES 47
10.2. PERFORMANCE OF COVENANTS AND AGREEMENTS 47
10.3. SECRETARY'S CERTIFICATE 47
10.4. GOOD STANDING CERTIFICATE 47
10.5. OPINION OF COUNSEL FOR AERONOMICS 47
10.6. POOLING LETTER 48
10.7. ADDITIONAL CLOSING DOCUMENTS 48
10.8. SHAREHOLDER APPROVAL 48
10.9. DISSENTING SHARES 48
10.10. NO LEGAL BAR 48
10.11. MATERIAL ADVERSE EFFECT 48
11. TERMINATION OF AGREEMENT 48
11.1. EVENTS OF TERMINATION 48
12. MISCELLANEOUS PROVISIONS 49
12.1. CONSTRUCTION 49
12.2. NOTICES 49
12.3. ASSIGNMENT 50
12.4. AMENDMENTS AND WAIVERS 50
12.5. SURVIVAL 50
</TABLE>
-v-
<PAGE>
<TABLE>
<S> <C>
12.6. ATTORNEYS' FEES 51
12.7. BINDING NATURE OF AGREEMENT 51
12.8. EXPENSES 51
12.9. ENTIRE AGREEMENT 51
12.10. SEVERABILITY 51
12.11. COUNTERPARTS 51
12.12. PUBLIC ANNOUNCEMENTS 51
12.13. SECTION HEADINGS 51
12.14. NO THIRD PARTY BENEFICIARIES 51
12.15. KNOWLEDGE 52
12.16. POOLING 52
</TABLE>
-vi-
<PAGE>
EXHIBITS
--------
Exhibit A - Agreement of Merger
Exhibit B - Newco Certificate of Incorporation
Exhibit C - Newco Bylaws
Exhibit D - Opinion of Counsel for DFI
Exhibit E - Opinion of Counsel for Aeronomics
SCHEDULES
---------
Schedule 3.1 Subsidiaries
- ------------ ------------
Schedule 3.3(a) Outstanding Capital Stock
Schedule 3.3(b) Outstanding Options
Schedule 3.4(c) Changes Since Date of AI Unaudited Financial Statements
Schedule 3.5 Undisclosed Liabilities
Schedule 3.9(b) Liens
Schedule 3.9(e) Real Property Leases
Schedule 3.10(a) Intellectual Property
Schedule 3.10(b) Infringement Notices
Schedule 3.11 Insurance
Schedule 3.12(a) Material Contracts
Schedule 3.12(b) Defaults
Schedule 3.12(c) Bid Proposals; Claims
Schedule 3.13 Labor and Employment Agreements
Schedule 3.14(a) Employee Benefit Plans
Schedule 3.14(c) ERISA Plans
Schedule 3.14(e) Prohibited Transactions
Schedule 3.15(a) Employee List
Schedule 3.15(b) Indebtedness to Employees
Schedule 3.19 Bank Accounts
Schedule 4.1 Subsidiaries
Schedule 4.3(a) Outstanding Capital Stock
Schedule 4.3(b) Outstanding Options
Schedule 4.5 Undisclosed Liabilities
Schedule 4.6 Taxes
Schedule 4.9(b) Liens
Schedule 4.9(e) Real Property Leases
Schedule 4.10(a) Intellectual Property
Schedule 4.10(b) Infringement Notices
Schedule 4.11 Insurance
Schedule 4.12(a) Material Contracts
Schedule 4.12(b) Defaults
Schedule 4.12(c) Bid Proposals; Claims
<PAGE>
Schedule 4.13 Labor and Employment Agreements
Schedule 4.14(a) Employee Benefit Plans
Schedule 4.14(c) ERISA Plans
Schedule 4.15(a) Employee List
Schedule 4.15(b) Indebtedness to Employees
Schedule 4.19 Bank Accounts
-2-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
June __, 1997, by and among Aeronomics Incorporated., a Delaware corporation
("Aeronomics"), Decision Focus Incorporated, a California corporation ("DFI")
and DFI/Aeronomics Incorporated, a Delaware corporation ("Newco").
R E C I T A L S
A. DFI, Aeronomics and Newco desire to cause DFI to merge with and into
Newco pursuant to the California Corporations Code (the "CCC") and the Delaware
General Corporation Law (the "DGCL") and upon the terms and conditions of this
Agreement.
B. Aeronomics, DFI and Newco desire to cause Aeronomics to merge with and
into Newco pursuant to the DGCL and upon the terms and conditions of this
Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and agreements contained herein, the parties agree as follows:
1. TRANSACTIONS ON THE CLOSING DATE.
1.1. THE MERGERS.
(a) Subject to the terms and provisions of this Agreement, and in
accordance with the CCC and the DGCL, at the Effective Time (as defined below),
DFI shall be merged with and into Newco (the "DFI Merger"). Newco shall be the
surviving corporation of the DFI Merger and shall continue its corporate
existence under the laws of the State of Delaware. Subject to the terms and
provisions of the Agreement, and in accordance with the DGCL, at the Effective
Time, Aeronomics shall be merged with and into Newco (the "Aeronomics Merger").
Newco shall be the surviving corporation of the Aeronomics Merger and shall
continue its corporate existence under the laws of the State of Delaware. The
DFI Merger and the Aeronomics Merger are sometimes referred to collectively as
the "Mergers". Newco (as it exists following the Effective Time) is sometimes
referred to as the "Surviving Corporation." At the Effective Time, the separate
corporate existence of each of DFI and Aeronomics shall cease.
(b) At the Effective Time, the DFI Merger shall have the effects
provided for in this Agreement, the DGCL and the CCC. At the Effective Time,
the Aeronomics Merger shall have the effects provided for in this Agreement and
the DGCL.
(c) In connection with the filing of the certificates described in
SECTION 1.1(e) below, the Certificate of Incorporation and Bylaws of Newco as
respectively existing immediately prior to the Effective Time shall be the
Certificate of Incorporation and Bylaws of the Surviving Corporation until
amended in the manner provided by law. The Certificate of Incorporation of
Newco is not amended by this Agreement.
<PAGE>
(d) The directors of Newco serving immediately prior to the Effective
Time shall be the directors of the Surviving Corporation. The officers of Newco
serving immediately prior to the Effective Time shall be the officers of the
Surviving Corporation.
(e) The DFI Merger shall become effective when (i) a copy of the
Agreement of Merger substantially in the form attached as EXHIBIT A hereto (the
---------
"Merger Agreement"), together with a duly executed officer's certificate as
required by the CCC to effect the DFI Merger, shall have been filed with the
Secretary of State of the State of California, and (ii) a properly executed
Certificate of Merger (the "DFI Delaware Certificate"), together with any other
documents required by the DGCL to effectuate the DFI Merger, shall have been
filed with the Secretary of State of the State of Delaware. In accordance with
the CCC, upon the filing of the Merger Agreement and the officer's certificate
with the Secretary of State of the State of California, the DFI Merger shall be
effective as of the time of effectiveness of the filing of the DFI Delaware
Certificate with the Secretary of State of the State of Delaware. The Aeronomics
Merger shall become effective when a properly executed Certificate of Merger
(the "Aeronomics Delaware Certificate"), together with any other documents
required by the DGCL to effectuate the Aeronomics Merger, shall have been filed
with the Secretary of State of the State of Delaware. The date and time at which
each of the DFI Merger and the Aeronomics Merger shall have become effective is
herein referred to as the "Effective Time."
(f) If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any further assignments or
assurances in law or any other acts are necessary or desirable (i) to vest,
perfect or confirm of record or otherwise, in the Surviving Corporation, title
to and possession of any property or right of DFI acquired or to be acquired by
reason of, or as a result of, the DFI Merger, or (ii) otherwise to carry out the
purposes of this Agreement, DFI and its proper officers and directors shall be
deemed to have granted hereby to the Surviving Corporation an irrevocable power
of attorney to execute and deliver all such proper deeds, assignments and
assurances in law and to do all acts necessary or proper to vest, perfect or
confirm title to, and the possession of such property or rights in, the
Surviving Corporation and otherwise to carry out the purposes of this Agreement,
and the proper officers and directors of the Surviving Corporation are hereby
fully authorized in the name of DFI or otherwise to take any and all such
action.
(g) If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any further assignments or
assurances in law or any other acts are necessary or desirable (i) to vest,
perfect or confirm of record or otherwise, in the Surviving Corporation, title
to and possession of any property or right of Aeronomics, acquired or to be
acquired by reason of, or as a result of, the Aeronomics Merger, or (ii)
otherwise to carry out the purposes of this Agreement, Aeronomics and its proper
officers and directors shall be deemed to have granted hereby to the Surviving
Corporation an irrevocable power of attorney to execute and deliver all such
proper deeds, assignments and assurances in law and to do all acts necessary or
proper to vest, perfect or confirm title to, and the possession of such property
or rights in, the Surviving Corporation and otherwise to carry out the purposes
of this Agreement, and the proper
-2-
<PAGE>
officers and directors of the Surviving Corporation are hereby fully authorized
in the name of Aeronomics or otherwise to take any and all such action.
1.2. CONVERSION OF DFI STOCK.
(a) MERGER CONSIDERATION. At the Effective Time, by virtue of the
--------------------
DFI Merger and without any further action of any party, each share of the Class
A Voting Common Stock of DFI (the "DFI Voting Common Stock") outstanding as of
the Effective Time shall be converted into the right to receive 102.4968 shares
of the Class A Voting Common Stock, par value $0.0001 per share, of Newco (the
"Newco Voting Common Stock"), for an aggregate of 9,041,243 shares of Newco
Voting Common Stock (the total number of shares to be received by each holder of
DFI Voting Common Stock being rounded to the nearest whole share). At the
Effective Time, by virtue of the DFI Merger and without any further action of
any party, each share of the Class B Nonvoting Common Stock of DFI (the "DFI
Nonvoting Common Stock") outstanding as of the Effective Time shall be converted
into the right to receive 102.4968 shares of the Class B Nonvoting Common Stock,
par value $0.0001 per share, of Newco (the "Newco Nonvoting Common Stock"), for
an aggregate of 214,423 shares of Newco Nonvoting Common Stock (the total number
of shares to be received by each holder of DFI Nonvoting Common Stock being
rounded to the nearest whole share). The shares of DFI Voting Common Stock and
DFI Nonvoting Common Stock to be converted hereunder may collectively be
referred to as the "DFI Shares". The Newco Voting Common Stock and the Newco
Nonvoting Common Stock are sometimes referred to collectively as the "Newco
Common Stock". The shares of Newco Common Stock to be issued in exchange for the
DFI Shares hereunder may collectively be referred to as the "DFI Merger
Consideration". Promptly after the Effective Time, Newco shall mail to each
record holder, as of the Effective Time, of an outstanding certificate which
immediately prior to the Effective Time represented DFI Shares a form letter of
transmittal and instructions for use in effecting the surrender of the
certificate. Upon surrender to Newco of such certificate, together with such
letter of transmittal duly executed, Newco shall deliver to the surrendering
holder thereof certificates representing the DFI Merger Consideration to which
such surrendering holder is entitled.
(b) CONVERSION OF COMMON STOCK. At the Effective Time, by virtue of
---------------------------
the DFI Merger, and without any action on the part of the holders thereof, each
share of Newco Common Stock, if any, outstanding immediately prior to the
Effective Time (but in no event to include shares of Newco Common Stock issued
as Aeronomics Merger Consideration) shall be automatically canceled, surrendered
and terminated.
(c) CANCELLATION OF SHARES. The DFI Merger Consideration for which
-----------------------
the DFI Shares shall have been converted pursuant to this SECTION 1 shall be
deemed to have been paid in full satisfaction of all rights pertaining to such
DFI Shares. At the Effective Time, the DFI Shares shall be canceled.
(d) NO FURTHER TRANSFERS. After the Effective Time, there shall be
---------------------
no further registration of transfers on the stock transfer books of the
Surviving Corporation of the DFI
-3-
<PAGE>
Shares that were outstanding immediately prior to the Effective Time and that
are to be converted into the right to receive the DFI Merger Consideration
pursuant to this SECTION 1.2.
(e) DISSENTING SHARES. Notwithstanding anything in this Agreement to
------------------
the contrary, any DFI Shares outstanding immediately prior to the Effective Time
that are held by shareholders who object to the DFI Merger and comply with all
of the relevant provisions of Chapter 13 of the CCC ("DFI Dissenting Shares")
shall not be converted into or represent a right to receive the DFI Merger
Consideration, but instead shall be entitled to receive payment of the appraised
fair value of such shares in accordance with the provisions of Chapter 13 of the
CCC, unless and until the holder thereof shall have failed to perfect, or shall
have effectively withdrawn or lost, their rights to appraisal and payment under
Chapter 13 of the CCC. DFI shall give the other parties hereto prompt notice
upon receipt by DFI of any written objection to the DFI Merger (any shareholder
duly making such objection being hereinafter called a "DFI Dissenting
Shareholder"). DFI agrees that prior to the Effective Time it shall not
voluntarily make or agree to make any payment with respect to, or settle or
offer to settle, any such objection. Each DFI Dissenting Shareholder who becomes
entitled, pursuant to the provisions of Chapter 13 of the CCC, to payment for
his DFI Dissenting Shares shall receive payment therefor after the Effective
Time from the Surviving Corporation (but only after the amount thereof shall
have been agreed upon or finally determined pursuant to such provisions) and
such shares shall be canceled.
1.3. CONVERSION OF AERONOMICS STOCK.
(a) MERGER CONSIDERATION. At the Effective Time, by virtue of the
--------------------
Aeronomics Merger and without any further action of any party, each share of the
Series A Common Stock of Aeronomics, $.01 par value (the "Aeronomics Voting
Common Stock"), outstanding as of the Effective Time shall be converted into the
right to receive 1.8605 shares of the Newco Voting Common Stock for an aggregate
of 1,299 shares of Newco Voting Common Stock (the total number of shares to be
received by each holder of Aeronomics Shares being rounded to the nearest whole
share). At the Effective Time, by virtue of the Aeronomics Merger and without
any further action of any party, each share of the Series B Common Stock of
Aeronomics, $.0001 par value (the "Aeronomics Nonvoting Stock"), outstanding as
of the Effective Time shall be converted into the right to receive 1.8233 shares
of the Newco Voting Common Stock for an aggregate of 7,983,635 shares of Newco
Voting Common Stock (the total number of shares to be received by each holder of
Aeronomics Shares being rounded to the nearest whole share). At the Effective
Time, by virtue of the Aeronomics Merger and without any further action of any
party, each share of the Convertible Preferred Stock of Aeronomics, $.0001 par
value (the "Aeronomics Preferred Stock"), outstanding as of the Effective Time
shall be converted into the right to receive 1.8605 shares of the Convertible
Preferred Stock of Newco, par value $.0001 (the "Newco Preferred Stock"), (for
an aggregate of 824,237 shares of Newco Preferred Stock (the total number of
shares to be received by each holder of Aeronomics Preferred Stock being rounded
to the nearest whole share). The shares of Aeronomics Voting Common Stock,
Aeronomics Nonvoting Common Stock and Aeronomics Preferred Stock outstanding as
of the Effective Time are sometimes referred to as the "Aeronomics Shares." The
-4-
<PAGE>
shares of Newco Voting Common Stock and Newco Preferred Stock issuable upon
conversion of the Aeronomics Shares pursuant to the Aeronomics Merger are
sometimes referred to as the "Aeronomics Merger Consideration." Promptly after
the Effective Time, Newco shall mail to each record holder, as of the Effective
Time, of an outstanding certificate which immediately prior to the Effective
Time represented Aeronomics Shares a form letter of transmittal and instructions
for use in effecting the surrender of the certificate. Upon surrender to Newco
of such certificate, together with such letter of transmittal duly executed,
Newco shall deliver to the surrendering holder thereof certificates representing
the Aeronomics Merger Consideration to which such surrendering holder is
entitled.
(b) CONVERSION OF COMMON STOCK. At the Effective Time, by virtue of
---------------------------
the Aeronomics Merger, and without any action on the part of the holders
thereof, each share of Newco Common Stock outstanding immediately prior to the
Effective Time (but in no event to include shares of Newco Common Stock issued
as DFI Merger Consideration) shall be automatically canceled, surrendered and
terminated.
(c) CANCELLATION OF SHARES. The Aeronomics Merger Consideration for
-----------------------
which the Aeronomics Shares shall have been converted pursuant to this SECTION 1
shall be deemed to have been paid in full satisfaction of all rights pertaining
to such Aeronomics Shares. At the Effective Time, the Aeronomics Shares, and
all treasury shares of Aeronomics, shall be canceled.
(d) NO FURTHER TRANSFERS. After the Effective Time, there shall be
---------------------
no further registration of transfers on the stock transfer books of the
Surviving Corporation of the Aeronomics Shares that were outstanding immediately
prior to the Effective Time and that are to be converted into the right to
receive the Aeronomics Merger Consideration pursuant to this SECTION 1.3.
(e) DISSENTING SHARES. Notwithstanding anything in this Agreement to
------------------
the contrary, any Aeronomics Shares outstanding immediately prior to the
Effective Time that are held by stockholders who object to the Aeronomics Merger
and comply with all of the relevant provisions of Section 262 of the DGCL ("AI
Dissenting Shares") shall not be converted into or represent a right to receive
the Aeronomics Merger Consideration, but instead shall be entitled to receive
payment of the appraised fair value of such shares in accordance with the
provisions of such Section 262 of the DGCL, unless and until the holder thereof
shall have failed to perfect, or shall have effectively withdrawn or lost, their
rights to appraisal and payment under Section 262 of the DGCL. Aeronomics shall
give the other parties hereto prompt notice upon receipt by Aeronomics of any
written objection to the Aeronomics Merger (any shareholder duly making such
objection being hereinafter called an "AI Dissenting Shareholder"). Aeronomics
agrees that prior to the Effective Time it shall not voluntarily make or agree
to make any payment with respect to, or settle or offer to settle, any such
objection. Each AI Dissenting Shareholder who becomes entitled, pursuant to the
provisions of Section 262 of the DGCL, to payment for his AI Dissenting Shares
shall receive payment therefor after the Effective Time from the Surviving
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Corporation (but only after the amount thereof shall have been agreed upon or
finally determined pursuant to such provisions) and such shares shall be
canceled.
1.4. CONVERSION OF DFI OPTIONS. Each outstanding stock option of DFI,
whether exercisable or unexercisable, to purchase shares of DFI Voting Common
Stock (each a "DFI Voting Option") will be assumed by Newco and will constitute
an option to acquire, on substantially the same terms and conditions as were
applicable under such DFI Option immediately prior to the Effective Time, a
number of shares of Newco Voting Common Stock equal to the product of 102.4968
and the number of shares of DFI Voting Common Stock subject to such DFI Voting
Option immediately prior to the Effective Time, at a price per share equal to
the aggregate exercise price for the shares of DFI Voting Common Stock subject
to such DFI Voting Option divided by the number of full shares of Newco Voting
Common Stock deemed to be purchasable pursuant to such DFI Voting Option,
rounded to the nearest cent; provided, however, that (i) subject to the
provisions of clause (ii) below, Newco will not issue any fractional shares of
Newco Voting Common Stock upon any exercise of any DFI Voting Option, and any
right in respect thereof will, without further action, be forfeited and (ii) and
in the case of any DFI Voting Option to which Section 421 of the Internal
Revenue Code of 1986, as amended (the "Code") applies by reason of its
qualification under Section 422 or Section 423 of the Code, the option price,
the number of shares purchasable pursuant to such DFI Voting Option and the
terms and conditions of exercise of such DFI Option shall be determined in order
to comply with Section 424 of the Code. Each outstanding stock option of DFI,
whether exercisable or unexercisable, to purchase shares of DFI Nonvoting Common
Stock (each a "DFI Nonvoting Option") will be assumed by Newco and will
constitute an option to acquire, on substantially the same terms and conditions
as were applicable under such DFI Option immediately prior to the Effective
Time, a number of shares of Newco Nonvoting Common Stock equal to the product of
102.4968 and the number of shares of DFI Nonvoting Common Stock subject to such
DFI Nonvoting Option immediately prior to the Effective Time, at a price per
share equal to the aggregate exercise price for the shares of DFI Nonvoting
Common Stock subject to such DFI Nonvoting Option divided by the number of full
shares of Newco Nonvoting Common Stock deemed to be purchasable pursuant to such
DFI Nonvoting Option, rounded to the nearest cent; provided, however, that (i)
subject to the provisions of clause (ii) below, Newco will not issue any
fractional shares of Newco Nonvoting Common Stock upon any exercise of any DFI
Nonvoting Option, and any right in respect thereof will, without further action,
be forfeited and (ii) and in the case of any DFI Nonvoting Option to which
Section 421 of the Code applies by reason of its qualification under Section 422
or Section 423 of the Code, the option price, the number of shares purchasable
pursuant to such DFI Nonvoting Option and the terms and conditions of exercise
of such DFI Nonvoting Option shall be determined in order to comply with Section
424 of the Code. DFI Voting Options and DFI Nonvoting Options are sometimes
referred collectively as the "DFI Options." SCHEDULE 4.3(b) is a true and
---------------
complete list of persons who hold DFI Voting Options and DFI Nonvoting Options,
the number of shares of DFI Voting Common Stock and/or DFI Nonvoting Common
Stock purchasable upon the exercise thereof and the exercise prices thereof.
After the Effective Time, Newco will issue to each holder of an outstanding DFI
Option a document evidencing the foregoing agreement.
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1.5. CONVERSION OF AERONOMICS OPTIONS. Each outstanding stock option of
Aeronomics, whether exercisable or unexercisable, to purchase shares of
Aeronomics Nonvoting Common Stock (each an "Aeronomics Option") will be assumed
by Newco and will constitute an option to acquire, on substantially the same
terms and conditions as were applicable under such Aeronomics Option immediately
prior to the Effective Time, a number of shares of Newco Nonvoting Common Stock
equal to the product of 1.8605 and the number of shares of Aeronomics Nonvoting
Common Stock subject to such Aeronomics Option immediately prior to the
Effective Time, at a price per share equal to the aggregate exercise price for
the shares of Aeronomics Nonvoting Common Stock subject to such Aeronomics
Option divided by the number of full shares of Newco Nonvoting Common Stock
deemed to be purchasable pursuant to such Aeronomics Option, rounded to the
nearest cent; provided, however, that (i) subject to the provisions of clause
(ii) below, Newco will not issue any fractional shares of Newco Nonvoting Common
Stock upon any exercise of any Aeronomics Option, and any right in respect
thereof will, without further action, be forfeited and (ii) and in the case of
any Aeronomics Option to which Section 421 of the Code applies by reason of its
qualification under Section 422 or Section 423 of the Code, the option price,
the number of shares purchasable pursuant to such Aeronomics Option and the
terms and conditions of exercise of such Aeronomics Option shall be determined
in order to comply with Section 424 of the Code. SCHEDULE 3.2(b) is a true and
---------------
complete list of persons who hold Aeronomics Options, the number of shares of
Aeronomics Common Stock purchasable upon the exercise thereof and the exercise
prices thereof. After the Effective Time, Newco will issue to each holder of an
outstanding Aeronomics Option a document evidencing the foregoing agreement.
1.6. CONVERSION RATE. The parties hereto acknowledge that the respective
conversion rates set forth in SECTIONS 1.2, 1.3, 1.4 and 1.5 were determined
based on the number of Aeronomics Shares, Aeronomics Options, DFI Shares and DFI
Options outstanding as April 15, 1997. The parties agree that in the event that
the number of Aeronomics Shares or Aeronomics Options outstanding changes prior
to the Effective Time or if the number of DFI Shares or DFI Options outstanding
changes prior to the Effective Time, then the parties will negotiate in good
faith to adjust the respective conversion rates in a proportional manner. In
addition, the parties agree that such conversion rates will be adjusted to
reflect further accretion of the value of the Aeronomics Preferred Stock from
April 15, 1997 until the Closing Date.
1.7. TAX-FREE REORGANIZATION. The DFI Merger and the Aeronomics Merger are
each intended to be a reorganization within the meaning of Section 368 of the
Code, and this Agreement is intended to be a "plan of reorganization" within the
meaning of the regulations promulgated under Section 368 of the Code.
2. CLOSING.
(a) Subject to the terms and provisions of this Agreement, the closing of
the transactions contemplated by this Agreement (the "Closing") shall take place
no later than September 30, 1997 at such place, date or time as the parties may
agree. The date on which the Closing occurs is sometimes referred to as the
"Closing Date".
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<PAGE>
(b) Immediately following the Closing, Newco and DFI (i) shall execute and
deliver the Merger Agreement to the Secretary of State of the State of
California, and (ii) shall execute and deliver the DFI Delaware Certificate to
the Secretary of State of the State of Delaware in accordance with the DGCL.
Immediately following the Closing, Newco and Aeronomics shall execute and
deliver the Aeronomics Delaware Certificate to the Secretary of State of the
State of Delaware in accordance with the DGCL. The parties shall take such
other and further action as may be required by law to make the Mergers
effective.
3. REPRESENTATIONS AND WARRANTIES OF AERONOMICS. Aeronomics hereby represents
and warrants to the other parties hereto as follows:
3.1. ORGANIZATION AND QUALIFICATION. Aeronomics is duly organized and
validly existing as a corporation in good standing under the laws of Delaware,
with the corporate power to own, lease and operate its properties and assets and
to carry on its business in the manner in which such business is now being
conducted. Aeronomics is duly qualified as a foreign corporation to do business,
and is in good standing, in the State of Georgia and in each other jurisdiction
where the character of its properties owned or leased or the nature of its
activities make such qualification necessary, except where the failure to be so
qualified would not have an AI Material Adverse Effect (as hereinafter defined).
True and complete copies of the Certificate of Incorporation, or other charter
documents, and Bylaws of Aeronomics in effect on the date hereof have been
delivered to the other parties hereto. Other than as set forth in SCHEDULE 3.1,
------------
Aeronomics does not own or hold directly or indirectly, any debt or equity
securities of, or have any interest in, any corporation, partnership, joint
venture or other entity. As used in this Agreement, "AI Material Adverse Effect"
means any change in or effect that is or is reasonably likely to be materially
adverse to the business, operations, properties, condition (financial or
otherwise), assets, liabilities or prospects of Aeronomics.
3.2. AUTHORIZATION OF AGREEMENT.
(a) Aeronomics has full corporate power and authority to execute and
deliver this Agreement and, subject to the stockholder approval requirements of
the DGCL, to consummate the Aeronomics Merger. Other than the approval by the
Aeronomics' stockholders in accordance with the requirements of the DGCL, the
execution, delivery and performance of this Agreement and the consummation of
the Aeronomics Merger have been duly and validly authorized by all necessary
action, corporate or otherwise, on the part of Aeronomics.
(b) This Agreement and all other agreements herein contemplated to be
executed in connection herewith by Aeronomics have been (or upon execution will
have been) duly executed and delivered by or for the benefit of Aeronomics, and
constitute binding obligations, enforceable against Aeronomics in accordance
with their respective terms. Aeronomics is not, and immediately prior to the
Effective Time, Aeronomics will not be, a party to, subject to or bound by any
provision of the Certificate of Incorporation or Bylaws of Aeronomics, or any
agreement or judgment, order, writ, prohibition, injunction or decree of any
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<PAGE>
court or other governmental body that would prevent the execution and delivery
of this Agreement or the consummation of the Mergers.
3.3. CAPITALIZATION.
(a) SCHEDULE 3.3(a) attached hereto sets forth the authorized
---------------
capitalization of Aeronomics, the number of shares outstanding and the names of,
and the number of shares of each class of capital stock owned by, each of the
stockholders of record as of the date hereof. No person or entity, other than
as shown on such SCHEDULE 3.3(a), owns of record any of the outstanding shares
---------------
of capital stock of Aeronomics. At the Effective Time all of the outstanding
shares of capital stock of Aeronomics will be as set forth in SCHEDULE 3.3(a)
---------------
hereto, which will comprise all of the issued and outstanding capital stock of
Aeronomics. The outstanding shares of capital stock of Aeronomics as set forth
on SCHEDULE 3.3(a) are sometimes referred to as the "Aeronomics Shares". All of
---------------
the Aeronomics Shares are and will be duly authorized, validly issued and
outstanding, fully paid and nonassessable. The outstanding Aeronomics Shares
are not subject to and were not issued in violation of any preemptive rights.
Each Aeronomics Share was issued in conformity with applicable law (including
without limitation, all federal and applicable state securities laws), and
neither any party to whom such Aeronomics Shares were issued nor any person
claiming through any such party has any claim against Aeronomics in respect of
any such issuance. Except as set forth on SCHEDULE 3.3(a), there are (i) no
---------------
voting trusts or other agreements or understandings to which Aeronomics is a
party with respect to the voting of the capital stock of Aeronomics, and (ii) no
parties having the right to require Aeronomics to register any of its securities
under the Securities Act of 1933, as amended.
(b) SCHEDULE 3.3(b) attached hereto sets forth the name of each
---------------
holder of an outstanding Aeronomics Option and, with respect to each such
option, the original grant date of such option, the expiration date of such
option, the number of shares originally purchasable upon exercise of such
option, the number of shares which remain subject to such option, separately
identifying the number of shares with respect to which such option is currently
exercisable and the number of shares with respect to which such option has not
yet vested, and the exercise price payable under such option. The Mergers will
not result in the automatic vesting of, or the acceleration of the vesting
schedule of, any Aeronomics Option. Except as set forth in SCHEDULE 3.3(b),
---------------
there are no outstanding subscriptions, options, rights, warrants, convertible
securities or other agreements or commitments obligating Aeronomics to issue or
to transfer from the treasury any additional shares of capital stock or any
securities convertible into, or exchangeable or exercisable for, or otherwise
evidencing a right to acquire, any shares of capital stock of Aeronomics, and no
unissued shares of stock are subject to any preemptive rights. Except as
provided in the Certificate of Incorporation of Aeronomics as to the redemption
of the Convertible Preferred Stock of Aeronomics, there are no outstanding
contractual obligations of Aeronomics to repurchase, redeem or otherwise acquire
any outstanding shares of capital stock of or other ownership interest in
Aeronomics.
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<PAGE>
3.4. FINANCIAL CONDITION.
(a) Aeronomics has furnished to each of the other parties hereto: (a)
balance sheets as of December 31, 1994, 1995 and 1996, and the statements of
operations, statements of cash flows and statements of stockholders' equity for
the years ended December 31, 1995 and 1996 (collectively the "AI Audited
Financial Statements"), all as audited by KPMG Peat Marwick LLP (the "AI
Auditors"); and (b) unaudited balance sheet as of March 31, 1997 and unaudited
statement of operations for the three months ended March 31, 1997 (the "AI
Unaudited Financial Statements"). The AI Audited Financial Statements and AI
Unaudited Financial Statements are referred to collectively as the "AI Financial
Statements."
(b) The AI Financial Statements: (i) have been prepared in accordance
with the books and records of Aeronomics; (ii) have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods covered and subject to, in the case of the AI Unaudited Financial
Statements, normal year-end audit adjustments relating to income taxes that may
result from the audit of such AI Unaudited Financial Statements by the AI
Auditors, and except for the absence of detailed notes customary for financial
statements; (iii) reflect and provide adequate reserves and disclosures with
respect to all liabilities of Aeronomics, including all contingent liabilities,
as of their respective dates to the extent required by generally accepted
accounting principles; and (iv) present fairly the financial position and
results of operations of Aeronomics at and for the fiscal periods ended on such
dates (subject to, in the case of the AI Unaudited Financial Statements, normal
year-end audit adjustments that may result from the audit of such AI Unaudited
Financial Statements by the AI Auditors).
(c) Except for the transactions at the Closing specifically provided
for in this Agreement and except as set forth on SCHEDULE 3.4(C), since the date
---------------
of the AI Unaudited Financial Statements, there has not been:
(i) any declaration, setting aside for, or payment of, a
dividend or any distribution of assets of any kind whatsoever by Aeronomics,
including any distribution in redemption of, or as the purchase price for, any
capital stock, or in discharge or cancellation, in whole or in part, of any
indebtedness, whether in payment of principal, interest or otherwise, owing to
its stockholders;
(ii) any increase in the salary or other compensation payable
or to become payable to any officer, director or employee, or the declaration,
payment, commitment or obligation of any kind for the payment of a bonus or
other additional salary compensation or benefit, other than normal cost-of-
living and normal merit increases totaling not more than 10% per annum in the
ordinary course of business consistent with past practice to employees earning
less than $100,000 per annum;
(iii) any entry into any agreement, commitment or transaction by
Aeronomics not in the ordinary and usual course of business;
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<PAGE>
(iv) any AI Material Adverse Effect;
(v) any damage, destruction or loss, but for the application
of insurance proceeds, having an AI Material Adverse Effect;
(vi) any material alteration in the manner in which Aeronomics
keeps its books, accounts or records or in the accounting methods, principles or
practices therein reflected;
(vii) except for borrowings in the ordinary and usual course of
business consistent with past practices, the incurrence or issuance of any
indebtedness for borrowed money or any commitment to borrow money or any
guaranty, direct or indirect, of indebtedness of others, or any prepayment of
long-term debt;
(viii) a termination or, to the knowledge of Aeronomics, a
threatened termination, or a substantial modification of the relationship of
Aeronomics with a customer or supplier or the occurrence of any event affecting
any product or process used by Aeronomics having, in any such case or in the
aggregate, an AI Material Adverse Effect;
(ix) any acquisition or lease of or commitment to acquire or
lease any realty, or any item of personal property in excess of $50,000;
(x) any sale, assignment or other disposition of any assets of
Aeronomics other than in the ordinary course of business and except for sales,
assignments or other dispositions not exceeding $25,000 in the aggregate;
(xi) an issuance of any shares of its capital stock (other than
upon exercise of the Aeronomics Options);
(xii) any change in the Certificate of Incorporation or other
charter document or in the Bylaws or other governing documents of Aeronomics, or
in the authorized, issued or outstanding capital stock of Aeronomics; or
(xiii) any change in the operations, business or manner of
conducting the business of Aeronomics, other than changes in the ordinary and
usual course of business consistent with past practice, none of which would
constitute an AI Material Adverse Effect.
(d) The accounts receivable of Aeronomics existing on the date of the
AI Unaudited Financial Statements arose, and those existing on the Closing Date
will have arisen, out of sales in the ordinary course of business and represent
bona fide indebtedness of the applicable account debtor.
3.5. NO UNDISCLOSED LIABILITIES. Except as and to the extent disclosed in
SCHEDULE 3.5 and except:
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(a) as and to the extent specifically reflected or reserved against
in the AI Unaudited Financial Statements at the date thereof; or
(b) obligations incurred after the date of the AI Unaudited Financial
Statements, in the ordinary and usual course of business in amounts and on terms
consistent, in the aggregate, with past practice;
Aeronomics has no Liability, except for such Liabilities that would not in the
aggregate have an AI Material Adverse Effect. "Liability" means any liability
or obligation of any nature, whether direct, indirect, absolute, accrued,
contingent or otherwise, and whether due or to become due (including, without
limitation, any liability for Taxes and interest, penalties and other charges
payable with respect to any such liability or obligation).
3.6. TAX MATTERS. Within the times (including extensions) and in the
manner prescribed by law, Aeronomics has filed all federal, state, local and
foreign returns for Taxes (as defined below) (the "AI Returns") required to be
filed in any jurisdiction (including, without limitation, informational returns)
and such AI Returns are complete, true and correct in all material respects; all
AI Returns filed by Aeronomics complied in all respects with the tax laws, rules
and regulations, as presently interpreted, applicable to such AI Returns;
Aeronomics has not waived or extended any statute of limitations relating to the
assessment of Taxes; and no audit or examination of any AI Returns is currently
in progress or threatened or has occurred in the past. All Taxes required to be
paid pursuant to such AI Returns have been paid on or before their respective
due dates, except for Taxes being contested in good faith through proper
procedures. The provisions for income and other taxes reflected in the balance
sheets included in the AI Financial Statements make adequate provision for all
accrued and unpaid Taxes of Aeronomics, whether or not disputed, and Aeronomics
has made and will continue to make adequate provision for such Taxes on its
books and records until the Effective Time, including any taxes arising from the
transactions contemplated by this Agreement; provided however, no provision has
been made or will be made in the AI Financial Statements for any taxes resulting
from any tax election made by the Surviving Corporation subsequent to the
Effective Time. Aeronomics has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor or other third party. As used in this
Agreement, "Taxes" means taxes, assessments or levies of any nature, including
without limitation income, profit, franchise, sales, use, ad valorem, value
added, severance, net or gross proceeds, payroll, withholding, employment
occupation, property or excise taxes, imposed by any government or
instrumentality, whether federal, state, local, or foreign, together with any
interest thereon and any penalties, additions to tax or additional amounts
applicable thereto.
3.7. LITIGATION.
(a) Aeronomics is not subject to any judgment, award, injunction,
rule, order or decree in which relief is sought involving, affecting or relating
to the ownership, operation or use
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of Aeronomics' assets or the conduct of its business or which would prevent,
delay or make illegal the transactions contemplated by this Agreement.
(b) There are no actions, lawsuits, audits, investigations, claims or
proceedings pending or, to the knowledge of Aeronomics, threatened against,
involving, affecting or relating to Aeronomics or to its ownership, operation or
use of its assets or to the conduct of its business before any court, arbitrator
or federal, state, municipal or other governmental department, board, agency or
instrumentality.
(c) To the knowledge of Aeronomics, there exist no facts to serve as
a reasonable basis for the institution of any action, lawsuit, audit,
investigation, claim or proceeding which would constitute an AI Material Adverse
Effect.
3.8. VIOLATIONS OF LAW.
(a) To the knowledge of Aeronomics, Aeronomics is not in violation of
any provision of any law, decree, order or regulation applicable to Aeronomics
or its business or properties, except for such violations the result of which
would not have an AI Material Adverse Effect. Aeronomics has all material
federal, state, local and foreign licenses, permits and other governmental
authorizations required in the conduct of its business and the operation of its
properties. Other than required blue sky filings and the filing of the
Aeronomics Delaware Certificate, no consent of any governmental agency or body
is required in order to permit the execution, delivery or performance of this
Agreement by Aeronomics, the consummation of the transactions contemplated
hereby or the continuation of the Aeronomics' business and operations by the
Surviving Corporation after the Effective Time. Aeronomics is not a party to
any consent decree issued by any governmental agency, authority or body.
(b) None of Aeronomics, or to the knowledge of Aeronomics, any
stockholder, officer, employee or agent of Aeronomics or any person acting on
their behalf has, directly or indirectly, given or agreed to give any gift or
similar benefit to any customer, supplier, competitor or governmental employee
or official or has engaged in any other practice or received or retained any
such gift or similar benefit, which in any case would subject Aeronomics to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding or that would be grounds for termination or modification of any
material contract, license or other instrument to which Aeronomics is a party.
3.9. PROPERTIES AND ASSETS.
(a) Aeronomics owns or otherwise has the right to use all of the
properties and assets now used in and material to the operation of its business.
Aeronomics owns no real property.
(b) Aeronomics has good and marketable title to, and at the Effective
Time the Surviving Corporation will have good and marketable title to, all of
the assets reflected in the AI Unaudited Financial Statements, including
tangible personal property, except the assets
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disposed of since the date of such AI Unaudited Financial Statements in the
ordinary course of business consistent with past practice, free and clear of all
mortgages, liens, encumbrances, leases, equities, claims, charges, easements,
rights-of-way, covenants, conditions and restrictions, except as set forth in
SCHEDULE 3.9(b), and except for:
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(i) liens, if any, for personal property taxes not
delinquent; and
(ii) mechanics' and other statutory liens securing payment of
not more than $25,000 of indebtedness incurred in the ordinary and usual course
of business subsequent to the date of the AI Unaudited Financial Statements for
services rendered or goods furnished to Aeronomics after that date.
(c) All items of tangible personal property of Aeronomics that are
material to the operation of the business of Aeronomics are in good operating
condition and repair (normal wear and tear excepted), and Aeronomics'
maintenance practices conform in general to those customary in its industry.
(d) All of the buildings, fixtures and other real property
improvements used in Aeronomics' business are adequate for such use.
(e) SCHEDULE 3.9(e) attached hereto contains a description, of all
---------------
real property leased to, in the possession of, or used in the business of,
Aeronomics. True and complete copies of all real property leases have been
delivered by Aeronomics to the other parties hereto.
3.10. PROPRIETARY RIGHTS.
(a) Aeronomics owns, or has the right to use all AI Intellectual
Property (as hereinafter defined) necessary for the operation of Aeronomics'
business as presently conducted, free from claims for infringement or
misappropriation; and after the consummation of the Aeronomics Merger, the
Surviving Corporation will own, or will have the right to use, all AI
Intellectual Property free from all other claims, liens, or encumbrances.
Aeronomics has received no notice of any claims that the AI Intellectual
Property infringes or misappropriates the intellectual property of any third
party. SCHEDULE 3.10(a) (i) contains a complete list of each registration of
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patents, copyrights, trademarks, service marks, trade names, maskworks and other
AI Intellectual Property (collectively "AI Registrations") that have been issued
to Aeronomics with respect to the AI Intellectual Property, (ii) identifies each
pending AI Registration with respect to the AI Intellectual Property, and (iii)
identifies all applications for or AI Registrations regarding AI Intellectual
Property which have been withdrawn, abandoned, or have lapsed or been denied.
For purposes hereof, the term "AI License Agreements" shall refer to all
material license agreements or other written or oral agreements or permission
that Aeronomics has granted to any third party with respect to any of the AI
Intellectual Property (together with any exceptions), and the term "AI Third
Party License Agreements" shall refer to all material items of AI Intellectual
Property that any third party owns and the license, sublicense, agreement or
other permission in connection therewith. Aeronomics has supplied the other
parties hereto with correct and complete copies of all AI License Agreements and
AI Third Party License
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Agreements. Each person who developed or created any portion of the AI Computer
Programs (as defined below) who was not a full-time employee of Aeronomics at
the time such work was performed, has executed a written agreement assigning,
transferring and conveying all right, title and interest in and to such portions
of the AI Computer Programs to Aeronomics. Aeronomics has complied with all AI
License Agreements and AI Third Party License Agreements, and to the knowledge
of Aeronomics, all other parties to such agreements have complied with all
provisions thereof; and no material default or event of default exists under any
of the AI License Agreements or AI Third Party License Agreements.
(b) Except as set forth on SCHEDULE 3.10(b), (i) Aeronomics owns all
----------------
right, title and interest in and to all AI Intellectual Property and the AI
Registrations, (ii) Aeronomics has not received any charge, complaint, claim, or
notice alleging and has no other knowledge regarding the invalidity, abuse,
misuse, or unenforceability of any of such right, title or interest, (iii) to
the knowledge of Aeronomics, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any AI Intellectual
Property, (iv) Aeronomics has not received a notice of conflict with the
asserted rights of others within the last five years, and (v) Aeronomics has not
infringed any such rights of others.
(c) Without limiting any of the foregoing, to the knowledge of
Aeronomics, (a) none of Aeronomics' officers, directors, employees or
independent contractors have disclosed to (without proper obligation of
confidentiality) or otherwise used or utilized on behalf of any person other
than Aeronomics, any AI Intellectual Property.
(d) The AI Computer Programs (as defined below) (a) perform in all
material respects in accordance with all published specifications of Aeronomics
for such AI Computer Programs, (b) comply in all material respects with all
other published documentation, descriptions and literature of Aeronomics with
respect to such AI Computer Programs, and (c) comply in all material respects
with all representations, warranties and other requirements specified in all of
the AI License Agreements.
(e) Each past or present customer of Aeronomics and each past or
present potential customer of Aeronomics to whom Aeronomics disclosed any AI
Intellectual Property is bound by a confidentiality provision which requires
such past, present or potential customer to take reasonable steps to protect the
rights of Aeronomics in the AI Intellectual Property, except for failures that
would not constitute an AI Material Adverse Effect.
(f) "AI Intellectual Property" shall refer to all (i) patents, patent
applications, patent disclosures, all re-issues, divisions, continuations,
renewals, extensions and continuation-in-parts thereof and improvements thereto,
(ii) trademarks, service marks, trade dress, logos, trade names, and corporate
names and registrations and applications for registration thereof and all
goodwill associated therewith, (iii) copyrights and registrations and
applications for registration thereof, (iv) maskworks and registrations and
applications for registration thereof, (v) right, title and interest in all
computer software, data and documentation (including, without limitation,
modifications, enhancements, revisions or versions of or to any of the foregoing
and
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prior releases of any of the foregoing applicable to any operating environment),
(all of the foregoing in this clause (v) is referred to collectively as the "AI
Computer Programs"), (vi) trade secrets and confidential business information
(including ideas, formulas, compositions, inventions, whether patentable or
unpatentable and whether or not reduced to practice, know-how (excluding know-
how unrelated to Aeronomics' business or products), manufacturing and production
processes and techniques, research and development information, software
products in development, drawings, flow charts, processes ideas, specifications,
designs, plans, proposals, technical data, copyrightable works, financial,
marketing, and business data, pricing and cost information, business and
marketing plans, and customer and supplier lists and information), (vii) other
proprietary rights of Aeronomics, and (viii) copies and tangible embodiments of
the foregoing.
3.11. INSURANCE. SCHEDULE 3.11 attached hereto sets forth a summary
-------------
description of insurance coverage covering the business and properties of
Aeronomics, which description includes, among other things, the property covered
and the insurer and the amount and period of coverage. There are no outstanding
requirements or recommendations of any insurance company that issued any policy
of fire or extended coverage insurance covering the properties of Aeronomics or
by any Board of Fire Underwriters or other similar body exercising similar
functions, or by any governmental authority exercising similar functions that
require or recommend any repairs or other work to be done on or with respect to
any of the properties insured in any of said policies. All of such policies of
insurance are on an occurrence basis and will be in full force and effect
immediately after the Effective Time.
3.12. CONTRACTS AND OTHER INSTRUMENTS.
(a) SCHEDULE 3.12(a) sets forth a list of each material contract,
----------------
license agreement, purchase order, lease, license, indenture or commitment,
written or oral including all amendments or modifications thereof, to which
Aeronomics is a party or by which any of its assets are bound, including but not
limited to the following:
(i) Agreements, commitments, notes, indentures or other
instruments relating to the borrowing of money, or the guaranty of security of
any such obligation for the borrowing of money;
(ii) Joint venture or other agreements with any person, firm,
corporation or unincorporated association doing business either within or
outside the United States relating to sharing of present or future commissions,
fees or other income or profits;
(iii) Lease of personal property to Aeronomics involving a
present or future obligation of an amount in excess of $25,000;
(iv) Franchise agreements;
(v) Agreements limiting the freedom of Aeronomics to compete
in any line of business or in any geographic area or with any person;
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(vi) Broker or distributorship contracts;
(vii) Advertising, marketing and promotional agreements
(including, but not limited to, any agreements providing for discounts and/or
rebates), involving a present or future obligation of an amount in excess of
$25,000;
(viii) Agreements that require future expenditures by
Aeronomics in excess of $25,000; or
(ix) Agreements for the provision of products or services by
Aeronomics having a value in excess of $25,000.
The contracts, license agreements, distributor agreements, purchase
orders, leases, licenses, indentures or commitments that are required to be
identified in SCHEDULE 3.12(a) are referred to as the "AI Contracts." True and
----------------
complete copies of each of the AI Contracts, or where they are oral, true and
complete written summaries thereof, have been delivered to the other parties
hereto.
(b) Except as set forth in SCHEDULE 3.12(b) attached hereto, there
----------------
has not occurred any default under any AI Contract on the part of Aeronomics or,
to the knowledge of Aeronomics, on the part of the other parties thereto, and no
event has occurred which with the giving of notice or the lapse of time, or both
would constitute a default under any AI Contract or under which Aeronomics is or
may be bound, except for such defaults or events the result of which would not
have an AI Material Adverse Effect. Except as set forth in SCHEDULE 3.12(b), no
----------------
consent of any party to any AI Contract is required in order to permit the
execution, delivery or performance of this Agreement and the consummation of the
transactions contemplated hereby, nor will the execution, delivery or
performance of this Agreement or the consummation of the Aeronomics Merger,
result in a breach of any of the terms and provisions of, or constitute a
default under, or conflict with, or result in a modification of, or give any
third party the right to terminate, cancel, accelerate or increase the rate of
interest payable under, any liabilities, obligations, rights or benefits under,
any AI Contract.
(c) Set forth in SCHEDULE 3.12(c) attached hereto is a list of (i)
----------------
each outstanding bid or proposal for an AI Contract and a description of and
projected dollar value of each such bid or proposal; and (ii) the aggregate
dollar amount of all outstanding claims against Aeronomics or claims, which, to
the knowledge of Aeronomics, have been threatened against Aeronomics, under each
AI Contract presently or heretofore in effect (including, without limitation,
claims for back charges, rebates, price reductions or settlements or for
breaches of product warranties or for product liability for products
manufactured or sold).
3.13. LABOR AND EMPLOYMENT AGREEMENTS.
(a) SCHEDULE 3.13 attached hereto contains a description of each
-------------
plan, contract or arrangement under which fringe benefits (including, but not
limited to, vacation plans or programs, sick leave plans or programs and related
benefits) are afforded to employees of
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Aeronomics. Aeronomics is not a party to any collective bargaining agreement or
other labor agreement. There are no labor disputes pending or, to the knowledge
of Aeronomics, threatened between Aeronomics and its employees.
(b) Aeronomics has withheld and paid to the appropriate
governmental authorities or is withholding for payment not yet due to such
authorities all amounts required to be withheld from their respective employees
and is not liable for any arrears of wages, taxes, penalties or other sums for
failure to comply with any of the foregoing.
(c) All accrued material obligations of Aeronomics (whether arising
by operation of law, by contract or past custom) for payments by Aeronomics to
trusts or other funds or to any governmental agency with respect to unemployment
compensation benefits, social security benefits or any other benefits for
employees of Aeronomics with respect to employment of those employees have been
paid or adequate accruals therefor have been made in the AI Unaudited Financial
Statements for obligations accrued through the date of such AI Unaudited
Financial Statements, and in the books and records of Aeronomics for obligations
accruing after that date.
(d) All material obligations of Aeronomics (whether arising by
operation of law by contract, by past custom or otherwise) for salaries,
vacation and holiday pay, sick pay, bonuses and other forms of compensation
payable to the officers, directors or other employees of Aeronomics in respect
of the services rendered by any of them have been paid or adequate accruals
therefor have been made in the AI Unaudited Financial Statements for obligations
accrued through the date of such AI Unaudited Financial Statements, and in the
books and records of Aeronomics for obligations accruing thereafter.
(e) To the knowledge of Aeronomics, Aeronomics has complied in all
material respects with all applicable state and federal equal opportunity and
other laws relating to employment.
3.14. EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 3.14(a) lists all plans, programs, and similar
----------------
agreements, commitments or arrangements, whether oral or written, maintained by
or on behalf of Aeronomics or any other party that provide benefits or
compensation to, or for the benefit of, current or former employees of
Aeronomics ("AI Plan" or "AI Plans"). Except as set forth on SCHEDULE 3.14(a)
----------------
only current and former employees of Aeronomics participate in the Plans.
Copies of all AI Plans and, to the extent applicable, all related trust
agreements, actuarial reports, year-end allocation/reconciliation reports,
appraisal actuarial reports, and valuations for the most recent three years, all
summary plan descriptions, prospectuses, Annual Report Form 5500s or similar
forms (and attachments thereto) for the most recent three years, all Internal
Revenue Service determination letters, all promissory notes, guarantees, loan
agreements, contribution agreements and related documents for any loans entered
into by and between Aeronomics and/or any Aeronomics Plan, and any related
documents requested by the other parties hereto, including
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all amendments, modifications and supplements thereto, have been delivered to
such parties, and all of the same are or will be true, correct and complete.
(b) With respect to each AI Plan to the extent applicable: (i) no
litigation or administrative or other proceeding is pending or, to the knowledge
of Aeronomics, threatened involving such AI Plan; (ii) such AI Plan has been
administered and operated in substantial compliance with, and has been amended
to comply with all applicable laws, rules, and regulations, including, without
limitation, the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the Code, and the regulations issued under ERISA and the Code; (iii)
Aeronomics has made and as of the Closing Date will have made or accrued, all
payments and contributions required, or reasonably expected to be required, to
be made under the provisions of such AI Plan or required to be made under
applicable agreements or laws, rules and regulations, with respect to any period
prior to the Closing Date, such amounts to be determined according to such
agreements or using the ongoing actuarial and funding assumptions of the AI
Plan; (iv) such AI Plan is fully funded in an amount sufficient to pay all
liabilities accrued (including liabilities and obligations for health care, life
insurance and other benefits after termination of employment) and claims
incurred to the date hereof, or the AI Unaudited Financial Statements contain
adequate reserves or paid-up insurance has been provided, therefor; (v) on the
Closing Date such AI Plan will be fully funded in an amount sufficient to pay
all liabilities accrued (including liabilities and obligations for health care,
life insurance and other benefits after termination of employment) and claims
incurred to the Closing Date, or adequate reserves will be set up on Aeronomics'
books and records, or paid-up insurance will be provided, therefor; and (vi)
such AI Plan has been administrated and operated only in the ordinary and usual
course and in accordance with its terms, and there has not been in the four
years prior hereto any material increase in the liabilities of such AI Plan
beyond increases typically experienced by employers similar to Aeronomics.
(c) SCHEDULE 3.14(c) lists each AI Plan which is an "employee
----------------
benefit plan" as defined in Section 3(3) of ERISA, including any terminated
employee benefit plans that covers or covered any employee of Aeronomics
("Aeronomics ERISA Plan").
(d) Aeronomics does not participate and has never participated in a
multiemployer plan, as defined in Section 3(37)(A) of ERISA ("Multiemployer
Benefit Plan"). Aeronomics is not required to contribute to any Multiemployer
Benefit Plan maintained by any other person, nor does Aeronomics have any
liability to any such Multiemployer Benefit Plan.
(e) Except as set forth on SCHEDULE 3.14(e), with respect to each
----------------
Aeronomics ERISA Plan, neither such plan, nor any trustee, administrator,
fiduciary, agent or employee thereof, has at any time been involved in a
transaction which would constitute a "prohibited transaction" within the meaning
of Section 406 of ERISA or Section 4975 of the Code, unless such transaction is
specifically permitted under Section 407 or 408 of ERISA, Section 4975 of the
Code or a class or administrative exception issued by the Department of Labor,
nor has any such person been involved in or caused such plan to be involved in a
breach of fiduciary duty under Section 404 of ERISA.
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(f) Of the Aeronomics ERISA Plans, only Aeronomics' 401(k) Profit
Sharing Plan identified in SCHEDULE 3.14(c) (the "AI 401(k) Plan") is an
----------------
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA.
With respect to the AI 401(k) Plan: (i) such AI 401(k) Plan constitutes a
qualified plan within the meaning of Section 401(a) of the Code and the trust
thereunder is exempt from federal income tax under Section 501(a) of the Code;
(ii) all minimum funding standards required by law with respect to the funding
of benefits payable or to be payable under such AI 401(k) Plan have been met;
(iii) there is no "accumulated funding deficiency" within the meaning of Code
Section 412 under such AI 401(k) Plan; (iv) no reportable event as described in
Section 4043 of ERISA has occurred, or is continuing, with respect to such AI
401(k) Plan, and Aeronomics has not incurred any liability to the Pension
Benefit Guaranty Corporation; ; and (v) the AI 401(k) Plan is a defined
contribution plan and is funded in an amount equal to the participants' account
balances, whether or not vested.
(g) Aeronomics does not now have, and has never had, a plan that
covers, or is intended primarily to cover, only employees who are located in a
country other than the United States.
(h) Neither Aeronomics nor any of the AI Plans has any obligation
to provide, or liability for, health care, life insurance or other benefits
after termination of employment ("Post-employment Benefits"), except for
retirement benefits and except as required by Section 601 of ERISA and Section
4980B of the Code. With respect to (i) all persons terminated or retired on the
Closing Date, and (ii) active employees and other participants and
beneficiaries, to the extent Post-employment Benefits (other than qualified
retirement plan benefits under the AI 401(k) Plan) have been, or are reasonably
expected to be, earned by service to the Closing Date, paid-up insurance or plan
funding will be provided, or the books and records of Aeronomics will contain
adequate reserves in an amount not less than the present value of all such
benefits, determined as though all such Post-employment Benefits were fully
vested and nonforfeitable and assuming the continuation of all such Plans, using
actuarial methods and assumptions which are reasonable individually and in the
aggregate.
3.15. OFFICERS, DIRECTORS AND EMPLOYEES.
(a) SCHEDULE 3.15(a) attached hereto sets forth a true and complete
----------------
list of the names of, the offices held by, and the compensation paid to, the
officers, directors and employees of Aeronomics as of December 31, 1996.
(b) Except as set forth on SCHEDULE 3.15(b), Aeronomics has no
----------------
financial obligation and is not otherwise indebted to any person who is an
officer, director, stockholder or employee of Aeronomics, or to any spouse,
child or relative of any such person or to any entity controlled directly or
indirectly by such person, in any amount whatsoever other than for compensation
for services rendered since the start of the current pay period of Aeronomics
generally utilized by its employees and for business expenses, nor is any
director or stockholder
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of Aeronomics, or any spouse, child or other relative of such person, indebted
to Aeronomics except for reimbursement of advances made in the ordinary course
of business.
3.16. AGREEMENT NOT IN BREACH OF CERTAIN INSTRUMENTS. Neither the
execution and delivery of this Agreement nor the consummation of the Mergers
will violate or conflict with, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a benefit under, any
provision of the Certificate of Incorporation or Bylaws of Aeronomics or result
in a breach of any of the terms and provisions of, or constitute a violation or
default (or an event that with notice or lapse of time, or both, would
constitute a default), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under, or conflict with, (a)
any AI Contract, (b) any judgment, decree, order or award of any court,
governmental body or arbitrator to which Aeronomics is a party, or (c) any law,
rule or regulation applicable to Aeronomics.
3.17. REGULATORY APPROVALS. Other than the filing of the Aeronomics
Certificate and any required blue sky filings, no consent, declaration, filing
or approval or authorization of, or registration with, any federal, state,
municipal or local governmental or regulatory authority or any other person is
required in connection with the execution and delivery of this Agreement or the
consummation of the Aeronomics Merger.
3.18. BROKERAGE. Aeronomics has not dealt with any finder, broker,
investment banker or financial advisor in connection with any of the
transactions contemplated by this Agreement or the negotiations looking toward
the consummation of such transactions which might as a result reasonably give
rise to the obligation to pay a fee, commission or other compensation, therefor.
3.19. BANK ACCOUNTS. SCHEDULE 3.19 attached hereto contains an accurate
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and complete list of: (a) the names and addresses of each bank in which
Aeronomics has an account; (b) the account number of such accounts; and (c) the
authorized signatories for such accounts.
3.20. ENVIRONMENTAL MATTERS. To the knowledge of Aeronomics, Aeronomics is
in compliance in all material respects with all statutes, regulations and
ordinances relating to the protection of human health and the environment
including, without limitation, the Clean Water Act, 33 U.S.C. (S)1251 et seq.,
------
the Resource Conservation and Recovery Act, 42 U.S.C. (S)6901 et seq., the Clean
------
Air Act, 42 U.S.C. (S)7401 et seq., the Toxic Substances Control Act, 15 U.S.C.
------
(S)2601 et seq., the Emergency Planning and Community Right-to-Know Act, 42
------
U.S.C. (S)1001 et seq., the regulations developed pursuant to these statutes and
------
the corresponding state and local statutes, ordinances and regulations. There
has been no release by Aeronomics or, to the knowledge of Aeronomics, by any
other person of a hazardous substance as that term is defined in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. (S)9601(14), into the environment at any property owned or leased by
Aeronomics (the "AI Premises") including, without limitation, any such release
in the soil or groundwater underlying the AI Premises. To the knowledge of
Aeronomics, there is no asbestos, polychlorinated biphenyls or
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underground storage tanks located on the AI Premises and there have been no
releases of asbestos, polychlorinated biphenyls or materials stored in
underground storage tanks, including, without limitation, petroleum or
petroleum-based materials. Aeronomics has not received notice of any violation
of any environmental statute or regulation nor has it been advised of any claim
or liability pursuant to any environmental statute or regulation brought by any
governmental agency or private party (in each case, an "Environmental Notice") .
3.21. EMPLOYEE CONFIDENTIALITY AGREEMENTS. Each director and officer and
each technical and management employee of Aeronomics has signed a
confidentiality and proprietary rights agreement with Aeronomics containing
provisions customary for companies in its industry, including without limitation
provisions prohibiting each such person from disclosing or using any proprietary
information of Aeronomics for any purpose other than the performance of such
person's duties to Aeronomics. Such agreements are legal, valid and binding
obligations of Aeronomics and its employees, officers and directors and are
enforceable in accordance with their respective terms, except as limited by
bankruptcy and other laws of general application affecting the rights and
remedies of creditors generally and except insofar as the availability of
equitable remedies may be limited.
3.22. U.S. REAL PROPERTY HOLDING COMPANY. Aeronomics is not a "real
property holding company" within the meaning of Section 897(c)(2) of the U.S.
Internal Revenue Code of 1986, as amended, and the Treasury Regulations
thereunder.
3.23. REGISTRATION STATEMENT; JOINT PROXY STATEMENT. The Registration
Statement (as hereinafter defined) shall not, at the time the Registration
Statement is filed with the SEC and at the time it 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 not misleading. The Joint Proxy Statement (as hereinafter
defined) to be sent to the shareholders of DFI and the shareholders of
Aeronomics in connection with the meetings of the shareholders of each
respective company to consider the Mergers (each a "Shareholders' Meeting" and
collectively, the "Shareholders' Meetings") shall not, on the date the Proxy
Statement is first mailed to the DFI shareholders, the date the Joint Proxy
Statement is first mailed to the Aeronomics shareholders, at the time of each
Shareholders' Meeting and at 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 light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for either
Shareholders' Meeting which has become false or misleading. The Registration
Statement will comply as to form in all material respects with the applicable
provisions of the Securities Act and the rules and regulations thereunder. If at
any time prior to the Effective Time any event relating to Aeronomics or any of
its affiliates, officers or directors should be discovered by Aeronomics which
should be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement, Aeronomics shall promptly inform DFI
and Newco. Notwithstanding the foregoing, Aeronomics makes no representation or
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warranty with respect to any information supplied by or concerning DFI which is
contained in any of the foregoing documents.
3.24. DISCLOSURE. Except as contemplated by or disclosed in this
Agreement, there is no fact or circumstance within the knowledge of Aeronomics
that would constitute an AI Material Adverse Effect. None of the statements or
information contained in any of the representations, warranties or covenants of
Aeronomics set forth in this Agreement (including the schedules and other
certificates, agreements or other documents to be furnished hereunder) contains
or will contain any misstatement of a material fact or omission to state a
material fact necessary to make the statements contained herein or therein not
misleading. Notwithstanding anything contained herein to the contrary,
Aeronomics may at any time prior to the Closing update or amend any
representation or schedule relating thereto that becomes untrue or incorrect as
the result of events occurring following the date of this Agreement (an "AI
Updated Representation").
4. REPRESENTATIONS AND WARRANTIES OF DFI. DFI represents and warrants to the
other parties hereto as follows:
4.1 ORGANIZATION AND QUALIFICATION. DFI is duly organized and validly
existing as a corporation in good standing under the laws of California, with
the corporate power to own, lease and operate its properties and assets and to
carry on its business in the manner in which such business is now being
conducted. DFI is duly qualified as a foreign corporation to do business, and is
in good standing, in each jurisdiction where the character of its properties
owned or leased or the nature of its activities make such qualification
necessary, except where the failure to be so qualified would not have a DFI
Material Adverse Effect. True and complete copies of the Articles of
Incorporation, or other charter documents, and Bylaws of DFI in effect on the
date hereof have been delivered to the other parties hereto. Other than as set
forth in SCHEDULE 4.1, DFI does not own or hold directly or indirectly, any debt
------------
or equity securities of, or have any interest in, any corporation, partnership,
joint venture or other entity. As used in this Agreement, "DFI Material Adverse
Effect" means any change in or effect that is or is reasonably likely to be
materially adverse to the business, operations, properties, condition (financial
or otherwise), assets, liabilities or prospects of DFI.
4.2. AUTHORIZATION OF AGREEMENT.
(a) DFI has full corporate power and authority to execute and
deliver this Agreement and, subject to the shareholder approval requirements of
the CCC, to consummate the DFI Merger. Other than the approval by DFI's
shareholders in accordance with the requirements of the CCC, the execution,
delivery and performance of this Agreement and the consummation of the DFI
Merger have been duly and validly authorized by all necessary action, corporate
or otherwise, on the part of DFI.
(b) This Agreement and all other agreements herein contemplated to
be executed in connection herewith by DFI have been (or upon execution will have
been) duly executed and delivered by or for the benefit of DFI, and constitute
binding obligations,
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enforceable against DFI in accordance with their respective terms. DFI is not,
and immediately prior to the Effective Time, DFI will not be, a party to,
subject to or bound by any provision of the Certificate of Incorporation or
Bylaws of DFI, or any agreement or judgment, order, writ, prohibition,
injunction or decree of any court or other governmental body that would prevent
the execution and delivery of this Agreement or the consummation of the Mergers.
4.3 CAPITALIZATION.
(a) SCHEDULE 4.3(a) attached hereto sets forth the authorized
---------------
capitalization of DFI, the number of shares outstanding and the names of, and
the number of shares of each class of capital stock owned by, each of the
shareholders of record as of the date hereof. No person or entity, other than
as shown on such SCHEDULE 4.3(a), owns of record any of the outstanding shares
---------------
of capital stock of DFI. At the Effective Time all of the outstanding shares of
capital stock of DFI will be as set forth in SCHEDULE 4.3(a) hereto, which will
---------------
comprise all of the issued and outstanding capital stock of DFI. The
outstanding shares of capital stock of DFI as set forth on SCHEDULE 4.3(a) are
---------------
sometimes referred to as the "DFI Shares". All of the DFI Shares are and will
be duly authorized, validly issued and outstanding, fully paid and
nonassessable. The outstanding DFI Shares are not subject to and were not
issued in violation of any preemptive rights. Each DFI Share was issued in
conformity with applicable law (including without limitation, all federal and
applicable state securities laws), and neither any party to whom such DFI Shares
were issued nor any person claiming through any such party has any claim against
DFI in respect of any such issuance. Except as set forth on SCHEDULE 4.3(a),
---------------
there are (i) no voting trusts or other agreements or understandings to which
DFI is a party with respect to the voting of the capital stock of DFI, and (ii)
no parties having the right to require DFI to register any of its securities
under the Securities Act of 1933, as amended.
(b) SCHEDULE 4.3(b) attached hereto sets forth the name of each
---------------
holder of an outstanding DFI Option and, with respect to each such option, the
original grant date of such option, the expiration date of such option, the
number of shares originally purchasable upon exercise of such option, the number
of shares which remain subject to such option, separately identifying the number
of shares with respect to which such option is currently exercisable and the
number of shares with respect to which such option has not yet vested, and the
exercise price payable under such option. The Mergers shall not result in the
automatic vesting of, or the acceleration of the vesting schedule of, any DFI
Options. Except as set forth in SCHEDULE 4.3(b), there are no outstanding
---------------
subscriptions, options, rights, warrants, convertible securities or other
agreements or commitments obligating DFI to issue any additional shares of
capital stock or any securities convertible into, or exchangeable or exercisable
for, or otherwise evidencing a right to acquire, any shares of capital stock of
DFI, and no unissued shares of stock are subject to any preemptive rights.
Except as set forth in SCHEDULE 4.3(b), there are no outstanding contractual
---------------
obligations of DFI to repurchase, redeem or otherwise acquire any outstanding
shares of capital stock of or other ownership interest in DFI.
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4.4. FINANCIAL CONDITION.
(a) DFI has furnished to each of the other parties hereto: (a)
balance sheets as of December 31, 1994, 1995 and 1996, and the statements of
operations, statements of cash flows and statements of shareholders' equity for
the years ended December 31, 1994, 1995 and 1996 (collectively the "DFI Audited
Financial Statements"), all as audited by Shilling & Kenyon, Inc. (the "DFI
Auditors"); and (b) unaudited balance sheet as of March 31, 1997 and unaudited
statement of operations for the three months ended March 31, 1997 (the "DFI
Unaudited Financial Statements"). The DFI Audited Financial Statements and DFI
Unaudited Financial Statements are referred to collectively as the "DFI
Financial Statements."
(b) The DFI Financial Statements: (i) have been prepared in
accordance with the books and records of DFI; (ii) have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods covered and subject to, in the case of the DFI Unaudited
Financial Statements, normal year-end audit adjustments relating to income taxes
that may result from the audit of such DFI Unaudited Financial Statements by the
DFI Auditors, and except for the absence of detailed notes customary for
financial statements; (iii) reflect and provide adequate reserves and
disclosures with respect to all liabilities of DFI, including all contingent
liabilities, as of their respective dates to the extent required by generally
accepted accounting principles; and (iv) present fairly the financial position
and results of operations of DFI at and for the fiscal periods ended on such
dates (subject to, in the case of the DFI Unaudited Financial Statements, normal
year-end audit adjustments that may result from the audit of such DFI Unaudited
Financial Statements by the DFI Auditors).
(c) Except for the transactions at the Closing specifically
provided for in this Agreement and except as set forth in SCHEDULE 4.3(c), since
---------------
the date of the DFI Unaudited Financial Statements, there has not been:
(i) any declaration, setting aside for, or payment of, a
dividend or any distribution of assets of any kind whatsoever by DFI, including
any distribution in redemption of, or as the purchase price for, any capital
stock, or in discharge or cancellation, in whole or in part, of any
indebtedness, whether in payment of principal, interest or otherwise, owing to
its stockholders;
(ii) any increase in the salary or other compensation
payable or to become payable to any officer, director or employee, or the
declaration, payment, commitment or obligation of any kind for the payment of a
bonus or other additional salary compensation or benefit, other than normal
cost-of-living and normal merit increases totaling not more than 10% per annum
in the ordinary course of business consistent with past practice to employees
earning less than $100,000 per annum;
(iii) any entry into any agreement, commitment or
transaction by DFI not in the ordinary and usual course of business;
(iv) any DFI Material Adverse Effect;
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(v) any damage, destruction or loss, but for the
application of insurance proceeds, having a DFI Material Adverse Effect;
(vi) any material alteration in the manner in which DFI
keeps its books, accounts or records or in the accounting methods, principles or
practices therein reflected;
(vii) except for borrowings in the ordinary and usual
course of business consistent with past practices, the incurrence or issuance of
any indebtedness for borrowed money or any commitment to borrow money or any
guaranty, direct or indirect, of indebtedness of others, or any prepayment of
long-term debt;
(viii) a termination or, to the knowledge of DFI, a
threatened termination, or a substantial modification of the relationship of DFI
with a customer or supplier or the occurrence of any event affecting any product
or process used by DFI having, in any such case or in the aggregate, a DFI
Material Adverse Effect;
(ix) any acquisition or lease of or commitment to acquire
or lease any realty, or any item of personal property in excess of $50,000;
(x) any sale, assignment or other disposition of any
assets of DFI other than in the ordinary course of business and except for
sales, assignments or other dispositions not exceeding $25,000 in the aggregate;
(xi) an issuance of any shares of its capital stock (other
than upon exercise of the DFI Options);
(xii) any change in the Certificate of Incorporation or
other charter document or in the Bylaws or other governing documents of DFI, or
in the authorized, issued or outstanding capital stock of DFI; or
(xiii) any change in the operations, business or manner
of conducting the business of DFI, other than changes in the ordinary and usual
course of business consistent with past practice, none of which would constitute
a DFI Material Adverse Effect.
(d) The accounts receivable of DFI existing on the date of the DFI
Unaudited Financial Statements arose, and those existing on the Closing Date
will have arisen, out of sales in the ordinary course of business and represent
bona fide indebtedness of the applicable account debtor.
4.5. NO UNDISCLOSED LIABILITIES. Except as and to the extent disclosed in
SCHEDULE 4.5 and except:
- ------------
(a) as and to the extent specifically reflected or reserved
against in the DFI Unaudited Financial Statements at the date thereof; or
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(b) obligations incurred after the date of the DFI Unaudited
Financial Statements, in the ordinary and usual course of business in amounts
and on terms consistent, in the aggregate, with past practice;
DFI has no Liability, except for such Liabilities that would not in the
aggregate have a DFI Material Adverse Effect. "Liability" means any liability
or obligation of any nature, whether direct, indirect, absolute, accrued,
contingent or otherwise, and whether due or to become due (including, without
limitation, any liability for Taxes and interest, penalties and other charges
payable with respect to any such liability or obligation).
4.6 TAX MATTERS. Within the times (including extensions) and in the
manner prescribed by law, DFI has filed all federal, state, local and foreign
returns for Taxes (as defined below) (the "DFI Returns") required to be filed in
any jurisdiction (including, without limitation, informational returns) and such
DFI Returns are complete, true and correct in all material respects; all DFI
Returns filed by DFI complied in all respects with the tax laws, rules and
regulations, as presently interpreted, applicable to such DFI Returns; DFI has
not waived or extended any statute of limitations relating to the assessment of
Taxes; and, except as set forth in SCHEDULE 4.6, no audit or examination of any
------------
DFI Returns is currently in progress or threatened or has occurred in the past.
All Taxes required to be paid pursuant to such DFI Returns have been paid on or
before their respective due dates, except for Taxes being contested in good
faith through proper procedures. The provisions for income and other taxes
reflected in the balance sheets included in the DFI Financial Statements make
adequate provision for all accrued and unpaid Taxes of DFI, whether or not
disputed, and DFI has made and will continue to make adequate provision for such
Taxes on its books and records until the Effective Time, including any taxes
arising from the transactions contemplated by this Agreement; provided however,
no provision has been made or will be made in the DFI Financial Statements for
any taxes resulting from any tax election made by the Surviving Corporation
subsequent to the Effective Time. DFI has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor or other third party.
4.7. LITIGATION.
(a) DFI is not subject to any judgment, award, injunction, rule,
order or decree in which relief is sought involving, affecting or relating to
the ownership, operation or use of DFI's assets or the conduct of its business
or which would prevent, delay or make illegal the transactions contemplated by
this Agreement.
(b) There are no actions, lawsuits, audits, investigations, claims
or proceedings pending or, to the knowledge of DFI, threatened against,
involving, affecting or relating to DFI or to its ownership, operation or use of
its assets or to the conduct of its business before any court, arbitrator or
federal, state, municipal or other governmental department, board, agency or
instrumentality.
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<PAGE>
(c) To the knowledge of DFI, there exist no facts to serve as a
reasonable basis for the institution of any action, lawsuit, audit,
investigation, claim or proceeding which would constitute a DFI Material Adverse
Effect.
4.8. VIOLATIONS OF LAW.
(a) To the knowledge of DFI, DFI is not in violation of any
provision of any law, decree, order or regulation applicable to DFI or its
business or properties, except for such violations the result of which would not
have a DFI Material Adverse Effect. DFI has all material federal, state, local
and foreign licenses, permits and other governmental authorizations required in
the conduct of its business and the operation of its properties. Other than
required blue sky filings and the filing of the DFI Delaware Certificate, no
consent of any governmental agency or body is required in order to permit the
execution, delivery or performance of this Agreement by DFI, the consummation of
the transactions contemplated hereby or the continuation of DFI's business and
operations by the Surviving Corporation after the Effective Time. DFI is not a
party to any consent decree issued by any governmental agency, authority or
body.
(b) None of DFI, or to the knowledge of DFI, any shareholder,
officer, employee or agent of DFI or any person acting on their behalf has,
directly or indirectly, given or agreed to give any gift or similar benefit to
any customer, supplier, competitor or governmental employee or official or has
engaged in any other practice or received or retained any such gift or similar
benefit, which in any case would subject DFI to any damage or penalty in any
civil, criminal or governmental litigation or proceeding or that would be
grounds for termination or modification of any material contract, license or
other instrument to which DFI is a party.
4.9. PROPERTIES AND ASSETS.
(a) DFI owns or otherwise has the right to use all of the
properties and assets now used in and material to the operation of its business.
DFI owns no real property.
(b) DFI has good and marketable title to, and at the Effective
Time the Surviving Corporation will have good and marketable title to, all of
the assets reflected in the DFI Unaudited Financial Statements, including
tangible personal property, except the assets disposed of since the date of such
DFI Unaudited Financial Statements in the ordinary course of business consistent
with past practice, free and clear of all mortgages, liens, encumbrances,
leases, equities, claims, charges, easements, rights-of-way, covenants,
conditions and restrictions, except as set forth in SCHEDULE 4.9(B), and except
---------------
for:
(i) liens, if any, for personal property taxes not
delinquent; and
(ii) mechanics' and other statutory liens securing payment of
not more than $25,000 of indebtedness incurred in the ordinary and usual course
of business subsequent to the date of the DFI Unaudited Financial Statements for
services rendered or goods furnished to DFI after that date.
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<PAGE>
(c) All items of tangible personal property of DFI that are
material to the operation of the business of DFI are in good operating condition
and repair (normal wear and tear excepted), and DFI's maintenance practices
conform in general to those customary in its industry.
(d) All of the buildings, fixtures and other real property
improvements used in DFI's business are adequate for such use.
(e) SCHEDULE 4.9(E) attached hereto contains a description, of all
---------------
real property leased to, in the possession of, or used in the business of, DFI.
True and complete copies of all real property leases have been delivered by DFI
to the other parties hereto.
4.10 PROPRIETARY RIGHTS.
(a) DFI owns, or has the right to use all DFI Intellectual
Property (as hereinafter defined) necessary for the operation of DFI's business
as presently conducted, free from claims for infringement or misappropriation;
and after the consummation of the DFI Merger, the Surviving Corporation will
own, or will have the right to use, all DFI Intellectual Property free from all
other claims, liens, or encumbrances. DFI has received no notice of any claims
that the DFI Intellectual Property infringes or misappropriates the intellectual
property of any third party. SCHEDULE 4.10(A) (i) contains a complete list of
----------------
each registration of patents, copyrights, trademarks, service marks, trade
names, maskworks and other DFI Intellectual Property (collectively "DFI
Registrations") that have been issued to DFI with respect to the DFI
Intellectual Property, (ii) identifies each pending DFI Registration with
respect to the DFI Intellectual Property, and (iii) identifies all applications
for or DFI Registrations regarding DFI Intellectual Property which have been
withdrawn, abandoned, or have lapsed or been denied. For purposes hereof, the
term "DFI License Agreements" shall refer to all material license agreements or
other written or oral agreements or permission that DFI has granted to any third
party with respect to any of the DFI Intellectual Property (together with any
exceptions), and the term "DFI Third Party License Agreements" shall refer to
all material items of DFI Intellectual Property that any third party owns and
the license, sublicense, agreement or other permission in connection therewith.
DFI has supplied the other parties hereto with correct and complete copies of
all DFI License Agreements and DFI Third Party License Agreements. Each person
who developed or created any portion of the 'DFI Computer Programs' (as defined
below) who was not a full-time employee of DFI at the time such work was
performed, has executed a written agreement assigning, transferring and
conveying all right, title and interest in and to such portions of the DFI
Computer Programs to DFI. DFI has complied with all DFI License Agreements and
DFI Third Party License Agreements, and to the knowledge of DFI, all other
parties to such agreements have complied with all provisions thereof; and no
material default or event of default exists under any of the DFI License
Agreements or DFI Third Party License Agreements.
(b) Except as set forth on SCHEDULE 4.10(B), (i) DFI owns all
----------------
right, title and interest in and to all DFI Intellectual Property and the DFI
Registrations, (ii) DFI has not
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<PAGE>
received any charge, complaint, claim, or notice alleging and has no other
knowledge regarding the invalidity, abuse, misuse, or unenforceability of any of
such right, title or interest, (iii) to the knowledge of DFI, no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any DFI Intellectual Property, (iv) DFI has not received a notice
of conflict with the asserted rights of others within the last five years, and
(v) DFI has not infringed any such rights of others.
(c) Without limiting any of the foregoing, to the knowledge of
DFI, (a) none of DFI's officers, directors, employees or independent contractors
have disclosed to (without proper obligation of confidentiality) or otherwise
used or utilized on behalf of any person other than DFI, any DFI Intellectual
Property.
(d) The DFI Computer Programs (as defined below) (a) perform in
all material respects in accordance with all published specifications of DFI for
such DFI Computer Programs, (b) comply in all material respects with all other
published documentation, descriptions and literature of DFI with respect to such
DFI Computer Programs, and (c) comply in all material respects with all
representations, warranties and other requirements specified in all of the DFI
License Agreements.
(e) Each past or present customer of DFI and each past or present
potential customer of DFI to whom DFI disclosed any DFI Intellectual Property is
bound by a confidentiality provision which requires such past, present or
potential customer to take reasonable steps to protect the rights of DFI in the
DFI Intellectual Property, except for failures that would not constitute a DFI
Material Adverse Effect.
(f) "DFI Intellectual Property" shall refer to all (i) patents,
patent applications, patent disclosures, all re-issues, divisions,
continuations, renewals, extensions and continuation-in-parts thereof and
improvements thereto, (ii) trademarks, service marks, trade dress, logos, trade
names, and corporate names and registrations and applications for registration
thereof and all goodwill associated therewith, (iii) copyrights and
registrations and applications for registration thereof, (iv) maskworks and
registrations and applications for registration thereof, (v) right, title and
interest in all computer software, data and documentation (including, without
limitation, modifications, enhancements, revisions or versions of or to any of
the foregoing and prior releases of any of the foregoing applicable to any
operating environment), (all of the foregoing in this clause (v) is referred to
collectively as the "DFI Computer Programs"), (vi) trade secrets and
confidential business information (including ideas, formulas, compositions,
inventions, whether patentable or unpatentable and whether or not reduced to
practice, know-how (excluding know-how unrelated to DFI's business or products),
manufacturing and production processes and techniques, research and development
information, software products in development, drawings, flow charts, processes
ideas, specifications, designs, plans, proposals, technical data, copyrightable
works, financial, marketing, and business data, pricing and cost information,
business and marketing plans, and customer and supplier lists and information),
(vii) other proprietary rights of DFI, and (viii) copies and tangible
embodiments of the foregoing.
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<PAGE>
4.11. INSURANCE. SCHEDULE 4.11 attached hereto sets forth a summary
-------------
description of insurance coverage covering the business and properties of DFI,
which description includes, among other things, the property covered and the
insurer and the amount and period of coverage. There are no outstanding
requirements or recommendations of any insurance company that issued any policy
of fire or extended coverage insurance covering the properties of DFI or by any
Board of Fire Underwriters or other similar body exercising similar functions,
or by any governmental authority exercising similar functions that require or
recommend any repairs or other work to be done on or with respect to any of the
properties insured in any of said policies. All of such policies of insurance
are on an occurrence basis and will be in full force and effect immediately
after the Effective Time.
4.12. CONTRACTS AND OTHER INSTRUMENTS.
(a) SCHEDULE 4.12(A) sets forth a list of each material contract,
----------------
license agreement, purchase order, lease, license, indenture or commitment,
written or oral including all amendments or modifications thereof, to which DFI
is a party or by which any of its assets are bound, including but not limited to
the following:
(i) Agreements, commitments, notes, indentures or other
instruments relating to the borrowing of money, or the guaranty of security of
any such obligation for the borrowing of money;
(ii) Joint venture or other agreements with any person,
firm, corporation or unincorporated association doing business either within or
outside the United States relating to sharing of present or future commissions,
fees or other income or profits, excluding vending machine revenue sharing
agreements with the site operator;
(iii) Lease of personal property to DFI involving a
present or future obligation of an amount in excess of $25,000;
(iv) Franchise agreements;
(v) Agreements limiting the freedom of DFI to complete in
any line of business or in any geographic area or with any person;
(vi) Broker or distributorship contracts;
(vii) Advertising, marketing and promotional agreements
(including, but not limited to, any agreements providing for discounts and/or
rebates), involving a present or future obligation of an amount in excess of
$25,000;
(viii) Agreements that require future expenditures by DFI
in excess of $25,000; or
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<PAGE>
(ix) Agreements for the provision of products or services
by DFI having a value in excess of $25,000.
The contracts, license agreements, distributor agreements, purchase
orders, leases, licenses, indentures or commitments that are required to be
identified in SCHEDULE 4.12(A) are referred to as the "DFI Contracts." True and
----------------
complete copies of each of the DFI Contracts, or where they are oral, true and
complete written summaries thereof, have been delivered to the other parties
hereto.
(b) Except as set forth in SCHEDULE 4.12(B) attached hereto, there
----------------
has not occurred any default under any DFI Contract on the part of DFI or, to
the knowledge of DFI, on the part of the other parties thereto, and no event has
occurred which with the giving of notice or the lapse of time, or both would
constitute a default under any DFI Contract or under which DFI is or may be
bound, except for such defaults or events the result of which would not have a
DFI Material Adverse Effect. Except as set forth in SCHEDULE 4.12(B), no consent
----------------
of any party to any DFI Contract is required in order to permit the execution,
delivery or performance of this Agreement and the consummation of the
transactions contemplated hereby, nor will the execution, delivery or
performance of this Agreement or the consummation of the DFI Merger, result in a
breach of any of the terms and provisions of, or constitute a default under, or
conflict with, or result in a modification of, or give any third party the right
to terminate, cancel, accelerate or increase the rate of interest payable under,
any liabilities, obligations, rights or benefits under, any DFI Contract.
(c) Set forth in SCHEDULE 4.12(C) attached hereto is a list of (i)
----------------
each outstanding bid or proposal for a DFI Contract and a description of and
projected dollar value of each such bid or proposal; and (ii) the aggregate
dollar amount of all outstanding claims against DFI or claims, which, to the
knowledge of DFI, have been threatened against DFI, under each DFI Contract
presently or heretofore in effect (including, without limitation, claims for
back charges, rebates, price reductions or settlements or for breaches of
product warranties or for product liability for products manufactured or sold).
4.13. LABOR AND EMPLOYMENT AGREEMENTS.
(a) SCHEDULE 4.13 attached hereto contains a description of each
-------------
plan, contract or arrangement under which fringe benefits (including, but not
limited to, vacation plans or programs, sick leave plans or programs and related
benefits) are afforded to employees of DFI. DFI is not a party to any collective
bargaining agreement or other labor agreement. There are no labor disputes
pending or, to the knowledge of DFI, threatened between DFI and its employees.
(b) DFI has withheld and paid to the appropriate governmental
authorities or is withholding for payment not yet due to such authorities all
amounts required to be withheld from their respective employees and is not
liable for any arrears of wages, taxes, penalties or other sums for failure to
comply with any of the foregoing.
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<PAGE>
(c) All accrued material obligations of DFI (whether arising by
operation of law, by contract or past custom) for payments by DFI to trusts or
other funds or to any governmental agency with respect to unemployment
compensation benefits, social security benefits or any other benefits for
employees of DFI with respect to employment of those employees have been paid or
adequate accruals therefor have been made in the DFI Unaudited Financial
Statements for obligations accrued through the date of such DFI Unaudited
Financial Statements, and in the books and records of DFI for obligations
accruing after that date.
(d) All material obligations of DFI (whether arising by operation
of law by contract, by past custom or otherwise) for salaries, vacation and
holiday pay, sick pay, bonuses and other forms of compensation payable to the
officers, directors or other employees of DFI in respect of the services
rendered by any of them have been paid or adequate accruals therefor have been
made in the DFI Unaudited Financial Statements for obligations accrued through
the date of such DFI Unaudited Financial Statements, and in the books and
records of DFI for obligations accruing thereafter.
4.14. EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 4.14(A) lists all plans, programs, and similar
----------------
agreements, commitments or arrangements, whether oral or written, maintained by
or on behalf of DFI or any other party that provide benefits or compensation to,
or for the benefit of, current or former employees of DFI ("DFI Plan" or "DFI
Plans"). Except as set forth on SCHEDULE 4.14(A) only current and former
----------------
employees of DFI participate in the Plans. Copies of all DFI Plans and, to the
extent applicable, all related trust agreements, actuarial reports, year-end
allocation/reconciliation reports, and appraisals actuarial reports, and
valuations for the most recent three years, all summary plan descriptions,
prospectuses, Annual Report Form 5500s or similar forms (and attachments
thereto) for the most recent three years, all Internal Revenue Service
determination letters, all promissory notes, guarantees, loan agreements,
contribution agreements and related documents for any loans entered into by and
between DFI and/or any DFI Plan, and any related documents requested by the
other parties hereto, including all amendments, modifications and supplements
thereto, have been delivered to such parties, and all of the same are or will be
true, correct and complete.
(b) With respect to each DFI Plan to the extent applicable: (i) no
litigation or administrative or other proceeding is pending or, to the knowledge
of DFI, threatened involving such DFI Plan; (ii) such DFI Plan has been
administered and operated in substantial compliance with, and has been amended
to comply with all applicable agreements or laws, rules, and regulations,
including, without limitation, ERISA, the Code, and the regulations issued under
ERISA and the Code; (iii) DFI has made and as of the Closing Date will have made
or accrued, all payments and contributions required, or reasonably expected to
be required, to be made under the provisions of such DFI Plan or required to be
made under applicable agreements or laws, rules and regulations, with respect to
any period prior to the Closing Date, such amounts to be determined according to
such agreements or using the ongoing actuarial and funding assumptions of the
DFI Plan; (iv) such DFI Plan is fully funded in an amount sufficient to pay all
liabilities accrued (including liabilities and obligations for health care, life
insurance and other benefits after termination of employment) and claims
incurred to the date hereof, or the DFI Unaudited Financial Statements contain
adequate reserves or paid-up insurance has been provided, therefor; (v) on the
Closing Date such DFI Plan will be fully funded in an amount sufficient to pay
all liabilities
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<PAGE>
accrued (including liabilities and obligations for health care, life insurance
and other benefits after termination of employment) and claims incurred to the
Closing Date, or adequate reserves will be set up on DFI's books and records, or
paid-up insurance will be provided, therefor; and (vi) such DFI Plan has been
administrated and operated only in the ordinary and usual course and in
accordance with its terms, and there has not been in the four years prior hereto
any material increase in the liabilities of such DFI Plan beyond increases
typically experienced by employers similar to DFI.
(c) SCHEDULE 4.14(C) lists each DFI Plan which is an "employee
----------------
benefit plan" as defined in Section 3(3) of ERISA, including any terminated
employee benefit plans that covers or covered any employee of DFI ("DFI ERISA
Plan").
(d) DFI does not participate and has never participated in a
Multiemployer Benefit Plan. DFI is not required to contribute to any
Multiemployer Benefit Plan maintained by any other person, nor does DFI have any
liability to any such Multiemployer Benefit Plan.
(e) With respect to each DFI ERISA Plan, neither such plan, nor
any trustee, administrator, fiduciary, agent or employee thereof, has at any
time been involved in a transaction which would constitute a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Code, unless such transaction is specifically permitted under Section 407 or 408
of ERISA, Section 4975 of the Code or a class or administrative exception issued
by the Department of Labor, nor has any such person been involved in or caused
such plan to be involved in a breach of fiduciary duty under Section 404 of
ERISA.
(f) Of the DFI ERISA Plans, only the Decision Focus Incorporated
Employee Stock Ownership Plan and Money Purchase Pension Plan (the "DFI ESOP"
and "DFI Pension Plan", respectively) (the DFI ESOP and the DFI Pension Plan are
collectively referred to as the "ESOP/Pension Plan") are "employee pension
benefit plans" within the meaning of Section 3(2) of ERISA. With respect to the
DFI ESOP/Pension Plan: (i) such DFI ESOP/Pension Plan constitutes a qualified
plan within the meaning of Section 401(a) of the Code and the trust thereunder
is exempt from federal income tax under Section 501(a) of the Code; (ii) all
minimum funding standards required by law with respect to the funding of
benefits payable or to be payable under such DFI ESOP/Pension Plan have been
met; (iii) there is no "accumulated funding deficiency" within the meaning of
Code Section 412 under such DFI ESOP/Pension Plan; (iv) no reportable event as
described in Section 4043 of ERISA has occurred, or is continuing, with respect
to such DFI ESOP/Pension Plan, and DFI has not incurred any liability to the
Pension Benefit Guaranty Corporation; (v) if such DFI ESOP/Pension Plan is a
defined benefit plan, the fair market value of the assets of the DFI
ESOP/Pension Plan trust are not less than the actuarial present value of
benefits (both vested and nonvested) accrued under such DFI ESOP/Pension Plan
with respect to participants and beneficiaries, determined on a termination
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basis and as though all such accrued benefits were fully vested and
nonforfeitable as of the Closing Date, taking into consideration the subsidies
required under the Code and the regulations and rulings thereunder and using the
ongoing actuarial methods and assumptions of such DFI ESOP/Pension Plan, which
methods and assumptions are reasonable both individually and in the aggregate;
(vi) if the DFI ESOP/Pension Plan is a defined contribution plan, it is funded
in an amount equal to the participants' account balances, whether or not vested;
(vii) if the DFI ESOP/Pension Plan is an employee stock ownership plan as
defined under Section 4975(e)(7) of the Code, it has been funded in accordance
with any agreements applicable to the repayment of any exempt loan used to
purchase employer securities under the DFI ESOP, and the DFI ESOP has materially
complied with all other operational provisions governing "employee stock
purchase plans" as defined in Code Section 4975(e)(7) and the regulations
thereunder have been materially complied with; and (viii) prior to the date of
this Agreement, the DFI ESOP/Pension Plan and the trustees of the Plan have
taken all actions, and have done all things, necessary or advisable in
accordance with the fiduciary standards under Section 404 of ERISA and the
prohibited transaction standards under Section 406 of ERISA and Section 4975 of
the Code to vote the shares of DFI stock held in the DFI ESOP/Pension Plan, or
to enable participants to vote such shares, with respect to the transaction set
forth in this Agreement.
(g) DFI does not now have, and has never had, a plan that covers,
or is intended primarily to cover, only employees who are located in a country
other than the United States.
(h) Neither DFI nor any of the DFI Plans has any obligation to
provide, or liability for, Post-employment Benefits, except for retirement
benefits and except as required by Section 601 of ERISA and Section 4980B of the
Code. With respect to (i) all persons terminated or retired on the Closing
Date, and (ii) active employees and other participants and beneficiaries, to the
extent Post-employment Benefits (other than qualified retirement plan benefits
under the DFI ESOP/Pension Plan) have been, or are reasonably expected to be,
earned by service to the Closing Date, paid-up insurance or plan funding will be
provided, or the books and records of DFI will contain adequate reserves in an
amount not less than the present value of all such benefits, determined as
though all such Post-employment Benefits were fully vested and nonforfeitable
and assuming the continuation of all such Plans, using actuarial methods and
assumptions which are reasonable individually and in the aggregate.
4.15. OFFICERS, DIRECTORS AND EMPLOYEES.
(a) SCHEDULE 4.15(A) attached hereto sets forth a true and
----------------
complete list of the names of, the offices held by, and the compensation paid
to, the officers, directors and employees of DFI as of December 31, 1996.
(b) Except as set forth on SCHEDULE 4.15(B), DFI has no financial
----------------
obligation and is not otherwise indebted to any person who is an officer,
director, shareholder or employee of DFI, or to any spouse, child or relative of
any such person or to any entity controlled directly or indirectly by such
person, in any amount whatsoever other than for compensation for services
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rendered since the start of the current pay period of DFI generally utilized by
its employees and for business expenses, nor is any director or shareholder of
DFI, or any spouse, child or other relative of such person, indebted to DFI
except for reimbursement of advances made in the ordinary course of business.
4.16. AGREEMENT NOT IN BREACH OF CERTAIN INSTRUMENTS. Neither the
execution and delivery of this Agreement nor the consummation of the Mergers
will violate or conflict with, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of benefit under, any
provision of the Articles of Incorporation or Bylaws of DFI or result in a
breach of any of the terms and provisions of, or constitute a violation or
default (or an event that with notice or lapse of time, or both, would
constitute a default), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under, or conflict with, (a)
any DFI Contract, (b) any judgment, decree, order or award of any court,
governmental body or arbitrator to which DFI is a party, or (c) any law, rule or
regulation applicable to DFI.
4.17. REGULATORY APPROVALS. Other than the filing of the Merger Agreement
and the DFI Delaware Certificate and any required blue sky filings, no consent,
declaration, filing or approval or authorization of, or registration with, any
federal, state, municipal or local governmental or regulatory authority or any
other person is required in connection with the execution and delivery of this
Agreement or the consummation of the DFI Merger.
4.18. BROKERAGE. DFI has not dealt with any finder, broker, investment
banker or financial advisor in connection with any of the transactions
contemplated by this Agreement or the negotiations looking toward the
consummation of such transactions which might as a result reasonably give rise
to the obligation to pay a fee, commission or other compensation therefor.
4.19 BANK ACCOUNTS. SCHEDULE 4.19 attached hereto contains an accurate
-------------
and complete list of: (a) the names and addresses of each bank in which DFI has
an account; (b) the account number of such accounts; and (c) the authorized
signatories for such accounts.
4.20. ENVIRONMENTAL MATTERS. To the knowledge of DFI, DFI is in compliance
in all material respects with all statutes, regulations and ordinances relating
to the protection of human health and the environment including, without
limitation, the Clean Water Act, 33 U.S.C. (S)1251 et seq., the Resource
------
Conservation and Recovery Act, 42 U.S.C. (S)6901 et seq., the Clean Air Act, 42
------
U.S.C. (S)7401 et seq., the Toxic Substances Control Act, 15 U.S.C. (S)2601 et
------ --
seq., the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. (S)1001
- ---
et seq., the regulations developed pursuant to these statutes and the
- ------
corresponding state and local statutes, ordinances and regulations. There has
been no release by DFI or, to the knowledge of DFI, by any other person of a
hazardous substance as that term is defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. (S)9601(14), into
the environment at any property owned or leased by DFI (the "DFI Premises")
including, without limitation, any such release in the soil or groundwater
underlying the DFI Premises. To the knowledge of DFI, there is no asbestos,
polychlorinated biphenyls or underground storage tanks located on the DFI
Premises and there have been no releases of asbestos, polychlorinated biphenyls
or materials stored in underground storage
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tanks, including, without limitation, petroleum or petroleum-based materials.
DFI has not received notice of any violation of any environmental statute or
regulation nor has it been advised of any claim or liability pursuant to any
environmental statute or regulation brought by any governmental agency or
private party (in each case, an "Environmental Notice").
4.21. EMPLOYEE CONFIDENTIALITY AGREEMENTS. Each director and officer and
each technical and management employee of DFI has signed a confidentiality and
proprietary rights agreement with DFI containing provisions customary for
companies in its industry, including without limitation provisions prohibiting
each such person from disclosing or using any proprietary information of DFI for
any purpose other than the performance of such person's duties to DFI. Such
agreements are legal, valid and binding obligations of DFI and its employees,
officers and directors and are enforceable in accordance with their respective
terms, except as limited by bankruptcy and other laws of general application
affecting the rights and remedies of creditors generally and except insofar as
the availability of equitable remedies may be limited.
4.22. U.S. REAL PROPERTY HOLDING COMPANY. DFI is not a "real property
holding company" within the meaning of Section 897(c)(2) of the U.S. Internal
Revenue Code of 1986, as amended, and the Treasury Regulations thereunder.
4.23. REGISTRATION STATEMENT; JOINT PROXY STATEMENT. The Registration
Statement shall not, at the time the Registration Statement is filed with the
SEC and at the time it 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 not
misleading. The Joint Proxy Statement to be sent to the shareholders of DFI and
the shareholders of Aeronomics in connection with the Shareholders' Meetings
shall not, on the date the Joint Proxy Statement is first mailed to the DFI
shareholders, the date the Joint Proxy Statement is first mailed to the
Aeronomics shareholders, at the time of each Shareholders' Meeting and at 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 light of the circumstances under which they are made,
not false or misleading; or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for either Shareholders' Meeting which has become false or misleading.
The Registration Statement will comply as to form in all material respects with
the applicable provisions of the Securities Act and the rules and regulations
thereunder. If at any time prior to the Effective Time any event relating to DFI
or any of its affiliates, officers or directors should be discovered by DFI
which should be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement, DFI shall promptly inform Aeronomics
and Newco. Notwithstanding the foregoing, DFI makes no representation or
warranty with respect to any information supplied by or concerning Aeronomics
which is contained in any of the foregoing documents.
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4.24. DISCLOSURE. Except as contemplated by or disclosed in this
Agreement, there is no fact or circumstance within the knowledge of DFI that
would constitute a DFI Material Adverse Effect. None of the statements or
information contained in any of the representations, warranties or covenants of
DFI set forth in this Agreement (including the schedules and other certificates,
agreements or other documents to be furnished hereunder) contains or will
contain any misstatement of a material fact or omission to state a material fact
necessary to make the statements contained herein or therein not misleading.
Notwithstanding anything contained herein to the contrary, DFI may at any time
prior to the Closing update or amend any representation or schedule relating
thereto that becomes untrue or incorrect as the result of events occurring
following the date of this Agreement (a "DFI Updated Representation").
5. REPRESENTATIONS AND WARRANTIES OF NEWCO. Newco represents and warrants to
the other parties hereto as follows:
5.1 ORGANIZATION AND QUALIFICATION. Newco is duly organized and validly
existing as a corporation in good standing under the laws of Delaware, with the
corporate power to own, lease and operate its properties and assets and to carry
on its business in the manner in which such business is now being conducted.
True and complete copies of the Certificate of Incorporation, and Bylaws of
Newco in effect on the date hereof are attached hereto as EXHIBIT B and EXHIBIT
--------- -------
C, respectively. Newco does not own or hold directly or indirectly, any debt or
- -
equity securities of, or have any interest in, any corporation, partnership,
joint venture or other entity. Newco is not required to be qualified to do
business as a foreign corporation in any jurisdiction. Newco has no employees,
owns no material assets and has conducted no business of any kind other than in
connection with this Agreement and the transactions contemplated hereby. Except
for obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated hereby, Newco has not incurred
any obligations or liabilities or entered into any agreements or arrangements
with any person or entity.
5.2. AUTHORIZATION OF AGREEMENT.
(a) Newco has full corporate power and authority to execute and
deliver this Agreement and, subject to the shareholder approval requirements of
the DGCL, to consummate the Mergers. Other than the approval by Newco's
stockholders in accordance with the requirements of the DGCL, the execution,
delivery and performance of this Agreement and the consummation of the Mergers
have been duly and validly authorized by all necessary action, corporate or
otherwise, on the part of Newco.
(b) This Agreement and all other agreements herein contemplated to be
executed in connection herewith by Newco have been (or upon execution will have
been) duly executed and delivered by or for the benefit of Newco, and constitute
binding obligations, enforceable against Newco in accordance with their
respective terms. Newco is not, and immediately prior to the Effective Time,
Newco will not be, a party to, subject to or bound by any provision of the
Certificate of Incorporation or Bylaws of Newco, or any agreement or judgment,
order, writ, prohibition, injunction or decree of any court or other
governmental body
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that would prevent the execution and delivery of this Agreement or the
consummation of the Mergers.
5.3 CAPITALIZATION. Newco has not issued any shares of its capital stock.
There are no outstanding subscriptions, options, rights, warrants, convertible
securities or other agreements or commitments obligating Newco to issue or to
transfer from the treasury any additional shares of capital stock or any
securities convertible into, or exchangeable or exercisable for, or otherwise
evidencing a right to acquire, any shares of capital stock of Newco, and no
unissued shares of stock are subject to any preemptive rights. Other than the
rights related to the Newco Preferred Stock, there are no outstanding
contractual obligations of Newco to repurchase, redeem or otherwise acquire any
outstanding shares of capital stock of or other ownership interest in Newco.
5.4 OFFICERS, DIRECTORS AND EMPLOYEES. SCHEDULE 5.4 attached hereto sets
------------
forth a true and complete list of the names of, the offices held by, the
officers, directors and employees of Newco.
5.5 AGREEMENT NOT IN BREACH OF CERTAIN INSTRUMENTS. Neither the execution
and delivery of this Agreement nor the consummation of the Mergers will violate
or conflict with any provision of the Certificate of Incorporation or Bylaws of
Newco or result in a breach of any of the terms and provisions of, or constitute
a violation or default (or an event that with notice or lapse of time, or both,
would constitute a default) under, or conflict with, (a) any judgment, decree,
order or award of any court, governmental body or arbitrator to which Newco is a
party, or (b) any law, rule or regulation applicable to Newco.
5.6 REGULATORY APPROVALS. Other than the filing of the Merger Agreement
and the certificates referred to in Section 1.1(e) above, the filing of the
Registration Statement with the SEC in accordance with the Securities Act of
1933, as amended, and the filing of any required blue sky filings, no consent,
declaration, filing or approval or authorization of, or registration with, any
federal, state, municipal or local governmental or regulatory authority or any
other person is required in connection with the execution and delivery of this
Agreement or the consummation of the Mergers.
5.7 BROKERAGE. Newco has not dealt with any finder, broker, investment
banker or financial advisor in connection with any of the transactions
contemplated by this Agreement or the negotiations looking toward the
consummation of such transactions which might as a result reasonably give rise
to the obligation to pay a fee, commission or other compensation therefor.
6. COVENANTS AND AGREEMENTS OF AERONOMICS. Aeronomics covenants and agrees
that it shall comply with each of the covenants and agreements set forth in this
SECTION 6, the fulfillment of each of which shall constitute a condition
precedent to the obligations of the other parties hereto to consummate the
transactions contemplated hereby at the Closing, but each of which may be waived
in writing by such other parties.
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6.1. CERTIFICATE OF INCORPORATION AND BYLAWS. Except as specifically
required by this Agreement, Aeronomics shall not take nor agree to take any of
the following actions:
(a) amend or otherwise change its Certificate of Incorporation or
Bylaws or any instrument similar in purpose and intent to them;
(b) issue any shares of its capital stock (other than upon issuance of
the Aeronomics Options);
(c) issue or create any warrants, obligations, subscriptions, options,
convertible securities, or other commitments under which any additional shares
of its capital stock may be authorized, issued or transferred from treasury;
(d) take any action that would make any of the representations and
warranties in this Agreement untrue or incorrect; or
(e) agree to do any of the acts listed above.
6.2. CORPORATE EXISTENCE AND RIGHTS. Except as specifically required by
this Agreement, between the date hereof and the Effective Time, Aeronomics shall
take all necessary actions to keep in full force and effect the corporate
existence of Aeronomics and shall cause the operations of Aeronomics to be
conducted only according to its ordinary and usual course of business.
Aeronomics shall not do, nor permit to be done, anything that is represented or
warranted not to have occurred since the date of the AI Unaudited Financial
Statements as represented in SECTION 3.4(C) hereof. Aeronomics shall make all
reasonable efforts to preserve intact its present business organization, keep
available the services of its officers and employees, and preserve its
relationship with customers, suppliers and others having business dealings with
it, to the end that its business shall not be materially impaired at the
Closing. Aeronomics shall maintain its records and books of account in a manner
that fairly and correctly reflects its income, expenses, assets and liabilities
in accordance with past practice.
6.3. ACCESS AND INFORMATION BEFORE THE CLOSING. Between the date hereof
and the Closing Date, Aeronomics shall cause to afford to the other parties
hereto and their respective counsel, accountants and other representatives
reasonable access to all of the properties, books, contracts and records of
Aeronomics and will furnish the other parties hereto and their respective
counsel, accountants and other representatives with all information, including
copies of books, contracts and records, concerning the affairs of Aeronomics,
which may be reasonably requested.
6.4. CURRENT INFORMATION. Aeronomics shall advise the other parties hereto
in writing as promptly as possible, but in any event prior to the Closing, of:
(a) the occurrence of any event that renders any of the
representations or warranties of Aeronomics set forth herein inaccurate in any
material respect;
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(b) the awareness of Aeronomics that any representation or warranty of
Aeronomics set forth herein was not accurate in all material respects when made;
(c) the failure of Aeronomics to comply with or accomplish any of the
covenants or agreements set forth herein in any material respect and
(d) the occurrence of any event that constitutes a Material Adverse
Effect.
Aeronomics will also provide the other parties hereto promptly on becoming
available copies of all material operating and financial reports prepared by or
for the normal conduct of business of Aeronomics, including without limitation
monthly financial statements. All such information shall be true and correct in
all material respects.
6.5. CONSENTS. Aeronomics shall use its reasonable efforts to procure all
consents, approvals or waivers that must be obtained by Aeronomics and that are
necessary for completion of the transactions described herein, including using
all reasonable efforts to obtain all required consents of any governmental
agency or body issuing any permits, licenses or other governmental
authorizations affecting Aeronomics or its business or properties, so that the
Surviving Corporation may continue to operate the business and properties of
Aeronomics without interruption following the Effective Time. Without limiting
its obligations hereunder, Aeronomics shall not agree to any material adverse
modification of the terms of any document or contractual arrangement or to
prepay or incur additional material obligations to any person, whenever
effective.
6.6. CONTRACTS. Between the date hereof and the Closing Date, Aeronomics
shall not amend in any material respect or terminate any AI Contract, purchase
order, warranty, bid or proposal, whether written or oral to which it is a
party, or enter into or become a party to or submit any bid or proposal for any
contract, agreement, instrument, arrangement, purchase order or commitment with
any customer of Aeronomics other than in the ordinary course of business.
6.7. INSURANCE. Between the date hereof and the Effective Time, Aeronomics
shall continue in force its existing insurance policies.
6.8. TERMINATION OF AGREEMENTS. Except as set forth in Schedule 6.8,
------------
Aeronomics shall cause each stockholder agreement and registration rights
agreement of any kind between Aeronomics, on the one hand, and any officer,
director, stockholder or employee, on the other hand, to be terminated without
liability to Aeronomics effective as of the Closing Date.
6.9. AERONOMICS STOCKHOLDERS MEETING. Aeronomics shall take all action in
accordance with its Certificate of Incorporation and Bylaws and the DGCL to
obtain the approval of the stockholders of Aeronomics with respect to this
Agreement and the consummation of the transactions contemplated hereby.
Aeronomics shall use its reasonable efforts to hold a special meeting of its
stockholders as soon as reasonably practicable in accordance with applicable law
following the effectiveness of the Registration Statement, and in no event later
than thirty (30) days following such effectiveness.
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7. COVENANTS AND AGREEMENTS OF DFI. DFI covenants and agrees that it shall
comply with each of the covenants and agreements set forth in this SECTION 7,
the fulfillment of each of which shall constitute a condition precedent to the
obligations of the other parties hereto to consummate the transactions
contemplated hereby at the Closing, but each of which may be waived in writing
by such other parties.
7.1. ARTICLES OF INCORPORATION AND BYLAWS. Except as specifically required
by this Agreement, DFI shall not take nor agree to take any of the following
actions:
(a) amend or otherwise change its Articles of Incorporation or Bylaws
or any instrument similar in purpose and intent to them;
(b) issue any shares of its capital stock (other than upon issuance of
the DFI Options);
(c) issue or create any warrants, obligations, subscriptions, options,
convertible securities, or other commitments under which any additional shares
of its capital stock may be authorized, issued or transferred from treasury;
(d) take any action that would make any of the representations and
warranties in this Agreement untrue or incorrect; or
(e) agree to do any of the acts listed above.
7.2. CORPORATE EXISTENCE AND RIGHTS. Except as specifically required by
this Agreement, between the date hereof and the Effective Time, DFI shall take
all necessary actions to keep in full force and effect the corporate existence
of DFI and shall cause the operations of DFI to be conducted only according to
its ordinary and usual course of business. DFI shall not do, nor permit to be
done, anything that is represented or warranted not to have occurred since the
date of the DFI Unaudited Financial Statements as represented in SECTION 4.4(C)
hereof. DFI shall make all reasonable efforts to preserve intact its present
business organization, keep available the services of its officers and
employees, and preserve its relationship with customers, suppliers and others
having business dealings with it, to the end that its business shall not be
materially impaired at the Closing. DFI shall maintain its records and books of
account in a manner that fairly and correctly reflects its income, expenses,
assets and liabilities in accordance with past practice.
7.3. ACCESS AND INFORMATION BEFORE THE CLOSING. Between the date hereof
and the Effective Time, DFI shall cause to afford to the other parties hereto
and their respective counsel, accountants and other representatives reasonable
access to all of the properties, books, contracts and records of DFI and will
furnish the other parties hereto and their respective counsel, accountants and
other representatives with all information, including copies of books, contracts
and records, concerning the affairs of DFI, which may be reasonably requested.
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7.4. CURRENT INFORMATION. DFI shall advise the other parties hereto in
writing as promptly as possible, but in any event prior to the Closing, of:
(a) the occurrence of any event that renders any of the
representations or warranties of DFI set forth herein inaccurate in any material
respect;
(b) the awareness of DFI that any representation or warranty of DFI
set forth herein was not accurate in all material respects when made;
(c) the failure of DFI to comply with or accomplish any of the
covenants or agreements set forth herein in any material respect and
(d) the occurrence of any event that constitutes a Material Adverse
Effect.
DFI will also provide the other parties hereto promptly on becoming available
copies of all material operating and financial reports prepared by or for the
normal conduct of business of DFI, including without limitation monthly
financial statements. All such information shall be true and correct in all
material respects.
7.5. CONSENTS. DFI shall use its reasonable efforts to procure all
consents, approvals or waivers that must be obtained by DFI and that are
necessary for completion of the transactions described herein, including using
all reasonable efforts to obtain all required consents of any governmental
agency or body issuing any permits, licenses or other governmental
authorizations affecting DFI or its business or properties, so that the
Surviving Corporation may continue to operate the business and properties of DFI
without interruption following the Effective Time. Without limiting its
obligations hereunder, DFI shall not agree to any material adverse modification
of the terms of any document or contractual arrangement or to prepay or incur
additional material obligations to any person, whenever effective.
7.6. CONTRACTS. Between the date hereof and the Closing Date, DFI shall
not amend in any material respect or terminate any DFI Contract, purchase order,
warranty, bid or proposal, whether written or oral to which it is a party, or
enter into or become a party to or submit any bid or proposal for any contract,
agreement, instrument, arrangement, purchase order or commitment with any
customer of DFI other than in the ordinary course of business.
7.7. INSURANCE. Between the date hereof and the Effective Time, DFI shall
continue in force its existing insurance policies.
7.8. TERMINATION OF AGREEMENTS. Except as set forth on SCHEDULE 7.8, DFI
shall cause each shareholder agreement, registration rights agreement or
consulting agreements of any kind between DFI, on the one hand, and any officer,
director, shareholder or employee, on the other hand, to be terminated without
liability to DFI effective as of the Closing Date.
7.9. DFI SHAREHOLDERS MEETING. DFI shall take all action in accordance
with its Articles of Incorporation and Bylaws and the CCC to obtain the approval
of the shareholders of
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DFI with respect to this Agreement and the consummation of the transactions
contemplated hereby. DFI shall use its reasonable efforts to hold a special
meeting of its stockholders as soon as reasonably practicable in accordance with
applicable law following the effectiveness of the Registration Statement, and in
no event later than thirty (30) days following such effectiveness.
8. ADDITIONAL AGREEMENTS.
8.1. SECURITIES LAW COMPLIANCE.
(a) As promptly as practicable after the execution of this Agreement,
the parties shall jointly prepare and cause Newco to file with the Securities
and Exchange Commission (the "SEC") a registration statement on Form S-4 with
respect to the shares of Newco Common Stock to be issued pursuant to the Mergers
(such registration statement as amended, supplemented or modified, the
"Registration Statement"), which shall include the joint proxy statement
relating to the vote of the shareholders of DFI and the stockholders of
Aeronomics, respectively, with respect to the Merger (the "Joint Proxy
Statement"). The parties shall use their respective reasonable efforts to have
the Registration Statement declared effective as soon thereafter as practicable.
The Joint Proxy Statement shall also include the recommendation of the
respective Boards of Directors of Aeronomics and DFI in favor of the Mergers
which shall not be withdrawn, modified or withheld except in compliance with the
fiduciary duties of such respective Boards under applicable law. Each of the
parties shall cooperate with the other parties and their respective agents in
the preparation and efforts to achieve effectiveness of the Registration
Statement.
(b) The parties hereto acknowledge that the issuance of the shares of
Newco Preferred Stock pursuant to the Mergers is intended to qualify for the
registration exemption afforded by Rule 506 promulgated under the Securities Act
of 1933, as amended. Accordingly, no party hereto shall take, or fail to
take, any action (other than actions expressly contemplated by this Agreement)
that would reasonably jeopardize the use of such exemption. The parties hereto
also shall take such other reasonable actions (other than qualifying to do
business in any jurisdiction in which it is not so qualified) required to be
taken under any applicable state securities laws in connection with the issuance
of the shares of Newco Common Stock and Newco Preferred Stock in the Mergers.
8.2. TAX TREATMENT. No party hereto shall knowingly take any actions,
whether prior to or following the Effective Time, that would cause (i) the DFI
Merger to constitute a taxable exchange with respect to the shareholders of DFI,
or (ii) the Aeronomics Merger to constitute a taxable exchange with respect to
the stockholders of Aeronomics.
8.3. PREFERRED STOCK. The shares of Newco Preferred Stock issued pursuant
to the Mergers as Aeronomics Merger Consideration shall be "restricted
securities" within the meaning of the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder. Each certificate representing
shares of Newco Preferred Stock issued pursuant to the Mergers as Aeronomics
Merger Consideration shall contain or otherwise be imprinted with a suitable
legend in substantially the following form:
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The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), or
under the provisions of any applicable state securities laws, but have been
acquired by the registered holder hereof for purposes of investment and in
reliance on statutory exemptions under the Securities Act, and statutory
exemptions under applicable state securities laws. These securities may not
be sold, pledged, hypothecated, transferred or assigned, except in a
transaction which is exempt from registration under provisions of the
Securities Act and any applicable state securities laws or pursuant to an
effective registration statement thereunder; and in the case of an
exemption, only if the corporation has received an opinion of counsel
satisfactory to the corporation that such transaction does not require
registration of any such securities.
8.4. CONSUMMATION OF AGREEMENT. Each of the parties hereto shall cooperate
fully with each other and their respective counsel and accountants in connection
with any steps required to be taken as part of their respective obligations
under this Agreement and will each use their respective reasonable efforts to
perform or fulfill all conditions and obligations to be performed or fulfilled
by them under this Agreement so that the transactions contemplated hereby shall
be consummated.
9. CONDITIONS TO OBLIGATIONS OF AERONOMICS. The obligations of Aeronomics to
consummate the Aeronomics Merger and to make the deliveries contemplated at the
Closing shall, in addition to the conditions set forth elsewhere herein, be
subject to satisfactory completion on or prior to the Closing Date of each of
the following conditions, any of which may be waived in writing by Aeronomics:
9.1. CORRECTNESS OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of DFI and Newco contained in this Agreement
shall have been true and correct on the date hereof and shall be true and
correct on the Closing Date (after giving effect to the DFI Updated
Representation) with the same effect as if made on the Closing Date and the DFI
Updated Representations in the aggregate shall not represent a DFI Material
Adverse Effect, and each shall have executed and delivered to Aeronomics at
Closing a certificate to that effect.
9.2. PERFORMANCE OF COVENANTS AND AGREEMENTS. All of the covenants and
agreements of DFI and Newco contained in this Agreement and required to be
performed by DFI and Newco before the Closing Date shall have been performed in
all material respects, and DFI and Newco shall have executed and delivered at
Closing a certificate to that effect.
9.3. SECRETARY'S CERTIFICATE. DFI shall have delivered at or prior to
Closing a Certificate of the Secretary of DFI, dated as of the Closing Date as
to (i) the Articles of Incorporation of DFI (which shall have been certified by
the Secretary of State of the State of California), (ii) the Bylaws of DFI,
(iii) resolutions duly adopted by the Board of the Directors of DFI authorizing
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby, (iv) resolutions duly adopted by the
shareholders of DFI (in accordance with the CCC) authorizing the execution,
delivery and
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performance of this Agreement and the consummation of the transactions
contemplated hereby, and (v) the incumbency and signatures of the officers of
DFI executing this Agreement and any certificate, agreement or other documents
to be delivered pursuant hereto.
9.4. GOOD STANDING CERTIFICATE. DFI shall have delivered at or prior to
Closing a certificate of the Secretary of State of the State of California as to
the existence and good standing of DFI as a California corporation. DFI shall
have delivered at or prior to Closing certificates of good standing from each
jurisdiction in which DFI is qualified to do business as a foreign corporation.
9.5. OPINION OF COUNSEL FOR DFI. Aeronomics shall have received an
opinion of counsel from Wilson, Marshall & Taylor, a Professional Corporation,
counsel for DFI, in form and substance reasonably satisfactory to and addressed
to Aeronomics and dated the Closing Date, substantially in the form of EXHIBIT D
---------
hereto.
9.6. POOLING LETTER. DFI shall have delivered at or prior to Closing a
letter from Arthur Andersen, LLP, in form and substance reasonably satisfactory
to Aeronomics, stating that, in accordance with generally accepted accounting
principles, the DFI Merger qualifies to be treated as a "pooling of interests"
for accounting purposes.
9.7. ADDITIONAL CLOSING DOCUMENTS. DFI and Newco shall have delivered at
or prior to the Closing such documents as Aeronomics may reasonably request in
order to enable Aeronomics to determine whether the conditions to their
obligations under this Agreement have been met and otherwise to carry out the
provisions of this Agreement.
9.8. SHAREHOLDER APPROVAL. This Agreement and the DFI Merger shall have
been adopted and approved by the requisite vote of the shareholders of DFI in
accordance with DFI's Articles of Incorporation and Bylaws and the CCC.
9.9. DISSENTING SHARES. DFI shall not have received notice from holders
of more than ten percent (10%) of the DFI Shares that such holders have asserted
or intend to assert any rights as dissenting shareholders with respect to the
DFI Merger in accordance with the CCC.
9.10. NO LEGAL BAR.
(a) There shall not have been instituted or threatened any legal
proceeding seeking to prohibit the consummation of the transactions contemplated
by this Agreement or to obtain substantial damages with respect thereto.
(b) None of the parties hereto shall be prohibited by any law, order,
writ, injunction or decree of any governmental body of competent jurisdiction
from consummating the transactions contemplated by this Agreement, and no action
or proceeding shall then be pending that questions the validity of this
Agreement, any of the transactions contemplated hereby or any action that has
been taken by any of the parties or any corporate entity, in connection
herewith, or in connection with any of the transactions contemplated hereby.
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9.11. MATERIAL ADVERSE EFFECT. Since the date of the DFI Unaudited
Financial Statements, there shall have been no Material Adverse Effect.
10. CONDITIONS TO OBLIGATIONS OF DFI. The obligations of DFI to consummate the
DFI Merger and to make the deliveries contemplated at the Closing shall, in
addition to the conditions set forth elsewhere herein, be subject to
satisfactory completion on or prior to the Closing Date of each of the following
conditions, any of which may be waived in writing by DFI:
10.1. CORRECTNESS OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of Aeronomics and Newco contained in this
Agreement shall have been true and correct on the date hereof and shall be true
and correct on the Closing Date (after giving effect to the AI Updated
Representations) with the same effect as if made on the Closing Date and the AI
Updated Representations in the aggregate shall not represent an AI Material
Adverse Effect, and each shall have executed and delivered to DFI at Closing a
certificate to that effect.
10.2. PERFORMANCE OF COVENANTS AND AGREEMENTS. All of the covenants and
agreements of Aeronomics and Newco contained in this Agreement and required to
be performed by Aeronomics and Newco before the Closing Date shall have been
performed in all material respects, and Aeronomics and Newco shall have executed
and delivered at Closing a certificate to that effect.
10.3. SECRETARY'S CERTIFICATE. Aeronomics shall have delivered at or prior
to Closing a Certificate of the Secretary of Aeronomics, dated as of the Closing
Date as to (i) the Certificate of Incorporation of Aeronomics (which shall have
been certified by the Secretary of State of the State of Delaware), (ii) the
Bylaws of Aeronomics, (iii) resolutions duly adopted by the Board of the
Directors of Aeronomics authorizing the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby,
(iv) resolutions duly adopted by the stockholders of Aeronomics (in accordance
with the DGCL) authorizing the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby, and (v)
the incumbency and signatures of the officers of Aeronomics executing this
Agreement and any certificate, agreement or other documents to be delivered
pursuant hereto.
10.4. GOOD STANDING CERTIFICATE. Aeronomics shall have delivered at or
prior to Closing a certificate of the Secretary of State of the State of
Delaware as to the existence and good standing of Aeronomics as a Delaware
corporation. Aeronomics shall have delivered at or prior to Closing certificates
of good standing from each jurisdiction in which Aeronomics is qualified to do
business as a foreign corporation.
10.5. OPINION OF COUNSEL FOR AERONOMICS. DFI shall have received an
opinion of counsel from Morris, Manning & Martin, L.L.P., counsel for
Aeronomics, in form and substance reasonably satisfactory to and addressed to
DFI and dated the Closing Date, substantially in the form of EXHIBIT E hereto.
---------
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<PAGE>
10.6. POOLING LETTER. Aeronomics shall have delivered at or prior to
Closing a letter from KPMG Peat Marwick, LLP, in form and substance reasonably
satisfactory to DFI, stating that, in accordance with generally accepted
accounting principles, the Aeronomics Merger qualifies to be treated as a
"pooling of interests" for accounting purposes.
10.7. ADDITIONAL CLOSING DOCUMENTS. Aeronomics and Newco shall have
delivered at or prior to the Closing such documents as DFI may reasonably
request in order to enable DFI to determine whether the conditions to their
obligations under this Agreement have been met and otherwise to carry out the
provisions of this Agreement.
10.8. SHAREHOLDER APPROVAL. This Agreement and the Aeronomics Merger shall
have been adopted and approved by the requisite vote of the stockholders of
Aeronomics in accordance with Aeronomics' Certificate of Incorporation and
Bylaws and the DGCL.
10.9. DISSENTING SHARES. Aeronomics shall not have received notice from
holders of more than ten percent (10%) of the Aeronomics Shares that such
holders have asserted or intend to assert any rights as dissenting shareholders
with respect to the Aeronomics Merger in accordance with the DGCL.
10.10. NO LEGAL BAR.
(a) There shall not have been instituted or threatened any legal
proceeding seeking to prohibit the consummation of the transactions contemplated
by this Agreement or to obtain substantial damages with respect thereto.
(b) None of the parties hereto shall be prohibited by any law,
order, writ, injunction or decree of any governmental body of competent
jurisdiction from consummating the transactions contemplated by this Agreement,
and no action or proceeding shall then be pending that questions the validity of
this Agreement, any of the transactions contemplated hereby or any action that
has been taken by any of the parties or any corporate entity, in connection
herewith, or in connection with any of the transactions contemplated hereby.
10.11. MATERIAL ADVERSE EFFECT. Since the date of the AI Unaudited
Financial Statements, there shall have been no Material Adverse Effect.
11. TERMINATION OF AGREEMENT.
11.1. EVENTS OF TERMINATION. The parties hereto may terminate this
Agreement by written agreement at any time prior to the Effective Time. This
Agreement shall terminate and the Mergers shall be abandoned prior to the
Closing Date and this Agreement shall be of no further force or effect between
the parties hereto, except as to liabilities for misrepresentation, breach or
default in connection with any warranty, representation, covenant, duty or
obligation given, occurring or arising prior to the date of termination and
abandonment, upon the occurrence of any of the following:
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<PAGE>
(a) By DFI at its election if there has been any material
misrepresentation or material breach of or failure to satisfy timely on the part
of Aeronomics any condition or any warranty, representation or agreement
contained herein, if such breach or failure is not cured within five business
days of receipt of written notice thereof from DFI.
(b) By Aeronomics at its election if there has been any material
misrepresentation or material breach of or failure to satisfy timely on the part
of DFI any condition or any material warranty, representation or agreement
contained herein, if such breach or failure is not cured within five business
days of receipt of written notice thereof from Aeronomics.
(c) By either DFI, on the one hand, or Aeronomics, on the other hand,
immediately upon notice, if the Closing shall not have taken place by September
30, 1997; provided, however, that neither DFI nor Aeronomics shall be entitled
to terminate this Agreement pursuant to this SECTION 11 if such party is in
material breach of this Agreement at such time.
12. MISCELLANEOUS PROVISIONS.
12.1. CONSTRUCTION. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware without regard
to principles of conflicts of laws.
12.2. NOTICES. All notices and other communications called for or
-------
contemplated hereunder shall be in writing and shall be deemed to have been duly
given when delivered to the party to whom addressed or when sent by telecopy,
telegram, telex or wire (if promptly confirmed by registered or certified mail,
return receipt requested, prepaid and addressed) to the parties, their
successors in interest, or their assignees at the following addresses, or at
such other addresses as the parties may designate by written notice in the
manner aforesaid:
IF TO AERONOMICS:
Aeronomics Incorporated
4751 Best Road, Suite 300
Atlanta, Georgia 30337
Attn: Robert Cross
Telecopy: 404-763-1027
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<PAGE>
WITH COPIES TO:
Morris, Manning & Martin, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
Attn: John C. Yates, Esq.
Telecopy: 404-365-9532
IF TO DFI:
Decision Focus Incorporated
650 Castro Street, Suite 300
Mountain View, California 94041-2055
Attn: Robert Phillips
Telecopy: (415) 960-2638
WITH COPIES TO:
Wilson, Marshall & Taylor, a Professional Corporation
One Embarcadero Place, Suite 220
2100 Geng Road
Palo Alto, California 94303
Attn: Kurt Taylor, Esq.
Telecopy: 415-424-9769
12.3. ASSIGNMENT. Neither this Agreement nor any right, remedy, obligation
or liability arising hereunder or by reason hereof nor any of the documents
executed in connection herewith may be assigned by any party without the consent
of the other parties. Nothing contained herein, express or implied, is intended
to confer upon any person or entity other than the parties hereto and their
successors in interest and permitted assignees any rights or remedies under or
by reason of this Agreement unless so stated herein to the contrary.
12.4. AMENDMENTS AND WAIVERS. No breach of any covenant, agreement,
warranty or representation shall be deemed waived unless expressly waived in
writing by the party who might assert such breach. No waiver of any right
hereunder shall operate as a waiver of any other right or of the same or a
similar right on another occasion. This Agreement and all Exhibits and Schedules
hereto may be modified only by a written instrument duly executed by the parties
hereto and authorized as provided herein.
12.5. SURVIVAL. The representations and warranties set forth in this
Agreement shall not survive the Closing. Notwithstanding anything to the
contrary set forth in this SECTION 12.5, the provisions of this section shall
not limit or restrict any remedies against any of the parties or any other
person for fraud, willful misconduct, or bad faith.
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<PAGE>
12.6. ATTORNEYS' FEES. In the event that any action or proceeding,
including arbitration, is commenced by any party hereto for the purpose of
enforcing any provision of this Agreement, the parties to such action,
proceeding or arbitration may receive as part of any award, judgment, decision
or other resolution of such action, proceeding or arbitration their costs and
reasonable attorneys' fees as determined by the person or body making such
award, judgment, decision or resolution. Should any claim hereunder be settled
short of the commencement of any such action or proceeding, including
arbitration, the parties in such settlement shall be entitled to include as part
of the damages alleged to have been incurred reasonable costs of attorneys or
other professionals in investigation or counseling on such claim.
12.7. BINDING NATURE OF AGREEMENT. The Agreement includes each of the
Schedules and Exhibits that are referred to herein or attached hereto, all of
which are incorporated by reference herein. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective executors, heirs, legal representatives, successors and
assigns.
12.8. EXPENSES. Each of the parties hereto shall bear its own costs and
expenses in connection with this Agreement and the consummation of the
transactions contemplated hereby.
12.9. ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof, supersedes all prior
agreements and understandings relating to the subject matter hereof.
12.10. SEVERABILITY. To the extent that any of the provisions of this
Agreement are found by a court of competent jurisdiction to be invalid, illegal
or unenforceable for any reason, such provisions shall be modified or deleted in
such a manner so as to make the Agreement as modified valid, legal and
enforceable, and the balance of the Agreement shall not be affected thereby.
12.11. COUNTERPARTS. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
12.12. PUBLIC ANNOUNCEMENTS. The parties hereto shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to the Merger and shall not issue any such press release or make
any such public statement prior to consultation except as may be required by
law.
12.13. SECTION HEADINGS. The headings of each Section, subsection or
other subdivision of this Agreement are for reference only and shall not limit
or control the meaning thereof.
12.14. NO THIRD PARTY BENEFICIARIES. This Agreement constitutes an
agreement solely among the parties hereto and is not intended to and will not
confer any rights, remedies, obligations or liabilities, legal or equitable,
other than the parties hereto and their respective
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<PAGE>
successors or assigns, or otherwise constitute any person a third party
beneficiary under or by reason of this Agreement.
12.15. KNOWLEDGE. For purposes of this Agreement, all references to the
knowledge or awareness of DFI shall refer to the actual knowledge of Robert
Phillips, Dean Boyd and Robert Marshalla. For purposes of this Agreement, all
references to the knowledge or awareness of Aeronomics shall refer to the actual
knowledge of Robert Cross, Lawrence Hall and James Edwards.
12.16. POOLING. If any provision of this Agreement or the application of
any such provision to any person or circumstance precludes the use of "pooling
of interests" accounting treatment in connection with the Mergers, then such
provision shall be of no force and effect to the extent, and solely to the
extent necessary to preserve such accounting treatment for the Mergers, and in
that event, the remainder of this Agreement shall not be affected, and in lieu
of such provision there shall be added as part of this Agreement a provision as
similar in terms as may be possible for the Mergers to be treated as a "pooling
of interests" for accounting purposes.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Merger as of the date first above written.
AERONOMICS INCORPORATED
By: /s/ Robert G. Cross
-------------------------------------
Robert G. Cross, Chairman and Chief
Executive Officer
DECISION FOCUS INCORPORATED
By: /s/ Robert L. Phillips
-------------------------------------
Robert L. Phillips, Chief Executive
Officer
DFI/AERONOMICS INCORPORATED
By: /s/ Robert L. Phillips
-------------------------------------
Robert L. Phillips, Chief Executive
Officer
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<PAGE>
APPENDIX B
DELAWARE APPRAISAL RIGHTS
(S) 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsection (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinary meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251, (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S)
264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock,
which stock, or depository receipts in respect thereof, at the record
date fixed to determine the stockholders entitled to receive notice of
and to vote at the meeting of stockholders to act upon the agreement
of merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsections (f) or (g) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of merger or
consolidation pursuant to (S)(S) 251, 252, 254, 257, 258, 263 and 264
of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will
be either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation system
by the National Association of Securities Dealers, Inc. or held of
record by more 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., and b. of this
paragraph; or
<PAGE>
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under (S) 253 of this title is not
owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
<PAGE>
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving
<PAGE>
or resulting corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit discovery or
other pretrial proceedings and may proceed to trial upon the appraisal prior to
the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (8 Del. C. 1953, (S)
262; 56 Del. Laws, c. 50; 56 Del. Laws, c. 186, (S) 24; 57 Del. Laws, c. 148,
(S)(S) 27-29; 59 Del. Laws, c. 106, (S) 12; 60 Del. Laws, c. 371, (S)(S) 3-12;
63 Del. Laws, c. 26, (S) 14; 63 Del. Laws, c. 152, (S)(S) 1, 2; 64 Del. Laws, c.
112, (S)(S) 46-54; 66 Del. Laws, c. 136, (S)(S) 30-32; 66 Del. Laws, c. 352, (S)
9; 67 Del. Laws, c. 376, (S)(S) 19, 20; 68 Del. Laws, o. 337, (S)(S) 3, 4; 69
Del. Laws, c.61, (S) 10; 69 Del. Laws, c.262, (S)(S) 1-9; 70 Del. Laws, c. 79,
(S) 16.)
<PAGE>
APPENDIX C
CALIFORNIA DISSENTER'S RIGHTS
1300 [SHORT FORM MERGER; PURCHASE OF SHARES AT FAIR MARKET VALUE; "DISSENTING
SHARES" AND DISSENTING SHAREHOLDER].--
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a short-
form merger may, by complying with this chapter, require the corporation in
which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, and the notice of meeting of shareholders to act upon
the reorganization summarizes this section and Sections 1301, 1302 1303 and
1304; provided, however, that this provision does not apply to any shares with
respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A) or
(B) if demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
1301 [DISSENTER'S RIGHTS; DEMAND ON CORPORATION FOR PURCHASE OF SHARES].
- -- (a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to
<PAGE>
each such shareholder a notice of the approval of the reorganization by its
outstanding shares (Section 152) within 10 days after the date of such approval,
accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a
statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the procedure
to be followed if the shareholder desires to exercise the shareholder's right
under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or shortform merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
1302 [DISSENTING SHARES, STAMPING OR ENDORSING].--Within 30 days after
the date on which notice of the approval by the outstanding shares or the notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, the
shareholder shall submit to the corporation at its principal office or at the
office of any transfer agent thereof, (a) if the shares are certificated
securities, the shareholder's certificates representing any shares which the
shareholder demands that the corporation purchase, to be stamped or endorsed
with a statement that the shares are dissenting shares or to be exchanged for
certificates of appropriate denomination so stamped or endorsed or (b) if the
shares are uncertificated securities, written notice of the number of shares
which the shareholder demands that the corporation purchase. Upon subsequent
transfers of the dissenting shares on the books of the corporation the new
certificates, initial transaction statement, and other written statements issued
therefor shall bear a like statement, together with the name of the original
dissenting holder of the shares.
1303 [DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST; TIME
OF PAYMENT]. -- (a) If the corporation and the shareholder agree that the shares
are dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or
<PAGE>
within 30 days after any statutory or contractual conditions to the
reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
1304 [DISSENTERS ACTIONS; JOINDER; CONSOLIDATION; APPOINTMENT OF
APPRAISERS]. --(a) If the corporation denies that the shares are dissenting
shares, or the corporation and the shareholder fail to agree upon the fair
market values of the shares, then the shareholder demanding purchase of such
shares as dissenting shares or any interested corporation, within six months
after the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed
to the shareholder, but not thereafter, may file a complaint in the superior
court of the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Pursuant to Section 102(b)(7) of the DGCL, the Company has included in its
Certificate of Incorporation a provision that eliminates the personal liability
of a director to the Company or its stockholders for monetary damages for
breach of his fiduciary duty as a director except for (i) any breach of the
duty of loyalty to the Company or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) payment of an improper dividend or improper repurchase or improper
redemption of the Company's stock under Section 174 of the DGCL, or (iv) any
transaction from which the director derived an improper personal benefit. The
Company's Certificate of Incorporation further provides that in the event the
DGCL is amended to allow the further elimination or limitation of the liability
of directors, then the liability of the Company's directors shall be eliminated
or limited to the fullest extent permitted by the amended DGCL.
Section 145 of the DGCL permits a corporation to indemnify certain
persons, including officers and directors, who are (or are threatened to be
made) parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of the fact
that such person is or was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such officer,
director, employee or agent acted in good faith and in a manner he reasonably
believed to be in or not opposed to the Company's best interests and, with
respect to any criminal action or proceeding, provided he had no reasonable
cause to believe that his conduct was unlawful.
The DGCL further permits a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation or is or was serving in such role
in another enterprise at the request of the corporation. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred
by him, provided the officer or director acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best
interests. However, no such person will be indemnified as to matters for which
he is found to be liable to the corporation unless, and only to the extent
that, indemnification is ordered by a court.
The Certificate of Incorporation of the Company provides that the Company
shall indemnify its directors and officers to the fullest extent permitted by
the DGCL.
Delaware corporations also are authorized to obtain insurance to protect
officers and directors from certain liabilities, including liabilities against
which the corporation cannot indemnify its directors and officers. The Company
intends to obtain such insurance.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
II-1
<PAGE>
The following documents are filed as a part of this registration
statement.
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
2.1 Agreement and Plan of Reorganization by and among Aeronomics
Incorporated, Decision Focus Incorporated and DFI/Aeronomics
Incorporated, dated June 3, 1997 (attached as Appendix A to the
Prospectus and Proxy Statement included as a part of this
Registration Statement).
2.2 Form of Proxy for Special Meeting of Aeronomics Incorporated.
2.3 Form of Proxy for Special Meeting of Decision Focus Incorporated.
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Form of Stock Certificate for the Company's Class A Voting Common
Stock.
4.2 Form of Stock Certificate for the Company's Class B Nonvoting Common
Stock.
4.3 Form of Stock Certificate for the Company's Convertible Preferred
Stock.
5.1 Opinion of Morris, Manning & Martin, L.L.P.
10.1 Lease Agreement, dated April 15, 1991, by and between Sullivan/Best
Joint Venture and Aeronomics Incorporated, together with all
amendments thereto.
10.2 Aeronomics Incorporated Incentive Stock Option Plan
10.3 Decision Focus Incorporated Stock Ownership Plan and Money Purchase
Pension Plan
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Shilling & Kenyon, Inc.
23.3 Consent of Morris, Manning & Martin, L.L.P. (to be included in their
opinion filed as Exhibit 5.1).
23.4 Consent of Houlihan, Lokey, Howard & Zukin
24.1 Power of Attorney (contained on the Signature Page of this
Registration Statement).
</TABLE>
(b) Financial Statements Schedules
None.
Item 22. Undertakings.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
II-2
<PAGE>
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by
such directors, officer or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to the
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statements to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Mountain View, State of
California, on June , 1997.
DFI/AERONOMICS INCORPORATED
(Registrant)
By: /s/ Robert L. Phillips
---------------------------------
Robert L. Phillips, President
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signatures
appears below hereby constitutes and appoints Robert Cross and Robert Phillips,
and each of them, each with full power to act without the other, his true and
lawful attorneys-in-fact and agents, each with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to signing any and all pre-effective and post-effective amendments
to this Registration Statements, and to file the same with all exhibits thereto
and other documents in connection therewith, with the Commission, granting unto
each of said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that each said attorneys-in-
fact and agents or their substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dated indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert G. Gross Chairman of the Board June 25, 1997
- ------------------------
Robert G. Cross
/s/ Dean W. Boyd Vice Chairman of the Board June 25, 1997
- ------------------------
Dean W. Boyd
/s/ Robert L. Phillips Chief Executive Officer, June 25, 1997
- --------------------------- President & Director
Robert L. Phillips (Principal Executive Officer)
/s/ Lawrence W. Hall Executive Vice-President, Chief June 25, 1997
- --------------------------- Operating Officer & Director
Lawrence W. Hall
/s/ James L. Edwards Principal Financial and June 25, 1997
- --------------------------- Accounting Officer
James L. Edwards
</TABLE>
II-4
<PAGE>
/s/ Charles A. Johnson Director June 25, 1997
- ------------------------
Charles A. Johnson
/s/ William M. Wells Director June 25, 1997
- ------------------------
William M. Wells
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description Page No.
- ------- ----------- --------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization by and among Aeronomics
Incorporated, Decision Focus Incorporated and DFI/Aeronomics
Incorporated, dated June 3, 1997 (attached as Appendix A to the
Prospectus and Proxy Statement included as a part of this
Registration Statement).
2.2 Form of Proxy for Special Meeting of Aeronomics Incorporated.
2.3 Form of Proxy for Special Meeting of Decision Focus Incorporated.
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Form of Stock Certificate for the Company's Class A Voting Common
Stock.
4.2 Form of Stock Certificate for the Company's Class B Nonvoting Common
Stock.
4.3 Form of Stock Certificate for the Company's Convertible Preferred
Stock.
5.1 Opinion of Morris, Manning & Martin, L.L.P.
10.1 Lease Agreement, dated April 15, 1991, by and between Sullivan/Best
Joint Venture and Aeronomics Incorporated, together with all
amendments thereto.
10.2 Aeronomics Incorporated Incentive Stock Option Plan
10.3 Decision Focus Incorporated Stock Ownership Plan and Money Purchase
Pension Plan
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Shilling & Kenyon, Inc.
23.3 Consent of Morris, Manning & Martin, L.L.P. (to be included in their
opinion filed as Exhibit 5.1).
23.4 Consent of Houlihan, Lokey, Howard & Zukin
24.1 Power of Attorney (contained on the Signature Page of this
Registration Statement).
</TABLE>
II-6
<PAGE>
DFI/AERONOMICS
EXHIBIT/APPENDIX LIST
<TABLE>
<S> <C> <C>
2.2 Proxy for Aeronomics <263634>
2.3 Proxy for DFI <263642>
3.1 Certificate of Incorporation <257128>
Exhibit A <257366>
3.2 Bylaws <257158>
4.1 Class A Voting Common Stock Certificate <263325>
4.2 Class B Non Voting Common Stock Certificate <263564>
4.3 Convertible Preferred Stock Certificate <263565>
5.1 MMM Legal Opinion <263150>
10.1 Lease Agreement
First Amendment <263005>
Second Amendment <263261>
Third Amendment <263263>
Letter Agreement <263028>
Letter Agreement <263032>
10.2 Aeronomics Incentive SOP <263060>
10.3 DFI SOP & MMP Plan <263114>
23.1 Consent of KPMG <263777>
23.2 Consent of Shilling & Kenyon <263138>
23.4 Consent of Houlihan Lokey Howard & Sukin <263139>
APPENDIX A <263159>
APPENDIX B <263729>
APPENDIX C <263774>
</TABLE>
<PAGE>
EXHIBIT 2.2
AERONOMICS INCORPORATED
4751 Best Road, Suite 300
Atlanta, Georgia 30337-5609
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Robert G. Cross and Lawrence W. Hall, and
each of them, as proxies, with power to appoint his substitute, and hereby
authorizes each of them to represent and vote, as designated below, all of the
shares of the Series A Common Stock, par value $0.0001 per share, of Aeronomics
Incorporated (the "Company") that the undersigned is entitled to vote at the
Special Meeting of Stockholders to be held on August _____, 1997, and any
adjournment(s) thereof.
1. Proposal to approve and adopt a proposed Agreement and Plan of
Reorganization, dated as of June 3, 1997 (the "Merger Agreement"), among the
Company, Decision Focus Incorporated ("DFI") and DFI/Aeronomics Incorporated
("DFI/Aeronomics") pursuant to which, among other things, (i) the Company will
be merged with and into DFI/Aeronomics with DFI/Aeronomics being the surviving
corporation and the outstanding capital stock of the Company will be converted
into shares of DFI/Aeronomics' capital stock, and (ii) DFI will be merged with
and into DFI/Aeronomics with DFI/Aeronomics being the surviving corporation and
the outstanding capital stock of DFI will be converted into shares of
DFI/Aeronomics' capital stock.
[_] FOR [_] AGAINST [_] ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting and any adjournment(s)
thereof.
[_] FOR [_] AGAINST [_] ABSTAIN
<PAGE>
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DESIGNATED BY THE
UNDERSIGNED, IF NO DIRECTION IS SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSAL
1 AND AT THE DISCRETION OF THE PROXIES WITH RESPECT TO ANY OTHER MATTER THAT IS
PROPERLY BROUGHT BEFORE THE MEETING.
Dated:_______________,1997
_____________________________
(Signature)
______________________________
(Signatures if held jointly)
Please sign exactly as name appears
on your stock certificate(s). When
shares are held by joint tenants or
tenants in common, both should sign
below. When signing as attorney,
executor, administrator, receiver,
trustee or guardian, please so
specify below. When signing as a
corporation, please sign in full
corporate name and have signed by
the president or other duly
authorized officer(s). If a
partnership, please have signed in
the partnership name by the
authorized person(s).
-2-
<PAGE>
EXHIBIT 2.3
DECISION FOCUS INCORPORATED
650 Castro Street, Suite 300
Mountain View, California 94041
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Dean W. Boyd and Robert L. Phillips, and
each of them, as proxies, with power to appoint his substitute, and hereby
authorizes each of them to represent and vote, as designated below, all of the
shares of the Class A Voting Common Stock and Class B Nonvoting Common Stock,
par value $0.0001 per share, of Decision Focus Incorporated (the "Company") that
the undersigned is entitled to vote at the Special Meeting of Stockholders to be
held on August _____, 1997, and any adjournment(s) thereof.
1. Proposal to approve and adopt a proposed Agreement and Plan of
Reorganization, dated as of June 3, 1997 (the "Merger Agreement"), among the
Company, Aeronomics Incorporated ("Aeronomics") and DFI/Aeronomics Incorporated
("DFI/Aeronomics") pursuant to which, among other things, (i) the Company will
be merged with and into DFI/Aeronomics, with DFI/Aeronomics being the surviving
corporation and the outstanding capital stock of the Company will be converted
into shares of DFI/Aeronomics' capital stock, and (ii) Aeronomics will be merged
with and into DFI/Aeronomics with DFI/Aeronomics being the surviving corporation
and the outstanding capital stock of Aeronomics will be converted into shares of
DFI/Aeronomics' capital stock.
[_] FOR [_] AGAINST [_] ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting and any adjournment(s)
thereof.
[_] FOR [_] AGAINST [_] ABSTAIN
<PAGE>
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DESIGNATED BY THE
UNDERSIGNED, IF NO DIRECTION IS SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSAL
1 AND AT THE DISCRETION OF THE PROXIES WITH RESPECT TO ANY OTHER MATTER THAT IS
PROPERLY BROUGHT BEFORE THE MEETING.
Dated:__________________, 1997
______________________________
(Signature)
______________________________
(Signatures if held jointly)
Please sign exactly as name appears
on your stock certificate(s). When
shares are held by joint tenants or
tenants in common, both should sign
below. When signing as attorney,
executor, administrator, receiver,
trustee or guardian, please so
specify below. When signing as a
corporation, please sign in full
corporate name and have signed by
the president or other duly
authorized officer(s). If a
partnership, please have signed in
the partnership name by the
authorized person(s).
-2-
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
DFI/AERONOMICS INCORPORATED
_________________________________________________________________
Pursuant to the provisions of Section 102
of the General Corporation Law of
the State of Delaware
_________________________________________________________________
I, the undersigned, for the purpose of creating and organizing a
corporation under the provisions of and subject to the requirements of the
General Corporation Law of the State of Delaware, do HEREBY CERTIFY as follows:
1. The name of the Corporation is DFI/Aeronomics Incorporated (the
"Corporation").
2. The address of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, Corporation Trust Center, in the City of
Wilmington 19801, County of New Castle. The name of the registered agent of
the Corporation at such address is The Corporation Trust Company.
3. (a) The nature of the business or purposes to be conducted or promoted
by the Corporation is to engage in any lawful business, act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
(b) The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatsoever.
4. The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is Fifty Million (50,000,000), which
shall consist of (i) Forty-Three Million (43,000,000) shares of Class A Voting
Common Stock, at a par value of $.0001 per share, (ii) Five Million (5,000,000)
shares of Class B Nonvoting Common Stock, at a par value of $.0001 per share,
and (iii) Two Million (2,000,000) shares of Convertible Preferred Stock, at a
par value of $.0001 per share. The designations, preferences, rights,
qualifications, limitations and restrictions of the shares of Convertible
Preferred Stock shall be as set forth on Exhibit A attached hereto.
<PAGE>
The designations and the powers, preferences and rights of the shares of
Class A Voting Common Stock and the Class B Nonvoting Common Stock and the
qualifications, limitations and restrictions thereof are as follows:
A. Class A Voting Common Stock. On all matters as to which the
---------------------------
stockholders of the Corporation are entitled to vote, and except as
otherwise provided in this Certificate of Incorporation or by law, each
share of Class A Voting Common Stock shall have one vote. Except as
specifically provided otherwise in this Certificate of Incorporation, the
Class A Voting Common Stock and the Class B Nonvoting Common Stock shall
rank pari passu and shall possess equal rights and privileges on a share
for share basis, including any rights to liquidating or other
distributions.
B. Class B Nonvoting Common Stock. Each share of Class B Nonvoting Common
------------------------------
Stock shall be equal to each share of Class A Voting Common Stock in all
respects, with the exception of voting rights. Except as otherwise required
by applicable law, the holders of shares of Class B Nonvoting Common Stock
shall have no right to vote such shares and shall not vote such shares,
either as a class separate form the Class A Voting Common Stock or with the
Class A Voting Common Stock.
5. The Corporation shall not be governed by Section 203 of the General
Corporation Law of the State of Delaware.
6. Except as provided in Exhibit A attached hereto, no holder of shares
of stock of the Corporation shall have any preemptive or other right to receive
any securities of the Corporation.
7. (a) The number of directors which constitute the entire Board of
Directors of the Corporation shall be specified in the Bylaws of the
Corporation. The directors shall be divided into two classes designated as
Class I and Class II. Except as provided herein, the term of office of
directors shall be two years. The term of office of those directors in Class I
shall expire at the Corporation's annual meeting of stockholders be held in
1998; the term of office of those directors in Class II shall expire at the
Corporation's annual meeting of stockholders be held in 1999. At each annual
election, directors shall be chosen for a full two year term to succeed those
directors whose terms expire.
(b) The powers of the incorporator are to terminate upon the filing of
this Certificate of Incorporation. The name, address and classification of the
persons who are to serve as directors until the expiration of their respective
terms or until their respective successors are elected and qualified are:
2
<PAGE>
Name Address Classification
---- ------- --------------
Robert Cross 4751 Best Road II
Suite 300
Atlanta, GA 30337
Lawrence Hall 4751 Best Road I
Suite 300
Atlanta, GA 30337
Charles Johnson 4751 Best Road II
Suite 300
Atlanta, GA 30337
Robert Phillips 650 Castro Street II
Suite 300
Mountain View, CA 94041
Dean Boyd 650 Castro Street II
Suite 300
Mountain View, CA 94041
William Wells 650 Castro Street I
Suite 300
Mountain View, CA 94041
(c) The election of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and before the
voting begins, or unless the Bylaws shall so provide.
8. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.
9. The Corporation is to have perpetual existence.
10. (a) To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, no director
of the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Paragraph 10, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Paragraph
10, shall eliminate or reduce the effect of this Paragraph 10 in respect of any
matter occurring, or any
3
<PAGE>
cause of action, suit or claim that, but for this Paragraph 10, would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent provision.
(b) The Corporation shall, to the fullest extent permitted by law,
indemnify any and all officers and directors of the Corporation, and may, to the
fullest extent permitted by law or to such lesser extent as is determined in the
discretion of the Board of Directors, indemnify and advance expenses to any and
all other persons whom it shall have power to indemnify, from and against all
expenses, liabilities or other matters arising out of their status as such or
their acts, omissions or services rendered in such capacities.
(c) The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability.
11. The Corporation shall have the right, subject to any express
provisions or restrictions contained in the Certificate of Incorporation or
Bylaws of the Corporation, from time to time, to amend this Certificate of
Incorporation or any provision thereof in any manner now or hereafter provided
by law, and all rights and powers of any kind conferred upon a director or
stockholder of the Corporation by the Certificate of Incorporation or any
amendment thereof are conferred subject to such right.
12. The name and mailing address of the sole incorporator of the
Corporation is Grant W. Collingsworth, Morris, Manning & Martin, L.L.P., Suite
1600, 3343 Peachtree Road, Atlanta, Georgia 30326.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State of
Delaware, does make this Certificate, hereby acknowledging and declaring and
certifying that the foregoing Certificate of Incorporation is his act and deed
and the facts herein stated are true, and accordingly has hereunto set his hand
this 3rd day of June, 1997.
/s/ Grant W. Collingsworth
--------------------------------
Grant W. Collingsworth
Incorporator
4
<PAGE>
EXHIBIT A
---------
CERTIFICATE OF DESIGNATIONS, POWERS, PREFERENCES, RIGHTS,
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF CONVERTIBLE
PREFERRED STOCK OF DFI/AERONOMICS INCORPORATED
The relative designations, powers, preferences, right, qualifications,
limitations and restrictions of 2,000,000 shares of preferred stock designated
the "Convertible Preferred Stock," each of $.0001 par value, are as follows:
For the purposes of this statement, "Corporation" shall mean DFI/Aeronomics
Incorporated.
"Board of Directors" shall mean the board of directors of the Corporation.
"Common Stock" shall mean the Class A Common Stock and the Class B Common
Stock of the Corporation, collectively.
"Conversion Price" shall have the meaning provided in Subsection (d)(7)(F)
hereof.
"Conversion Rate" shall have the meaning provided in Subsection (d)(1)
hereof.
"Invested Amount" per share of Preferred Stock shall mean $2.43 adjusted
for subdivisions or combinations of the Preferred Stock.
"Original Issue Date" shall have the meaning provided in Subsection (d)(5)
hereof.
"Preferred Stock" shall mean the 2,000,000 shares of Convertible Preferred
Stock $.0001 par value, hereby designated.
"Class A Common Stock" shall mean the 43,000,000 authorized shares of Class
A Voting Common Stock, $.0001 par value per share, of the Corporation.
"Class B Common Stock" shall mean the 5,000,000 authorized shares of Class
B Nonvoting Common Stock, $.0001 par value per share, of the Corporation.
The preferences, limitations and relative rights granted to and imposed
upon the Preferred Stock are as follows:
(a) Dividend Rights. From and after the Original Issue Date, the holders of
---------------
outstanding shares of Preferred Stock shall be entitled to receive, and shall be
paid whenever funds are legally available therefor, dividends at an annual rate
of $0.1944 share, payable quarterly on or before the end of each fiscal quarter
of the Corporation, but only as and when declared by the Board of Directors,
prior and in preference to any declaration of payment of any dividend on the
Common Stock of the Corporation. Such dividends shall be cumulative and shall
<PAGE>
accrue from the Original Issue Date, whether or not declared by the Board of
Directors of the Corporation. Without the prior written consent of the holders
of a majority of the outstanding Preferred Stock, voting separately as a class,
no dividends shall be paid with respect to the Common Stock of the Corporation
at any time as, and for so long as, any shares of the Preferred Stock remain
outstanding. Notwithstanding the foregoing, no dividends may be paid with
respect to the Common Stock of the Corporation until all dividends declared or
accrued on all outstanding shares of the Preferred Stock have been set apart and
paid. Except as expressly set forth in Section (d), the Corporation shall be
under no obligation to pay such dividends unless so declared by the Board of
Directors.
(b) Liquidation Rights. In the event of liquidation, dissolution or winding
------------------
up of the Corporation, or a "Sale or Merger" (defined below), each holder of an
outstanding share of the Preferred Stock shall, at his election, be entitled to
receive in exchange for and in redemption of his Preferred Stock, prior and in
preference to the holders of Common Stock and the holders of any other class or
series of stock of the Corporation ranking junior to the Preferred Stock, by
reason of their ownership thereof, (i) in the case of a liquidation, dissolution
or winding up of the Corporation, from any funds legally available for
distribution to stockholders, and (ii) in the case of a Sale or Merger, from the
net proceeds therefrom (defined for these purposes to mean the proceeds, whether
cash, securities or property, available for distribution to stockholders or
payable to the stockholders by reason of the Sale or Merger), that portion of
such funds or proceeds equal to a fraction, (x) the numerator of which is the
number of votes to which the holder of such share of Preferred Stock is entitled
by virtue of holding such share with respect to the election of the single
Director referred to in Section (c) and (y) the denominator of which is the
aggregate of the number of votes to which all holders of Preferred Stock and
Common Stock and any other class or series of stock of the Corporation the
holders of which are entitled to vote in respect of the election of the
directors of the Corporation and, as to matters generally that are voted on by
stockholders of the Corporation (and not any matter requiring an additional
class or other special vote), are entitled to vote by virtue of holding shares
of Common Stock and/or Preferred Stock or such other capital stock of the
Corporation; provided, however, that notwithstanding the foregoing, the amount
payable to such holder of a share of Preferred Stock in the event of
liquidation, dissolution or winding up of the Corporation, or a Sale or Merger,
as provided above, shall not be less than, and shall be increased if necessary
(with sums payable to holders of Common Stock to be reduced ratably per share as
necessary) to equal the Invested Amount, plus a per annum amount for the period
such share has been issued and outstanding equal to (i) twenty percent (20%),
compounded annually, of the Invested Amount less (ii) the aggregate amount of
----
all dividends actually declared and paid on such share from the date of issuance
thereof (the "Liquidation Value"), and no accrued but undeclared dividends shall
be payable with respect to such share of Preferred Stock.
For purposes of this Section (b), a "Sale or Merger" of the Corporation
shall mean (i) the sale of all or substantially all the Corporation's assets and
(ii) the acquisition of the Corporation by another entity by way of merger or
consolidation resulting in the exchange of the outstanding shares of the
Corporation for securities or consideration issued, or caused to be issued, by
the acquiring corporation or its parent or subsidiary.
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<PAGE>
All the preferential amounts to be paid to the holders of the Preferred
Stock under this Section (b) shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the distribution of
any assets of the Corporation to, the holders of the Common Stock or any class
or series of stock of the Corporation ranking junior to the Preferred Stock in
connection with a liquidation, dissolution or winding up, or a Sale or Merger.
If the assets or surplus funds to be distributed to the holders of the Preferred
Stock are insufficient to permit the payment to such holders of the full amounts
payable to such holders, the assets and surplus funds legally available for
distribution shall be distributed ratably among the holders of the Preferred
Stock in proportion to the full amount each such holder is otherwise entitled to
receive.
(c) Voting Rights. Except as set forth specifically below, each share of
-------------
the Preferred Stock shall be non-voting. With respect to the election of
Directors, so long as there remain outstanding any shares of Preferred Stock the
holders of Preferred Stock shall vote together as a single class to elect one
member of the Board of Directors, and the holders of Common Stock shall elect
the remaining members of the Board of Directors. For such purpose, the holder of
each share of Preferred Stock shall be entitled to the number of votes equal to
the number of shares of Class B Common Stock into which such share of Preferred
Stock would be convertible upon the occurrence of the events described in
Section (d) hereof on the record date for the vote or consent of stockholders.
Each holder of a share of the Preferred Stock shall be entitled to receive the
same prior notice of any stockholders' meeting as provided to the holders of
Common Stock in accordance with the Bylaws of the Corporation, as well as prior
notice of all stockholder actions to be taken by legally available means in lieu
of meeting, but, except as expressly provided in this Section (c) and, except
for those matters required by law, or by the terms hereof, to be submitted to a
class vote of the holders of Preferred Stock shall not be entitled to vote with
holders of the Common Stock upon any matter submitted to a vote of stockholders.
Fractional votes in any event shall not be permitted, and any fractions shall be
disregarded in computing voting rights.
Notwithstanding anything contained in this Section (c) to the contrary,
should the Corporation fail for any reason (i) to redeem the Preferred Stock
under the conditions and in accordance with the terms of Section (b) hereof,
(ii) to issue Class B Common Stock in conversion of the Preferred Stock as
provided in Section (d) hereof, (iii) to redeem the Preferred Stock under the
conditions and in accordance with the terms of Section (e) hereof, (iv) to honor
the preemptive rights granted to holders of Preferred Stock in Section (f)
hereof, or (v) to comply with the protective provisions of Section (g) hereof,
and should such failure continue for a period of thirty consecutive (30) days,
then, for so long as said failure remains uncured, the holders of Preferred
Stock shall be entitled, at any annual meeting of the stockholders or any
special meeting called for such purpose, voting together as a single class, to
elect the smallest number of members of the Board of Directors necessary to
constitute a majority of the full Board of Directors of the Corporation, and the
holders of Class A Common Stock and the holders of Class B Common Stock (to the
extent they are entitled to vote), voting as a single class, shall elect the
remaining Directors. For such purpose each holder of a share of Preferred Stock
shall be entitled to the number of votes with respect to such share to which
such holder would be entitled with respect to the election of the single
Director to be elected by all holders of the Preferred Stock
-3-
<PAGE>
voting as a class, provided above. If, prior to the end of the term of any
director elected as aforesaid by the holders of shares of the Preferred Stock, a
vacancy in the office of such director shall occur by reason of death,
resignation, removal or disability, or for any other reason, the right to fill
such vacancy shall be vested in the holders of the Preferred Stock unless the
right of such holders to elect such director shall have ceased as provided
hereafter. At any time after such power to elect a majority of directors shall
have so vested in the Preferred Stock, the Secretary of the Corporation may,
and, upon the written request of the holders of record of ten percent (10%) or
more of the then outstanding shares of the Preferred Stock addressed to the
Secretary at the principal office of the Corporation, the Secretary shall, call
a special meeting of the holders of Preferred Stock for the election of the
directors to be elected by them as hereinabove provided, to be held within
thirty (30) days after such call and at the place and upon the notice provided
by law and in the Bylaws of the Corporation for the holding of meetings of
stockholders. If any such special meeting required to be called as above
provided shall not be called by the Secretary within thirty (30) days after
receipt of any such request, then the holders of record of ten percent (10%) or
more in amount of the Preferred Stock then outstanding may designate in writing
one of their numbers to call such meeting, and the person so designated may call
such meeting to be held at the place and upon the notice above provided, and for
that purpose shall have access to the stock ledger of the Corporation. If any
such special meeting shall be called by the Secretary of the Corporation or by
the holders of the Preferred Stock as above provided, and if the holders of at
least a majority of the Preferred Stock then outstanding and entitled to vote at
such meeting shall be present or represented by proxy at such meeting or any
adjournment thereof, then, by vote of the holders of at least a majority of such
Preferred Stock present or so represented at such meeting, the then authorized
number of directors of the Corporation shall be increased by twofold plus one
and, at such meeting the holders of the Preferred Stock shall be entitled to
elect the additional directors so provided for, but any directors so elected
shall hold office only until their respective successors are duly elected and
qualified at the annual meeting of stockholders or special meeting held in place
thereof next succeeding their election. At such time, if any, as the holders of
the Preferred Stock shall obtain the redemption referred to in clause (i) or
clause (iii) above, receive the Common Stock specified in clause (ii) above, or
obtain rectification of the failure to respect, or restoration of, the rights
referenced in clause (iv) or (v) above, as the case may be, then the terms of
office of all persons elected as directors by such holders shall forthwith
terminate, and the number of directors shall be reduced accordingly. The
foregoing remedy shall not be deemed exclusive, and shall be in addition to all
other rights and remedies available at law or equity to the holders of Preferred
Stock.
(d) Conversion. The holders of the Preferred Stock shall have conversion
----------
rights as follows (the "Conversion Rights"):
(1.) Optional. Each share of Preferred Stock shall be convertible, at
--------
the option of the holder thereof, at any time after the date of issuance
of such share at the office of the Corporation or any transfer agent for
the Preferred Stock, into Class B Common Stock at the initial conversion
rate of one (1) fully paid and nonassessable share of Class B Common Stock
for each share of Preferred Stock, subject, however, to the adjustments
described below. (The quotient obtained by dividing the number of shares of
Class B Common Stock into which each share of Preferred Stock may be
converted by one is
-4-
<PAGE>
hereinafter referred to as the "Conversion Rate." The initial Conversion
Rate shall be one (1).) Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of the surrender of
the shares of Preferred Stock to be converted in accordance with the
procedures described in Subsection (d)(4) below. The Corporation shall pay
to the holder thereof promptly following such surrender all declared or
accrued but unpaid dividends on the shares of Preferred Stock so converted
to, and including, the date of such conversion; provided however, that the
Corporation may, at its option, in lieu of making a full cash payment of
all such declared or accrued but unpaid dividends, make payment thereof in
that number of whole shares of Class B Common Stock calculated by dividing
the total of such declared or accrued but unpaid dividends due such holder
by the fair market value per share of the Class B Common Stock as
determined in good faith by the Corporation's Board of Directors.
(2.) Automatic. The Corporation shall notify each holder of Preferred
---------
Stock at least ninety (90) days prior to the anticipated effective date of
a registration statement filed by the Corporation under the federal
Securities Act of 1933, as amended, covering the underwritten offer and
sale of any series or class of common stock of the Corporation to the
public having an aggregate offering price to the public of not less than
fifteen million dollars ($15,000,000) and a public offering price per share
of not less than two and one-half (2-1/2) times the then effective
Conversion Price per share (as defined in Subsection (d)(7)(F) below; such
offering being referred to hereinafter as a "Qualified Public Offering").
Upon the closing of, but effective immediately prior to, the first sale in
a Qualified Public Offering, each and every share of outstanding Preferred
Stock held by all holders of Preferred Stock shall automatically be
converted into Class B Common Stock, at the then effective Conversion Rate;
provided that such conversion shall be conditioned upon the Corporation
paying all declared or accrued but unpaid dividends on the outstanding
Preferred Stock to each holder to and including the date of such
conversion; provided, further, that the Corporation may, at its option, in
lieu of making a full cash payment of all such declared or accrued but
unpaid dividends, make payment thereof in that number of whole shares of
Class B Common Stock calculated by dividing the total of such declared or
accrued and unpaid dividends due such holder by the offering price per
share in the Qualified Public Offering. Such conversion shall be automatic,
without any further action by the holders of shares of Preferred Stock and
regardless of whether the certificates representing such shares are
surrendered to the Corporation or its transfer agent; provided, however,
that the Corporation shall not be obligated to issue certificates
evidencing the shares of Class B Common Stock issuable upon such conversion
unless certificates evidencing such shares of Preferred Stock so converted
are surrendered to the Corporation in accordance with the procedures
described in Subsection (d)(4) below. Upon the conversion of the Preferred
Stock pursuant to this Subsection (d)(2), the Corporation shall promptly
send written notice thereof, by registered or certified mail, return
receipt requested and postage prepaid, by hand delivery or by overnight
delivery, to each holder of record of Preferred Stock at his address then
shown on the records of the Corporation, which notice shall state that
certificates evidencing shares of Preferred Stock must be surrendered at
the office of the Corporation (or of its
-5-
<PAGE>
transfer agent for the Common Stock, if applicable) in the manner described
in Subsection (d)(4) below.
(3.) Treatment of Fractional Shares. No fractional shares of Class B
------------------------------
Common Stock shall be issued upon conversion of Preferred Stock, and any
shares of Preferred Stock surrendered for conversion that would otherwise
result in a fractional share of Class B Common Stock shall be redeemed at
the then effective Conversion Price per share, payable as promptly as
possible when funds are legally available therefor.
(4.) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Class B Common Stock
pursuant to Subsection (d)(1) above, or to receive certificates
representing the shares of Class B Common Stock into which shares of
Preferred Stock are automatically converted in accordance with Subsection
(d)(2) above, such holder shall surrender the certificate or certificates
for such shares of Preferred Stock, duly endorsed, at the office of the
Corporation or of any transfer agent for the Preferred Stock, and shall
give written notice to the Corporation at such office of the name or names
in which such holder wishes the certificate or certificates for shares of
Class B Common Stock to be issued if different from the name shown on the
books and records of the Corporation. Said conversion notice shall also
contain such representations as may reasonably be required by the
Corporation to the effect that the shares to be received upon conversion
are not being acquired and will not be transferred in any way that might
violate the then applicable laws. The Corporation shall, as soon as
practicable thereafter and in no event later than thirty (30) days after
the delivery of said conversion notice, issue and deliver at such office to
such holder of Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Class B
Common Stock to which such holder shall be entitled as aforesaid. The
person or persons entitled to receive the shares of Class B Common Stock
issuable upon a conversion pursuant to Subsection (d)(1) or (2) shall be
treated for all purposes as the record holder or holders of such shares of
Class B Common Stock as of the effective date of conversion specified in
such section. All certificates issued upon the exercise or occurrence of
the conversion shall contain a legend governing restrictions upon such
shares imposed by law or agreement of the holder or his predecessors.
(5.) Adjustment for Subdivisions or Combinations of Common Stock.
-----------------------------------------------------------
In the event the Corporation at any time or from time to time after the
effective date of a written agreement by the Corporation for the initial
sale of Preferred Stock (hereinafter referred to as the "Original Issue
Date") effects a subdivision or combination of its outstanding Common Stock
into a greater or lesser number of shares without a proportionate and
corresponding subdivision or combination of its outstanding Preferred
Stock, then and in each such event the Conversion Rate shall be increased
or decreased proportionately.
(6.) Adjustments for Dividends. Distributions and Common Stock
---------------------------------------------------------
Equivalents. In the event the Corporation at any time or from time to time
-----------
after the Original Issue Date shall make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in additional shares of
-6-
<PAGE>
Common Stock or other securities or rights convertible into or entitling
the holder thereof to receive additional shares of Common Stock
(hereinafter referred to as "Common Stock Equivalents") without payment of
any consideration by such holder of such Common Stock Equivalents or the
additional shares of Common Stock and without a proportionate and
corresponding dividend or other distribution to holders of Preferred Stock
then and in each such event the maximum number of shares (as set forth in
the instrument relating thereto without regard to any provisions contained
therein for subsequent adjustment of such number) of Common Stock issuable
in payment of such dividend or distribution or upon conversion or exercise
of such Common Stock Equivalents shall be deemed, for purposes of this
Subsection (d)(6), to be issued and outstanding as of the time of such
issuance or, in the event such a record date shall have been fixed, as of
the close of business on such record date. In each such event the
Conversion Rate shall be increased as of the time of such issuance or, in
the event such a record date shall have been fixed, as of the close of
business on such record date, by multiplying the Conversion Rate by a
fraction,
(A) the numerator of which shall be the total number of shares of
Common Stock (x) issued and outstanding or deemed pursuant to the
terms hereof to be issued and outstanding (not including any shares
described in clause (y) immediately below), immediately prior to the
time of such issuance or the close of business on such record date,
plus (y) the number of shares of Common Stock issuable in payment of
such dividend or distribution or upon conversion or exercise of such
Common Stock Equivalents; and
(B) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding or deemed to be issued and
outstanding immediately prior to the time of such issuance or the
close of business on such record date;
provided, however, that (i) if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Rate shall be recomputed accordingly as of the
close of business on such record date and thereafter the Conversion Rate shall
be adjusted pursuant to this Subsection (d)(6) as of the time of actual payment
of such dividends or distributions; or (ii) if such Common Stock Equivalents
provide, with the passage of time or otherwise, for any decrease in the number
of shares of Common Stock issuable upon conversion or exercise thereof (or upon
the occurrence of a record date with respect thereto), the Conversion Rate
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon, shall,
upon any such decrease becoming effective, be recomputed to reflect such
decrease insofar as it affects the rights of conversion or exercise of the
Common Stock Equivalents then outstanding; or (iii) upon the expiration of any
rights of conversion or exercise under any unexercised Common Stock Equivalents,
the Conversion Rate computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall upon such expiration, be recomputed as if the
only additional shares of Common Stock issued were the shares of such stock if
any, actually issued upon the
-7-
<PAGE>
conversion or exercise of such Common Stock Equivalents; or (iv) in the event of
issuance of Common Stock Equivalents that expire by their terms not more than
sixty (60) days after the date of issuance thereof, no adjustments of the
Conversion Rate shall be made until the expiration or exercise of all such
Common Stock Equivalents, whereupon such adjustment shall be made in the manner
provided in this Subsection (d)(6).
(7.) Adjustment of Conversion Rate for Diluting Issues. Except as
-------------------------------------------------
otherwise provided in this Subsection (d)(7), in the event the Corporation
sells or issues any Common Stock or Common Stock Equivalents at a per share
consideration (as defined below) less than the Conversion Price (as such
term is defined in Subsection (d)(7)(F) below) then in effect for the
Preferred Stock, then the Conversion Rate (and, thereby, the Conversion
Price) then in effect shall be adjusted as provided in paragraphs (A), (B),
(C) and (F) hereof. For purposes of the foregoing, the per share
consideration with respect to the sale or issuance of Common Stock shall be
the price per share received by the Corporation, prior to the payment of
any expenses, commissions, discounts and other applicable costs. With
respect to the sale or issuance of Common Stock Equivalents that are
convertible into or exchangeable for Common Stock without further
consideration, the per share consideration shall be determined by dividing
the maximum number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for subsequent
adjustment of such number) of Common Stock issuable with respect to such
Common Stock Equivalents into the aggregate consideration received by the
Corporation upon the sale or issuance of such Common Stock Equivalents.
With respect to the issuance of other Common Stock Equivalents, the per
share consideration shall be determined by dividing the maximum number of
shares (as set forth in the instrument relating thereto without regard to
any provisions contained therein for subsequent adjustment of such number)
of Common Stock issuable with respect to such Common Stock Equivalents into
the total aggregate consideration received by the Corporation upon the sale
or issuance of such Common Stock Equivalents plus the total consideration
receivable by the Corporation upon the conversion or exercise of such
Common Stock Equivalents. The issuance of Common Stock or Common Stock
Equivalents for no consideration shall be deemed to be an issuance at a per
share consideration of $.01. In connection with the sale or issuance of
Common Stock and/or Common Stock Equivalents for non-cash consideration,
the amount of consideration shall be determined by the Board of Directors
of the Corporation.
As used herein, "Additional Shares of Common Stock" shall mean either
shares of Common Stock issued subsequent to the Original Issue Date or,
with respect to the issuance of Common Stock Equivalents, the maximum
number of shares (as set forth in the instrument relating thereto without
regard to any provisions contained therein for subsequent adjustment of
such number) of Common Stock issuable in exchange for, upon conversion of,
or upon exercise of such Common Stock Equivalents.
(A) Upon each issuance of Common Stock for a per share
consideration less than the Conversion Price in effect on the date of
such issuance,
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<PAGE>
the Conversion Rate of the Preferred Stock in effect on such date
shall be adjusted by multiplying it by a fraction:
(x) the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of
such Additional Shares of Common Stock plus the number of such
Additional Shares of Common Stock so issued, and
(y) the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to the issuance of
such Additional Shares of Common Stock plus the number of shares
of Common Stock that the aggregate net consideration received by
the Corporation for the total number of such Additional Shares
of Common Stock so issued would purchase at the Conversion Price
then in effect.
(B) Upon each issuance of Common Stock Equivalents, exchangeable
without further consideration into Common Stock, for a per share
consideration less than the Conversion Price in effect on the date of
such issuance, the Conversion Rate of the Preferred Stock in effect
on such date shall be adjusted as in paragraph (A) of this Subsection
(d)(7) on the basis that the related Additional Shares of Common
Stock are to be treated as having been issued on the date of issuance
of the Common Stock Equivalents, and the aggregate consideration
received by the Corporation for such Common Stock Equivalents shall
be deemed to have been received for such Additional Shares of Common
Stock.
(C) Upon each issuance of Common Stock Equivalents other than
those described in paragraph (B) of this Subsection (d)(7), for a per
share consideration less than the Conversion Price in effect on the
date of such issuance, the Conversion Rate of the Preferred Stock in
effect on such date shall be adjusted as in paragraph (A) of this
Subsection (d)(7) on the basis that the related Additional Shares of
Common Stock are to be treated as having been issued on the date of
issuance of such Common Stock Equivalents, and the aggregate
consideration received and receivable by the Corporation on
conversion or exercise of such Common Stock Equivalents shall be
deemed to have been received for such Additional Shares of Common
Stock.
(D) Once any Additional Shares of Common Stock have been treated
as having been issued for the purpose of this Subsection (d)(7), they
shall be treated as issued and outstanding shares of Common Stock
whenever any subsequent calculations must be made pursuant hereto;
provided that on the expiration of any options, warrants or rights to
purchase Additional Shares of Common Stock the termination of any
rights to convert or exchange for Additional Shares of Common Stock,
or the expiration of any options or rights related to such
convertible or exchangeable securities on account of which an
adjustment in the Conversion Rate has been made previously pursuant
to this
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<PAGE>
Subsection (d)(7), the Conversion Rate shall forthwith be readjusted
to such Conversion Rate as would have obtained had the adjustment
made upon the issuance of such options, warrants, rights, securities
or options or rights related to such securities been made upon the
basis of the issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options, warrants or
rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities.
(E) The foregoing notwithstanding, no adjustment of the
Conversion Rate (and, thereby, the Conversion Price) shall be made as
a result of the issuance of:
(w) any shares of Common Stock upon the conversion of shares
of Preferred Stock;
(x) any shares of Common Stock pursuant to which the
Conversion Rate and Conversion Price are adjusted under
Subsection (5) or (6) of this Section (d);
(y) any shares of Common Stock issued pursuant to the
exchange, conversion or exercise of any Common Stock Equivalents
that have previously been incorporated into computations
hereunder on the date when such Common Stock Equivalents were
issued; or
(z) not to exceed 1,800,652 shares of Class B Common Stock
(provided that such number shall be appropriately adjusted for
any stock splits, stock dividends, recapitalizations or similar
events) issued pursuant to options, warrants or rights (whether
presently outstanding or granted in the future) to purchase such
shares of Class B Common Stock issuable to employees, officers,
Board members or consultants of the Corporation or any
subsidiary of the Corporation pursuant to bona fide employee
stock option plans created in accordance with Section 422 of the
Internal Revenue Code of 1986, as amended, or similar subsequent
legislation or pursuant to a non-statutory stock option plan or
non-statutory stock option agreements with terms substantially
similar to such statutory plan or plans; provided that any such
non-statutory stock option plan or agreements shall provide that
any options thereunder not be granted for less than the fair
market value of the stock into which they are exercisable.
(F) The Conversion Price at any one time hereunder shall be
equal to the quotient obtained by dividing the Invested Amount
(defined in Section (b) above) by the then effective Conversion Rate.
The initial Conversion Price hereunder shall be $2.43.
(8.) De Minimis Adjustments. No adjustment to the Conversion Rate
(and, thereby, the Conversion Price) shall be made if such adjustment would
result in a change
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<PAGE>
in the Conversion Price of less than $.01. Any adjustment of less than $.01
that is not made shall be carried forward and shall be made at the time of,
and together with, any subsequent adjustment that, on a cumulative basis,
amounts to an adjustment of $.01 or more in the Conversion Price.
(9.) No Impairment. Except as provided in Section (g) hereof, the
-------------
Corporation shall not, by amendment of its Certificate of Incorporation or
Bylaws or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Corporation, but shall
at all times in good faith assist in the carrying out of all the provisions
of this Section (d) and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Preferred Stock against impairment.
(10.) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Rate pursuant to this Section
(d), the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and cause independent
public accountants selected by the Corporation to verify such computation
and prepare and furnish to each holder of Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Preferred
Stock furnish or cause to be furnished to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion
Rate at that time in effect, and (iii) the number of shares of Common Stock
and the amount, if any, of other property that at that time would be
received upon the conversion of Preferred Stock.
(11.) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities other
than Preferred Stock for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, any Common
Stock Equivalents or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation shall mail to each
holder of Preferred Stock at least twenty (20) days prior to the date
specified therein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution or rights, and
the amount and character of such dividend, distribution or rights.
(12.) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Preferred Stock such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Preferred Stock; and if at any
tine the number of authorized but unissued shares of Common Stock shall be
insufficient to effect the conversion of all then outstanding shares of the
Preferred Stock the Corporation
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<PAGE>
shall take such corporate action as may, in the opinion of its counsel be
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
(e) Redemption of Preferred Stock. Upon the written request made at any
-----------------------------
time after the fifth (5th) anniversary of the Original Issue Date by any holder
or holders of shares of Preferred Stock the Corporation shall within ninety (90)
days of such request, redeem all shares of Preferred Stock held by such holder
or holders specified in such written request as shares to be redeemed, by paying
in cash to such holder or holders in respect of each such share the Redemption
Price (defined below).
The price payable for each redeemed share of Preferred Stock (the
"Redemption Price") shall be equal to the Appraised Value (defined below) of
each such share; provided, however, that notwithstanding the foregoing the
amount payable to such holder of a share of Preferred Stock in redemption
thereof shall not be less than, and shall be increased if necessary to equal,
the Invested Amount plus a per annum amount for the period such share has been
issued and outstanding equal to (i) twenty percent (20%), compounded annually,
of the Invested Amount less (ii) the aggregate amount of all dividends actually
----
declared and paid on such share from the date of issuance thereof, and no
accrued but undeclared dividends shall be payable with respect to such share.
Should the holders who have submitted a request for redemption (the "Electing
Holders") and the Corporation be unable to agree during the twenty (20)-day
period immediately succeeding the making of such redemption request as to the
Appraised Value without the employment of appraisers, then the Electing Holders
and the Corporation shall each select an appraiser experienced in the business
of evaluating or appraising the market value of stock, and the appraisers so
selected (the "Initial Appraisers") shall appraise such shares to be redeemed.
If the difference between the resulting appraisals is not greater than ten
percent (10%) of the higher appraisal, then the average of the appraisals shall
be deemed the Appraised Value; otherwise, the Initial Appraisers shall select an
additional appraiser who shall be experienced in a manner similar to the Initial
Appraisers (the "Additional Appraiser"). If the Initial Appraisers fail to
select such Additional Appraiser as provided above, then either the Electing
Holders or the Corporation may apply, after written notice to the other, to any
judge of any court of general jurisdiction for the appointment of such
Additional Appraiser. The Additional Appraiser shall appraise such shares to be
redeemed as of the date of the redemption and shall forthwith give written
notice of his determination to the Corporation and the Electing Holders. The
Appraised Value shall then be established by averaging all determinations of
value, and then, disregarding the value determination that deviates most from
such average, averaging the remaining value determinations. The appraisers shall
not discount the Preferred Stock for minority ownership interest. Each of the
Electing Holders (as a group) and the Corporation shall pay the expenses and
fees of the appraiser selected by such group or the Corporation and one-half the
expenses and fees of the Additional Appraiser, with the members of the Electing
Holders group bearing such expenses and fees among themselves in proportion to
their share ownership.
Upon the determination of the Redemption Price, each holder of shares to be
redeemed shall surrender the certificate representing such shares to the
Corporation and shall receive payment of the Redemption Price therefor in cash.
Redemption hereunder is subject to the legal
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<PAGE>
availability of funds and to the extent delayed will occur as soon thereafter as
funds are legally available therefor, with interest at the then current prime
rate published in The Wall Street Journal under "Money Rates" on the business
day immediately preceding the date of such redemption plus two percent (2%) per
annum for the period of such delay; provided, however, that any such delay shall
nevertheless be subject to the remedial voting rights described in Section (c)
hereof.
(f) Preemptive Rights. The holders of Preferred Stock shall have the right
-----------------
of first refusal to purchase any New Securities (as defined in this Section (f))
that the Corporation may, from time to time, propose to sell and issue. This
right shall be subject to the following provisions:
(1) New Securities Defined. "New Securities" shall mean any common
----------------------
stock or preferred stock of the Corporation, whether now authorized or not,
and rights, options or warrants to purchase said common stock or preferred
stock and securities of any type whatsoever that are, or may become,
convertible into said common stock or preferred stock; provided that "New
Securities" does not include (a) securities purchased on the Original Issue
Date, or securities issued upon conversion or exercise of or by reason of
such securities; (b) securities offered to the public pursuant to a
registration statement under the Securities Act of 1933, as amended; (c)
securities issued pursuant to the acquisition of any product, technology,
know-how or another corporation by the Corporation by (i) merger, (ii)
purchase of all or substantially all of the assets, or (iii) any other
reorganization whereby the Corporation owns over fifty percent (50%) of the
voting power of such corporation; (d) shares of the Corporation's common
stock or preferred stock issued in connection with any stock split, stock
dividend or recapitalization by the Corporation; (e) shares of Class B
Common Stock not to exceed 1,800,652 (provided that such number shall be
appropriately adjusted for any stock splits, stock dividends,
recapitalizations or similar events) issued pursuant to options, warrants
or rights (whether presently outstanding or granted in the future) to
purchase such shares of Class B Common Stock issuable to employees,
officers, Board members or consultants of the Corporation or any subsidiary
of the Corporation pursuant to bona fide employee stock option plans
created in accordance with Section 422 of the Internal Revenue Code of
1986, as amended, or similar subsequent legislation or pursuant to a non-
statutory stock option plan or non-statutory stock option agreements with
terms substantially similar to such statutory plan or plans; provided that
any such non-statutory stock option plan or agreements shall provide that
any options thereunder not be granted for less than the fair market value
of the stock into which they are exercisable; or (f) any right, option or
warrant to acquire any security convertible into the securities excluded
from the definition of New Securities pursuant to clauses (a) through (d)
above.
(2) In the event the Corporation proposes to undertake an issuance of
New Securities, it shall give each holder of Preferred Stock written notice
of its intention, describing the type of New Securities, the price, the
closing date of the offering thereof, and the general terms upon which the
Corporation proposes to issue the same. Such holder shall be entitled at
any time during the offering of the New Securities to purchase
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<PAGE>
some or all of his pro rata portion of such New Securities for the price
and upon the general terms specified in the notice (and in any case at a
price and upon general terms no more favorable to any of the other
purchasers in such offering), by giving, within twenty (20) days after
receiving such notice from the Corporation, written notice to the
Corporation of such election stating therein the time and place of the
closing of such purchase, which must be a date no later than ten (10) days
following the closing date of the offering specified in the notice given by
the Corporation or any extended closing date thereof. For purposes of this
Section (f), each holder's pro rata portion of New Securities shall be
equal to a fraction, the numerator of which is the number of shares of
Preferred Stock owned by such holder and the denominator of which is the
number of shares of Preferred Stock outstanding including the shares of
Preferred Stock of such holder. Should any holder of Preferred Stock not
elect to purchase his pro rata portion of such New Securities in full, the
remaining holders of Preferred Stock having elected to purchase their pro
rata portions shall have the right to purchase such remaining unpurchased
portion in addition to their own, with each such holder having the right to
purchase in the proportion that the number of shares of Preferred Stock
owned by such holder (prior to receipt of the above described written
notice by the Corporation) bears to the number of shares owned by all
holders of Preferred Stock also electing to purchase such remaining New
Securities. All such purchases shall be made within the same period
specified for closing above.
(3) Any offer by the Corporation of securities in addition to those
specified in the notice described in Subsection (2) above, whether on the
same or different terms as are specified therein, shall again require
compliance by the Corporation with the terms of this Section (f).
(4) The rights granted in this Section (f) shall terminate
immediately prior to a Qualified Public Offering as defined in Subsection
(d)(2) hereof.
(g) Protective Provisions. In addition to any other rights provided by law,
-----------------------
so long as any shares of Preferred Stock shall be outstanding, except where the
vote or written consent of the holders of a greater number of shares is required
by law or by the Certificate of Incorporation, without first obtaining the
affirmative vote or written consent of the holders of not less than two-thirds
of such outstanding shares of Preferred Stock, the Corporation shall not:
(1) merge or consolidate with or into, or permit any subsidiary
to merge or consolidate with or into, any other corporation,
corporations, entity or entities (except into or with a wholly owned
subsidiary corporation with the requisite stockholder approval and
except in the case where the stockholders of the Corporation
immediately prior to such event shall immediately thereafter hold as a
group the right to cast at least a majority of the votes of all holders
of voting securities of the resulting or surviving corporation);
(2) sell, abandon, transfer, lease or otherwise dispose of all or
substantially all its properties or assets;
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<PAGE>
(3) voluntarily dissolve, liquidate, or wind up or carry out any
partial liquidation, distribution or transaction in the nature of a
partial liquidation or distribution;
(4) create or authorize the creation or increase the authorized
amount of any additional class or series of shares of stock unless the
same ranks junior to the Preferred Stock as to dividends, redemption
and the distribution of assets on the liquidation, dissolution or
winding up of the Corporation; increase the authorized amount of
Preferred Stock; increase the authorized amount of any additional class
or series of shares of stock unless the same ranks junior to the
Preferred Stock as to dividends, redemption and the distribution of
assets on the liquidation, dissolution or winding up of the
Corporation; or create or authorize any obligation or security
convertible into shares of Preferred Stock or into shares of any other
class or series of stock whether voting or non-voting; regardless of
whether any such creation, authorization or increase shall be by means
of amendment to the Certificate of Incorporation, or by merger,
consolidation or otherwise;
(5) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or Bylaws, or file any
certificate of designations, preferences and rights of any series of
stock of the Corporation, if such action would alter or change the
preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, the Preferred Stock;
(6) pay any dividends with respect to any Common Stock;
(7) issue any additional voting capital stock of the Corporation
except shares of Class A Common Stock issued upon conversion of shares
of Class B Common Stock; or
(8) amend the provisions of this Section (g).
(h) Notices. Any notice required by the provision hereof to be given to the
-------
holders of shares of Preferred Stock shall be deemed given as of the second
business day following deposit with the United States Postal Service, first-
class, postage prepaid, and addressed to each holder of record at his address
appearing on the books of the Corporation.
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<PAGE>
EXHIBIT 3.2
DFI/AERONOMICS INCORPORATED
BYLAWS
ARTICLE I
OFFICES
Section 1.1. Registered Office. The registered office shall be in
-----------------
the City of Wilmington, County of New Castle, State of Delaware.
Section 1.2. Other Offices. The corporation may also have offices
-------------
at such other places, either within or without the State of Delaware, as the
board of directors may from time to time to determine or as the business of the
corporation may require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
Section 2.l. Place of Meetings. All meetings of the stockholders
-----------------
shall be held at the office of the corporation or at such other places as may be
fixed from time to time by the board of directors, either within or without the
State of Delaware, and stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2.2. Annual Meetings. Annual meetings of stockholders,
---------------
commencing with the year 1998, shall be held at the time and place to be
selected by the board of directors. If the day is a legal holiday, then the
meeting shall be held on the next following business day. At the meeting, the
stockholders shall elect a board of directors and transact such other business
as may properly be brought before the meeting. The shareholders' vote may be by
voice vote or by
<PAGE>
ballot; provided, however, that any election for directors must be by ballot if
-------- -------
demanded by any shareholder at the meeting before the voting has begun.
Section 2.3. Notice of Annual Meeting. Written notice of the annual
------------------------
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
Section 2.4. Voting List. The officer who has charge of the stock
-----------
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 2.5. Special Meetings. Special meetings of the stockholders,
----------------
for any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, (i) may be called by the chairman of the board,
the vice-chairman of the board, the chief executive officer or the president,
(ii) shall be called by the president or secretary at the request in writing of
a majority of the board of directors, or (iii) may be called by the holders of
ten percent or more of the outstanding shares of the corporation. Such request
shall state the purpose or purposes of the proposed meeting.
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<PAGE>
Section 2.6. Notice of Special Meetings. Except as otherwise provided
--------------------------
in this Section 2.6, written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting, to each stockholder entitled to vote at such meeting. If a
special meeting is called by any person or persons other than an authorized
officer or the board, a written request to give notice of the meeting,
specifying the time of the meeting and the general nature of the business
proposed to be transacted, shall be delivered personally or sent by registered
mail or by telegraphic or facsimile transmission to the chairman of the board,
vice chairman of the board, the chief executive officer or the president of the
Corporation. The officer receiving the request shall cause notice to be given
promptly to the shareholders entitled to vote that a meeting will be held at the
time requested by the person or persons calling the meeting, not to be less than
35 nor more than 60 days after the request. If the notice is not given within 20
days after receipt of the request, the person or persons requesting the meeting
may give the notice. Business transacted at any special meeting of the
stockholders shall be limited to the purposes stated in the notice. Nothing in
this Section 2.6 shall be construed as limiting, fixing or affecting the time
when a meeting of shareholders called by action of the board or an authorized
officer may be held.
Section 2.7. Quorum. The holders of a majority of the stock issued
------
and outstanding and entitled to vote at any meeting of shareholders as
determined in accordance with the provisions of the Certificate of Incorporation
and these Bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (the "General Corporation Law") (relating to
voting rights of fiduciaries, pledgors and joint owners of stock and to voting
trusts and other voting agreements), present in person or represented by proxy,
shall constitute a
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<PAGE>
quorum at all meetings of the stockholders for the transaction of business,
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 2.8. Order of Business. At each meeting of the stockholders,
-----------------
one of the following persons, in the order in which they are listed (and in the
absence of the first, the next, and so on), shall serve as chairman of the
meeting: chairman of the board, vice chairman of the board, chief executive
officer, president, vice presidents (in the order of their seniority if more
than one) and secretary. The order of business at each such meeting shall be as
determined by the chairman of the meeting. The chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and
procedures and to do all such acts and things as are necessary or desirable for
the proper conduct of the meeting, including, without limitation, the
establishment of procedures for the maintenance of order and safety,
limitations on the time allotted to questions or comments on the affairs of the
corporation, restrictions on entry to such meeting after the time prescribed
for the commencement thereof, and the opening and closing of the voting polls.
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<PAGE>
Section 2.9. Majority Vote. When a quorum is present at any meeting,
-------------
the vote of the holders of a majority of the stock having voting power present
in person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of the
statutes or of the certificate of incorporation, a different vote is required,
in which case such express provision shall govern and control the decision of
such question.
Section 2.10. Method of Voting. Unless otherwise provided in the
----------------
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted on after three years from its date, unless the proxy provides for a
longer period.
Section 2.11. Action Without Meeting. Except as otherwise provided in
----------------------
this Section 2.11 or in the Certificate of Incorporation, any action which may
be taken at any annual or special meeting of shareholders may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Every written consent shall
bear the date of signature of each shareholder who signs the consent and no
written consent shall be effective to take the corporate action referred to
therein unless, within sixty (60) days of the earliest dated consent delivered
to the Corporation, written consents signed by a sufficient number of
shareholders to take such action are delivered to the Corporation. All such
consents shall be filed with the secretary of the Corporation and shall be
maintained in the corporate records. Any shareholder giving a written consent,
or the shareholder's proxy holders, or a transferee of the shares, or a personal
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<PAGE>
representative of the shareholder, or their respective proxy holders, may revoke
the consent by a writing received by the secretary of the Corporation before
written consents of the number of shares required to authorize the proposed
action have been filed with the secretary of the Corporation. Prompt notice, in
accordance with the provisions of these Bylaws, of the taking of any corporate
action without a meeting by less than unanimous written consent shall be given
to those shareholders who have not consented in writing to such action. If the
action which is consented to is such as would have required the filing of a
certificate under any section of the General Corporation Law if such action had
been voted on by shareholders at a meeting thereof, then the certificate filed
under such section shall state, in lieu of any statement required by such
section concerning any vote of shareholders, that written consent and written
notice thereof have been given as provided in Section 228 of the General
Corporation Law .
ARTICLE 3
DIRECTORS
Section 3.1. General Powers. The business and affairs of the
--------------
corporation shall be managed by or under the direction of the board of
directors, which may exercise all such powers of the corporation and do all such
lawful acts and things as are not by law or by the certificate of incorporation
of the corporation or by these Bylaws directed or required to be exercised or
done by the stockholders.
Section 3.2. Number of Directors. The board of directors shall have
-------------------
not less than five (5) nor more than nine (9) directors. The number of directors
constituting the board shall be such number as shall be from time to time
specified by resolution of the board of directors; provided, however, no
director's term shall be shortened by reason of a resolution reducing the number
of directors; and further provided that the number of directors constituting the
initial board of
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<PAGE>
directors shall be seven (7) and, shall remain such number unless and until
changed by resolution of the board of directors aforesaid.
Section 3.3. Election, Qualification and Term of Office of Directors.
-------------------------------------------------------
At each annual meeting of stockholders, directors shall be elected to fill the
director terms expiring at such annual meeting. Directors need not be
stockholders unless so required by the certificate of incorporation or these
Bylaws, wherein other qualifications for directors may be prescribed. Each
director, including a director elected to fill a vacancy, shall hold office
until his successor is elected and qualified or until his earlier resignation or
removal. Elections of directors need not be by written ballot.
Section 3.4. Notification of Nominations. Subject to the rights of the
---------------------------
holders of any class or series of stock having the right to elect, as a class, a
member of the board of directors, nominations for the election of directors may
be made by the board of directors or by any stockholder entitled to vote for the
election of directors. Any stockholder entitled to vote for the election of
directors at a meeting may nominate persons for election as directors only if
written notice of such stockholder's intent to make such nomination is given,
either by personal delivery or by United States mail, postage prepaid, to the
secretary of the corporation not later than (i) with respect to an election to
be held at an annual meeting of stockholders, thirty (30) days in advance of
such meeting, and (ii) with respect to an election to be held at a special
meeting of stockholders for the election of directors, the close of business on
the seventh day following the date on which notice of such meeting is first
given to stockholders. Each such notice shall set forth: the name and address of
the stockholder who intends to make the nomination and of the person or persons
intended to be nominated.
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<PAGE>
Section 3.5. First Meetings. Immediately following, and at the same
--------------
place as, each annual meeting of shareholders, the board of directors shall
hold, without call or notice other than this Bylaw, a regular meeting for the
purposes of organization, election of officers and the transaction of other
business.
Section 3.6. Regular Meetings. Regular meetings of the board of
----------------
directors may be held without notice at such times and at such places as shall
from time to time be determined by the board.
Section 3.7. Special Meetings. Special meetings of the board may be
----------------
called by the chairman of the board, vice chairman of the board, chief executive
officer, or the president, and shall be called by the president or secretary on
the written request of two directors unless the board consists of only one
director, in which case special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of the sole
director.
Section 3.8. Quorum, Majority Vote. At all meetings of the board, a
---------------------
majority of the number of directors then in office shall constitute a quorum for
the transaction of business. The act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the board of
directors, except as may be otherwise specifically provided by statute, by the
certificate of incorporation or by this Section 3.8. If a quorum shall not be
present at any meeting of the board of directors, the directors present may
adjourn the meeting, without notice other than announcement at the meeting,
until a quorum shall be present. Notwithstanding the foregoing, the approval of
two-thirds (2/3) of the members of the board of directors then in office shall
be required for any of the following actions:
(a) the Company's redemption of any shares of any class of
its capital stock;
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<PAGE>
(b) the Company's creation of any mortgage, deed of trust, pledge,
lien, security interest, or other change or encumbrance (including the lien
or security title of a conditional vendor) of any nature (other than ad
valorem taxes), upon or with respect to any of its or any subsidiary's
properties or notes receivable;
(c) the Company's assumption, guarantee, endorsement or otherwise
becoming directly or contingently liable for any obligation or indebtedness
other than liabilities incurred in the ordinary course of business;
(d) the Company's sale, assignment, lease or other disposition of any
of its assets, including its receivables, other than in the ordinary course
of business; or
(e) the Company's sale, assignment, transfer, pledge, hypothecation or
other encumbering or disposition of the capital stock or partnership
interests of any subsidiary.
Section 3.9. Action Without Meeting. Unless otherwise restricted by the
----------------------
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of the proceedings of the board or committee.
Section 3.10. Telephone and Similar Meetings. Unless otherwise restricted
------------------------------
by the certificate of incorporation or these Bylaws, members of the board of
directors, or any committee designated by the board of directors, may
participate in a meeting of the board of directors, or any committee, by means
of conference telephone or similar communications equipment as long as all
persons participating in the meeting can hear each other. Such participation in
a meeting shall constitute presence in person at the meeting.
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<PAGE>
Section 3.11. Notice of Meetings. Notice of regular meetings of the
------------------
board of directors or of any adjourned meeting thereof need not be given. Notice
of each special meeting of the board shall be mailed to each director, addressed
to such director at such director's residence or usual place of business, at
least four days before the day on which the meeting is to be held or shall be
sent to such director at such place by facsimile or be given personally or by
telephone, not later than two days before the meeting is to be held, but notice
need not be given to any director who shall, either before or after the meeting,
submit a signed waiver of such notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of notice to such
director. Every such notice shall state the time and place but need not state
the purpose of the meeting.
Section 3.12. Rules and Regulations. The board of directors may adopt
---------------------
such rules and regulations not inconsistent with the provisions of law, the
certificate of incorporation of the corporation or these Bylaws for the conduct
of its meetings and management of the affairs of the corporation as the board
may deem proper.
Section 3.13. Resignations. Any director of the corporation may at any
------------
time resign by giving written notice to the board of directors, the chairman of
the board, the president or the secretary of the corporation. Such resignation
shall take effect at the time specified therein or, if the time be not
specified, upon receipt thereof; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 3.14. Removal of Directors. Unless otherwise restricted by
--------------------
statute, by the certificate of incorporation or by these Bylaws, any director or
the entire board of directors may be removed with or without cause by the
holders of a majority of the shares then entitled to vote at an election of
directors.
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<PAGE>
Section 3.15. Vacancies. Any vacancies on the board of directors
---------
resulting from death, resignation, removal or other cause, shall be filled by
the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the board of directors, or by a sole remaining
director, and newly created directorships resulting from any increase in the
number of directors shall be filled by the board of directors, or if not so
filled, by the stockholders at the next annual meeting thereof or at a special
meeting called for that purpose in accordance with Section 2.5 of Article II of
these Bylaws; provided, however, that any vacancy created or expected to be
created as the result of the holders of any class of the corporation's capital
stock having class voting rights with respect to the election of directors
either failing to exercise such class voting rights or waiving such class voting
rights shall be filled by the stockholders at the next annual meeting thereof or
at a special meeting called for that purpose in accordance with Section 2.5 of
Article II of these Bylaws. Any director elected in accordance with the
preceding sentence of this Section 3.15 shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such successor shall have been elected
and qualified.
Section 3.16. Compensation of Directors. Unless otherwise restricted
-------------------------
by the certificate of incorporation or these Bylaws, the board of directors
shall have the authority to fix the compensation of directors. The directors may
be paid their expenses, if any, of attendance at each meeting of the board of
directors and may be paid a fixed sum for attendance at each meeting of the
board of directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
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ARTICLE 4
EXECUTIVE AND OTHER COMMITTEES
Section 4.1. Committees. The board of directors may, by resolution
----------
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of one or more directors. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent or
disqualified member. Each committee shall serve at the pleasure of the board.
Each committee, to the extent provided in the resolution of the board of
directors or in these Bylaws, shall have all the powers and authority of the
board of directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority to (i) amend the Certificate of Incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the board of directors as provided in
Section 151(a) of the General Corporation Law, fix the designation and any of
the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the
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General Corporation Law, (iii) recommend to the shareholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
(iv) recommend to the shareholders a dissolution of the Corporation, (v) amend
the Bylaws of the Corporation, or (vi) approve any action subject to Section 3.8
of these Bylaws; and, unless the board resolution establishing the committee,
the Bylaws or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law.
Section 4.2 Meetings and Action of Committees. Meetings and actions of
---------------------------------
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these Bylaws, with such changes in the context of
these Bylaws as are necessary to substitute the committee and its members for
the board of directors and its members, except that the time for regular
meetings of committees may be determined either by resolution of the board of
directors or by resolution of the committee. Special meetings of committees may
also be called by resolution of the board of directors. Notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. Minutes shall be kept of
each meeting of any committee and shall be reported to the board of directors
when required and filed with the corporate records. The board of directors may
adopt such other rules for the governance of any committee as are not
inconsistent with the provisions of these Bylaws.
ARTICLE 5
NOTICES
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<PAGE>
Section 5.l. Method. Whenever, under the provisions of the statutes
------
or of the certificate of incorporation or of these Bylaws, notice is required to
be given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid. Notice to directors may also be
given by facsimile, personally or by telephone. Notice shall be deemed to have
been given at the time when delivered personally or deposited in the mail or
sent by facsimile, telegraphic or other means of written communication.
Section 5.2. Waiver. Whenever any notice is required to be given
------
under the provisions of the statutes or of the certificate of incorporation or
of these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE 6
OFFICERS
Section 6.1. Election, Qualification. The officers of the
-----------------------
corporation shall be chosen by the board of directors and shall be a chairman of
the board, a vice chairman of the board, a chief executive officer, a president,
one or more vice presidents, a secretary and a chief financial officer. The
board of directors may also choose one or more assistant secretaries and
assistant treasurers and such other officers and agents as it shall deem
necessary. Any number of offices may be held by the same person, unless the
certificate of incorporation or these Bylaws otherwise provide.
Section 6.2. Salary. The salaries of all officers and agents of the
------
corporation shall be fixed by the board of directors.
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Section 6.3. Term, Removal. Subject to the rights, if any, of an
-------------
officer under any contract of employment, any officer elected or appointed by
the board of directors may be removed at any time with or without cause by the
affirmative vote of a majority of the board of directors. Any vacancy occurring
in any office of the corporation shall be filled by the board of directors.
Section 6.4. Resignation. Any officer may resign at any time by
-----------
giving notice to the board of directors, the president or the secretary of the
corporation. Any such resignation shall take effect at the date of receipt of
such notice or at any later date specified therein; provided that the president
or, in the event of the resignation of the president, the board of directors may
designate an effective date for such resignation which is earlier than the date
specified in such notice but which is not earlier than the date of receipt of
such notice; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 6.5. Vacancies. A vacancy in any office because of death,
---------
resignation, removal or any other cause may be filled in the manner prescribed
in these Bylaws for regular appointment to such office.
Section 6.6. Chairman of the Board. The chairman of the board shall
---------------------
preside at meetings of the board of directors and meetings of the stockholders.
The chairman of the board shall counsel with and advise the other officers and
perform such other duties as the board or the executive committee may from time
to time determine. The chairman of the board may sign and execute in the name
of the corporation deeds, mortgages, bonds, contracts or other instruments
authorized by the board of any committee thereof empowered to authorize the
same.
Section 6.7. Vice Chairman of the Board. The vice chairman of the
--------------------------
board shall, in the absence of the chairman of the board, preside at meetings of
the board of directors and meetings
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of the stockholders. The vice chairman of the board shall counsel with and
advise the other officers and perform such other duties as the board or the
executive committee may from time to time determine. The vice chairman of the
board may sign and execute in the name of the corporation deeds, mortgages,
bonds, contracts or other instruments authorized by the board of any committee
thereof empowered to authorize the same.
Section 6.8. Chief Executive Officer. The chief executive officer
-----------------------
of the corporation shall have general and active management of the business of
the corporation and shall see that all orders and resolutions of the board of
directors are carried into effect and perform such other duties as the board or
the executive committee may from time to time determine. The chief executive
officer may sign and execute in the name of the corporation deeds, mortgages,
bonds, contracts or other instruments authorized by the board of any committee
thereof empowered to authorize the same.
Section 6.9. President. The president shall, subject to the Chief
---------
Executive Officer, have general and active management of the business of the
corporation, shall see that all orders and resolutions of the board of directors
are carried into effect and shall perform such other duties as the board or the
executive committee may from time to time determine. The president may sign and
execute in the name of the corporation deeds, mortgages, bonds, contracts or
other instruments authorized by the board of any committee thereof empowered to
authorize the same.
Section 6.10. Vice Presidents. In the absence of the chairman of the
---------------
board, the vice chairman of the board, the chief executive officer and the
president, or in the event of their inability or refusal to act, the vice
president (or in the event there be more than one vice president, the vice
presidents in the order designated by the directors, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the president, and
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when so acting, shall have all the powers of and be subject to all the
restrictions upon the president. The vice presidents shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe.
Section 6.11. Secretary. The secretary shall attend all meetings of
---------
the board of directors and all meetings of the stockholders and record or cause
to be recorded all the proceedings of the meetings of the corporation and of the
board of directors in a book to be kept for that purpose and shall perform like
duties for the standing committees when required. He or she shall give, or
cause to be given, notice of all meetings of the stockholders and special
meetings of the board of directors, and shall perform such other duties as may
be prescribed by the board of directors or president, under whose supervision
he or she shall be. The secretary shall have custody of the corporate seal of
the corporation and he, or an assistant secretary, shall have authority to affix
the same to any instrument requiring it and when so affixed, it may be attested
by his signature or by the signature of such assistant secretary. The board of
directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his signature.
Section 6.12. Assistant Secretary. The assistant secretary, or if
-------------------
there be more than one, the assistant secretaries in the order determined by the
board of directors (or if there be no such determination, then in the order of
their election) shall, in the absence of the secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
Section 6.13. Chief Financial Officer. The chief financial officer
-----------------------
shall have the custody of the corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other
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valuable effects in the name and to the credit of the corporation in such
depositories as may be designated by the board of directors. The chief financial
officer shall disburse the funds of the corporation as may be ordered by the
board of directors, taking proper vouchers for such disbursements, and shall
render to the chief executive officer, president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation. The chief financial officer shall be the treasurer of the
Corporation.
Section 6.14. Assistant Treasurer. The assistant treasurer, or if
-------------------
there shall be more than one, the assistant treasurers in the order determined
by the board of directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the treasurer or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the treasurer and shall perform such other duties and have such other powers
as the board of directors may from time to time prescribe.
Section 6.15 Subordinate Officers. The board of directors may
--------------------
appoint, or empower the president to appoint, such other officers and agents as
the business of the Corporation may require, each of whom shall hold office for
such period, have such authority, and perform such duties as are provided in
these Bylaws or as the board of directors or the president may from time to time
determine.
Section 6.16 Authority and Duties of Officers. In addition to the
--------------------------------
foregoing authority and duties, all officers of the Corporation shall
respectively have such authority and perform such duties in the management of
the business of the Corporation as may be designated from time to time by the
board of directors or the shareholders.
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ARTICLE 7
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
Section 7.1. Third-Party Actions. The corporation shall indemnify
-------------------
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that such person is or was a
director or officer of the corporation, or is or was serving at the request of
the corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, against all expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, that such
person had reasonable cause to believe that his or her conduct was unlawful.
The corporation may indemnify any employee or agent of the
corporation, or any employee or agent serving at the request of the corporation
as an employee or agent of another
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corporation, partnership, joint venture, trust or other enterprise, in the
manner and to the extent that it shall indemnify any director or officer under
this Section 7.1.
Section 7.2. Derivative Actions. The corporation may indemnify any
------------------
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against all expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made with respect to any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of such person's duty to
the corporation unless and only to the extent that the Court of Chancery of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery of Delaware or such
other court shall deem proper.
Section 7.3. Determination of Indemnification. Any indemnification
--------------------------------
under Section 7.1 or 7.2 of this Article 7 (unless ordered by a court) shall be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because such person has met the applicable
standard of conduct set forth in Section 7.1 or 7.2 of this Article 7. Such
determination shall be
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made (i) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders.
Section 7.4. Right to Indemnification. Notwithstanding the other
------------------------
provisions of this Article 7, to the extent that a director, officer, employee
or agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section 7.1 or 7.2 of
this Article 7, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
Section 7.5. Advance of Expenses. Expenses incurred in defending a
-------------------
civil or criminal administrative or investigative action, suit or proceeding may
be paid by the corporation on behalf of a director, officer, employee or agent
in advance of the final disposition of such action, suit or proceeding as
authorized by the board of directors in the specific case upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount unless it shall ultimately be determined that such person is
entitled to be indemnified by the corporation as authorized in this Article 7.
Section 7.6. Indemnification Not Exclusive. The indemnification
-----------------------------
provided by this Article 7 shall not be deemed exclusive of any other rights to
which any person seeking indemnification may be entitled under any law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in such person's official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to
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be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 7.7. Insurance. The corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of
such person's status as such, whether or not the corporation would have the
power to indemnify such person against liability under the provisions of this
Article 7.
Section 7.8. Definitions of Certain Terms. For purposes of this
----------------------------
Article 7, references to "the corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article 7 with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its separate
existence had continued.
For purposes of this Article 7, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan;
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes
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duties on, or involves services by such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and a person who acted in good faith and in a manner such person reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the corporation" as referred to in this Article 7.
Section 7.9. Liability of Directors. Notwithstanding any provision
----------------------
of the Certificate of Incorporation or any other provision herein, no director
shall be personally liable to the Corporation or any stockholder for monetary
damages for breach of fiduciary duty as a director, except for any matter in
respect of which such director shall be liable under Section 174 of Title 8 of
the Delaware Code (relating to the Delaware General Corporation Law) or any
amendment thereto or successor provision thereto or shall be liable by reason
that, in addition to any and all other requirements for such liability, he (i)
shall have breached his duty of loyalty to the Corporation or its stockholders,
(ii) shall not have acted in good faith, (iii) shall have acted in a manner
involving intentional misconduct or a knowing violation of law or, in failing to
act, shall have acted in a manner involving intentional misconduct or a knowing
violation of law or (iv) shall have derived an improper personal benefit.
Section 7.10 Indemnity Fund. Upon resolution passed by the board of
--------------
directors, the Corporation may establish a trust or other designated account,
grant a security interest or use other means (including, without limitation, a
letter of credit), to ensure the payment of certain of its obligations arising
under this Article VII and/or agreements which may be entered into between the
Corporation and its officers and directors from time to time.
Section 7.11 Indemnification of Other Persons. The provisions of
--------------------------------
this Article VII shall not be deemed to preclude the indemnification of any
person who is not a director or officer of
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the Corporation or is not serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law or
otherwise. The Corporation may, in its sole discretion, indemnify an employee,
trustee or other agent to the fullest extent permitted by the General
Corporation Law. The Corporation shall indemnify an employee, trustee or other
agent where required by law.
Section 7.12 Savings Clause. If this Article VII or any portion
--------------
thereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each person
entitled to indemnification hereunder against expenses (including attorney's
fees, costs and expenses), judgments, fines and amounts paid in settlement with
respect to any action, suit, proceeding or investigation, whether civil,
criminal or administrative, and whether internal or external, including a grand
jury proceeding and an action or suit brought by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article 7 that shall not have been invalidated, or by any other applicable
law.
Section 7.13 Continuation of Indemnification and Advancement of
--------------------------------------------------
Expenses. The indemnification and advancement of expenses provided by or
- --------
granted pursuant to this Article VII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE 8
CERTIFICATES OF STOCK
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Section 8.1. Certificates. Every holder of stock in the corporation
------------
shall be entitled to have a certificate, signed by, or in the name of the
corporation by, the chairman or vice chairman of the board of directors, or,
chief executive officer, the president or a vice president and the treasurer or
an assistant treasurer, or the secretary or an assistant secretary of the
corporation, certifying the number and class or series of shares owned by him in
the corporation.
Section 8.2. Facsimile Signatures. Any of or all the signatures on
--------------------
the certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 8.3. Lost Certificates. The board of directors may direct a
-----------------
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 8.4. Transfers of Stock. Upon surrender to the corporation
------------------
or the transfer agent of the corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the corporation to issue a
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new certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 8.5. Fixing Record Date. In order that the corporation may
------------------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting. If no record date is fixed by the board of
directors: (i) the record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day on which notice is given or, if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held; (ii) the record date for determining shareholders
entitled to consent to corporate action in writing without a meeting shall be,
when no prior action by the board of directors is otherwise required by the
General Corporation Law, the day on which the first such signed written consent
is delivered to the Corporation and, when prior action by the board of directors
is otherwise required by the General Corporation Law, the close of business on
the date on which the resolution taking such prior action is adopted by the
board of directors; and (iii) the record date
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for determining shareholders for any other purpose shall be at the close of
business on the day on which the board of directors adopts the resolution
relating thereto.
Section 8.6. Registered Stockholders. The corporation shall be
-----------------------
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
ARTICLE 9
AFFILIATED TRANSACTIONS
Section 9.1. Validity. Except as otherwise provided for in the
--------
certificate of incorporation and except as otherwise provided in this Bylaw, if
Section 9.2 is satisfied, no contract or transaction between the corporation and
any of its directors, officers or security holders, or any corporation,
partnership, association or other organization in which any of such directors,
officers or security holders are directly or indirectly financially interested,
shall be void or voidable solely because of this relationship, or solely because
of the presence of the director, officer or security holder at the meeting
authorizing the contract or transaction, or solely because of his or their
participation in the authorization of such contract or transaction or vote at
the meeting therefor, whether or not such participation or vote was necessary
for the authorization of such contract or transaction.
Section 9.2. Disclosure, Approval; Fairness. Section 9.1 shall
------------------------------
apply only if:
(a) the material facts as to the relationship or interest and
as to the contract or transaction are disclosed or are known:
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(i) to the board of directors (or committee thereof) and it
nevertheless in good faith authorizes or ratifies the contract or
transaction by a majority of the directors present, each such
interested director to be counted in determining whether a quorum
is present but not in calculating the majority necessary to carry
the vote; or
(ii) to the stockholders and they nevertheless authorize or
ratify the contract or transaction by a majority of the shares
present at a meeting considering such contract or transaction,
each such interested person (stockholder) to be counted in
determining whether a quorum is present for voting purposes; or
(b) the contract or transaction is fair to the corporation as of
the time it is authorized or ratified by the board of directors (or
committee thereof) or the stockholders.
Section 9.3. Nonexclusive. This provision shall not be construed to
------------
invalidate a contract or transaction which would be valid in the absence of this
provision.
ARTICLE 10
GENERAL PROVISIONS
Section 10.1. Dividends. Dividends upon the capital stock of the
---------
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Section 10.2. Reserves. Before payment of any dividend, there may be
--------
set aside out of any funds of the corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies,
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or for equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think conducive to
the interest of the corporation, and the directors may modify or abolish any
such reserve in the manner in which it was created.
Section 10.3. Annual Statement. The board of directors shall present
----------------
at each annual meeting, and at any special meeting of the stockholders when
called for by vote of the stockholders, a full and clear statement of the
business and condition of the corporation.
Section 10.4. Checks. All checks or demands for money and notes of
------
the corporation shall be signed by such officer or officers or such other person
or persons as the board of directors may from time to time designate.
Section 10.5. Fiscal Year. The fiscal year of the corporation shall
-----------
be fixed by resolution of the board of directors.
Section 10.6. Seal. The corporate seal shall have inscribed thereon
----
the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE 11
RIGHT OF FIRST REFUSAL
Section 11.1. Right of First Refusal. Except as provided in Section
----------------------
11.5, any holder of the corporation's Class A Voting Common Stock or Class B
Nonvoting Common Stock (collectively, the "Common Stock") desiring to sell,
assign, transfer or otherwise dispose of shares of Common Stock owned by him
(the "Offeror Shareholder"), or any interest therein, to any person or entity
shall, not less than 30 days prior to the date of the proposed sale, assignment,
transfer or other disposition, deliver a written notice (a "Notice of Proposed
-29-
<PAGE>
Transfer") to the corporation containing the following information: (i) the
number of shares of Common Stock proposed to be so transferred (the "Offered
Stock"); (ii) the terms and conditions of the proposed transfer, including the
identity of the proposed transferee(s) and the consideration to be received for
the Offered Stock; and (iii) an affirmative offer made by the Offeror to
transfer the Offered Stock to the corporation at a per share price (the "Offer
Price") equal to the per share cash price plus the fair market value of any
consideration other than cash offered in the proposed transfer for the Offered
Stock as indicated in the Notice of Proposed Transfer. The date that the Notice
of Proposed Transfer is received by the corporation shall constitute the "First
Refusal Notice Date."
Section 11.2. Exercise of Right of First Refusal. The corporation
----------------------------------
shall have the sole and exclusive option to acquire all or any portion of the
Offered Stock offered for transfer in accordance with the provisions of the
Notice of Proposed Transfer for a period of thirty days from the First Refusal
Notice Date. The corporation may exercise such option by giving written notice
of exercise to the Offeror Shareholder prior to the termination of its exclusive
option period. Such notice of exercise shall refer to the Notice of Proposed
Transfer and shall set forth the number of shares to be acquired by the
corporation.
Section 11.3. Closing. The consummation of any transfer of shares of
-------
Common Stock to the corporation required pursuant to an exercise of option
rights created by this Article 11 shall constitute the "Closing," and the time
and date of such Closing shall constitute the "Closing Date." The Closing shall
be held on the 35th day subsequent to the date of giving of the Notice of
Proposed Transfer to the corporation. At the Closing, the Offeror shall present
to the corporation all share certificates representing the shares of Offered
Stock with respect to which the corporation has exercised its option pursuant to
Section 11.2 above. Such shares of Common
-30-
<PAGE>
Stock shall be transferred free of all liens and encumbrances, or adverse claims
of any kind or character. At the Closing, the corporation, upon receipt of
proper tender of the Common Stock, shall tender full payment of the aggregate
purchase price for the Offered Stock in cash.
Section 11.4. Time to Transfer. If any of the shares of Common Stock
----------------
identified in the Notice of Proposed Transfer are not purchased by the
corporation on or prior to the 35th day subsequent to the giving of such notice
to the corporation, then such shares that are not so purchased by the
corporation may be transferred by the Offeror Shareholder at any time during the
ensuing sixty days in strict conformity with the terms and conditions and for
the consideration set forth in the Notice of Proposed Transfer. No transfer of
the Offered Stock shall be made after the end of such sixty day period, nor
shall any change in the terms of transfer be permitted without giving a new
Notice of Proposed Transfer in compliance with the requirements of this Article
11.
Section 11.5. Permitted Transfers. Notwithstanding the provisions of
-------------------
this Article 11, the transfer of shares of Common Stock by a shareholder to the
spouse, parent, child or grandchild of such shareholder or to a trust solely for
the benefit of such foregoing persons shall be a permitted transfer that does
not require the giving of a Notice of Proposed Transfer under this Section 11.1.
Furthermore, the provisions of this Article 11 shall not apply to any shares of
Common Stock if so determined by a two-thirds vote of the Board of Directors of
the corporation at the time of issuance of such shares.
Section 11.6 Assignment of Right of First Refusal. If the
------------------------------------
Corporation is restricted from exercising all or any part of its right of first
refusal by reason of any provision of applicable law, the Corporation's rights
under this Article 11 may be assigned and transferred, upon the approval of two-
thirds of the board of directors, to any third party or parties (each an
"Assignee"). The
-31-
<PAGE>
Assignees will then have the right to exercise all or a part of the
Corporation's right of first refusal in their own names, for their own accounts,
and in the manner hereinafter provided.
Section 11.7 Endorsements on Certificates. The certificates
----------------------------
representing the Common Stock shall be endorsed as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST
REFUSAL FOR THE BENEFIT OF THE CORPORATION, AND MAY NOT BE TRANSFERRED EXCEPT IN
ACCORDANCE WITH PROVISIONS OF ARTICLE 11 OF THE BYLAWS OF THE CORPORATION. THE
BYLAWS MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE CORPORATION DURING NORMAL
BUSINESS HOURS."
Section 11.8 Effect of Unauthorized Transfer. In the event of any
--------------------------------
proposed or attempted transfer of Common Stock that does not comply with the
provisions of this Article 11, the purported transferee shall not be deemed to
be a shareholder of the corporation and shall not be entitled to receive a new
stock certificate or any dividends or other distributions on or with respect to
the Common Stock.
ARTICLE 12
AMENDMENTS
Section 12.1. Amendments Prior to Issuance of Stock. These Bylaws
-------------------------------------
may be amended or repealed and new Bylaws may be adopted by the incorporators,
by the initial directors if they were named in the Certificate of Incorporation
or, before the Corporation has received any payment for any of its stock, by the
board of directors.
Section 12.2. Amendment after the Issuance of Stock. After the
-------------------------------------
Corporation has received any payment for any of its stock, these Bylaws may be
amended or repealed and new
-32-
<PAGE>
Bylaws may be adopted only by the affirmative vote or written consent of a
majority of the outstanding shares entitled to vote, except as otherwise
provided by law or by the Certificate of Incorporation; provided, however, that
-------- -------
if the Certificate of Incorporation so provides, these Bylaws may be amended or
repealed and new Bylaws may be adopted by the board of directors, subject to the
right of shareholders as provided in the preceding clause of this Section 12.2.
-33-
<PAGE>
EXHIBIT 4.1
[FRONT OF CERTIFICATE]
SEE RESTRICTIONS ON TRANSFER ON REVERSE SIDE.
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
DFI/AERONOMICS INCORPORATED
43,000,000 Shares of Class A Voting Common Stock Authorized
$0.0001 Par Value Per Share
This Certifies That [Specimen] is the
-------------------------------------------
registered holder of ________________________________________________ Shares of
the Class A Voting Common Stock of DFI/AERONOMICS INCORPORATED which are fully
paid and non-assessable and which are transferable only on the books of the
Corporation by the holder hereof in person or by Attorney upon surrender of this
Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ____ day of __________, A.D. 19___.
______________________________ _______________________________
President Secretary
[BACK OF CERTIFICATE]
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
-----------------
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with under the Uniform
the right of survivorship Gifts to Minors
and not as tenants in common Act _____________
(State)
Additional abbreviations may also be used through not in the above list.
For value received, ________________________________________ hereby sell,
assign and transfer unto ____________ [PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE]
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
________________________________________________________________________________
Attorney to transfer the said shares on the books of the within-named
Corporation with the full power of substitution in the premises.
Dated________________ __________________________________________
In presence of
_________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 4.2
[FRONT OF CERTIFICATE]
SEE RESTRICTIONS ON TRANSFER ON REVERSE SIDE.
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
DFI/AERONOMICS INCORPORATED
5,000,000 Shares of Class B Nonvoting Common Stock Authorized
$0.0001 Par Value Per Share
This Certifies That [Specimen] is the
---------------------------------------------
registered holder of ________________________________________________ Shares of
the Class B Nonvoting Common Stock of DFI/AERONOMICS INCORPORATED which are
fully paid and non-assessable and which are transferable only on the books of
the Corporation by the holder hereof in person or by Attorney upon surrender of
this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ____ day of __________, A.D. 19___.
____________________________ ______________________________
President Secretary
[BACK OF CERTIFICATE]
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
-------------------
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with under the Uniform
the right of survivorship Gifts to Minors
and not as tenants in common Act ______________
(State)
Additional abbreviations may also be used through not in the above list.
For value received, ________________________________________ hereby sell,
assign and transfer unto ____________ [PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE]
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
_____________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
________________________________________________________________________________
Attorney to transfer the said shares on the books of the within-named
Corporation with the full power of substitution in the premises.
Dated________________ ____________________________________________
In presence of
________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 4.3
[FRONT OF CERTIFICATE]
SEE RESTRICTIONS ON TRANSFER ON REVERSE SIDE.
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
DFI/AERONOMICS INCORPORATED
2,000,000 Shares of Convertible Preferred Stock Authorized
$0.0001 Par Value Per Share
This Certifies That [Specimen] is the
-------------------------------------------
registered holder of ________________________________________________ Shares of
the Convertible Preferred Stock of DFI/AERONOMICS INCORPORATED which are fully
paid and non-assessable and which are transferable only on the books of the
Corporation by the holder hereof in person or by Attorney upon surrender of this
Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ____ day of __________, A.D. 19___.
_____________________________ ________________________________________
President Secretary
[BACK OF CERTIFICATE]
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
_______________________________________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with the right under the Uniform Gifts to Minors
of Act _____________________________________
survivorship and not as tenants in (State)
common
</TABLE>
Additional abbreviations may also be used through not in the above list.
For value received, ________________________________________ hereby sell,
assign and transfer unto ____________ [PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE]
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
______________________________________________ Shares represented by the within
Certificate, and do hereby irrevocably constitute and appoint
________________________________________________________________________________
Attorney to transfer the said shares on the books of the within-named
Corporation with the full power of substitution in the premises.
Dated________________ ____________________________________________
In presence of
_________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
[LETTERHEAD OF MORRIS, MANNING & MARTIN APPEARS HERE]
Exhibit 5.1
June 23, 1997
DFI/Aeronomics Incorporated
4751 Best Road, Suite 300
Atlanta, Georgia 30337
Re: Registration Statement on Form S-4
---------------------------------------
Ladies and Gentlemen:
We have served as counsel for DFI/Aeronomics Incorporated, a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, pursuant to the Company's Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission on
June 23, 1997 (the "Registration Statement"). Such Registration Statement
relates to the issuance by the Company of an aggregate of up to 18,978,711
shares (the "Shares") of Common Stock of the Company of which 17,000,447 shares
will be Class A Voting Common Stock and 1,978,265 shares will be Class B
Nonvoting Common Stock. The Shares will be issued by the Company in connection
with (i) the merger of Decision Focus Incorporated with and into the Company,
and (ii) the merger of Aeronomics Incorporated with and into the Company (the
"Mergers").
We have examined and are familiar with originals or copies (certified or
otherwise identified to our satisfaction) of such documents, corporate records
and other instruments relating to the incorporation of the Company and to the
authorization and issuance of the outstanding shares of common stock of the
Company and the Shares, as appropriate, as we have deemed necessary and
advisable.
Based upon the foregoing and having regard for such legal considerations
that we have deemed relevant, it is our opinion that the Shares to be issued by
the Company in connection with the Mergers will be, upon issuance and delivery
as contemplated in the Registration Statement, legally and validly issued, fully
paid and nonassessable.
We do hereby consent to the reference to our firm under the heading "Legal
Matters" in the Prospectus contained in the Registration Statement and to the
filing of this Opinion as Exhibit 5.1 thereto.
Respectfully,
MORRIS, MANNING & MARTIN, L.L.P.
<PAGE>
EXHIBIT 10.1
WATERSTONE
Atlanta, Georgia
THIS LEASE AGREEMENT, (the "Lease") is made 15 day of April, 1991, by and
among SULLIVAN/BEST JOINT VENTURE, a joint venture created pursuant to the laws
of the State of Georgia (the "Landlord"); and AERONOMICS INCORPORATED, a
Delaware corporation (the "Tenant").
WITNESSETH:
1. PREMISES
Landlord does hereby rent and lease to the Tenant the space (the
"Premises") outlined on the floor plan attached hereto as Exhibit A and
---------
incorporated hereby by this reference, together with all pipes, ducts, conduits,
wires and equipment exclusively serving said space, which space contains 12,412
square foot of net rentable area (subject to adjustment as provided in Paragraph
4 below) located on the 3rd floor of the office building owned by Landlord known
as "Waterstone" and situated on the real property described on Exhibit B,
---------
attached hereto and incorporated herein (the "Building"). Landlord excepts and
reserves to itself from the demise of the Premises (i) the exterior faces of all
exterior walls, windows and doors and (ii) all hallways, stairways, shaftways,
service rooms, common toilets, and elevators serving other part of the Building,
except access by common areas and elevators as is necessary for Tenant's
enjoyment of the Premise.
2. TERM
The term of this Lease shall be for a period of seventy two (72) months
commencing on the Commencement Date (as defined in Exhibit C, attached hereto
---------
and incorporated herein) (the "Commencement Date") and ending on the 31 day of
May, 1997, at 12:00 Midnight, unless sooner terminated as hereinafter provided
(the "Term").
3. COMPLETION OF IMPROVEMENTS
Landlord agrees to proceed with due diligence to prepare the Premises for
Tenant's occupancy in accordance with the terms of the work letter attached
hereto as Exhibit C.
---------
4. POSSESSION
If this Lease is executed before the Premises herein are ready for
occupancy and the Landlord cannot deliver possession of the Premises on the
Commence Date for any reasons, other than an omission, delay or default, caused
by Tenant, all rental payable hereunder shall abate until Landlord can deliver
possession of the Premises and Tenant hereby accepts such abatement in full
settlement of any and all claims Tenant may have against Landlord arising from
Landlord's inability to deliver possession on the Commencement Date. In such
event, the Term shall be extended for the number of days equal to the number of
days of such rental abatement
<PAGE>
under this Paragraph 4. Within ten (10) days after the Commencement Date,
Landlord shall calculate the actual square footage of net rentable area within
the Premises and Tenant and Landlord shall execute a letter agreement setting
forth (i) such actual square footage, (ii) the date of commencement of the
payment of Base Rental by Tenant, (iii) the expiration date of the Term, (iv)
Tenant's acceptance of the condition of the Premises subject to any punchlist
items and latent defects, (v) the annual Base Rental payable hereunder, (vi) the
Tenant's Share (as defined in Paragraph 5 [b] below, and (vii) such other
matters as Landlord may request, in Landlord's reasonable discretion.
5. RENTAL
(a) Commencing on the Commencement Date, Tenant shall pay in advance to
Landlord, at Landlord's address for notices set out in Paragraph 24 hereof, or
at such other place as Landlord shall designate in writing, promptly, without
demand, on the first day of each month during the Term, an amount equal to the
product obtained by multiplying the total square footage of net rentable area
within the Premises (calculated in accordance with Paragraph 4 above) by (See
Special Stipulation #1) Dollars ($XXXXX) (the "Base Rental"), which, based on
------
the initial estimate of the total square footage of net rentable area within the
Premises set forth in Paragraph 1 above, would be XXXXXXXXXXXXXXXXX Dollars
($XXXXXX) per annum. In the event the Term shall commence or terminate on a day
other than the first day of a month, the rental for the first and last partial
month shall be prorated. The Base Rental shall be due and payable in all
events, without any set-off or deduction whatsoever.
(b) Tenant shall pay to Landlord, as additional rental hereunder, Tenant's
Share (defined below) of any increases in the annual total cost of ownership,
operation, and maintenance of the Building and the surrounding land and parking
facilities (including, without limitation, taxes, water, sewer, electricity,
lightning, janitorial services and supplies, management fees, landscaping,
window cleaning, insurance, maintenance, painting, decorating, trash, snow and
ice removal, security services, heating, ventilating and air conditioning
maintenance and repair, elevator maintenance and repair, resurfacing, patching,
restriping and sweeping of drives, parking areas and walkways, policing and
regulating traffic, accounting and legal fees, administrative costs, wages,
salaries, taxes, insurance and all other similar payments made to or on behalf
of Landlord's employees, agents or contractors engaged in the maintenance and
operation of the Building, the cost [amortized over the useful life thereof, as
determined by Landlord in its reasonable judgement] of any capital improvements
(i) made to the Building during the Term for the purpose of reducing total
operating costs, and (ii) all other costs associated with the operation and
maintenance of a first-class office building) over an annual amount equal to the
product of $5.10, per square foot times the total net rentable square footage of
the Building. Increases in the annual total costs on which such additional
rental (as defined above in paragraph 5b) is based shall be limited to seven and
one half (7.5%) percent of the prior year's amount, with the exception of real
estate taxes and insurance which shall not be limited. Landlord will
specifically exclude income tax, capital expenditures on behalf of other tenants
and expenses reimbursed by a third party from being passed through to Tenant as
additional rental. Commencing with the first day of January first following the
Commencement Date and for each calendar year thereafter, if Landlord shall
render a statement of Tenant's Share of such increases,
-2-
<PAGE>
as estimated by Landlord in Landlord's reasonable judgment, for such calendar
year, Tenant shall pay to Landlord such estimated Tenant's Share of such
increases in advance, in equal monthly installments, on the first day of each
month. Such estimated Tenant's Share shall be subject to adjustment at the end
of each such calendar year on the basis of the actual Tenant's Share of such
increases for such calendar year. Any additional amounts owing from Tenant to
Landlord due to such adjustment shall be due and payable within thirty (30) days
after Tenant's receipt of Landlord's statement setting forth Landlord's
calculation of Tenant's Share of such increases. Any amounts owing from Landlord
to Tenant due to such adjustment shall be credited against the payment(s) of
Tenant's Share of such increases or Landlord's estimate of Tenant's Share of
such increases, as the case may be, next coming due. Landlord will furnish such
statement to Tenant within ninety (90) days after the end of each such calendar
year. For purposes hereof, "Tenant's Share" shall mean the fraction obtained by
dividing the net rentable area of the Premises by ninety-five percent (95%) of
the net rentable area of the Building.
The provisions of this Paragraph 5 shall survive the expiration or earlier
termination of this Lease. Within ninety (90) days following such expiration of
earlier termination, Landlord shall render a final statement, setting forth all
amounts due Landlord pursuant to this Lease, including any amounts owing under
this Paragraph 5. Tenant shall pay such final statement to Landlord within
thirty (30) days following the date Landlord renders such final statement.
6. RENTAL ADJUSTMENT
[Deleted]
The provisions of this Paragraph 6 shall survive the expiration or earlier
termination of this Lease. Within ninety (90) days following such expiration of
earlier termination, Landlord shall render a final statement, setting forth all
amounts due Landlord pursuant to this Lease, including any amounts owing under
this Paragraph 6. Tenant shall pay such final statement to Landlord within ten
(10) days following the date Landlord renders such final statement.
7. COMMISSION
Tenant represents and warrants to Landlord that, except with respect to Tri
City Commercial Sales, Inc. (hereinafter referred to as the "Broker"), no
broker, agent, commission salesman, or other person has represented Tenant in
the negotiations for and procurement of this Lease and of the Premises and that
no commissions, fees, or compensation of any kind are due and payable in
connection herewith to any broker, agent, commission salesman, or other person
(except Broker). Tenant and Landlord agree to indemnify and hold each harmless
from any and all claims, suits, demands, costs, liability, or judgments
(including, without limitation, attorneys' fees and court costs incurred in
connection with any such claims, suits, or judgments or in the enforcement of
this indemnity) for any fees, commissions or compensation of any kind which
arise out of or in any way connected with any claimed agency relationship with
Tenant (except with respect to Broker). Tenant further agrees that, in the
event (i) this Lease shall terminate prior to the last day of the Term as a
result of any default hereunder by Tenant, or (ii) Landlord shall exercise any
of Landlord's rights and remedies pursuant to Paragraph 15 as a result of
Tenant's default, whether or not this Lease is terminated, then in either of
such events Tenant
-3-
<PAGE>
shall reimburse Landlord for the amount of any commission owing or paid to any
such broker or brokers with respect to this Lease, or any portion of the term
hereof, after such default. Landlord will pay all commissions associated with
the Lease dated March __, 1991 between Aeronomics Incorporated and Sullivan/Best
Joint Venture.
8. USE
Tenant shall occupy and use the Premises for general office space,
administrative purposes, related use and other lawful uses. The Premises shall
not be used for illegal purposes; nor in violation of any regulation of any
governmental body; nor in any manner to create any nuisance or trespass; nor in
any manner to vitiate the insurance or increase the rate of insurance on the
Premises or the Building. Tenant agrees, at its own expense, to promptly comply
with any and all municipal county, state and federal statutes, regulations,
and/or requirements applicable or in any way relating to matters arising solely
from Tenant's unique occupancy of the Premises.
9. TENANT'S ACCEPTANCE
Tenant acknowledges that it has been afforded an opportunity to inspect the
Premises and accepts the Premises "as is" and as suited for Tenant's intended
use thereof, subject only to the provisions of Paragraph 3. Upon the tenth
(10th) day after completion of the improvements contemplated by Paragraph 3, or
occupancy of the Premises by Tenant, whichever first occurs, Tenant shall be
deemed to have accepted all improvements made to the Premises, subject to
punchlist items and latent defects.
10. ASSIGNMENT AND SUBLETTING
Tenant shall not voluntarily or involuntarily, whether by operation of law
or otherwise, assign, transfer, hypothecate or otherwise encumber this Lease or
any interest herein other than by corporate merger, name change or transfer to
any other entity under common control of Tenant and shall not sublet the
Premises or any portion thereof without obtaining in each instance Landlord's
prior written consent, which consent shall be granted or withheld as provided
below. Landlord's consent shall not be unreasonably withheld. Landlord's consent
to one assignment, sublease, transfer or hypothecation shall not be deemed or
construed as a consent to any other or further assignment, sublease, transfer or
hypothecation. Any such assignment, sublease, transfer or hypothecation without
Landlord's prior written consent shall be void and shall, at Landlord's option,
constitute a material breach of Tenant's obligations under this Lease. No
acceptance by Landlord of any rent or any other sum of money from any assignee,
sublessee or other category of transferee shall release Tenant from any of its
obligations hereunder or be deemed to constitute Landlord's consent to any
assignment, sublease, transfer or hypothecation, and in any event, Tenant shall
remain primarily liable on this Lease for the entire Term hereof and shall in no
way be released from the full and complete performance of all the terms,
conditions, covenants and agreements contained herein. A transfer of a fifty
percent (50%) or greater interest (whether stock, partnership interest, or
otherwise) in Tenant, either in a single transaction or in any series of
transactions within a fourteen (14) consecutive month period, shall be deemed to
be an assignment of this Lease except for transfers to spouses, trusts or heirs.
-4-
<PAGE>
In the event Tenant should desire to assign this Lease or sublet the
Premises or any part thereof, Tenant shall give Landlord prior written notice,
which shall specify (a) the date on which Tenant desires to make such assignment
or sublease, (b) the name and business of the proposed assginee or sublessee,(c)
the amount and location of the space affected, (d) the proposed effective date
and duration of the subleting or assignment,(e) the proposed rental to be paid
to Tenant by such sublease or assignee, and (f) the full financial statements of
the proposed assignee or sublessee. Landlord shall then have a period of thirty
(30) days following receipt of such notice within which to notify Tenant in
writing that Landlord elects (i) to terminate this Lease as to the space so
affected as of the date so specified by Tenant, in which event Tenant shall, on
that date, immediately surrender possession of such space to be relieved of all
further obligations to pay rent hereunder as to such space, or (ii) to permit
Tenant to assign or sublet such space, in which event if the proposed rental
between Tenant and sublesse is greater than the Base Rental as adjusted under
this Lease, then fifty (50%) percent of such excess rental shall be deemed
additional rent owned by Tenant to Landlord under this Lease and the amount of
such excess shall be paid by Tenant to Landlord in the same manner that Tenant
pays the Base Rental hereunder and in addition thereto, Tenant will not be
responsible for sharing excess rental with Landlord unless nore than fifty (50%)
percent of the Premises is subleased or (iii) to withhold consent to Tenant's
assigning or subleasing such space and to continue this Lease in full force and
effect as to the entire Premises. If Landlord should fail to notify Tenant in
writing of such election within said thirty (30) day period, Landlord shall be
deemed to have elected the option provided in clause (iii) above. Tenant agrees
to reimburse Landlord for Landlord's reasonable attorney's fees and costs
incurred in connection with the processing and documentation of any request made
pursuant to this paragraph 10.
11. HOLDING OVER
Tenant agrees to surrender the Premises to Landlord at the end of the Term
in as good condition as existed at the commemcement of Tenant's occupancy,
ordinary wear and tear, and damage by fire, casualty and condemnation expected.
Tenant shall pay to Landlord upon request, all damages that Landlord may suffer
on account of Tenant's failure to surrender possession as and when aforesaid and
shall indemnify Landlord against all claims, demands, liabilities, costs and
expenses (including, without limitation, reasonable attorneys' fees and costs)
arising out of Tenant's delay in so delivering possession, including, but not
limited to, claims of any other tenants or prospective tenants of the Building.
Without limiting Landlord's rights and remedies, if Tenant holds over in
possession of the Premises beyond the end of the Term, Tenant shall pay, not as
rent but for Tenant's use and occupancy of the Premises, for each day that
Tenant shall hold over, a sum equal to two (2) times the Base Rental previously
payable by Tenant under the terms of this Lease divided by thirty (30), plus all
additional rental previously payable under the terms of this Lease.
12. ALTERATIONS AND IMPROVEMENTS
(a) Tenant shall have the right to make cosmetic improvements to the space
without Landlord's written consent. However, any structual changes
(i.e. new walls or demolition) must be approved by Landlord and
Landlord agrees that its consent
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will not be unreasonably withheld or delayed. Landlord will perform
all work associated with the improvements and Tenant shall be
responsible for all costs associated with the improvements.
(b) In the event that Tenant's actions, omissions or occupancy of the
Premises shall cause the rate of fire or other insurance either on Building or
the Premises to be increased, Tenants shall pay, as additional rent, the amount
of any such increase promptly upon demand by landlord.
(c) All permanent erections, additions, fixtures and improvements, whether
temporary or permanent in character (except only the movable office further
movable partitions, equipment, business and trade fixtures, other personal
property and office furniture of the Tenant) made in or upon the Premises, shall
be and remain the Landlord's property, and shall remain upon the Premises at the
termination or expiration of this Lease, with no compensation to the Tenant.
Landlord reserves the right to require Tenant to remove any such improvements or
additions upon the termination or expiration hereof. Landlord will repair any
damage to the Premises or the Building caused by or in connection with the
removal of any articles of personal property, business or trade fixtures,
alterations, improvements and installations and all costs for such repairs shall
be at Tenant's expense.
13. REPAIRS TO THE PREMISES
Landlord shall not be required to make any repairs or improvements to the
Premises, except structural repairs necessary for safety and tenantability.
Tenant shall, keep in good repair all portions of the Premises, including but
not limited to windows, glass and plate glass, doors, hallway doors providing
access to the Premises, ceiling and light fixtures, signage (if permitted by
Landlord), interior walls and finish work, floor coverings, and shall take good
care of the Premises and its fixtures and permit no waste, except normal wear
and tear with due consideration for the purpose for which the Premises is
leased. Tenant will notify Landlord immediately of any failure of building
services.
14. INSPECTIONS
Landlord hereby reserves to itself and its agents the right to exhibit the
Premises to prospective purchasers or tenants at reasonable hours, to inspect
the Premises to see that Tenant is complying with all its obligations hereunder,
to make repairs required of Landlord or Tenant under the terms hereof, to make
repairs or modifications to any adjoining space, to maintain, use, repair, and
replace pipes, ducts, wires, meters and any other equipment, machinery,
apparatus, and fixtures located within or without the Premises which service the
Building or the Premises, to make alterations in and additions to the Building,
and to enter upon the Premises for the foregoing purposes.
15. DEFAULT AND REMEDIES
In addition to the circumstances hereinbefore set forth, the occurrence of
any of the following shall constitute a material breach and default of this
Lease by Tenant:
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(a) The filing of any voluntary petition or similar pleading under any
section or sections of any bankruptcy or insolvency act by or against Tenant,
the institution of any voluntary or involuntary proceeding in any court or
tribunal to declare Tenant insolvent or unable to pay Tenant's debts and, solely
in the case of any insolvency petition or proceeding, such petition or
proceeding is not dismissed within thirty (30) days from the date it is filed,
the making of an assignment for the benefit of its creditors by Tenant, or the
appointment of a trustee or receiver for Tenant or the Tenant's property.
(b) Tenant's failure to pay the Base Rental or any other sum due
hereunder if such non-payment continues for ten (10) or more days after the same
be due and payable or Tenant's default in the prompt and full performance of any
other provision of this Lease and (unless such default involves a hazardous
condition, in which event such default shall be cured forthwith upon Landlord's
demand) such Tenant fails to cure such default within twenty (20) days after
written demand by Landlord that the default be cured. After ten (10) days,
Landlord will provide written notice to Tenant of its delinquent Base Rental (or
any other sum due hereunder) twice in any given twelve (12) month period and
Landlord further agrees that Tenant will have ten (10) days from the receipt of
Landlord's notice to satisfy the delinquent account. Landlord will not place
Tenant in default unless the delinquent account is no satisfied within said ten
(10) day period.
(c) The levy upon Tenant's interest under this Lease or in the Premises
or the attachment thereof by process of law.
In the event of any default as aforesaid by Tenant, the Landlord, in
addition to other rights or remedies it may have at law or in equity, shall have
the option of pursuing any one or more of the following non-exclusive remedies:
(i) Landlord shall have the immediate right of re-entry and may remove
all property from the Premises to a warehouse or elsewhere at the cost of, and
for the account of, Tenant, all without being deemed guilty of trespass, or
becoming liable for any loss, damage or damages which may be occasioned thereby;
(ii) Landlord may, from time to time without terminating this Lease, and
without releasing Tenant in whole or in part from Tenant's obligation to pay
Base Rental and all other amounts due under this Lease and to perform any and
all of the covenants, conditions and agreements to be performed by Tenant as
provided in this Lease, make such alterations and repairs as may be necessary in
order to relet the Premises. Landlord may, but shall not be obligated to, relet
the Premises or any part thereof for such term or terms (which may be for a term
extending beyond the Term of this Lease) at such rental or rentals and upon such
other terms and conditions as Landlord in its sole discretion may deem advisable
or acceptable. Tenant shall pay Landlord as soon as ascertained and upon demand
all costs and expenses incurred by Landlord in connection with such reletting
and in making any alterations and repairs, including, without limitation, the
value of any "free rent" and rental concessions and the unamortized cost of
tenant improvements or allowances given to Tenant or made at Landlord's expense.
Upon each reletting all rentals received by Landlord from such reletting shall
be applied; first, to the payment of any indebtedness other than rent due
hereunder from Tenant to
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Landlord; second, to the payment of any unpaid costs and expenses of such
reletting, including brokerage fees and attorney's fees and the costs of such
alterations and repairs; third, to the payment of the Base Rental due and unpaid
hereunder; and, fourth, the residue, if any, shall be held by Landlord and
applied in payments of future Base Rental and other additional rent or charges
as the same may become due and payable hereunder. In no event shall Tenant be
entitled to any excess rental received by Landlord over and above that which
Tenant is obligated to pay hereunder, including Base Rental, additional rent and
all other charges. If such rentals received from such reletting during any
month be less than that to be paid during such month by Tenant hereunder,
including Base Rental, additional rent and all other charges, Tenant shall pay
any such deficiency to Landlord. Such deficiency shall be calculated and paid
monthly. Notwithstanding any such reletting without termination, Landlord may
at any time thereafter terminate this Lease for such previous breach;
(iii) Landlord may terminate this Lease, in which event Tenant shall
immediately surrender possession of the Premises, and Landlord may recover from
Tenant all damages it may incur by reason of such breach, including the cost of
recovering the Premises, reasonable attorneys' fees and costs, the value of any
"free rent" and rental concessions, the unamortized cost of tenant improvements
or allowances given to Tenant or made at Landlord's expense, and the present
value of all rentals payable under this Lease to Landlord for the remainder of
the Term, all of which amounts shall be immediately due and payable from Tenant
to Landlord.
Landlord's re-entry, demand for possession, notice that the tenancy hereby
created will be terminated on the date therin named, institution of an action
of forcible detainer, or ejectment or the entering of a judgment for possession
in such action or any other act or acts resulting of a judgment for possession
in such action or any other act or acts resulting in the termination of Tenant's
right to possession of the Premises shall not relieve Tenant from Tenant's
obligation to pay all sums due hereunder during the balance of the Term, except
as herein expressly provided. Landlord may collect and receive any Base Rental,
additional rent, or charges due from Tenant, and the payment thereof shall not
constitute a waiver of or affect any notice or demand given, and instituted or
judgment obtained by Landlord, or be held to waive, affect, change, modify or
alter the rights or remedies which Landlord has in equity or at law or by virtue
of this Lease.
All sums past due under this Lease shall bear interest at the lesser of a
per annum rate of eighteen percent (18%) or the maximum lawful rate, from due
date thereof until paid-in-full.
Except as expressly provided in this Lease, Tenant hereby waives any and
every form of demand and notice prescribed by statute or other law, including
without limitation the notice of any elections or remedies made by Landlord
under this Paragraph, demand for payments of any rent, or demand for possession.
All rights and remedies of Landlord created or otherwise existing at law
are cumulative and the exercise of one or more rights or remedies shall not be
taken to exclude or waive the right to exercise any other.
Tenant shall and hereby agrees to pay all costs and expenses incurred by
Landlord in enforcing any of the covenants and agreements of this Lease, or as a
result of an action brought
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by Landlord against Tenant for an unlawful detainer of the Premises, and all
such costs, expenses and attorney's fees shall, if paid by Landlord, be paid
by Tenant to Landlord within fifteen (15) days of Landlord's written demand
therefor, together with interest at the lesser of a per annum rate of eighteen
percent (18%) or the maximun lawful rate from the date of Landlord's payment
thereof until payment in full by Tenant.
16. SERVICES
(a) Landlord shall provide janitorial and cleaning services for the
Premises and the common areas of the Building and non-exclusive elevator
service. Landlord shall furnish electric facilities to the Premises sufficient
for lighting and small business machinery only (e.g., typewriter, dictating
machines, adding machines, calculators, copiers, postage machines, teletypes and
any other equipment that uses 110 volt power source). Tenant will not use any
electrical equipment which in Landlord's opinion will overload the wiring
installations or interfere with the reasonable use thereof by other users in the
Building. Tenant will not, without Landlord's prior written consent in each
instance, connect any additional items (e.g., electric heaters, vending
equipment, printing, or duplicating machines, auxiliary air-conditioners) to the
Building's electrical system, or make any alteration or addition to the system.
Should Landlord grant such consent, all additional circuits or equipment
required thereof shall be installed by Landlord and the cost of installation,
equipment and metering devices shall be paid by Tenant within five (5) days of
receipt of a bill thereof. The consumption of electricity for such additional
equipment shall be paid monthly to Landlord at the prevailing utility company
rates, within thirty (30) days of receipt of invoice by Tenant. Landlord shall
furnish seasonable air conditioning and heating during normal business hours
(8:00 A.M. to 6:00 P.M.) Monday through Friday and 8:00 A.M. until 1:00 P.M.
Saturday, said heating and air-conditioning shall not be furnished Sunday or
holidays observed by Landlord. Landlord and Tenant agree that in the event
Tenant adds additional equipment which in Landlord's opinion produces enough
heat to cause comfort problems in the Premises, the Building, or any part
thereof, then Landlord shall install a supplemental air conditioner and Tenant
agrees to pay Landlord for such equipment, installation and consumption of
electricity for supplemental air conditioning. Landlord shall not be liable for
any damages directly or indirectly resulting from the installation, use or
interruption of use of any equipment in connection with the furnishing of
services referred to in this Paragraph, or any interruption in services supplied
by Landlord hereunder provided Landlord shall use its good faith efforts to
restore such services.
(b) Notwithstanding anything to the contrary in subparagraph 5(b),
Landlord shall have the right, at any time, to install an electrical metering
device to monitor electrical consumption on the Premises. Should Landlord
install such a device, Tenant shall, from time to time, pay upon receipt of
an invoice thereafter, all direct charges for supplying electricity to the
Premises. All costs incurred by Landlord to install such device and related
equipment shall be borne by Tenant. Landlord's right to install a metering
device pursuant to this subparagraph 16(b) shall be in addition to Landlord's
right to install such a device pursuant to subparagraph 16(a) of this Lease.
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17. DESTRUCTION OF PREMISES
(a) If the Premises or the Building is rendered partially or wholly unfit
for occupancy by fire, the elements, act of God or other casuality (fire, the
elements, acts of God or other casualties hereinafter referred to as the
"Casualty"), and if such damage including Tenant Improvements cannot, in
Landlord's reasonable opinion, be materially restored within ninety (90) days of
the date of such Casualty or if Landlord elects to demolish, susbstantially
alter, or cease operating the Building, then, in either such case, Landlord or
Tenant may, terminate this Lease as of the date of such Casualty and the Term
shall end as of such date. For purposes hereof, the Premises shall be deemed
"materially restored" if they are in such condition as would not prevent or
materially interfere with Tenant's use of the Premises for the purpose for which
it was then being used. If this Lease is not terminated pursuant to the above
provisions of this Paragraph 17(a), then Landlord shall proceed with all due
diligence, upon receipt of all insurance proceeds due to Landlord, to repair and
restore the Premises. In no event shall Landlord be required to rebuild, repair,
or replace any part of the partitions, fixtures, additions, or other property
and improvements which may have been placed in or about the Premises by Tenant.
If this Lease shall not be terminated by Landlord pursuant to this Paragraph 17
(a) and if the Premises are unfit for occupancy in whole or in part following
such Casualty, the rent payable during the period in which the Premises are
unfit for occupancy shall abate in proportion to the percentage of the rentable
area of the Premises rendered unusable by such Casualty; provided, however, that
no such abatement shall be made in the event such Casualty shall have been
caused through the negligence or willful misconduct of Tenant, its agents,
employees, contractors, invitees, licensees, tenants, or assignees. If any such
Casualty occurs, Landlord shall not be liable to Tenant for inconvenience,
annoyance, loss of profits, expenses, or an other type of injury or damage
resulting from the repair of any such Casualty, or from any repair,
modification, arranging, or rearranging of any portion of the Premises or any
part of all of the Building or for termination of this Lease as provided in this
Paragraph 17(a). Notwithstanding any language contained in this Lease to the
contrary, Landlord's obligations to repair and restore such damage shall be
limited to the amount of insurance proceeds made available to Landlord for such
repair and restoration (after any right of any mortgages to said proceeds);
provided, that if, in Landlord's reasonable judgement, the amount of such
insurance proceeds is not sufficient to materially restore the Premises and the
Building (except for any improvements, fixtures, finishing, or personalty that
may have been placed in or about the Premises by Tenant), Landlord shall have
the right to terminate this Lease as of the date of such Casualty and the Lease
Term shall end as of such date. In the event of any Casualty during the final
year of the Lease Term of this Lease, Landlord, at Landlord's sole option, shall
have the right to terminate this Lease as of the date of such Casualty and the
Lease Term shall end of such date.
(b) If all of the Premises should be taken for any public or quasi-public
use under governmental law, ordinance, or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, this Lease shall, at either
Landlord's or Tenant's option, terminate effective as of the date of such actual
physical taking. If part of the Premises is taken for any public or quasi-public
use under any governmental law, ordinance, or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, or if any part of the Building
is so taken and Landlord's elects to demolish, substantially alter, or cease
operation of the Building, then, in
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either such case, Landlord shall have the right to terminate this Lease
effective as of the date of such actual physical taking. In the event that this
Lease is not terminated as provided above in this Paragraph 17(b), the rent
payable hereunder during the unexpired portion of this Lease shall be reduced in
proportion to the percentage of the rentable area of the premises rendered
unusable by such taking and Landlord shall undertake materially to restore the
Premises. Landlord or Tenant, as the case may be, shall exercise its right to
terminate this Lease provided above in this Paragraph 17(b) by actual physical
taking. Notwithstanding any language contained in this Lease to the contrary,
landlord's, obligation to materially restore the Premises shall be limited to
the amount of condemnation proceeds made available to the Landlord for such
restoration and repair (after any right of any mortgages to said proceeds);
provided, that if, in Landlord's reasonable judgment, the amount of such
proceeds is not sufficient to materially restore the Premises and the Building
(except for any improvements, fixtures, finishes, or personalty that may have
been placed in or about the Premise by Tenant), Landlord shall have the right to
terminate this Lease effective as of the date of such actual physical taking.
Tenant shall not share in condemnation aware or payment in lieu thereof or in
any award for damages resulting from any grade change of adjacent streets, the
same being hereby assigned to Landlord by Tenant; however, Tenant may separately
claim and receive from the condemning authority (but not from Landlord), of
legally payable, compensation for Tenant's removal and relocation costs and for
Tenant's loss of business and/or business interruption, provided that such claim
and recovery shall in no way diminish Landlord's recovery. Notwithstanding
anything to the contrary contained in this Paragraph 17(b), if during the Term
the use or occupancy of any part of the Building or Premises shall be taken or
appropriated temporarily for any public or quasi-public use under any
governmental law, ordinance, or regulation, or by right of eminent domain, or by
private agreement in lieu thereof, this Lease shall be and remain unaffected by
such taking or appropriation and Tenant shall continue to pay in full all rent
payable hereunder by Tenant during the term of this Lease or private agreement
in lieu thereof; in the event of any such temporary appropriation or taking,
Tenant shall be entitled to receive that portion of any award which represents
compensation for the loss of use or occupancy of the Premises during the term of
this Lease, and Landlord shall be entitled to receive that portion of any award
which represents the cost of restoration and compensation for the loss of use or
occupancy of the Premises after the end of the term of this Lease and of the
Building.
18. INSURANCE
(a) Tenant shall carry fire and extended coverage insurance insuring the
Premises, all partitions, fixtures, additions, plate glass, tenant improvements,
and property placed in or about the Premises, and any and all furniture,
equipment, supplies, and other property contained therein, such insurance
coverage to be in the full replacement value thereof, with reasonable deductible
amounts.
(b) Tenant also agrees to carry a policy or policies of worker's
compensation and comprehensive general liability insurance, including personal
injury and property damage, with contractual liability insurance, including
personal injury and property damage, with contractual liability endorsement, in
the amount of Two Million Dollars ($2,000,000) for property damage
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and One Million Dollars ($1,000,000) per occurrence for personal injuries or
deaths of persons occurring in or about the Premises.
(c) Said insurance policies as described in the foregoing subparagraphs
18(a) and 18(b) shall: (i) name Landlord and Landlord's agent as an additional
insured and insure Landlord's and Landlord's agent's contingent liability under
this Lease (except for the worker's compensation policy, which shall instead
include a waiver of subrogation endorsement in favor of Landlord), (ii) be
issued by an insurance company which is reasonably acceptable to Landlord and
licensed to do business in the State of Georgia, (iii) provide that said
insurance shall not be canceled or amended unless thirty (30) days prior written
notice shall have been given to Landlord, and (iv) provide that the insurance
company issuing such policy waives all rights of subrogation against Landlord.
Said policy or policies, or certificates thereof, shall be delivered to Landlord
by Tenant upon commencement of the term of the Lease and upon each renewal of
said insurance. Tenant hereby waives any right of recovery against Landlord for
loss or injury to the extent Tenant would have been protected by the insurance
required to be maintained by Tenant under the terms of this Lease.
19. RULES AND REGULATIONS
The rules and regulations set forth in the attached Exhibit D, incorporated
---------
herein by this reference, shall be and are hereby made a part of this Lease.
Tenant, its employees, and agents, will perform and abide by said rules and
regulations, and any amendments or additions to said rules and regulations as
may be made from time to time by Landlord.
20. USUFRUCT ONLY
This contract shall create the relationship of Landlord and Tenant between
Landlord and Tenant; no estate shall pass out of Landlord; Tenant has only a
usufruct, not subject to levy and sale.
21. WAIVER
The waiver by Landlord of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of any other term, covenant
or any subsequent breach of the same or any other term, covenant or condition
herein contained. The subsequent acceptance of Base Rental, or additional
rent or other sums due hereunder by Landlord shall not be deemed to be a waiver
of any preceding breach by Tenant of any term, covenant or condition of this
Lease, regardless of Landlord's knowledge of such preceding breach at the time
of acceptance of such payment. No covenant, term or condition of this Lease
shall be deemed to have been waived by Landlord, unless such waiver be in
writing by Landlord.
22. ENTIRE AGREEMENT
This Lease, sets forth all the covenants, promises, agreements, conditions
and undertakings between Landlord and Tenant concerning the Premises and there
are no covenants, promises, agreements, other than are herein set forth. No
subsequent alteration, amendment,
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change or addition to this Lease, except as to changes or additions to the Rules
and Regulations, shall be binding upon Landlord or Tenant unless reduced to
writing and signed by authorized representatives.
23. LANDLORD'S CONSENT
In every instance herein in which the Landlord is called upon to give its
consent, such consent may be withheld at Landlord's sole discretion, or if
granted, may be subject to those conditions which Landlord deems appropriate.
24. NOTICES
Every notice, demand or request hereunder shall be in writing, and shall be
deemed to have been properly given if hand delivered or if deposited with the
United States Postal Service (or any official successor thereto) designated
certified mail, return receipt requested, bearing adequate postage and addresses
as follows:
If to Tenant: Aeronomics Incorporated and Robert G. Cross
4751 Best 89 Greenville Street
Suite 300 Newnan, Georgia 30263
Atlanta, Georgia 30337
or
The current President/CEO at
the time.
If to Landlord: Sullivan/Best Joint Venture
c/o Peterson Management Company
200 Galleria Parkway
Suite 1460
Atlanta, Georgia 30339
Attn: Lease Administrator
The foregoing addresses may be changed by thirty (30) days prior written
notice from time to time.
Tenant hereby appoints as his agent to receive the service of all
dispossessory or distraint proceedings and notices thereunder, and all notices
required under this Lease, the person in charge of the Premises at the time. A
copy of all notices under this Lease shall also be sent to Tenant's last known
address, if different from the Premises.
25. RELOCATION.
[Deleted]
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26. SUCCESSORS AND ASSIGNS, ATTORNMENT.
The covenants, conditions and agreements herein contained shall inure
to the benefit of and be binding upon landlord, its successors and assigns, and
shall be binding upon Tenant, its heirs, executors, administrators, successors
and assigns, and shall inure to the benefit of Tenant and only such assigns of
Tenant to whom the assignment by Tenant has been consented to by Landlord.
Nothing contained in this Lease shall in any manner restrict Landlord's right to
assign or encumber this Lease in its sole discretion. Should Landlord assign
this Lease as provided for above, or should Landlord enter into a security deed
or other mortgage affecting the Premises and should the holder of such deed or
mortgage succeed to the interest of Landlord, Tenant shall be bound to said
assignee or any such holder under all the terms, covenants and conditions of
this Lease for the balance of the Term hereof remaining after such succession
and Tenant shall attorn to such succeeding party as its Landlord under this
Lease promptly after any such succession. Tenant agrees that should any party so
succeeding to the interest of Landlord require a separate agreement of
attornment regarding the mattes covered by this lease, then Tenant shall enter
into any such "attornment agreement," provided the same does not modify any of
the provisions of this lease and has no adverse effect upon Tenant's continued
occupancy of the Premises. If landlord's interest in the Building shall
terminate by operation of law, sale, or excecution or foreclosure sale, Landlord
shall thereupon be released from all further liability to Tenant under this
Lease and Landlord's successor shall thereupon become liable to Tenant for all
further obligations of Landlord under this Lease.
27. SECURITY DEPOSIT.
Upon full execution of this lease, Tenant shall pay to Landlord an ,amount
equal to the average annual rental divided by twelve (12) (the "Security
Deposit"), which amount shall be security for the full and faithful
performance and observance by Tenant of its covenants and obligations under this
Lease. No interest shall be payable on the Security Deposit, and it is agreed
and acknowledged by Tenant that the Security Deposit is not an advance payment
of rent or a measure of landlord's damages in the case of default by Tenant.
Landlord shall be entitled to commingle the Security Deposit with other funds of
Landlord. Upon the occurrence of an event of default under this Lease, Landlord
may use, apply, or retain the whole or any part of the Security Deposit so
deposited to the extent required for the payment of any Base Rental and
additional rent or any other sum as to which Tenant is in default or the payment
of any other damage, injury, expense, or liability resulting from any event of
default. Following any such application of the Security Deposit, Tenant shall
pay to landlord on demand the amount necessary to restore the Security Deposit,
to its original amount. In the event that Tenant shall fully and faithfully
comply with all of its covenants and obligations under this lease, the Security
Deposit shall be returned to Tenant within thirty (30) days after the expiration
of the Term (or any permitted extensions thereof) and after delivery of
possession of the Premises to Landlord in accordance with the terms hereof.
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<PAGE>
28. TIME IS OF THE ESSENCE.
Time is of the essence with respect to the performance of each of the
covenants and agreements of this Lease.
29. GOVERNING LAW.
The Laws of the State of Georgia shall govern the validity, performance and
enforcement of this Lease.
30. SEVERABILITY.
If any clause or provision of this Lease is or becomes illegal, invalid, or
unenforceable because of present or future laws or any rule or regulation of any
governmental body or entity, effective during its term, the intention of the
parties hereto is that the remaining parts of this Lease shall not be affected
thereby, unless such invalidity is, in the sole determination of Landlord
essential to the rights of Landlord, in which event Landlord has the right to
terminate this Lease on written notice to Tenant.
31. SUBORDINATION.
Tenant agrees that this Lease shall remain subject and subordinate to all
present and future mortgages, deeds to secure debt or other security instruments
(the "Security Deeds") affecting the Building or the Premises, and Tenant, shall
promptly execute and deliver to Landlord such certificate or certificates in
writing as Landlord may request, showing the subordination of the Lease to such
Security Deeds, and in default of Tenant so doing, Landlord shall be and is
hereby authorized and empowered to execute such certificate in the name of and
as the act and deed of Tenant, this authority being hereby declared to be
coupled with an interest and to be irrevocable, Tenant shall upon request from
Landlord at any time and from time to time execute, acknowledge and deliver to
Landlord a written statement certifying as follows: (a) that this Lease is
unmodified and in full force and effect (or if there has been modification
thereof, that the same is in full force and effect as modified and stating the
nature thereof); (b) that to the best of its knowledge there are no uncured
defaults on the part of Landlord (or if any such default exists, the specific
nature and extent thereof); (c) the date to which any rents and other charges
have been paid in advance, if any; and (d) such other matters as Landlord may
request. Tenant irrevocably appoints Landlord as its attorney-in-fact, coupled
with an interest, to execute and deliver, for and in the name of Tenant, any
document or instrument provided for in this Paragraph. Any holder of a mortgage
or security deed encumbering property which includes the Premises may, at any
time, subordinate such mortgage or security deed to this lease, without Tenant's
consent, by notice to Tenant, and thereupon this Lease shall be deemed prior in
lien to such mortgage or security deed without regard to the respective dates of
execution, delivery and recordation thereof. In that event, such holder shall
have the same rights with respect to this lease as though this Lease had been
executed and delivered prior to the execution and delivery of such mortgage or
security deed and had been assigned to such mortgagee or security deed holder.
The above right is supplementary to and not in derogation of any rights such
mortgagee or security deed holder may otherwise have.
-15-
<PAGE>
32. ATTORNEY'S FEES.
Tenant agrees to pay all reasonable and actual attorney's fees and expenses
the Landlord incurs in enforcing any of the obligations of Tenant under this
Lease, or in any litigation or negotiation in which the Landlord shall, without
his fault, become involved through or on account of this Lease.
33. INDEMNITY.
Tenant agrees to and does hereby indemnify and hold harmless Landlord and
shall defend Landlord from and against any and all claims, actions, damages,
liabilities, demands, and expenses, including, without limitation, attorney's
fees and other professional fees and costs, incurred in connection with loss of
life, personal injury, or damage to property arising from or out of the
occupancy or use by Tenant of the Premises or any part thereof or any other
part of the Building or surrounding area, occasioned wholly or in part by an act
or omission of Tenant, its officers, agents, invitees, contractors, or
employees. Tenant's comprehensive general liability insurance required pursuant
to subparagraph 18(a) of this Lease shall insure Tenant against assumed or
contractual liability under this Lease.
34. RIGHT TO CURE.
Tenant hereby permits Landlord to cure any and all defaults hereunder (but
Landlord shall have no obligation to cure such defaults) and to charge to Tenant
as additional rent Landlord's costs and expenses (including attorney's fees and
costs and a reasonable allowance for administrative and overhead expenses) of
curing such defaults. Tenant shall pay to Landlord such costs immediately upon
receipt of an invoice therefor.
35. LIABILITY.
Anything in this Lease to the contrary notwithstanding, Tenant agrees that
it shall look solely to the estate and property of Landlord in the land and
buildings comprising the Building (subject to the prior rights of any mortgagee
or security deed holder) for the collection of any judgment or other judicial
process requiring a payment of money by Landlord in the event of any default or
breach by Landlord with respect to the terms, covenants and conditions of this
Lease to be observed and/or performed by Landlord and no other assets of
Landlord shall be subject to levy, execution or other procedures for the
satisfaction of Tenant's remedies. In the event Landlord transfers or assigns
this Lease, except as collateral security for a loan, upon such transfer or
assignment, Landlord shall thereupon be released of all further liability and
obligations hereunder.
36. SECURITY INTEREST.
In order to secure the performance of Tenant's covenants, obligations and
agreements contained in this Lease, Tenant hereby grants to Landlord a security
interest in all furniture, fixtures, and equipment of Tenant used or employed on
or in the Premises, now owned or hereafter acquired by Tenant, and all increases
and accessions thereto and proceeds therefrom
-16-
<PAGE>
(the "Collateral"). Tenant covenants that it has the right to grant this
security interest and that it will at no time grant a subsequent or prior
security interest in any of the Collateral without the prior written consent of
Landlord. The security interest granted herein may be perfected by Landlord and
tenant hereby agrees to execute such reasonable documents as are reasonably
necessary or desirable to perfect such security interest. Tenant shall pay the
cost of filing any financing statements and amendments, modifications and
extensions thereof.
37. MISCELLANEOUS.
This Lease shall be governed by the laws of the State of Georgia and shall
be effective only when executed by both parties and may be amended or modified
only by a writing executed by both parties. The titles to the paragraphs are for
convenience only and are not to be considered in construing this Lease. Unless
repugnant to the context, "Landlord" and "Tenant" shall be construed as to each
provision of this Lease to mean the person named in the preamble to this Lease
as Landlord and Tenant, respectively, and their respective heirs, executors,
administrators, successors, and permitted assigns, and those claiming through or
under any of them, but this Paragraph shall not be construed as permitting any
transfer of all or any part of Tenant's interest in this Lease or the Premises.
This writing is intended by the parties as a final expression of their agreement
and as a complete and exclusive statement of the terms thereof, all
negotiations, considerations and representations between the parties having
been incorporated herein. No course of prior dealings between the parties or
their officers, employees, agents or affiliates shall be relevant or admissible
to supplement, explain or vary any of the terms of this Lease. Acceptance of, or
acquiescence in, a course of performance rendered under this or any other prior
agreement between the parties or with their affiliates shall not be relevant
or admissible to determine the meaning of any of the terms of this lease. No
representations, understandings, agreements have been made or relied upon in the
making of this Lease other than those specifically set forth herein.
38. SPECIAL STIPULATIONS.
Insofar as the special stipulations set forth on Exhibit E, attached hereto
---------
and incorporated herein conflict with any of the foregoing provisions, said
Special Stipulations shall control.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and
seal, the day and year first above written:
LANDLORD:
SULLIVAN/BEST JOINT VENTURE, a joint
venture created pursuant to the Laws of the
State of Georgia
By: MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY, a corporation
created pursuant to the Laws of the
Commonwealth of Massachusetts, Joint
Venturer
By: /s/ Julianne M. Echols
--------------------------------------
Title: Director of Real Estate Investment
----------------------------------
[CORPORATE SEAL]
By: BEST ROAD OFFICE BUILDING
ASSOCIATES 1, LTD., a limited partnership
created pursuant to the Laws of the
State of Georgia, Joint Venturer
By: PETERSON LIMITED #8, a limited
partnership created pursuant to the
Laws of the State of Georgia,
General Partner
By: /s/ Robert Peterson (SEAL)
-------------------------
Robert E. Peterson
General Partner
TENANT:
AERONOMICS INCORPORATED
By: /s/ Robert Cross
--------------------------------------
Its: President
-------------------------------------
Attest: /s/ Cynthia P. Taylor
----------------------------------
Its: Secretary
-------------------------------------
-18-
<PAGE>
FIRST AMENDMENT TO LEASE
------------------------
THIS FIRST AMENDMENT TO LEASE (the "First Amendment") made and entered into this
23rd day of July, 1993, by and between MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY, a Massachusetts corporation ("Landlord") and AERONOMICS INCORPORATED, a
Delaware corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into a lease Agreement dated April 15,
1991, (collectively, the "Lease") for certain premises located in Waterstone,
4751 Best Road, Suite 300, Atlanta, Georgia 30337 incorporating 12,412 rentable
square feet (the "Premises") and,
WHEREAS, Landlord and Tenant desire to further amend the Lease in certain
respects and to ratify and confirm all of the provisions of the Lease:
NOW, THEREFORE, in consideration of the sum of TEN DOLLARS ($10.00) in hand paid
by Tenant to Landlord and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. The Area of the Leased Premises is hereby amended to increase the Leased
Area of the Premises by 13,472 rentable square feet. The total rentable
------
square footage shall be 25,884. The Lease Expiration Date shall be August
------
31, 1998.
2. Commencement Date Agreement
Landlord shall, not later than thirty (30) days after Tenant takes
possession of the Premises prepare and deliver to Tenant an agreement
(hereinafter the "Commencement Date Agreement") which shall fix the date
upon which the term commenced, the date upon which the obligation to pay
Rent and Additional Rent commenced and the date upon which the Term shall
expire. Provided Tenant agrees with the information contained in the
Commencement Date Agreement, it shall properly execute and return said
agreement to Landlord. When fully executed and delivered, the Commencement
Date Agreement shall supersede any inconsistent terms contained in this
Amendment as Exhibit B.
3. Paragraph 1 of Exhibit E of the Lease shall be deleted in its entirety, and
in lieu thereof, the following new paragraph l shall be inserted:
Tenant agrees to pay Landlord Base Rental for the Leased Premises in
accordance with the following Base Rental Schedule:
<PAGE>
First Amendment to Lease
AERONOMICS INCORPORATED
Page 2
<TABLE>
<CAPTION>
Per Rentable
Square Foot Monthly Base
From To Per Annum Rental
---- -- --------- ------
<S> <C> <C>
09/01/93 to 06/30/94 $15.88 $34,251.61
07/01/94 to 08/31/94 $16.36 $35,285.61
09/01/94 to 06/30/95 $16.88 $36,408.27
07/01/95 to 08/31/95 $17.36 $37,442.27
09/01/95 to 06/30/96 $17.88 $38,564.94
07/01/96 to 08/31/96 $18.36 $39,599.94
09/01/96 to 06/30/97 $18.88 $40,722.61
07/01/97 to 08/31/97 $17.92 $38,653.44
09/01/97 to 08/31/98 $17.92 $38,653.44
</TABLE>
4. Tenant shall continue to reimburse Landlord for all increases in operating
expenses above $5.10 per rentable square foot in accordance with Paragraph
5(b) of the Lease. For Operating Cost purposes, "Tenant's Share" shall be
increased to 25,884 / 92,076 = 28%.
5. First Right to Lease - Landlord hereby grants Tenant throughout the term of
this Amendment hereof a first right to lease (herein called the "First
Right to Lease") any portion of the space (herein called the "Expansion
Space") located on the third and fourth floors of the building, which is
not subject to a (A) written lease agreement or (B) renewal option by the
tenant currently in occupancy. Landlord agrees to notify Tenant of the
status of the tenants located on the third and fourth floors of the
Building with renewal options and the future availability of space located
on the third and fourth floors of the Building. If Landlord notifies Tenant
of the availability of the Expansion Space, Tenant shall notify Landlord on
or before five (5) business days after receipt of Landlord's notice whether
or not Tenant elects to lease the Expansion Space. If Tenant fails to
notify Landlord within such five (5) business day period, Tenant shall be
deemed to have elected not to lease the Expansion Space.
If Tenant desires to lease the Expansion Space, Landlord and Tenant shall
proceed to make and enter into an amendment to this Lease with respect to
the Expansion Space. The base rent, the additional rent and any allowances
with respect to the Expansion Space on the fourth floor shall be negotiated
at that time by Landlord and Tenant.
The term of the Lease with respect to the Expansion Space shall be
coterminous with the term of this Lease except that in no event shall the
term be less than three (3) years.
The obligation to pay the rent, the additional rent and all other charges
shall commence not later than the date which is sixty (60) days after the
lease for the Expansion Space is executed by Landlord and Tenant. If
Landlord and Tenant fail to enter into a Letter of Intent based on terms
and conditions satisfactory to each on or before thirty (30) days after the
date Tenant notifies Landlord that Tenant desires to lease the Expansion
Space,
-2-
<PAGE>
First Amendment to Lease
AERONOMICS INCORPORATED
Page 3
the rights of Tenant hereunder shall lapse and expire and Landlord may
lease the Expansion Space to any other person or entity without any
liability to Tenant by reason thereof. Furthermore, if Landlord and Tenant
fail to execute the amendment to this lease or a new lease on terms and
conditions satisfactory to each, inclusive of all construction drawings,
"Improvements", and all other details necessary to execute the aforesaid
document within ninety (90) days after the date Tenant notifies Landlord
that Tenant desires to lease the Expansion Space, the Rights of Tenant
shall lapse and expire and for any term Landlord may lease the Expansion
Space to any other person or entity within a one hundred and twenty (120)
day period without notice or any liability to Tenant. Landlord and Tenant
agree to exercise good faith in negotiating the terms and conditions of the
lease for the Expansion Space.
In the event Tenant does not lease the Expansion Space within the above
described period and Landlord receives a bona fide offer (excluding,
however, any offer arising out of or relating to an existing expansion
option, renewal option, or first right to lease (the "Offer"), Landlord
shall submit written notice to Tenant specifying the terms of the Offer.
The Tenant shall have the right (the "Right of First Refusal"), exercisable
at any time within five (5) business days from the date of such notice, to
lease said portion of the said floor that is the subject of the Offer
pursuant to the terms and provisions set forth in the Offer. If Tenant
elects to exercise the Right of First Refusal, it shall, prior to the end
of said five (5) business day period deliver written notice of such
exercise to the Landlord, and the leasing of said portion of said floor
shall commence on the last day of said five (5) business day period or upon
completion of the Tenant improvements, whichever is later and shall be
evidenced by a lease amendment executed by Tenant and Landlord. If the
Tenant does not exercise such Right of First Refusal within said five (5)
business day period or shall fail to deliver written notice of such
exercise as provided above, the Landlord shall be free to lease said
portion of the Building, or any part thereof, to the Offeror upon the same
terms and conditions as contained in the Offer.
6. TENANT IMPROVEMENTS:
(A) Attached hereto and incorporated herein as Exhibit "A" are the construction
documents with respect to the Additional Premises ("Final Plans"). Landlord
agrees to construct the tenant improvements, which shall include space
planning and design ("Tenant Improvements"), to the Additional Premises in
accordance with the Final Plans on or before 09-15-93 ("Completion Date"),
--------
at Landlord's sole cost and expense.
(B) If Tenant desires to make any changes to the Final Plans, Tenant shall
request said change in writing to Landlord. If said change, together with
all other changes in the aggregate, should increase the time required to
construct the Tenant Improvements, then the Completion Date shall be
extended by the number of additional days required because of said change.
Any changes which, in the aggregate, increase the cost above the Fixed
Amount (as hereinafter defined) shall be at Tenant's expense, and Tenant
shall pay all such amounts to Landlord within thirty (30) days after
receipt of invoice.
-3-
<PAGE>
First Amendment to Lease
AERONOMICS INCORPORATED
Page 4
(C) In connection with the construction of the Tenant Improvements, Landlord
agrees to prosecute such work with due diligence, and with minimal
interference with the Tenant's normal business operations.
(D) For each $1,000.00 saved in the cost of the Tenant Improvements below
$226,750.00 ("Fixed Amount"), the rent per rentable square foot per annum
shall be reduced by $.01025, and Paragraph 3 of this Amendment shall be
adjusted accordingly. Landlord shall certify the construction cost to
Tenant and Tenant shall have the right to inspect and audit Landlord's
books and records at Tenant's sole costs with respect thereto.
7. Security Deposit:
As security for Tenant's performance of its obligations under this Lease,
Tenant shall provide to Landlord a certificate of deposit in Tenant's name
and assigned as security to Landlord in the amount of $94,878; provided
however that on the anniversary of each lease year beginning September 1,
1994, the amount of such security shall be reduced by $18,975.00, provided
that Tenant is not then in default, or has not been in default of this
Lease after written notice and the appropriate opportunity to cure provided
by Landlord to Tenant. Landlord agrees to provide documentation as required
by the issuer of the certificate of deposit, as described in Exhibit C, to
permit the release of the certificate of deposit in the appropriate amount
as contemplated in this section.
8. Subordination, Nondisturbance and Attornment
To the best of Landlord's actual knowledge, the building of which the
Premises are a part ("Building"), and the land upon which the Building is
located ("Land", the land and building, the "Property") are not encumbered
by any lien, claims, encumbrance, ground lease or security deed the
foreclosure of which would affect the Lease as amended hereby (the "Lease"
including such amendment), and that notwithstanding anything contained in
the Lease to the contrary, Landlord will use best efforts to insure the
Lease shall not be subject and subordinate to any deed to secure debt
placed upon the Property, or any ground lease of the Land, Landlord shall
use best efforts to obtain from the grantee of such security deed or ground
lease a Subordination, Nondisturbance and Attornment Agreement in a form
reasonably acceptable to Tenant, which Agreement shall provide, among other
things, that so long as Tenant is not in default under the Lease, which
default remains uncured after written notice and an opportunity to cure,
the Lease and Tenant's rights thereunder shall not be affected as a result
of any action by the grantee under such security deed, assignment of rents
and leases or other document given in connection therewith.
9. This Amendment shall take effect when executed by both Landlord and
Tenant.
10. Except as expressly amended hereby, the Lease shall remain in full force
and effect, and the same is hereby ratified and confirmed.
-4-
<PAGE>
First Amendment to Lease
AERONOMICS INCORPORATED
Page 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their duly authorized officers under seal, as of the day, month and year
first above written.
LANDLORD:
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By: /s/ Julianne M. Eschols
-----------------------------------------
Its: Director of Real Estate Investment
----------------------------------------
Attest: /s/ Martin L. Johnson
-------------------------------------
Its: Director of Real Estate Investment
----------------------------------------
(CORPORATE SEAL)
(Additional Signatures on following page)
-5-
<PAGE>
First Amendment to Lease
AERONOMICS INCORPORATED
Page 6
TENANT:
AERONOMICS INCORPORATED
By: /s/ Robert Cross
-------------------------------------
Its: President
------------------------------------
Attest: /s/ Cynthia P. Taylor
---------------------------------
Its: Secretary
------------------------------------
(CORPORATE SEAL)
-6-
<PAGE>
SECOND AMENDMENT TO LEASE AGREEMENT
-----------------------------------
THIS SECOND Amendment to Lease Agreement is made and entered into this 18th of
February, 1994, by and between MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
("Landlord") and AERONOMICS INCORPORATED, a Delaware corporation ("Tenant").
W I T N E S S E T H, THAT:
--------------------------
Whereas, Landlord and Tenant have entered into that certain Lease Agreement,
dated April 15, 1991, which lease provided for the leasing of approximately
12,412 square feet of net rentable area within the Building, and a First
Amendment dated July 23, 1993 increasing Tenant's size to 25,884 rentable square
feet within the Building (said lease, as amended, is hereinafter referred to as
the "Lease"); and
Whereas, the Commencement Date under the Lease occurred on June 8, 1991; and
Whereas, Landlord and Tenant desire to amend the Lease as hereinafter provided.
NOW, THEREFORE, for and in consideration of the premises, TEN AND NO/100
($10.00) DOLLARS and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. The Lease is hereby amended by adding 1,686 rentable square feet on
the second floor of the Building (the "Additional Premises") to the
Premises leased to Tenant.
2. Notwithstanding anything to the contrary contained in Paragraph 5(a)
of the Lease, Tenant's Base Rental shall be paid in accordance with
the following table:
<TABLE>
<CAPTION>
PERIOD MONTHLY BASE RENTAL
------ -------------------
<S> <C>
05/01/94 to 06/30/94 $36,423.74
07/01/94 to 08/31/94 $37,525.18
09/01/94 to 06/30/95 $37,720.90
07/01/95 to 08/31/95 $39,822.34
09/01/95 to 06/30/96 $41,018.07
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERIOD MONTHLY BASE RENTAL
------ -------------------
<S> <C>
07/01/96 to 08/31/96 $42,120.51
09/01/96 to 06/30/97 $43,316.24
07/01/97 to 08/31/97 $41,112.19
09/01/97 to 08/31/98 $41,112.19
</TABLE>
Tenant's Base Rental with respect to the original Premises for the time period
prior to the Expansion shall be unaffected by this paragraph and shall be paid
as currently provided under the Lease.
3. Tenant's Share as described in Paragraph 5(b) of the Lease and
Paragraph 4 of the First Amendment, is hereby increased to
27,570/92,076 = 30% effective May 1, 1994 throughout the term of the
Lease.
4. TENANT IMPROVEMENTS
-------------------
A. Attached hereto and incorporated herein as Exhibit "A-1" are the
construction documents with respect to the Additional Premises
("Final Plans"), which shall be approved and initialed by
Landlord and Tenant and incorporated herein this Second
Amendment. Landlord agrees to construct the tenant improvements,
which shall include space planning and design, ("Tenant
Improvements") to the Additional Premises in accordance with the
Final Plans on or before May 1994 ("Completion Date"), at
Landlord' sole cost and expense. In no instance shall Landlord's
contribution exceed $18,377.40 (the "Fixed Amount") inclusive of
space planning and design.
B. If Tenant desires to make any changes to the Final Plans, Tenant
shall request said change in writing to Landlord. If said change,
together with all other changes in the aggregate, should increase
the time required to construct the Tenant Improvements, then the
Completion Date shall be extended by the number of additional
days required because of said change. Any changes which, in the
aggregate, increase the cost above the Fixed Amount shall be at
Tenant's expense, and Tenant shall pay all such amounts to
Landlord within thirty (30) days after receipt of notice of such
increased costs.
C. In connection with the construction of the Tenant Improvements,
Landlord agrees to prosecute such work with reasonable diligence,
and with minimal interference with the Tenant's normal business
operations.
-2-
<PAGE>
5. Both Landlord and Tenant acknowledge and confirm that the Lease, as
amended hereby, is in full force and effect and the other party is not
in default under the Lease. This Amendment shall inure to the benefit
of and be binding upon the parties hereto and their respective
successors and assigns. This Amendment shall be governed by and
construed under the laws of the state of Georgia. Time is of the
essence hereof.
6. This Amendment shall take effect when executed by both Landlord and
Tenant.
7. Terms utilized in this Amendment but not defined herein shall have the
meanings attributed to them in the Lease.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers and have caused their seals to be
affixed hereto as of the date and year first above written.
LANDLORD:
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY, a Massachusetts corporation
By: /s/ Julianne M. Eschols
--------------------------------
Its: Director of Real Estate Investment
------------------------------------
[CORPORATE SEAL]
TENANT:
AERONOMICS INCORPORATED, a Delaware
corporation
By: /s/ Cynthia P. Taylor
--------------------------------
Its: Corporate Secretary
-------------------------------
Attest: /s/ Cynthia P. Taylor
-----------------------------
Its: Corporate Secretary
-----------------------------
DATE: 2/18/94
-3-
<PAGE>
THIRD AMENDMENT TO LEASE AGREEMENT
This THIRD AMENDMENT TO LEASE AGREEMENT (the "Third Amendment'') is made
and entered into this 31st day of January, 1995, by and between MASSACHUSETTS
MUTUAL LIFE INSURANCE COMPANY ("Landlord") and AERONOMICS INCORPORATED
("Tenant").
R E C I T A L S
A. Landlord is the owner of certain improved real property located in
Atlanta, Fulton County, Georgia, commonly known as Waterstone (the "Property").
B. Sullivan/Best Joint Venture, a Georgia joint venture (the "Former
Owner"), leased a portion of the Property to Tenant by means of a Lease
Agreement dated April 15, 1991, as amended by a First Amendment to Lease dated
July 23, 1993 (the "First Amendment''), as further amended by a Second Amendment
to Lease Agreement dated February 18, 1994 (the "Second Amendment"), as the same
may have been further amended. All of the foregoing are sometimes collectively
referred to in this Third Amendment as the "Lease".
C. Landlord acquired the Property from the Former Owner, and in
connection therewith Landlord acquired all or the Former Owner's right, title
and interest in and to all leases affecting the Property, including the Lease.
Landlord is the successor-in-interest to the Former Owner.
D. Landlord and Tenant desire to amend certain terms of the Lease, for
their mutual benefit.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
1. Paragraph 2 of the Second Amendment is hereby superseded and replaced
in its entirety by the following:
<PAGE>
Any provision of Paragraph 5(a) of the Lease to the contrary
notwithstanding, Tenant shall pay Base Rental to Landlord as follows:
<TABLE>
<CAPTION>
Monthly Base
Period: Rental Payment
------ --------------
<S> <C>
5/1/94 - 6/30/94 $36,423.74
7/1/94 - 8/31/94 $37,525.18
9/1/94 - 6/30/95 $38,720.90
7/1/95 - 8/31/95 $39,822.34
9/1/95 - 6/30/96 $41,018.07
7/1/96 - 8/31/96 $42,120.51
9/1/96 - 6/30/97 $43,316.24
7/1/97 - 8/31/98 $41,112.19
</TABLE>
2. Paragraph 7 of the First Amendment is hereby superseded and replaced
in its entirety by the following:
As security for Tenant's performance of its obligations under the Lease,
Tenant shall provide to Landlord four certificates of deposit in Tenant's
name and assigned as security to Landlord, each in the amount of
$18,975.00. The maturity dates of the four certificates of deposit shall
be September 1, 1995, September 1, 1996, September 1, 1997, and September
1, 1998, respectively. Provided that Tenant is not then in default under
the Lease and has not been in default under the Lease after any written
notice and opportunity to cure provided in the Lease to be given by
Landlord to Tenant, Landlord shall relinquish its interest in each
certificate of deposit, effective as of such certificate's maturity date,
by executing and delivering to Tenant on or before such maturity date a
certificate in the form of Exhibit A attached to this Third Amendment.
3. Exhibit C to the First Amendment is hereby superseded and replaced in
its entirety by Exhibit C attached hereto. Contemporaneous with the execution
of this Third Amendment, Tenant shall deliver to Landlord an Acknowledgment in
the form of Exhibit C, duly executed by The Bank of Coweta.
4. Any provision of the Lease to the contrary notwithstanding, any notice
required or permitted to be given to Landlord under the Lease shall hereafter be
given to Landlord at the following address, unless changed in accordance with
the notice provisions of the Lease:
Massachusetts Mutual Life Insurance Company
c/o Cornerstone Real Estate Advisers, Inc.
1050 Crown Pointe Parkway , Suite 1780
Atlanta, Georgia 30338
-2-
<PAGE>
5. All terms, covenants and conditions of the Lease not expressly amended
by this Third Amendment shall be and remain unchanged and in full force and
effect. Capitalized terms utilized in this Third Amendment and not defined
herein shall have the meanings attributed to them in the Lease.
Executed by Landlord and Tenant under seal as of the date first above
written.
Witnesses: LANDLORD
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By: CORNERSTONE REAL ESTATE
/s/ Kimberly L. Johns ADVISERS, INC., its agent
- -----------------------------
By: /s/ Juliane M. Echols
_____________________________ --------------------------------
Its: Vice President
Witnesses: TENANT
AERONOMICS INCORPORATED
______________________________
______________________________ By: /s/ Robert Cross
--------------------------------
Its: Chairman
-3-
<PAGE>
300 One Jackson Place
188 East Capitol Street THE PARKWAY COMPANY Post Office Box 22728
Jackson, MS 39201-2195 Jackson, MS 39225-2728
- --------------------------------------------------------------------------------
(601) 948-4091 Facsimile (601) 949-4077
April 23, 1996
Mr. Lawrence W. Hall
President
Aeronomics Incorporated
4751 Best Road
Suite 300
Atlanta, GA 30337-5609
RE: Lease Agreement dated April 15, 1991, and Amendments to Lease dated July
23, 1993, February 18, 1994 and January 31,1995, by and between Aeronomics
Incorporated (Tenant) and Sullivan/Best Joint Venture and Massachusetts
Mutual Life Insurance Company (collectively known as prior landlords) and
Parkway Atlanta, Inc. (Landlord), as successor in interest to
Massachusetts Mutual Life Insurance Company
Dear Larry:
This letter, when fully executed, shall amend and modify the above
referenced Lease Agreement and Amendments to Lease as follows:
1. The Premises shall be increased by 814 square feet of Rentable Area on
the first (1st) floor of the Building, increasing Tenant's Premises to 28,384
square feet of Rentable Area.
2. The Term for this increased area shall be for a period of seven (7)
months and twenty-six (26) days commencing on May 6, 1996 and terminating on
December 31, 1996.
3. Tenant shall pay rent to Landlord for the increased area at a monthly
rental of $796 for May and $950 commencing June 1 through December 31, 1996.
4. Tenant shall occupy the increased area on an "as is" basis; however,
Landlord shall fund approximately $200-$300 for Tenant's network cabling.
Except as to the extent modified herein, the Lease Agreement and Amendments
to Lease are hereby confirmed.
<PAGE>
MR. LAWRENCE W. HALL
April 23, 1996
Page 2
If the foregoing accurately sets forth our agreement as to modifications of
the Lease Agreement and Amendments to Lease, please indicate your acceptance and
approval by signing in the space provided.
Sincerely,
/s/ Jim Ingram
- --------------------------------
James M. Ingram
Vice President
AERONOMICS INCORPORATED
By: /s/ Lawrence W. Hall
---------------------------
Its: President
-2-
<PAGE>
300 One Jackson Place
188 East Capitol Street THE PARKWAY COMPANY Post Office Box 22728
Jackson, MS 39201-2195 Jackson, MS 39225-2728
- --------------------------------------------------------------------------------
(601) 948-4091 Facsimile (601) 949-4077
June 18, 1996
Mr. James Edwards
Chief Financial Officer
Aeronomics Incorporated
4751 Best Road
Suite 300
Atlanta, GA 30337-5609
RE: Lease Agreement dated April 15, 1991, and Amendments to Lease dated July
23, 1993, February 18, 1994, and January 31, 1995, by and between
Aeronomics Incorporated (Tenant) and Sullivan/Best Joint Venture and
Massachusetts Mutual Life Insurance Company (collectively known as prior
landlords) and Amendment to Lease dated April 23, 1996, by and between
Tenant and Parkway Atlanta, Inc. (Landlord), as successor in interest to
Massachusetts Mutual Life Insurance Company
Dear Jim:
This letter, when fully executed, shall amend and modify the above
referenced Lease Agreement and Amendments to Lease as follows:
1. The Premises shall be increased by 9,741 square feet of Rentable Area
on the second (2nd) floor of the Building, increasing Tenant's Premises to
38,125 square feet of Rentable Area effective July 1, 1996.
2. Tenant shall accept the increased Premises, consisting of 9,741 square
feet of Rentable Area, in its "as is" condition.
3. Tenant shall pay Base Rent to Landlord pursuant to the following
schedule:
July 1, 1996-August 31, 1996 $56,870.00 monthly
September 1, 1996 - December 31, 1996 $58,066.00 monthly
January 1, 1997 - June 30, 1997 $57,116.00 monthly
July 1, 1997 - August 31, 1998 $54,912.00 monthly
Except as to the extent modified herein, the Lease Agreement and Amendments
to Lease are hereby confirmed.
<PAGE>
MR. JAMES EDWARDS
June 18, 1996
Page 2
If the foregoing accurately sets forth our agreement as to modifications of
the Lease Agreement and Amendments to Lease, please indicate your acceptance and
approval by signing in the space provided.
Sincerely,
/s/ James M. Ingram
- ------------------------------
James M. Ingram
Vice President
JMI/wsf
AERONOMICS INCORPORATED
By:/s/ James L. Edwards
---------------------------
Its: Chief Financial Officer
-2-
<PAGE>
EXHIBIT 10.2
AERONOMICS INCORPORATED
INCENTIVE STOCK OPTION PLAN
---------------------------
<PAGE>
AERONOMICS INCORPORATED
-----------------------
INCENTIVE STOCK OPTION PLAN
---------------------------
SECTION 1. Title and Purpose. The plan described herein shall be known as
--------- -----------------
"The Aeronomics Incorporated Incentive Stock Option Plan" (the "Plan"). The
purpose of the Plan is to advance the interests of Aeronomics Incorporated and
any parent or subsidiary of Aeronomics Incorporated (referred to collectively as
the "Company") by strengthening the Company's ability to attract and retain
individuals of training, experience and ability in the employ of the Company and
to furnish additional incentive to such valued employees to promote the
Company's financial success. The Plan will be effected through the granting of
stock options as herein provided, which stock options, it is intended, will
constitute "incentive stock options" within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"). As used herein,
"subsidiary" and "parent" shall have the same meaning as such terms are defined
in Code Section 425.
SECTION 2. Shares of Stock Subject to the Plan. Stock which may be issued
--------- -----------------------------------
pursuant to incentive stock options granted from time to time under the Plan
shall not exceed in the aggregate 800,000 shares of the Company's Series B
Common Stock, $1.00 par value (the "Series B Common Stock") (subject to
adjustment as provided in Sections 14 and 15 hereof). Shares subject to
incentive stock options that expire unexercised in whole or in part shall again
become available to be subject to incentive stock options issued pursuant to
this Plan.
SECTION 3. Eligibility. Incentive stock options may be granted to key
--------- -----------
employees of the Company (including officers who may also be directors of the
Company) who, in the determination of the Board of Directors of the Company, are
performing and will continue to perform outstanding services for the benefit of
the Company. A key employee owning stock representing more than ten (10%)
percent of the total combined voting power or value of all classes of stock of
the Company is not eligible to receive an incentive stock option unless the
exercise price of such option is at least one hundred ten (110%) percent of the
fair market value of the Series B Common Stock at the time the option is granted
and the option by its terms is not exercisable more than five years from the
date it is granted. Stock that any key employee may purchase under outstanding
options, regardless of whether such options are incentive stock options, shall
be treated as stock owned by such key employee for purposes of this calculation.
SECTION 4. Administration of the Plan. The Plan shall be administered by
--------- --------------------------
the Board of Directors of the Company (the "Board of Directors").
SECTION 5. Powers of the Board of Directors. The Board of Directors shall
--------- --------------------------------
have full power and authority to determine the "key employees" of the Company to
whom options shall be granted, the number of shares to be covered, the term of
each option, and the time or times at which options shall be granted, but not
beyond the term and the time permitted by the Code, and to prescribe, amend and
rescind rules and regulations relating to the administration of the Plan.
Except as otherwise expressly provided in this Plan, the Board of Directors
shall also have the power to determine, at the time of the grant of each option,
all terms and conditions governing the rights and obligations of the key
employee with respect to such option, including but not
-1-
<PAGE>
limited to: (a) the exercise price or the method by which the exercise price
shall be determined; (b) the length of the period during which the option may be
exercised and any limitations on the number of shares purchasable with the
option at any given time during such period; (c) the time at which the option
may be exercised; (d) any conditions precedent to be satisfied before the option
may be exercised; and (e) any restrictions on resale of any shares purchased
upon exercise of the option. The Board of Directors shall not possess any
authority, the possession or exercise of which would cause an incentive stock
option granted hereunder to be disqualified as such under the Code.
SECTION 6. Liability of the Board of Directors. In addition to such other
--------- -----------------------------------
rights of indemnification as they may have as directors of the Company, members
of the Board of Directors shall be indemnified by the Company against their
reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan, or any incentive stock option granted hereunder, and against all amounts
paid by them in settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company), or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such member of the Board of Directors is liable for negligence,
bad faith or misconduct in his duties.
SECTION 7. Exercise Price. The exercise price of the shares of Series B
--------- --------------
Common Stock covered by each incentive stock option shall be no less than the
fair market value of the Series B Common Stock at the time of granting the
incentive stock option. In the event that any incentive stock option is granted
to an employee possessing more than ten (10%) percent of the total combined
voting power or value of all classes of stock of the Company, the exercise price
of such shares of Series B Common Stock shall not be less than one hundred ten
(110%) percent of the fair market value of such shares at the time of the grant
of the option. The fair market value of the Series B Common Stock shall be
determined in good faith by the Board of Directors.
SECTION 8. Medium and Time of Payment. The exercise price shall be
--------- --------------------------
payable upon the exercise of the incentive stock option and may be paid in cash,
by cashier's or official bank check or in shares of any class of the Company's
stock, or in any combination thereof. For purposes of making such payment in
shares of the Company's stock, such stock shall be valued at its fair market
value on the day immediately preceding the date of exercise of the option in the
manner provided in Section 7.
SECTION 9. Limitation on Grant of Options. The aggregate fair market
--------- ------------------------------
value (determined as of the time each incentive stock option is granted) of the
shares with respect to which incentive stock options are exercisable for the
first time by any key employee during any calendar year (under all such plans of
the Company) shall not exceed $100,000.
SECTION 10. Maximum Term of Incentive Stock Option. The term during which
---------- --------------------------------------
each incentive stock option granted hereunder may be exercised will be
determined by the Board of
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<PAGE>
Directors in each case; provided, however, that no incentive stock option shall
-------- -------
by its terms be exercisable after the expiration of 10 years from the date the
option is granted. In the event that any incentive stock option is granted to an
employee possessing more than ten (10%) percent of the total combined voting
power or value of all classes of stock of the Company, the maximum term of such
option shall be reduced to five years from the date the option is granted.
SECTION 11. Limitations on Right to Exercise. The shares of Series B
---------- --------------------------------
Common Stock subject to an incentive stock option may be purchased at the times
and on the other terms and conditions determined by the Board of Directors,
which shall be set forth in an option agreement between the Company and each
optionee. Notwithstanding the foregoing, no incentive stock option may be
exercised after the earlier of the date the key employee terminates his
employment with the Company or the date the key employee is given written notice
of his discharge from employment by the Company. Absence or leave approved by
the Company to the extent permitted by the applicable provisions of the Code
shall not be considered an interruption of employment for any purpose under the
Plan. The exercise of any incentive stock option granted under the Plan will be
contingent upon either:
(a) the advice of counsel to the Company that such shares have been duly
registered or are exempt from registration under the applicable
securities laws and the receipt from the holder (as defined in Section
12) of an undertaking that the holder will not sell the shares
otherwise than on a recognized securities exchange; or
(b) in the absence of registration of the shares as provided in (a), the
receipt from the holder of a representation that at the time of such
exercise it is the holder's then intention to acquire the shares being
purchased for investment and not for distribution or resale,
and upon receipt by the Board of Directors of cash, cashier's or official bank
check, shares of the Company's stock, or any combination thereof, in payment of
the full exercise price of such shares. Except upon the due exercise of the
incentive stock option, the holder of an incentive stock option shall not have
any of the rights of a stockholder with respect to the shares covered by the
incentive stock option.
SECTION 12. Limitations on Transfer. (a) No incentive stock option
---------- -----------------------
granted under the Plan shall be transferable otherwise than by will or the laws
of descent and distribution. During the lifetime of the person to whom the
option shall initially have been granted, no incentive stock option granted
under the Plan may be exercised by any person other than such initial grantee.
After the death of such initial grantee, the holder of the incentive stock
option shall be deemed to be the person to whom the original grantee's rights
shall pass under the original grantee's will or under the laws of descent and
distribution (the "holder"); provided, however, that the holder of the original
-------- -------
grantee's rights must exercise any option rights held within six months of the
death of the original grantee. Such option rights shall automatically expire at
the end of such six-month period if they do not sooner expire under the terms
and conditions of the option granted to the original grantee.
-1-
<PAGE>
(b) Each grantee of an incentive stock option shall agree not to pledge,
mortgage, hypothecate or otherwise encumber or assign any of the shares issuable
upon exercise of the incentive stock option without the prior written consent of
the Company. Each grantee shall also agree not to sell, assign or transfer any
of such shares, except with the prior written consent of the Company, without
first offering such shares to the Company pursuant to a right of first refusal
to purchase such shares on the same terms and conditions as such grantee
proposes to sell such shares.
(c) In addition to the Company's right of first refusal to purchase any
such shares proposed to be sold by the grantee, the Company shall have a right
of first refusal to purchase all shares of Series B Common Stock owned by such
grantee upon the termination of such grantee's employment.
(i) Upon the termination of the grantee's employment because of the
grantee's death, total disability (as defined in any employment
agreement or option agreement between the Company and such grantee)
or retirement at the Company's normal retirement age, the Company
shall have a right of first refusal to purchase all Series B Common
Stock then owned by such grantee at the Current Value (as hereinafter
defined) thereof. At the time of purchase of such shares, the Company
shall pay the grantee or the grantee's personal representative, as
the case may be, 15% of the total purchase price in cash, with the
balance evidenced by the Company's promissory note payable in 36
equal monthly installments of principal, together with interest on
the unpaid principal balance at the rate of 8% per annum.
(ii) Upon the termination by the grantee of his employment or the
termination of the grantee's employment by the Company for any reason
other than for cause (as defined in any employment agreement or
option agreement between the Company and such grantee), the Company
shall have a right of first refusal to purchase all Series B Common
Stock owned by the grantee for a purchase price equal to one-half of
the Current Value; provided however, that for each full 12-month
period the grantee has been employed by the Company in excess of 120
months but less than 180 months, the purchase price shall increase by
5% of the Current Value, (e.g., 121 to 132 months, 55% of Current
Value; 133 months to 144 months, 60% of Current Value, etc.). At the
time of purchase of such shares, the Company shall pay the grantee
10% of the total purchase price in cash, with the balance evidenced
by a promissory note payable in 60 equal monthly installments of
principal, together with interest on the unpaid principal balance at
the rate of 8% per annum.
(iii) Upon the termination of the grantee's employment by the Company for
cause, the Company shall have a right of first refusal to purchase
all Series B Common Stock owned by the grantee for a purchase price
equal to the total amount paid by the grantee for such shares. At the
time of the purchase of such shares, the Company shall pay the
grantee 5% of the total purchase price in cash, with the
-1-
<PAGE>
balance evidenced by a promissory note payable in 72 equal monthly
installments of principal, commencing one year after the purchase of
such shares, together with interest on the unpaid principal balance
at the rate of 8% per annum.
(iv) As used in the Plan, "Current Value" per share shall be equal to
((2 x R) x .66) / ((10 x N) x .33)
----------------------------------
S
where R is equal to the Company's total revenues for the immediately
preceding four fiscal quarters, N is equal to the Company's total net
income for the immediately preceding four fiscal quarters and S is
equal to the total number of shares of Common Stock (as herein
defined) and Series B Common Stock then outstanding (on a fully-
diluted basis), or such other amount as the Board of Directors shall
in good faith deem to be the per share Current Value.
(d) Six months after the automatic conversion of Series B Common Stock
into the Company's $1.00 par value Common Stock (the "Common Stock"), the
limitations on transfer of such Series B Common Stock contained herein shall be
automatically terminated and of no further force or effect.
SECTION 13. No Right to Employment Conferred. Nothing in the Plan or in
---------- --------------------------------
any incentive stock option agreement shall confer upon any key employee any
right to continue in the employ of the Company or interfere in any way with the
right of the Company to terminate such key employee's employment at any time.
SECTION 14. Recapitalization. In the event of any changes in the
---------- ----------------
outstanding shares of Series B Common Stock by reason of stock dividends, stock
splits or subdivisions or combinations of shares, the number and class of shares
available under the Plan in the aggregate and the maximum number of shares as to
which incentive stock options may be granted to any key employee shall be
correspondingly and fairly adjusted by the Board of Directors. Such adjustment
in outstanding incentive stock options shall be made without change in the total
purchase price applicable to the unexercised portion of the incentive stock
option, with corresponding adjustment in the purchase price per share.
SECTION 15. Reorganization. If the Company is merged or consolidated with
---------- --------------
another corporation and the Company is not the surviving corporation, or if the
property or common stock of the Company is acquired by another corporation, or
in the event of a dissolution, reorganization or liquidation of the Company, the
Board of Directors, or the board of directors of any corporation assuming the
obligations of the Company hereunder, shall make appropriate provision for the
protection of any outstanding incentive stock options by the substitution on an
equitable basis of appropriate stock of the Company, or of the merged,
consolidated or otherwise reorganized corporation which will be issuable in
respect to the shares of Series B Common Stock, provided only that the excess of
the aggregate fair market value of the shares subject to the options immediately
after such substitution over the exercise price thereof is not more than
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<PAGE>
the excess of the aggregate fair market value of the shares subject to such
options immediately before such substitution over the exercise price thereof.
SECTION 16. Stockholder Approval. The Plan is expressly made subject to
---------- --------------------
the approval by the stockholders of the Company owning shares entitled to vote,
pursuant to and in accordance with applicable law (but in no event by
stockholders owning less than a majority of the shares issued and outstanding
and entitled to vote). If the Plan is not so approved within one year after its
adoption by the Board of Directors, the Plan shall not come into effect, and any
incentive stock option granted pursuant hereto shall automatically terminate.
SECTION 17. Time of Granting Incentive Stock Options. Neither anything
---------- ----------------------------------------
contained in the Plan nor in any resolutions adopted or to be adopted by the
Board of Directors or the stockholders of the Company nor any action taken by
the Board of Directors shall constitute the granting of any incentive stock
option. The granting of an incentive stock option shall take place only when a
written incentive stock option agreement shall have been duly executed and
delivered by the Company and the grantee.
SECTION 18. Termination and Amendment of the Plan. The Plan shall
---------- -------------------------------------
terminate on the earlier of (i) ten years from its effective date or (ii) such
time as a new incentive stock option plan is adopted by the Board of Directors
in replacement of the Plan. No incentive stock option shall be granted under
the Plan after its termination date, but the termination of the Plan shall not
adversely affect any incentive stock option theretofore granted under the Plan.
Subject to the foregoing, the Plan may at any time or from time to time be
terminated, modified or amended by (1) the Board of Directors and (2) if and to
the extent that stockholder approval is required under Section 422A of the Code,
by the stockholders of the Company.
-1-
<PAGE>
EXHIBIT 10.3
DECISION FOCUS INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
AND
MONEY PURCHASE PENSION PLAN
REVISED AUGUST 25, 1993 Prepared: April 19, 1993
IAW: Menke & Associates letter Revised: June 23, 1993
dated AUGUST 23, 1993 (C) 1993, Menke & Associates, Inc.
All rights reserved
<PAGE>
CONTENTS
--------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. Nature of Plan.............................................. 1
2. Definitions................................................. 2
3. Eligibility................................................. 4
4. Participation in Allocation of Benefits..................... 5
(a) Participation........................................... 5
(b) Leave of Absence........................................ 6
(c) Suspended Participation................................. 16
5. Employer Contributions...................................... 16
(a) Amount of Contribution.................................. 16
(b) Time for Making Contribution............................ 17
(c) Form of Contribution.................................... 17
6. Investment of Trust Assets.................................. 17
(a) (1) Prior Profit Sharing Plan........................... 17
(a) (2) Money Purchase Pension Plan......................... 18
(b) Employee Stock Ownership Plan........................... 18
7. Allocations to Accounts..................................... 22
(a) Individual Accounts..................................... 22
(b) Company Stock Account................................... 22
(c) Other Investments Account............................... 24
(d) Profit Sharing Account.................................. 25
(e) Money Purchase Pension Account.......................... 25
8. Expenses of the Plan and Trust.............................. 25
9. Voting Company Stock........................................ 25
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10. Disclosure to Participants................................... 26
(a) Summary Plan Description................................. 26
(b) Summary Annual Report.................................... 26
(c) Annual Statement......................................... 26
(d) Notice of Rollover Treatment............................. 27
(e) Additional Disclosures................................... 27
11. Allocation of Employer Contributions and Forfeitures......... 28
(a) Allocation of Employer Contributions and Forfeitures..... 28
(b) Allocation Limitations................................... 30
12. Plan Benefit at Death, Disability or Retirement.............. 33
(a) Normal Retirement........................................ 33
(b) Deferred Retirement...................................... 33
(c) Disability Retirement.................................... 33
13. Other Termination of Service and Vesting..................... 34
(a) Vesting Schedule......................................... 34
(b) Vesting Upon Reemployment................................ 34
(c) Forfeitures.............................................. 35
(d) Cash-Out Distribution.................................... 36
14. Distribution of Plan Benefit................................. 37
(a) Death, Disability or Retirement.......................... 37
(b) Other Termination of Participation....................... 38
(c) Death Prior to Distribution.............................. 40
(d) Valuation Date........................................... 40
(e) Limitations.............................................. 40
(f) Commencement of Benefits................................. 40
(g) Undistributed Accounts................................... 41
(h) Option Direct Transfer of Eligible Rollover
Distributions............................................ 42
(i) Lien on Distribution..................................... 42
(j) Joint and Survivor Annuity Requirements.................. 42
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C>
15. How Plan Benefit Will Be Distributed......................... 46
(a) Form of Distribution..................................... 46
(b) Beneficiaries............................................ 46
16. Rights and Options on Distributed Shares of Company Stock.... 47
(a) Right of First Refusal................................... 47
(b) "Put" Option............................................. 48
(c) Other Options............................................ 49
17. Special Provisions........................................... 50
(a) Diversification of Investments........................... 50
(b) Cash Dividends........................................... 50
(c) Loans.................................................... 51
18. Administration............................................... 53
(a) Named Fiduciaries for Administration of Plan
and for Investment and Control of Plan Assets............ 53
(b) Investment of Plan Assets................................ 55
(c) Funding Policy........................................... 56
(d) Claims Procedures........................................ 57
(e) Qualified Domestic Relations Orders...................... 57
(f) General.................................................. 59
19. Amendment and Termination.................................... 60
(a) Amendment................................................ 60
(b) Changes in the Internal Revenue Code..................... 60
(c) Termination, Partial Termination or Complete
Discontinuance of Contributions.......................... 60
(d) Determination by Internal Revenue Service................ 61
(e) Return of Employer's Contribution........................ 61
20. Miscellaneous................................................ 62
(a) Participation by Affiliated Company...................... 62
(b) Limitation of Rights; Employment Relationship............ 62
(c) Merger; Transfer of Assets............................... 62
(d) Prohibition Against Assignments.......................... 62
(e) Applicable law; Severability............................. 63
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C>
21. Top Heavy Provisions......................................... 64
(a) Definitions.............................................. 64
(b) Vesting Requirements..................................... 66
(c) Minimum Benefits......................................... 67
(d) Limitation on Annual Additions........................... 68
</TABLE>
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<PAGE>
DECISION FOCUS INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
AND
MONEY PURCHASE PENSION PLAN
SECTION 1. NATURE OF PLAN.
--------------
(a) The purpose of this Plan is to enable participating Employees of
the Company and of any participating affiliates to share in the growth and
prosperity of the Company and to provide Participants with an opportunity to
accumulate capital for their future economic security. A primary purpose of the
Plan is to enable Participants to acquire a proprietary interest in the Company.
Consequently, Employer Contributions made to the Trust will be primarily
invested in Company Stock. If the Plan obtains a Securities Acquisition Loan,
Employer Contributions will be primarily invested in Employer Securities.
(b) This Plan, effective as of January 1, 1993, is intended to qualify
as an Employee Stock Ownership Plan, as defined in Section 4975(e)(7) of the
Internal Revenue Code (hereinafter referred to as the "Code"). This Plan is
actually a combination of two plans. The first is a Stock Bonus Plan and the
second is a Money Purchase Pension Plan. Both Plans are designed to qualify
under Section 401(a) of the Code. In the text of the Plan, where a provision is
intended to apply to both plans, the term "Plan" will be used. On the other
hand, where a provision is intended to apply to one plan but not to the other,
the terms "Stock Bonus Plan or Employee Stock Ownership Plan" and "Money
Purchase Pension Plan" will be used. The Stock Bonus Plan or Employee Stock
Ownership Plan is adopted as an amendment and restatement of the Company's
present Profit Sharing Plan, originally effective as of January 10, 1977 (and
amended and restated to be effective January 1, 1989) and the Money Purchase
Pension Plan is adopted as an amendment of the Company's present Money Purchase
Pension Plan, originally
<PAGE>
effective as of January 1, 1977 (and amended and restated to be effective
January 1, 1989). The assets under the Profit Sharing Plan credited to
Participants' Profit Sharing Accounts will be transferred to the Trustee under
this Plan but will be maintained as a separate Profit Sharing Account. The
assets under the Profit Sharing Plan credited to a Participant's Company Stock
Account and Other Investments Account will be transferred to the Trustee under
this Plan and will be credited to the Company Stock Account and Other
Investments Account (as the case may be) under this Plan. The assets under the
Money Purchase Pension Plan will be transferred to the Trustee of this Plan but
will be credited to the Money Purchase Pension Plan portion of this double Plan
and will be maintained in a separate Money Purchase Pension Account. All Trust
Assets transferred from the Profit Sharing and Money Purchase Pension Plans, and
all assets acquired under this Plan as a result of Employer Contributions,
income and other additions to the Trust will be administered, distributed,
forfeited and otherwise governed by the provisions of this Plan which is
administered by the Committee for the exclusive benefit of Participants in the
Plan and their Beneficiaries. It is intended that all benefits, rights and
features of this Plan be uniformly available to all Participants.
SECTION 2. DEFINITIONS.
-----------
In this Plan, whenever the context so indicates, the singular or plural
number and the masculine, feminine or neuter gender shall each be deemed to
include the other, the terms "he," "his" and "him" shall refer to a Participant
and the capitalized words shall have the following meanings:
ACCOUNT
One of several Accounts maintained to record the interest of a
Participant in the Plan.
AFFILIATED COMPANY
Any Company which is a member of a controlled group of corporations
(as defined in Section 414(b) of the Code) which includes the
Employer, any trade or business (whether or not incorporated) which is
under common control (as defined in Section 414(c) of the Code) with
the Employer, any affiliated service group which includes the Employer
(as defined in Section
-2-
<PAGE>
414(m) of the Code), and any other entity required to be aggregated
with the Employer under Section 414(o) of the Code.
ALTERNATE PAYEE
A spouse, former spouse, child or other dependent of a Participant who
is recognized by a Domestic Relations Order as having a right to
receive all or a portion of the benefits otherwise payable to a
Participant.
ANNIVERSARY DATE
The 31st day of December of each year.
ANNUAL ADDITIONS
The aggregate of amounts credited to a Participant's Accounts each
year from Employer Contributions, Forfeitures, and a Participant's
voluntary contributions (if any) under all defined contribution plans
of an Employer or Affiliated Company; provided, however, that Employer
Contributions applied to the payment of interest on a Securities
Acquisition Loan and Forfeitures of Company Stock purchased with the
proceeds of a Securities Acquisition Loan shall be excluded if no more
than one third (1/3) of the Employer Contribution for that year is
allocated to the Accounts of Highly Compensated Employees. Any amounts
attributable to postretirement medical benefits allocated to the
account of a Key Employee under any Welfare Benefit Plan, as defined
in Section 419A of the Code, shall be treated as an Annual Addition
for purposes of the dollar limitation on Annual Additions. A restored
Forfeiture, a transfer from another qualified pension plan and a
rollover contribution (if any) shall not be counted as an "Annual
Addition."
BENEFICIARY
The person or persons entitled to receive any benefits under the Plan
as defined in Section 15(b) of the Plan in the event of a
Participant's death.
BOARD OF DIRECTORS
She board of directors of the Company.
BREAK IN SERVICE
A Plan Year during which a Participant has not completed more than 500
Hours of Service; provided, however, that for purposes of Section 3 of
the Plan, the eligibility computation period will be used to measure
Breaks in Service.
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CODE
The Internal Revenue Code of 1986, as amended from time to time.
COMMITTEE
The Committee appointed by the Board of Directors to administer the
Plan and to give instructions to the Trustee.
COMPANY
Decision Focus Incorporated.
COMPANY STOCK
Shares of any class of stock, preferred or common, voting or
nonvoting, which are issued by the Company or by any affiliate of the
Company, as defined in Section 407(d) of ERISA, including Employer
Securities and Qualified Employer Securities.
COMPANY STOCK ACCOUNT
The Account of a Participant which is credited with the shares of
Company Stock purchased and paid for by the Trust or contributed to
the Trust.
CONTRIBUTIONS
Employer contributions which are deductible by an Employer under
Section 404(a) of the Code.
COVERED COMPENSATION
The total wages paid or accrued to a Participant by his Employer for
each Plan Year, including any salary deferrals under Sections 401(k)
and 125 of the Code, but excluding commissions, bonuses, certain
compensation paid for services rendered in the capacity as an officer
of the Employer, overtime compensation, any fringe benefits, and
contributions to this or any other deferred compensation plan except
salary deferrals under Sections 401(k) and 125. Notwithstanding the
foregoing, Covered Compensation of any Participant taken into account
in any Plan Year shall not exceed $200,000, as indexed in accordance
with Section 415(d)(l) of the Code. If, as a result of the application
of such rules the adjusted $200,000 limitation is exceeded, then the
limitation shall be prorated among the affected individuals in
proportion to each individual's compensation as determined under this
definition prior to the application of the limitation. In determining
whether a Participant has Covered Compensation in excess of $200,000,
the rules of Section 414(q)(6) of the Code shall apply, except that in
applying such rules,
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the term "family member" shall include only the spouse of the
Participant and any lineal descendants of the Participant who have not
attained age 19 before the close of the Plan Year.
DEFERRED RETIREMENT
Termination of service subsequent to attainment of the Normal
Retirement Date.
DISABILITY
If the Committee determines in a uniform, nondiscriminatory manner, on
the basis of a doctor's certificate, that a Participant terminated his
employment because of a total and permanent disability, he will be
given Disability Retirement without regard to his age or length of
service, and his termination benefit shall be one hundred percent
(100%) of the amounts in all of his Accounts. "Total and permanent
disability" shall mean the mental or physical inability of the
Participant to perform his normal job, as evidenced by the certificate
of a medical examiner certifying such inability and certifying that
such condition is likely to be permanent. The Committee shall have the
right to have a Participant examined by a qualified physician of its
own choosing. In the event of a conflict of opinion between the
Participant's physician and the Committee's physician, the decision of
the Committee's physician shall be conclusive and binding on all
parties.
DOMESTIC RELATIONS ORDER
Any judgment, decree, or order (including approval of a property
settlement agreement) which is made pursuant to a State domestic
relations law and which relates to the provision of child support,
alimony payments or marital property rights to a spouse, former
spouse, child or other dependent of a Participant.
EFFECTIVE DATE
The Effective Date of this Plan is January 1, 1993.
ELIGIBLE RETIREMENT PLAN
An individual retirement account described in Section 408(a) of the
Code, an individual retirement annuity (other than an endowment
contract) described in Section 408(b) of the Code, an annuity plan
described in Section 403(a) of the Code, or a defined contribution
plan (qualified under Section 401(a) of the Code) which permits the
acceptance of Eligible Rollover Distributions.
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ELIGIBLE ROLLOVER DISTRIBUTION
Any distribution to an Employee of all or any portion of an Employee's
Accounts, other than (i) a distribution which is a series of
substantially equal periodic payments made for a specified period of
ten (10) years or more or made for the life of the Employee or for the
joint life of the Employee and his designated beneficiary, and (ii) a
distribution which is a required minimum payment due to an Employee's
attainment of age 70-1/2.
EMPLOYEE
A person, employed by an Employer, any portion of whose income is
subject to withholding of income tax and/or for whom Social Security
contributions are made by an Employer, as well as any other person
qualifying as a common law employee of an Employer. Employee shall
include leased employees within the meaning of Sections 414(n)(2) and
414(o)(2) of the Code unless such leased employees are covered by a
plan described in Code Section 414(n)(5) and such leased employees do
not constitute more than 20% of the recipient's non-highly compensated
work force.
EMPLOYER
Decision Focus Incorporated and any other affiliate of the Company, as
defined in Section 407(d) of the ERISA, or any predecessor or
successor corporation, which has been designated by the Company as an
Employer participating in the Plan, and which has accepted such
designation and has agreed to be bound by the terms of the Plan and
Trust Agreement.
EMPLOYER SECURITIES
Common stock issued by the Company or by any affiliate of the Company,
as defined in Section 407(d) of ERISA, having a combination of voting
power and dividend rights equal to (i) that class of common stock of
the Company having the greatest voting power and (ii) that class of
common stock of the Company having the greatest dividend rights.
Noncallable preferred stock shall be treated as Employer Securities if
such stock is convertible at any time into common stock which meets
the above requirements, and if (as of the date of acquisition by the
Plan) the conversion price is reasonable.
EMPLOYMENT COMMENCEMENT DATE
The date on which the Employee shall first perform an Hour of Service
for the Employer.
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ENTRY DATE
The Participant's hire date. If, on such hire date, a Participant is
not an eligible Employee as defined in Section 3 of the Plan, he shall
enter the Plan on the date he meets the eligibility requirements.
ERISA
The Employee Retirement Income Security Act of 1974, as amended from
time to time.
FISCAL YEAR
The annual accounting period adopted by the Company for federal income
tax purposes.
FORFEITURES
The portion of a Participant's Accounts which does not become part of
his Plan Benefit upon termination of employment. See Section 13 of the
Plan.
HIGHLY COMPENSATED EMPLOYEE
An Employee who at any time during the current Plan Year or the
preceding Plan Year was a five percent (5%) owner, received
compensation from the Employer (for the Plan Year beginning in 1992)
in excess of $93,518 as indexed, received compensation from the
Employer (for the Plan Year beginning in 1992) in excess of $62,345 as
indexed and was in the top-paid group of Employees for such year, or
was at any time during such year an officer and received compensation
from the Employer (for the Plan Year beginning in 1992) greater than
$56,111 as indexed (as adjusted at such time and in such manner as is
provided in the Code Regulations). An Employee is in the top-paid
group for any year if he is in the top twenty percent (20%) of
Employees in terms of compensation. For purposes of this definition,
the greater of three (3) Employees or ten percent (10%) of all
Employees shall be treated as officers, subject to a maximum of fifty
(50) officers. Compensation paid to spouses and lineal ascendants (and
their spouses) or descendants (and their spouses) of five percent (5%)
owners, and Employees who are among the ten (10) highest compensated
Employees shall be attributed to such five percent (5%) owners and
Highly Compensated Employees.
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HOUR OF SERVICE
(a) Each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for the Employer or any
Affiliated Company during the applicable computation period.
(b) Each hour for which an Employee is paid, or entitled to
payment, by the Employer or any Affiliated Company on account of a
period of time during which no duties are performed (irrespective of
whether the employment relationship has terminated) due to vacation,
holiday, illness, incapacity (including disability), layoff, jury
duty, military duty or leave of absence. Notwithstanding the preceding
sentence, (1) no more than 501 Hours of Service will be credited under
this paragraph (b) to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not
such period occurs in a single computation period); (2) an hour for
which an Employee is directly or indirectly paid, or entitled to
payment, during a period in which no duties are performed, will not be
credited to the Employee if such payment is made or due under a plan
maintained solely for the purpose of complying with applicable
workmen's compensation, unem ployment compensation or disability
insurance laws; and (3) Hours of Service will not be credited for a
payment which solely reimburses an Employee for medical or medically
related expenses incurred by the Employee. For purposes of this
paragraph (b), payment shall be deemed to be made by or due from an
Employer or an Affiliated Company regardless of whether such payment
is made by or due from the Employer or an Affiliated Company directly
or indirectly through, among others, a trust fund, or insurer, to
which the Employer or an Affiliated Company contributes or pays
premiums and regardless of whether contributions made or due to the
trust fund, insurer or other entity are for the benefit of particular
Employees or are on behalf of a group of Employees in the aggregate.
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer or an Affiliated
Company.
(d) The determination of Hours of Service for reasons other than
the performance of duties, and the crediting of Hours of Service to
computation periods, shall be in accordance with U.S. Department of Labor
Regulations Section 2530.200b-2 (b) and (c). There shall be no duplication
of Hours of Service under any of the foregoing provisions.
(e) In the case of a salaried Employee who is not paid on an hourly
basis, Hours of Service shall be based on any available records which
accurately reflect the actual number of hours worked by such Employee. If such
records do not exist, such Employee shall be credited with Hours of
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Service on the basis of 45 hours for each week for which the Employee
would be credited with at least one Hour of Service.
(f) For purposes of determining whether a Participant has incurred
a one-year Break in Service, a Participant will be credited with Hours
of Service for certain periods of absence from work by reason of the
Participant's pregnancy, the birth of a Participant's child, the
adoption of a Participant's child, or caring for a Participant's child
during the period immediately following the birth or adoption of such
child. If the Participant's normal work hours are known, such
Participant will be credited with the number of hours that normally
would have been credited for such absence. If the Participant's normal
work hours are not known, such Participant will be credited with eight
Hours of Service for each normal workday during such absence. Not more
than 501 Hours of Service shall be credited for such purposes in the
Plan Year in which such absence commences if the Participant would
otherwise incur a Break in Service in such Plan Year; otherwise, such
Hours of Service shall be credited in the following Plan Year if such
absence continues in such Plan Year.
INDEPENDENT APPRAISER
Any appraiser, appointed by the Trustee, who is independent of the
Company and who meets requirements of the regulations prescribed under
Section 170(a)(1) of the Code.
LIMITATION YEAR
For purposes of the limitations on Contributions and benefits imposed
by Section 415 of the Code, the Limitation Year shall be the Plan
Year.
MONEY PURCHASE PENSION ACCOUNT
The Account of a Participant which represents his interest in the
Money Purchase Pension Plan, including his prior balance credited from
the prior Money Purchase Pension Plan.
MONEY PURCHASE PENSION PLAN
The portion of the Plan which is designed to qualify as such and is
subject to the rules pertaining to a money purchase pension plan under
Section 401(a) of the Code.
NORMAL RETIREMENT
Termination of service upon attainment of the Normal Retirement Date.
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NORMAL RETIREMENT DATE
The date on which a Participant attains age sixty-five (65).
OTHER INVESTMENTS ACCOUNT
The Account of a Participant which is credited with his share of the
net income (or loss) of the Trust and Employer Contributions and
Forfeitures in other than Company Stock and which is debited with
payments made to pay for Company Stock.
PARTICIPANT
Any Employee or former Employee who is participating in this Plan as
defined in Section 3 of the Plan or former Employee who is receiving
or will receive benefits under the Plan. A Participant ceases to be a
Participant when all funds to which he is entitled under the Plan have
been distributed in accordance with the term hereof.
PLAN
The Decision Focus Incorporated Employee Stock Ownership Plan and
Money Purchase Pension Plan, which includes the Plan and Trust
Agreement.
PLAN BENEFIT
The vested amount, as defined in Sections 12 and 13 of the Plan, of a
Participant's Accounts.
PLAN YEAR
The twelve (12) month period ending on each Anniversary Date.
PROFIT SHARING ACCOUNT
The Account of a Participant which represents his interest credited to
the Profit Sharing Account under the Profit Sharing Plan.
PROFIT SEARING PLAN
The Profit Sharing Plan of the Company which is amended and restated
by this Plan.
QUALIFIED ELECTION PERIOD
The six (6) Plan Year period beginning with the first Plan Year in
which the Participant first became a Qualified Participant.
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QUALIFIED EMPLOYER SECURITIES
Employer Securities which are issued by a domestic corporation that
has no securities outstanding that are readily tradable on an
established securities market, have been held for at least three years
by the seller and were not received by the seller in a distribution
from a Plan qualified under Section 401(a) or in a transfer pursuant
to an option or other right to acquire stock under Section 83, 422,
422A, 423 or 424 of the Code.
QUALIFIED PARTICIPANT
Any Participant who has attained age fifty-five (55) and has completed
ten (10) years of participation under the Plan.
QUALIFIED REPLACEMENT PROPERTY
Any stock, bond, debenture, note, or other evidence of indebtedness
issued by a domestic corporation (other than the Employer corporation
or any corporation which is a member of a parent-subsidiary controlled
group which includes the Employer corporation) which does not, for the
taxable year preceding the taxable year in which such security is
purchased, have passive investment income exceeding twenty-five
percent (25%) of the gross receipts of such corporation for such year.
RETIREMENT
Termination of service due to Normal Retirement, Deferred Retirement
or Disability.
SECURITIES ACQUISITION LOAN
A loan which is used to purchase Employer Securities and which meets
all of the requirements of Section 6(b)(3) of the Plan.
SEGREGATED INVESTMENTS ACCOUNT
The Account of a Participant which is credited with amounts which may
not be used to purchase shares of Company Stock pursuant to the
provisions of Rev. Proc. 87-22.
STOCK BONUS PLAN
The portion of the Plan which is designed to qualify as such and is
subject to the rules pertaining to a stock bonus plan under Section
401(a) of the Code.
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SUSPENSE ACCOUNT
The Suspense Account maintained by the Committee to which shall be
credited all shares of Employer Securities purchased with the proceeds
of a Securities Acquisition Loan.
TOTAL COMPENSATION
For purposes of Section 415 of the Code and the Top Heavy provisions
in Section 21 of this Plan,
(a) The term "Total Compensation" includes:
(1) The Participant's wages, salaries, fees for professional
service and other amounts received for personal services actually
rendered in the course of employment with an Employer maintaining the
Plan (including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits,
commission on insurance premiums, tips and bonuses).
(2) For purposes of subdivision (1) of this subparagraph, earned
income from sources outside the United States (as defined in Section
911(b)), whether or not excludable from gross income under Section 911
or deductible under Section 913 of the Code.
(3) Amounts described in Sections 104(a)(3), 105(a) and l05(h),
but only to the extent that these amounts are includable in the gross
income of the Employee.
(4) Amounts paid or reimbursed by the Employer for moving
expenses incurred by an Employee, but only to the extent that these
amounts are not deductible by the Employee under Section 217 of the
Code.
(5) The value of a nonqualified stock option granted to an
Employee by the Employer, but only to the extent that the value of the
option is includable in the gross income of the Employee for the
taxable year in which granted.
(6) The amount includable in the gross income of an Employee
upon making the election described in Section 83(b) of the Code.
(b) The term "Total Compensation" does not include items such
as:
(1) Contributions made by the Employer to a plan of deferred
compensation to the extent that, before the application of Code
Section 415 limitations to that plan, the contributions are not
includable in the gross income of the Employee for the taxable year in
which contributed. In
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addition, Employer contributions made on behalf of an Employee to a
simplified employee pension plan described in Code Section 408(k) are
not considered as compensation for the taxable year in which
contributed to the extent such contributions are deductible by the
Employee under Section 219(b)(1) of the Code. Additionally, any
distributions from a plan of deferred compensation are not considered
as compensation for Section 415 purposes, regardless of whether such
amounts are includable in the gross income of the Employee when
distributed. However, any amounts received by an Employee pursuant to
an unfunded nonqualified plan may be considered as compensation for
Code Section 415 purposes in the year such amounts are includable in
the gross income of the Employee.
(2) Amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by an Employee
either becomes freely transferable or is no longer subject to a
substantial risk of forfeiture (under Section 83 of the Code).
(3) Amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option.
(4) Other amounts which receive special tax benefits, such as
premiums for group term life insurance (but only to the extent that
the premiums are not includable in the gross income of the Employee),
or contributions made by an Employer (whether or not under a salary
deferral agreement) towards the purchase of an annuity contract
described in Section 403(b) of the Code (whether or not the
contributions are excludable from the gross income of the Employee).
TRUST
The Trust created by the Trust Agreement entered into between the
Company and the Trustee.
TRUST AGREEMENT
The Agreement between the Company and the Trustee or any successor
Trustee establishing the Trust and specifying the duties of the
Trustee.
TRUSTEE
The Trustee (or Trustees) designated by the Company's Board of
Directors (and any successor Trustee). The Board of Directors may
provide that any person or group of persons may serve in more than one
fiduciary capacity with respect to the Plan (including service as both
Trustee and Committee member).
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VALUATION DATE
The Anniversary Date coinciding with or immediately preceding the date
of actual distribution of Plan Benefits. For purposes of the top heavy
provisions of this Plan, the Valuation Date is the most recent
Anniversary Date within a twelve (12)-month period ending on a
Determination Date (as defined in Section 21).
YEAR OF SERVICE
For purposes of eligibility, a twelve (12) month period beginning on
an Employee's Employment Commencement Date during which an Employee is
credited with not less than 1,000 Hours of Service.
For purposes of vesting under Section 13, all Plan Years after
December 31, 1992, during which an Employee has completed 1,000 or
more Hours of Service, including any Plan Year during which he has
completed 1,000 or more Hours of Service but has not yet become
eligible to participate in the Plan.
Years of Service also include all Years of Service recognized under
the Company's Profit Sharing Plan and Money Purchase Pension Plan.
Years of Service also include all Years of Service with the Employer.
SECTION 3. ELIGIBILITY.
-----------
Each Employee shall become a Participant in the Plan as of his date of hire
by the Employer, provided he is an "eligible Employee." An "eligible Employee"
includes every employee except any employee (l) who is a nonresident alien, and
who receives no earned income from the Employer which constitutes income from
sources within the United States, (2) is a member of a collective bargaining
unit and who is covered by a collective bargaining agreement, or (3) who is
either hired through an employment agency or is a leased employee. Employees who
are not eligible employees as of their hire date shall enter the Plan on the
date they become eligible employees. Upon the Employee so becoming eligible, his
participation shall be based on the total Covered Compensation paid to him for
the entire Plan Year during which he becomes eligible to participate. If an
Employee who has met the eligibility requirements leaves the service of his
Employer and returns to service without incurring a one-year Break in Service,
he shall commence participation immediately upon his return. All Employees who
were active Participants in the Company's Profit Sharing and/or Money
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Purchase Pension Plan(s) on December 31, 1992 are automatically Participants in
this Plan as of the Effective Date.
SECTION 4. PARTICIPATION IN ALLOCATION OF BENEFITS.
---------------------------------------
(a) Participation.
-------------
Except in the case of death, Disability or Retirement, a
Participant will share in the allocation of Employer Contributions and
Forfeitures only if he is still employed on the last day of the Plan Year and
has accumulated 501 or more Hours of Service during the Plan Year. Except in the
case of death, Disability or Retirement, a Participant who accumulates less than
501 Hours of Service during a Plan Year will not share in the allocation of
Employer Contributions and Forfeitures under Section 11 for such Plan Year. A
Participant who accumulates less than 1,000 Hours of Service will not be given a
Year of Service for purposes of vesting under Section 13.
Notwithstanding the foregoing, in the event that the Plan fails
to meet the coverage requirements of Internal Revenue Code Section 410(b) for
the Plan Year, members of the group of Participants who are in the employ of the
Employer and who have completed more than 500 Hours of Service will share in
Employer Contributions and Forfeitures for the Plan Year as follows: the minimum
number required to meet the coverage tests under Code Section 410(b) based on
their number of Hours of Service credited during the Plan Year, ranked in
descending order. If more than one Employee receives credit for the lowest
number of Hours of Service for which any individual must be covered in order to
meet the coverage tests, then all employees receiving credit for exactly that
number of Hours of Service shall share in the allocation of Employer
Contributions and Forfeitures.
A Participant reemployed following a Break in Service shall again
resume participation in the Plan as of the date of reemployment for purposes of
vesting under Section 13 and for purposes of participating in Employer
Contributions and Forfeitures under Section 11. However, if the Participant is
reemployed after a Break in Service and has no vested rights under the Plan and
the number of consecutive one-year Breaks in Service equals or exceeds five
years
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or the number of aggregate years of prebreak service, whichever is greater, he
shall be treated as a new Employee for purposes of participation.
(b) Leave of Absence.
----------------
A Participant's employment is not considered terminated for
purposes of the Plan if the Participant has been on leave of absence with the
consent of the Company, provided that he returns to the employ of the Company
within thirty (30) days after the leave (or within such longer period as may be
prescribed by law). Leave of absence shall mean a leave granted by the Company,
in accordance with rules uniformly applied to all Participants, for reasons of
health or public service or for reasons determined by the Company to be in its
best interests. Solely for purposes of preventing a Break in Service, a
Participant on such leave of absence shall be credited with eight (8) Hours of
Service for each business day of the leave. A Participant who does not return to
the employ of the Company within the prescribed time following the end of the
leave of absence shall be deemed to have terminated his employment as of the
date when his leave began, unless such failure to return was the result of his
death, Disability or Retirement.
(c) Suspended Participation.
-----------------------
A Participant who ceases to be an eligible Employee by becoming
subject to a collective bargaining agreement shall become a suspended
Participant. During the period of suspension, no amounts shall be credited to
the Participant's Accounts which are based on his Covered Compensation from and
after the date of suspension. However, amounts previously credited to a
Participant's Accounts shall continue to vest and the Participant shall be
entitled to benefits in accordance with the provisions of Section l4(g) of this
Plan throughout the period during which the Participant is on suspended status.
SECTION 5. EMPLOYER CONTRIBUTIONS.
----------------------
(a) Amount of Contribution.
----------------------
(1) Stock Bonus Plan.
----------------
Employer Contributions may be made to the Trust in such
amounts as may be determined by the Company's Board of Directors, provided that
such Contributions shall not
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exceed the maximum amounts deductible under Section 404(a)(3) of the Code.
Notwithstanding the foregoing, Employer Contributions may not be made in amounts
which would permit the limitation described in Section 11(b) to be exceeded.
(2) Money Purchase Pension Plan.
---------------------------
The Employer shall contribute to the Money Purchase Pension
Plan an amount equal to ten percent (10%) of the total Covered Compensation of
all Participants for such year.
(b) Time for Making Contribution.
----------------------------
Employer Contributions for each year must be established by
resolution of the Company's Board of Directors and paid to the Trust not later
than the due date for filing the Company's federal income tax return for that
year, including extensions of such date.
(c) Form of Contribution.
--------------------
Employer Contributions may be paid in cash, shares of Company
Stock or other property as the Company's Board of Directors may from time to
time determine. Shares of Company Stock and other property will be valued at
their then fair market value.
SECTION 6. INVESTMENT OF TRUST ASSETS.
--------------------------
(a) (1) Prior Profit Sharing Plan.
-------------------------
The prior Profit Sharing Plan consisted of a Profit Sharing
Account, Company Stock Account and Other Investments Account. All Trust funds
under the prior Profit Sharing Plan credited to Participants' Profit Sharing
Accounts arising from Employer Contributions and Forfeitures, shall be
maintained under this Plan in a separate Profit Sharing Account. Such funds
shall continue in existing investments or may be invested in savings accounts,
certificates of deposit, securities, or other equity stocks or bonds, or in any
other kind of realty or personal property, including interests in oil or other
depletable natural resources, options, puts, calls, futures contracts and
commodities; or such funds may be held in noninterest-bearing bank accounts as
necessary on a temporary basis.
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All Trust funds under the prior Profit Sharing Plan credited
to Participants' Company Stock Accounts or Other Investments Accounts shall be
transferred to the Company Stock Accounts or Other Investments Accounts under
this Plan and shall continue to be available for investment up to one hundred
percent (100%) in Company Stock.
(a) (2) Money Purchase Pension Plan.
---------------------------
The Money Purchase Pension Plan Accounts shall consist of
all Trust funds credited under the prior Money Purchase Pension Plan arising
from Employer Contributions Forfeitures. Such funds held under the Money
Purchase Pension Accounts may be maintained in existing investments or may be
invested in savings accounts, certificates of deposit, securities, or other
equity stocks or bonds, or in any other kind of realty or personal property,
including interests in oil or other depletable natural resources, options, puts,
calls, futures contracts and commodities; or such funds may be held in
noninterest-bearing bank accounts as necessary on a temporary basis.
All assets under the prior Money Purchase Pension Plan
transferred to this Plan and all assets acquired as a result of Employer
Contributions to the Money Purchase Pension portion of this Plan, shall be
invested in investments other than Company Stock.
(b) Employee Stock Ownership Plan.
-----------------------------
(1) Authorized Investments.
----------------------
Employer Contributions in cash and other property received
by the Trust will be applied to pay any outstanding obligations of the Trust
incurred for the purchase of Employer Securities, or may be applied to purchase
additional shares of Company Stock from current shareholders, Treasury shares or
newly issued shares from the Company. The Committee may also direct the Trustee
to invest funds under the Plan in savings accounts, certificates of deposit,
securities, or other equity stocks or bonds or in any other kind of realty or
personal property, including interests in oil or other depletable natural
resources, options, puts, calls, futures contracts and commodities; or such
funds may be held in noninterest-bearing bank accounts as necessary on a
temporary basis.
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(2) Duties of Committee.
-------------------
Except as otherwise provided in Section 18(b), all
investments will be made by the Trustee only upon the direction of the
Committee. Except in the case of a purchase from a Disqualified Person (as
defined in Section 16(a) of the Plan), all purchases of Company Stock shall be
made at no more than fair market value, as determined by an Independent
Appraiser as of the most recent Anniversary Date. In the case of a purchase from
such a Disqualified Person, all purchases of Company Stock shall be made at
prices which, in the judgment of the Independent Appraiser, do not exceed the
fair market value of such shares as of the date of the transaction.
(3) Plan Loans.
----------
(A) The Committee may direct the Trustee to incur Plan
loans from time to time to carry out the purposes of the Trust, provided that if
the loan is a Securities Acquisition Loan, the terms of the Loan must comply
with the following requirements: Any such loan shall be for a specified term,
shall bear a reasonable rate of interest, may not exceed fifteen (15) years in
duration, and may only be secured by a collateral pledge of the Employer
Securities so acquired. Any such loan shall be primarily for the benefit of Plan
Participants and their Beneficiaries. No other Trust assets may be pledged as
collateral by the Trustee, and no lender shall have recourse against Trust
assets other than any shares of Employer Securities Stock remaining subject to
pledge. Any pledge of Employer Securities must provide for the release of shares
so pledged pursuant to either the "General Rule" or the "Special Rule" set forth
in Section 7. Repayments of principal and interest on any Securities Acquisition
Loan shall be made by the Trustee (as directed by the Committee) only from
Employer Contributions in cash to the Trust, from any cash dividends received by
the Trust on such Employer Securities or from any earnings attributable to the
investment of Employer Contributions made to the Trust in cash to meet its
obligation under the loan. The proceeds of a Securities Acquisition Loan may be
used only to acquire Employer Securities, to repay such loan or to repay a prior
Securities Acquisition Loan. The protections and rights described in Section 16
are nonterminable. Should this Plan
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<PAGE>
cease to be an Employee Stock Ownership Plan, or should the Securities
Acquisition Loan be repaid, all Employer Securities will continue to be subject
to the provisions of Section 16.
(B) In the event of default upon any Securities Acquisition Loan, the
value of Plan assets transferred in satisfaction of the loan must not exceed the
amount of default. If the lender is a Disqualified Person, a loan must provide
for a transfer of Plan assets upon default only upon and to the extent of the
failure of the Plan to meet the payment schedule of the loan. For purposes of
this paragraph, the making of a guarantee does not make a person a lender.
(C) Interest earned on any Securities Acquisition Loan made by a
bank, insurance company, regulated investment company or corporation actively
engaged in the business of lending money shall qualify for the fifty percent
(50%) exclusion from gross income under Section 133 of the Code to the extent
the loan meets the following criteria:
(i) The proceeds are paid to the Plan or are paid to the
Company and in turn lent by the Company to the Plan. If the proceeds of the loan
are in turn lent to the Plan, the repayment terms must be substantially similar
to the terms of the loan to the Company.
(ii) If the loan was completed between June 6, 1989 and
November 17, 1989, the Plan must own thirty percent (30%) or more of either each
class of Company Stock or the total value of all outstanding stock of the
Company. In the case of loans completed after November 17, 1989, the Plan must
own more than fifty percent (50%) of such stock of the Company.
(iii) The terms of the loan may not exceed fifteen (15) years.
(iv) In the case of loans completed after November 17, 1989,
Participants shall be entitled to direct how the stock acquired with such
Securities Acquisition Loan and allocated to their accounts will be voted.
If a Securities Acquisition Loan (other than a back-to-back loan
in which the repayment terms of the loan to the Plan are not substantially
similar to the terms of the
-20-
<PAGE>
loan to the Company) is refinanced, the fifty percent (50%) interest exclusion
shall apply only during the first seven (7) years of the original commitment
period (measured from the date of the original loan) or during the original
commitment period, whichever is greater. Interest earned on any Securities
Acquisition Loan made by the Company or by any member of a controlled group of
companies which includes the Company shall not qualify for such interest
exclusions.
(4) Nonrecognition of Gain.
----------------------
(A) There shall be no recognition of gain upon a sale of
Employer Securities to the Plan if (i) the seller has held such Securities for
at least three (3) years, (ii) after the purchase the Plan owns at least thirty
percent (30%) of each class of outstanding stock of the Company (other than
preferred stock described in Section 1504(a)(4) of the Code, or thirty percent
(30%) of the total value of all outstanding stock of the Company (other than
preferred stock described in Section 1504(a)14) of the Code), (iii) the seller
purchases Qualified Replacement property within three (3) months prior to the
sale or within twelve (12) months after the sale, (iv) on or before the time
(including extension) for filing his income tax return, the seller files with
the IRS a written statement verified by the Company, regarding the terms of the
sale, and (v) the Plan complies with the allocation requirements set forth in
Section 11(b)(5).
(B) If, during the three-year period after the Plan acquires
Qualified Employer Securities in a transaction in which gain is not recognized,
the Plan disposes of part or all of such Qualified Employer Securities, the
Company shall be liable for a tax equal to ten percent (10%) of the amount
realized upon the disposition, unless such disposition is necessary to meet the
diversification requirements of Section 17(a) of the Plan, or unless such
disposition is made to a Participant (or to his Beneficiary) by reason of his
death, Disability, retirement after age 59-1/2 or a separation from service with
the Employer which results in a one-year Break in Service.
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<PAGE>
SECTION 7. ALLOCATIONS TO ACCOUNTS.
-----------------------
(a) Individual Accounts.
-------------------
The Committee shall establish and maintain individual Accounts for
each Participant in the Plan. Individual Accounts shall also be maintained for
all former Participants who still have an interest in the Plan. Except as
provided in Section 17(a), such individual Accounts shall not require a
segregation of the Trust assets and no Participant, former Participant or
Beneficiary shall acquire any right to or interest in any specific asset of the
Trust as a result of the allocation provided for in the Plan.
(b) Company Stock Account.
---------------------
(1) The Company Stock Account of each Participant will be
credited as of each Anniversary Date with his allocated share of Company Stock
(including fractional shares) purchased and paid for by the Trust or contributed
in kind by the Company, with Forfeitures of Company Stock and with stock
dividends on Company Stock held in his Company Stock Account. A Participant's
Company Stock Account will also be credited initially with his share, if any, of
Company Stock transferred to the Company Stock Account under the prior Profit
Sharing Plan.
Employer Securities acquired by the Trust with the proceeds
of a Securities Acquisition Loan shall be credited to a Suspense Account. For
each Plan Year during the duration of the loan, the number of shares of Employer
Securities to be released from said Suspense Account and allocated to the
Company Stock Accounts of Participants shall be determined pursuant to either
the "General Rule" or the "Special Rule" described below as selected by the
Committee for each Securities Acquisition Loan. Once the Committee has selected
either the General Rule or the Special Rule, that Rule shall be used exclusively
for the allocation of shares of Employer Securities purchased with the proceeds
of a particular Securities Acquisition Loan.
(A) General Rule: For each Plan Year during the duration of
the loan, the Committee shall withdraw from the Suspense Account a number of
shares of Employer
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<PAGE>
Securities equal to the total number of such shares held in the Suspense Account
immediately prior to the withdrawal multiplied by a fraction:
(i) The numerator of which is the amount of principal
and interest paid for the Plan Year; and
(ii) The denominator of which is the sum of the
numerator plus the principal and interest to be paid for all future years.
(B) Special Rule:
(i) For each Plan Year, the Committee shall withdraw
from the Suspense Account a number of shares of Employer Securities equal to the
total number of such shares held in the Suspense Account immediately prior to
the withdrawal multiplied by a fraction:
(aa) The numerator of which is the amount of
principal paid for the Plan Year; and
(bb) The denominator of which is the sum of the
numerator plus the principal to be paid for all future Plan Years.
(ii) The Committee may select the Special Rule only
if:
(aa) The Securities Acquisition Loan provides
for annual payments of principal and interest at a cumulative rate which is not
less rapid at any time than level annual payments of such amounts for ten (10)
years;
(bb) The interest included in any payment is
disregarded only to the extent that it would be determined to be interest under
standard loan amortization tables; and
-23-
<PAGE>
(cc) By reason of a renewal, extension or
refinancing, the sum of the expired duration of the original loan, any renewal
period, any extension period and the duration of any new loan does not exceed 10
years.
(C) In determining the number of shares to be released for
any Plan Year under either the General Rule or the Special Rule:
(i) The number of future years under the Loan must be
definitely ascertainable and must be determined without taking into account any
possible extensions or renewal periods;
(ii) If the Loan provides for a variable interest
rate, the interest to be paid for all future Plan Years must be computed by
using the interest rate applicable as of the end of the Plan Year for which the
determination is being made; and
(iii) If the Employer Securities allocated to the
Suspense Account includes more than one class of shares, the number of shares of
each class to be withdrawn for a Plan Year from the Suspense Account must be
determined by applying the applicable fraction provided for above to each such
class.
(2) Allocations of Company Stock shall be reflected
separately for each class of such stock, and the Committee shall maintain
adequate records of the aggregate cost basis of Company Stock allocated to each
Participant's Company Stock Account.
(c) Other Investments Account.
-------------------------
The Other Investments Account of each Participant will be
credited (or debited) as of each Anniversary Date with his share of the net
income (or loss) of the Trust, with cash dividends on Company Stock not used to
pay the Securities Acquisition Loan and with Employer Contributions and
Forfeitures in other than Company Stock. The Other Investments Account of each
Participant will be credited (or debited) as of each Anniversary Date with his
share of the unrealized appreciation (or depreciation) in the value of Trust
assets other than Company Stock. It will be debited for any payments for
purchases of Company Stock or for
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<PAGE>
repayment of debt (including principal and interest) incurred for the purchase
of Employer Securities. The Other Investments Account of each Participant will
also be credited initially with his share, if any, of assets transferred from
the Other Investments Account under the prior Profit Sharing Plan.
(d) Profit Sharing Account.
----------------------
The Profit Sharing Account of each Participant will be
credited initially with his share, if any, of assets held under the Profit
Sharing Account of the prior Profit Sharing Plan.
(e) Money Purchase Pension Account.
------------------------------
The Money Purchase Pension Account of each Participant was
credited initially with his share, if any, of assets held under the prior Money
Purchase Pension Plan. This Account will continue to be credited as of each
Anniversary Date with his share of the Employer Money Purchase Pension
contributions made under this Plan.
SECTION 8. EXPENSES OF THE PLAN AND TRUST.
------------------------------
Normal brokerage charges which are included in the cost of securities
purchased (or charged to proceeds in the case of sales) shall be paid by the
Trust. The Company shall pay all expenses in connection with the design,
establishment, or termination of the Plan. The Trust shall pay all costs of
administering the Plan, unless such expenses are paid by the Company.
SECTION 9. VOTING COMPANY STOCK.
--------------------
(a) Except as provided in Subsection (b) of this Section 9, all Company
Stock held by the Trust shall be voted by the Trustee in accordance with
instructions from the Committee. Notwithstanding the foregoing, each Participant
and/or Beneficiary shall be entitled to direct the voting of any voting shares
of Company Stock allocated to his Company Stock Account with respect to any vote
required for the approval or disapproval of any corporate merger or
consolidation, recapitalization, reclassification, liquidation, dissolution,
sale of substantially all the assets of a trade or business, or other similar
transactions prescribed by regulation. Any
-25-
<PAGE>
unallocated shares held by the Trust shall be voted by the Trustee in accordance
with instructions from the Committee.
(b) Notwithstanding the provisions of Subsection (a) of this Section 9,
each Participant and/or Beneficiary shall be entitled to direct the voting of
any Employer Securities which are allocated to his Company Stock Account to the
extent such Employer Securities were acquired by or transferred to the Trust in
connection with a Securities Acquisition Loan to which Section 133 of the Code
applied.
SECTION 10. DISCLOSURE TO PARTICIPANTS.
--------------------------
(a) Summary Plan Description.
------------------------
Within one hundred twenty (120) days after the receipt of an
initial favorable determination letter from the Internal Revenue Service
relating to the qualification of the Plan, and thereafter within ninety (90)
days after a Participant commences participation (or after a Beneficiary first
receives benefits under the Plan), the Committee shall furnish such Participant
(or Beneficiary) with the summary plan description required by Sections
102(a)(1) and 104(b)(1) of ERISA. Such summary plan description shall be updated
from time to time as required under ERISA and the Department of Labor
regulations thereunder.
(b) Summary Annual Report.
---------------------
Within nine (9) months after each Anniversary Date, the Committee
shall furnish each Participant (and each Beneficiary receiving benefits under
the Plan) with the summary annual report of the Plan required by Section
104(b)(3) of ERISA, in the form required by regulations of the Department of
Labor.
(c) Annual Statement.
----------------
As soon as possible after each Anniversary Date, each Participant
will receive a written statement of his Accounts showing as of that Anniversary
Date:
(1) The balance in each of his Accounts as of the preceding
Anniversary Date.
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<PAGE>
(2) The amount of Employer Contributions and Forfeitures
allocated to his Accounts for the year.
(3) The adjustments to his Accounts to reflect his share of
dividends and the income and expenses of the Trust for the year.
(4) The new balances in each of his Accounts, including the
number of shares of Company Stock.
(5) The vested percentage of his Plan Benefit.
Upon the discovery of any error or miscalculation in an Account,
the Committee shall correct the same insofar as, in the Committee's discretion,
correction is feasible. Statements to Participants are for reporting purposes
only, and no allocation, valuation or statement shall, by itself, vest any right
or title in any part of the Trust fund.
(d) Notice of Rollover Treatment.
----------------------------
The Committee shall, when making any distribution which
qualifies as a qualifying rollover distribution under Section 402(a)(5)(E) of
the Code, provide a written statement to the recipient which explains (i) the
provisions under which such distribution will not be subject to current tax if
transferred to an eligible Individual Retirement Account within 60 days of
receipt of the distribution, and (ii) the circumstances under which lump sum
distributions may be taxed at favorable capital gains rates and forward
averaging rates.
(e) Additional Disclosure.
---------------------
The Committee shall make available for examination by any
Participant (or Beneficiary) copies of the summary plan description, the Plan,
the Trust Agreement and the latest annual report of the Plan filed with the
Department of Labor. Upon written request of any Participant (or Beneficiary),
the Committee shall furnish copies of such documents and may make a reasonable
charge to cover the cost of furnishing such copies, as provided in regulations
of the Department of Labor.
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<PAGE>
SECTION 11. ALLOCATION OF EMPLOYER CONTRIBUTIONS AND FORFEITURES.
----------------------------------------------------
(a) Allocation of Employer Contributions and Forfeitures.
----------------------------------------------------
The allocation will be made as follows:
(1) Employer Contributions.
----------------------
Employer Contributions will be allocated as of each
Anniversary Date among the Account of Participants (in accordance with Section 4
of this Plan) who are employed on the last day of the Plan Year, or Employees
whose employment terminated during the year because of death, Disability or
Retirement, in the proportion that each such Participant's Covered Compensation
bears to the total Covered Compensation of all such Participants for that year.
Shares of Company Stock released from the Suspense Account (as provided in
Section 7(b)) by reason of the payment of interest and principal on a Securities
Acquisition Loan shall be allocated as of each Anniversary Date among the
Accounts of Participants in the Plan who are employed on the last day of the
Plan Year, or Employees whose employment terminated during the year because of
death, Disability or Retirement, in the proportion that each such Participant's
Covered Compensation bears to the total Covered Compensation of all such
Participants for that year. For purposes of this paragraph, a person who is an
Inactive Participant for a Plan Year, or whose employment terminates during a
Plan Year for reasons other than death, Disability or Retirement, shall not be
considered a Participant in the Plan on the last day of that Plan Year.
(2) Forfeitures.
-----------
(A) Stock Bonus Plan. As of each Anniversary Date, any
----------------
amount credited as of the preceding Anniversary Date to the Accounts of
Participants or former Participants which has been forfeited during the year as
provided by Section 13, shall be allocated to the Accounts of Participants in
the Plan who are employed on the last day of the year, or Employees whose
employment terminated during the year because of death, Disability or
Retirement, in the same manner as Employer Contributions are allocated.
-28-
<PAGE>
(B) Money Purchase Pension Plan. As of each Anniversary
---------------------------
Date, any amount credited as of the preceding Anniversary Date to the Accounts
of Participants or former Participants which has been forfeited during the year
will be applied to reduce the amount of required Employer Contributions for that
year.
(3) Net Income (or Loss) of the Trust.
---------------------------------
The net income (or loss) of the Trust will be determined
annually as of each Anniversary Date. Any stock dividends on shares of Company
Stock held by the Trust shall be allocated to each Participant's Company Stock
Account in the ratio in which the cumulative number of shares allocated to his
Company Stock Account as of the preceding Anniversary Date bears to the total
cumulative number of shares of Company Stock allocated to the Company Stock
Accounts of all Participants as of that date. Any cash dividends paid on shares
of Company Stock (whether or not allocated) and any gain on the sale of
unallocated shares of Company Stock shall be allocated to each Participant's
Other Investments Account in the ratio in which the cumulative number of shares
allocated to his Company Stock Account as of the preceding Anniversary Date
bears to the total cumulative number of shares of Company Stock allocated to the
Company Stock Accounts of all Participants as of that date. All other net income
(or loss) will be allocated to each Participant's Other Investments Account in
the ratio in which the balance of his Other Investments Account on the preceding
Anniversary Date bears to the sum of the balances of the Other Investments
Accounts of all Participants on that date. For this purpose, Account balances
shall be reduced by amounts distributed to Participants during the Plan Year.
The net income (or loss) includes the increases (or
decreases) in the fair market value of assets of the Trust, interest, dividends,
other income and expenses attributable to assets in the Other Investments
Accounts since the preceding Anniversary Date. Net income (or loss) does not
include the interest paid under any installment contract for the purchase of
Company Stock by the Trust or on any loan obtained by the Trust to purchase
Company Stock. Notwithstanding the foregoing, no income (or loss) shall be
allocated to a terminated Participant's Account for the Plan Year in which he
receives final distribution of his Plan Benefit.
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<PAGE>
The Profit Sharing Account, if any, of each Participant will be credited (or
debited) at least once each year with his share of the net income (or loss)
attributable to the assets transferred to the Trust from the prior Profit
Sharing Plan. The Money Purchase Pension Account, if any, of each Participant
will be credited (or debited) at least once each year with his share of the net
income (or loss) attributable to the Money Purchase Pension Plan.
(b) Allocation Limitations.
----------------------
(1) The total Annual Additions to a Participant's Accounts for
any Limitation Year shall not exceed the lesser of (i) $30,000 (or, if greater,
one-fourth (1/4) of the dollar limitation in effect under Section 415(b)(1)(A)
of the Code), or (ii) twenty-five percent (25%) of the Participant's Total
Compensation for the Limitation Year. A Participant's allocable share of
Employer Contributions applied to the payment of Interest on a Securities
Acquisition Loan and Forfeitures of Employer Securities purchased with the
proceeds of a Securities Acquisition Loan shall not be included as an Annual
Addition, provided that no more than one-third (1/3) of the Employer
Contribution for that year is allocated to the Accounts of Highly Compensated
Employees.
(2) If an Employer is contributing to another defined
contribution plan, as defined in Section 414(i) of the Code, for Employees of
the Company, some or all of whom may be Participants in this Plan, then any such
Participant's Annual Additions in such other plan shall be aggregated with the
Participant's Annual Additions derived from this Plan for purposes of the
limitation in Paragraph (1) of this Subsection.
(3) If a Participant in this Plan is also a Participant in a
defined benefit plan to which Contributions are made by an Employer or
Affiliated Company, then in addition to the limitation contained in Paragraph
(l) of this Subsection, such Participant's allocations shall be limited, such
that the sum of the defined benefit plan fraction and the defined contribution
plan fraction for any Limitation Year shall not exceed 1.0. For purposes of this
Paragraph (3), the defined benefit plan fraction is a fraction, the numerator of
which is the projected annual benefit of the Participant under all such defined
Plans determined as of the close of the Limitation Year, and the denominator of
which is the lesser of (i) the product of 1.25 multiplied by the dollar
-30-
<PAGE>
limitation in effect for such Plan Year, or (ii) the product of 1.4 multiplied
by one hundred percent (100%) of the Participant's average Total Compensation
for his highest three Limitation Years. For purposes of this Paragraph (3), the
defined contribution plan fraction for any Limitation Year is a fraction, the
numerator of which is the sum of the Annual Additions to the Participant's
Accounts as of the close of the Limitation Year, and the denominator of which is
the sum of the lesser of the following amounts determined for such year and for
each prior Year of Service with the Employer: (i) the product of 1.25 multiplied
by the dollar limitation in effect for such Limitation Year or (ii) the product
of l.4 multiplied by twenty-five percent (25%) of the Participant's Total
Compensation.
(4) If Company Stock is purchased from a shareholder of the
Company and if such shareholder is also a Participant in this Plan, then
notwithstanding anything to the contrary contained in this Plan, the total
Account balances of such Participant's Accounts other than his Segregated
Investments Account, combined with the total Account balances of the Accounts of
such Participant's spouse, parents, grandparents, children, and grandchildren
under the Plan, shall not exceed twenty percent (20%) of the total of all
Account balances under the Plan. However, if the total Account balances of such
Participant's Accounts exceed twenty percent (20%) of the total of all Account
balances, then the amounts in excess of said twenty percent (20%) shall be
credited to that Participant's Segregated investments Account and invested in
investments other than Company Stock.
(5) In the case of a sale in which a seller elects nonrecognition
of gain under Section 1042 of the Code, no portion of such Qualified Employer
Securities may be allocated during the nonallocation period to the Account of
(i) the seller (or his family) or (ii) any other person who owns (after
application of the family attribution rules) more than twenty-five percent (25%)
of any class of outstanding Company Stock, or more than twenty-five percent
(25%) of the total value of any class of outstanding Company Stock, at any time
during the one year period preceding the purchase of such Qualified Employer
Securities by the Plan, or on any subsequent date when such Qualified Employer
Securities are allocated to Participants in the Plan. For purposes of this
Paragraph, the seller's family shall include his spouse, ancestors, lineal
descendants, and brothers and sisters. Notwithstanding the foregoing, lineal
descendants of a
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<PAGE>
seller shall be permitted to share in the allocation of Qualified Employer
Securities, provided that the aggregate amount of such stock allocated for the
benefit of all such lineal descendants does not exceed more than five percent
(5%) of such stock purchased from the seller. For purposes of this Paragraph
(5), a person shall be considered to be a more than twenty-five percent (25%)
shareholder if the amount of Company Stock which he owns (whether outright or as
a Plan Participant), together with the amount of Company Stock owned by his
spouse, children, grandchildren and parents (whether outright or as Plan
Participants), exceeds twenty-five percent (25%) of any class of outstanding
Company Stock or twenty-five percent (25%) of the total value of any class of
outstanding Company Stock. For purpose of this Paragraph (5), the "nonallocation
period" means the period beginning on the date of the sale and ending on the
later of (i) the date which is ten (10) years after the date of sale, or (ii)
the date of the Plan allocation attributable to the final payment of the
Securities Acquisition Loan.
(6) If, due to forfeitures, reasonable error in estimating
compensation, or other limited facts and circumstances as determined by the
Commissioner, the Account balances or the Annual Additions to a Participant's
Accounts would exceed the limitation described in Paragraphs (1), (2) or (3) of
this Subsection, the aggregate of the Annual Additions to this Plan and the
Annual Additions to any other plan described in Paragraphs (2) or (3) shall be
reduced until the applicable limitation is satisfied.
(7) The reduction shall be treated the same as Forfeitures and
shall be allocated in accordance with Section 11(a)(2) of the Plan to the
Accounts of Participants who are not affected by this limitation.
(8) If any amount cannot be reallocated under the foregoing
provision, such amount shall be deposited in a suspense account and allocated to
the maximum extent possible under Section 11(a)(2) of the Plan in succeeding
years, provided that (i) no Employer Contributions are made until Section 415 of
the Code will permit their allocation, (ii) no investment gains or losses are
allocated to such suspense account, and (iii) the amounts in such suspense
account are allocated at the earliest possible date.
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<PAGE>
SECTION 12. PLAN BENEFIT AT DEATH, DISABILITY OR RETIREMENT.
-----------------------------------------------
Participation in the allocation of Employer Contributions and Forfeitures
terminates as of the end of the Plan Year coinciding with or following a
Participant's death, Disability or Retirement. A Participant's Plan Benefit
upon death, Disability or Retirement will be the total of his Account balances
as of the coinciding or following Anniversary Date.
A Participant will be one hundred percent (100%) vested upon death or
attainment of any of the following Retirement dates:
(a) Normal Retirement.
-----------------
A Participant's Normal Retirement Date is the date he attains
age sixty-five (65).
(b) Deferred Retirement.
-------------------
If a Participant continues in the service of his Employer
beyond his Normal Retirement Date, he shall continue to participate in the Plan
during any period of employment following his Normal Retirement Date.
(c) Disability Retirement.
---------------------
If the Committee determines in a uniform, nondiscriminatory
manner, on the basis of a doctor's certificate, that a Participant terminated
his employment because of a total and permanent disability, he will be given a
Disability Retirement without regard to his age or length of service, and his
termination benefit shall be one hundred percent (100%) of the amounts in all of
his Accounts. "Total and permanent disability" shall mean the mental or physical
inability of the Participant to perform his normal job, as evidenced by the
certificate of a medical examiner certifying such inability and certifying that
such condition is likely to be permanent. The Committee shall have the right to
have a Participant examined by a qualified physician of its own choosing. In the
event of a conflict of opinion between the Participant's physician and the
Committee's physician, the decision of the Committee's physician shall be
conclusive and binding on all parties.
-33-
<PAGE>
Any amount credited to a Participant's Accounts with respect
to the Employer's Contribution for the Plan Year in which he dies, becomes
Disabled or attains any of the above Retirement dates shall also be completely
vested at the time of such contribution.
SECTION 13. OTHER TERMINATION OF SERVICE AND VESTING.
----------------------------------------
(a) Vesting Schedule.
----------------
If a Participant has a Break in Service or his employment is
terminated for any reason other than as described in Section 12, the vesting of
his Plan Benefit will be based upon his Years of Service, as defined in Section
2, in accordance with the following vesting schedule:
<TABLE>
<CAPTION>
Years of Service Percentage of Accounts Vested
---------------- -----------------------------
<S> <C>
Less than One Year 0
One Year 20
Two Years 40
Three Years 60
Four Years 80
Five or more Years 100
</TABLE>
(b) Vesting Upon Reemployment.
-------------------------
If a Participant is reemployed by the Company following a Break in
Service, such Participant's Accounts shall be vested as follows:
(1) Vesting of Prior Account Balances.
---------------------------------
If a Participant has had five consecutive one-year Breaks in
Service, Years of Service after such five-year period will not be taken into
account for purposes of determining a Participant's vested interest in his
prebreak Account balances, and new Accounts will be established to record his
interest in the plan for his service after such five-year period.
-34-
<PAGE>
(2) Vesting of Subsequent Account Balances.
--------------------------------------
(A) In the case of a Participant who, at the time of a
Break in Service, does not have any vested right under Paragraph (a) above,
Years of Service before such Break in Service shall not thereafter be taken into
account for purposes of determining a Participant's vested interest in his
postbreak Account balances if the number of consecutive one-year Breaks in
Service equals or exceeds five years.
(B) If a Participant had any degree of vested interest at
the time of his Break in Service, he shall participate retroactively to his
Employment Commencement Date for purposes of determining a Participant's vested
interest in his postbreak Account balances. Upon resuming participation, such
Participant's Years of Service shall include all Years of Service prior to his
Break in Service.
(c) Forfeitures.
-----------
Any remainder of a terminating Participant's Account which is not
vested in accordance with the foregoing provisions shall be treated as a
Forfeiture. Forfeitures shall be first charged against a Participant's Other
Investments Account, with any balance charged next against Company Stock which
was not acquired with the proceeds of a Securities Acquisition Loan then charged
against Employer Securities acquired with a Securities Acquisition Loan. The
disposition of such Forfeitures shall be as follows:
(1) If a Participant has incurred five consecutive one-year
Breaks in Service and has not received a "cash-out distribution" (as defined
below), the nonvested balance of his Accounts shall be allocated as a Forfeiture
as soon as possible after the close of the Plan Year in which he incurs a five-
year Break in Service.
(2) If a Participant who is not 100% vested receives a
distribution of his Plan Benefit, which is not a "cash-out distribution" (as
defined below), prior to the occurrence of a five-year Break in Service, and he
returns to work for the Employer, the portion of his Accounts which was not
vested shall be maintained separately (from any additional contributions to this
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Plan) until he becomes 100% vested. His vested and nonforfeitable percentage in
such separate Accounts upon his subsequent termination of Service shall be equal
to:
X - Y
--------
100% - Y
For purposes of applying this formula, X is the vested
percentage at the time of the subsequent termination, and Y is the vested
percentage at the time of the prior termination. Separate Accounts shall share
in the allocation of Trust income or loss on every Anniversary Date prior to
Forfeiture, but such accounts shall not share in allocation of Trust income or
loss on the Anniversary Date on which they are forfeited.
(3) If a Participant receives a "cash-out distribution" (as
defined below), the nonvested balance of his Accounts shall be allocated as a
Forfeiture as soon as possible after the close of the Plan Year in which he
receives his "cash-out distribution."
(d) Cash-Out Distribution.
---------------------
Effective for Plan Years beginning on or after January 1, 1993, if
a partially vested Participant receives a cash-out distribution, the cash-out
distribution will result in a forfeiture of the nonvested portion of the
Participant's Accounts. A "cash-out distribution" is a distribution of the
vested portion of a Participant's Accounts that is made on account of
termination of participation in the Plan, provided that such distribution is
made not later than the close of the second Plan Year following the Plan Year in
which such termination occurred.
If any former Participant shall be reemployed by the Employer
before five (5) consecutive one-year Breaks in Service, and such former
Participant had received a cash-out distribution prior to his reemployment, the
forfeited portion of his Accounts shall be reinstated only if he repays the full
amount distributed to him. Such repayment must be made by the former Participant
before he incurs five (5) consecutive one-year Breaks in Service following the
date of distribution. In the event the former Participant does repay the full
amount distributed to him, the undistributed portion of the Participant's
Accounts must be restored in full, unadjusted by any gains or losses occurring
subsequent to the Anniversary Date preceding his termination.
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<PAGE>
Restoration of a Participant's Accounts shall include restoration of all Code
Section 411(d)(6) protected benefits with respect to such restored amounts.
If the Participant repays the amount distributed to him within the
required time period, the Committee shall restore the forfeited portion of his
Accounts as of the Anniversary Date coinciding with or following the repayment.
Such amount shall be restored, to the extent necessary, in the following manner:
(A) first from current-year Forfeitures;
(B) second from current-year Trust earnings; and
(C) third from current-year Contributions.
To the extent the amounts described in clauses (A), (B) and (C) are
insufficient to enable the Committee to make the required restoration, the
Employer must contribute the additional amount necessary to enable the Committee
to make the required restoration.
A Participant who is zero percent (0%) vested shall be deemed to
have received a cash-out distribution as of the last day of the Plan Year in
which he receives an allocation of Contributions or Forfeitures. For purposes of
applying the restoration provisions of this Paragraph, the Committee will treat
a zero percent (0%) vested Participant as repaying his cash-out distribution on
the first day of his reemployment with the Employer.
SECTION 14. DISTRIBUTION OF PLAN BENEFIT.
----------------------------
(a) Death, Disability or Retirement.
-------------------------------
In the event of death, Disability or Retirement, a Participant's
Plan Benefit shall be distributed as soon as administratively possible but not
later than one year after the close of the Plan Year in which such event occurs:
(1) Company Stock Account and Other Investments Account.
---------------------------------------------------
Distribution of the Company Stock Account and Other
Investments Account exceeding $3,500 will be made in substantially equal annual
installments over a period of five years; provided, however, that if the value
of such Accounts, together with the value of
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the Money Purchase Pension Account, exceeds five hundred thousand dollars
($500,000), the term of the distribution shall be five years, plus one year (but
not more than five (5) additional years) for each one hundred thousand dollars
($100,000) (or fraction thereof) by which the value of such Accounts exceeds
five hundred thousand dollars ($500,000).
(2) Small Amounts.
-------------
Notwithstanding the foregoing, if the total value of all of a
Participant's Company Stock Account and Other Investments Account is $3,500 or
less, distribution shall be made in a lump sum as soon as possible after the
close of the Plan Year in which he terminates employment.
(3) Profit Sharing Account.
----------------------
Distribution of a Participant's Profit Sharing Account will
be made in a lump sum.
(4) Money Purchase Pension Account.
------------------------------
Distribution of a Participant's Money Purchase Pension
Account will be made in joint and survivor or preretirement survivor annuities
as specified in Section 14(j) of the Plan. If the Participant (and spouse if
applicable) elects not to receive such annuities, his Money Purchase Pension
Account will be distributed in a lump sum.
(b) Other Termination of Participation.
----------------------------------
In the event a Participant terminates employment for reasons other
than death, Disability or Retirement, his vested Plan Benefit will be
distributed as follows:
(1) Company Stock Account and Other Investments Account.
---------------------------------------------------
In the event a Participant ceases to participate for reasons
other than death, Disability or Retirement, distribution of his Company Stock
Account and Other Investments Account exceeding $3,500 shall commence as soon as
possible after the Participant terminates employment. Distribution of such
Accounts will be made in substantially equal annual installments over a period
of five years; provided, however, that of the value of such Accounts,
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<PAGE>
together with the value of the Money Purchase Pension Account, exceeds five
hundred thousand dollars ($500,000), the term of the distribution shall be five
years, plus one year (but not more than five (5) additional years) for each one
hundred thousand dollars ($100,000) (or fraction thereof) by which the value of
such Accounts exceeds five hundred thousand dollars ($500,000).
(2) Small Amounts.
-------------
Notwithstanding the foregoing, if the total value of all of a
Participant's Company Stock Account and Other Investments Account is $3,500 or
less, distribution shall be made in a lump sum as soon as possible after the
Participant terminates employment.
Notwithstanding the foregoing provisions of this Section
14(b), the Plan shall not be required to distribute any Employer Securities
acquired with the proceeds of a Securities Acquisition Loan until the close of
the Plan Year in which such Securities Acquisition Loan has been repaid in full.
Notwithstanding the foregoing provisions of this Section
14(b), the Plan shall not be required to distribute any Employer Securities to
the extent that the Participant or Beneficiary has elected to have his Company
Stock Account diversified under the provisions of Section 17(a) hereof.
(3) Profit Sharing Account.
----------------------
Distribution of a Participant's Profit Sharing Account will
be made as soon as possible after he separates from service in a lump sum.
(4) Money Purchase Pension Account.
------------------------------
Distribution of a Participant's Money Purchase Pension
Account will be made in as soon as possible after he separates from service in
joint and survivor or preretirement survivor annuities as specified in Section
14(j) of the Plan. If the Participant (and spouse if applicable) elects not to
receive such annuities, his Money Purchase Pension Account will be distributed
in a lump sum.
-39-
<PAGE>
(c) Death Prior to Distribution.
---------------------------
If a Participant who has elected to defer his distribution dies
before his distribution has commenced, such Participant's entire Plan Benefit
shall be distributed within five (5) years of the date of his death; provided,
however, that if any portion of a Participant's Plan Benefit is payable to or
for the benefit of an individual who is his designated Beneficiary, such portion
may, at the election of such Beneficiary, be distributed over a period not
exceeding the life expectancy of such Beneficiary, provided such distributions
begin not later than one year after the death of the Participant; and provided
further that if the designated Beneficiary is the spouse of the Participant, at
the election of the spouse, such distribution (over a period not exceeding the
life expectancy of said spouse) need not commence until the date the Participant
would have attained age 70-1/2.
(d) Valuation Date.
--------------
All Accounts, including the Company Stock Account, shall be valued
as of the Valuation Date. The Company or the Committee may require other
valuations from time to time as necessary. Any valuation of Company Stock
contributed to or purchased by the Plan shall be determined by an Independent
Appraiser.
(e) Limitations.
-----------
If a present value of a Participant's Plan Benefit (determined in
accordance with Section 411(a)(11) (B) of the Code) exceeds $3,500, any
distribution prior to the later of age sixty-two (62) or his Normal Retirement
Date may be made only with the written consent of the Participant.
Failure of a Participant to consent to an immediate distribution is
an election to defer benefits to the later of age sixty-two (62) or the Normal
Retirement Date of the Participant.
(f) Commencement of Benefits.
------------------------
At the request of a Participant, the Committee may direct that the
distribution be deferred and commence not later than April 1 of the calendar
year following the calendar year in which such Participant attains age 70-1/2,
unless such Participant has attained age 70-1/2 prior to January 1, 1988. If a
Participant has attained age 70-1/2 prior to
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<PAGE>
January 1, 1988, distributions must begin not later than April 1 of the calendar
year following the later of (i) the calendar year in which the Participant
attains age 70-1/2 or (ii) the calendar year in which the Participant retires
unless he was a "five percent (5%) owner" at any time during the Plan Year (or
calendar year) in which the Participant attained age 66-1/2 or any subsequent
Plan Year. If a Participant dies after the distribution of his Plan Benefit has
commenced, the remaining portion of his Plan Benefit shall be distributed at
least as rapidly as under the method being used at the date of his death.
Notwithstanding anything in this Section 14 to the contrary,
payment of the Plan Benefit will commence at the Participant's request no later
than the sixtieth (60th) day after the close of the Plan Year (or if later after
the Plan Benefit is determined) in which the latest of the following events
occur:
(1) The attainment by the Participant of age sixty-five (65);
(2) The Participant's actual retirement from the employ of the
Company;
(3) The tenth (10th) anniversary of the year in which the
Participant commenced participation in the Plan.
(g) Undistributed Accounts.
----------------------
Any part of a Participant's Company Stock Account and Other
Investments Account which is retained in the Trust after the Anniversary Date
coinciding with or immediately following the date on which he terminates
employment will continue to be treated as a Company Stock Account or as an Other
Investments Account, as the case may be. However, except in the case of
reemployment (as provided for in Section 4), none of his Accounts will be
credited with any further Employer Contributions or Forfeitures.
Any part of a Participant's Profit Sharing Account and/or Money
Purchase Pension Account which is retained in the Trust after the Anniversary
Date coinciding with or immediately following the date on which he terminates
employment shall, as soon as possible after such Anniversary Date, be physically
segregated and invested in a certificate of deposit by any bank or savings and
loan association designated, in its sole discretion, by the Committee. However,
except in the case of reemployment (as provided for in Section 4), none of his
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<PAGE>
Accounts will be credited with any further Employer Contributions, Forfeitures,
dividends on Company Stock or gain on the sale of unallocated shares of Company
Stock.
(h) Optional Direct Transfer of Eligible Rollover Distributions.
-----------------------------------------------------------
For all distributions made on or after January 1, 1993, if a
Participant or Beneficiary who is eligible to receive an Eligible Rollover
Distribution elects to have part or all of such distribution paid directly to an
Eligible Retirement Plan, such distribution shall be made in the form of a
direct trustee-to-trustee transfer to the Eligible Retirement Plan specified by
such Participant or Beneficiary.
(i) Lien on Distribution.
--------------------
Notwithstanding anything to the contrary herein, if, at the time of
distribution, a Participant is indebted to the Trust, or has retained in his
possession money or property which properly belongs to the Trust, the Trust
shall have a lien on such distribution pending the resolution of such ownership
rights. The Trustee may exercise such lien either by directing the Company
secretary to withhold any stock transfer of title, or by withholding
distribution of any stock or the value of any stock or other assets, pending
resolution of such ownership rights.
(j) Joint and Survivor Annuity Requirements.
---------------------------------------
(1) Definitions.
-----------
(A) Qualified Joint and Survivor Annuity.
------------------------------------
A "Qualified Joint and Survivor Annuity" means an
annuity (i) for the life of the Participant with a survivor annuity for the life
of the spouse which is not less than fifty percent (50%) of (and is not greater
than one hundred percent (100%) of) the amount of the annuity which is payable
during the joint lives of the Participant and the spouse, and (ii) which is the
actuarial equivalent of a single annuity for the life of the Participant.
(B) Qualified Preretirement Survivor Annuity.
----------------------------------------
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<PAGE>
A "Qualified Preretirement Survivor Annuity" means an
annuity for the life of the surviving spouse the actuarial equivalent of which
is not less than fifty percent (50%) of the portion of the account balance of
the Participant (as of the date of death) to which the Participant had a
nonforfeitable right. Any security interest held by the Plan by reason of a loan
outstanding to the Participant shall be taken into account in determining the
amount of the Qualified Preretirement Survivor Annuity.
(C) Applicable Election Period.
--------------------------
The "Applicable Election Period" means (i) in the case of an
election to waive the Qualified Joint and Survivor Annuity form of distribution,
the ninety (90) day period ending on the Annuity Starting Date, or (ii) in the
case of an election to waive the Qualified Preretirement Survivor Annuity form
of distribution, the period which begins on the first day of the Plan Year in
which the Participant attains age thirty-five (35) or separates from service
(whichever is earlier), and ends on the date of the Participant's death.
(D) Annuity Starting Date.
---------------------
The "Annuity Starting Date" means (i) the first day of the
first period for which an amount is payable as an annuity, including the case
where the benefit is to be received by reason of disability; provided, however,
that such disability benefit must not be an auxiliary benefit; or (ii) in the
case of a benefit not payable in the form of an annuity, the first day on which
all events have occurred which entitled the Participant to such benefit.
(2) Distribution Requirement.
------------------------
This Plan is a transferee of funds from a money purchase pension
plan which provided an election to receive payment in the form of a life
annuity. The portion of this Plan attributable to such transferred assets
(including income) shall be accounted for separately and shall be distributable
in the form of a Qualified Joint and Survivor Annuity in the case of a
Participant who does not die before the Annuity Starting Date, and shall be
distributable in the form of a Qualified Preretirement Survivor Annuity in the
case of a vested Participant who dies before the Annuity Starting Date.
Notwithstanding the foregoing, survivor annuities need not be
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<PAGE>
provided if the Participant and his spouse have not been married throughout the
one-year period ending on the Participant's Annuity Starting Date or have not
been married throughout the one-year period ending on or before the date of the
Participant's death.
(3) Election Requirement.
--------------------
Each Participant who is eligible to receive a Qualified
Joint and Survivor Annuity or a Qualified Preretirement Survivor Annuity shall
be entitled to elect to waive distribution in the form of such annuity (and to
subsequently revoke such election of waiver) at any time during the Applicable
Election Period, provided that (i) the spouse of the Participant consents in
writing to such election, (ii) such election designates a beneficiary (or form
of benefit) which may not be changed without spousal consent (or the consent of
the spouse expressly permits designation by the Participant without any
requirement of further consent by the spouse), and (iii) the spouse's consent
acknowledges the effect of such election and is witnessed by a Plan
representative or a notary public. If part or all of a Participant's Plan
Benefit is to be used as security for a loan, such spousal consent (in writing)
shall also be required during the ninety (90) day period ending on the date on
which the loan is to be so secured. Notwithstanding the foregoing, the spousal
consents described above need not be obtained if it is established to the
satisfaction of a Plan representative that there is no spouse or that the spouse
cannot be located.
(4) Written Explanation Requirement.
-------------------------------
(A) Each Participant who is eligible to receive a Qualified
Joint and Survivor Annuity or a Qualified Preretirement Survivor Annuity shall
be provided, within a reasonable period of time before the Annuity Starting
Date, with a written explanation of the following information:
(i) the terms and conditions of such annuity;
(ii) the Participant's right to elect to waive such
form of distribution, and an explanation of the effect of such waiver,
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<PAGE>
(iii) the right of a spouse to consent or to
withhold consent to such waiver, and
(iv) the right to revoke an election of waiver and an
explanation of the effects of such revocation.
(B) The written explanation concerning the Qualified
Preretirement Survivor Annuity must be given to each Participant within
whichever of the following periods ends last:
(i) the period beginning on the first day of the
Plan Year in which a Participant reaches age thirty-two (32) and ending with the
close of the Plan Year preceding the Plan Year in which the Participant attains
age thirty-five (35);
(ii) a reasonable period after an Employee becomes a
Participant;
(iii) a reasonable period after the Qualified
Joint and Survivor Annuity and the Qualified Preretirement Survivor Annuity
provisions applicable to a Participant are no longer subsidized by the Plan;
(iv) a reasonable period after the Qualified Joint
and Survivor Annuity and the Qualified Preretirement Survivor Annuity provisions
become applicable to a Participant; or
(v) a reasonable period after separation from
service when a Participant separates before age thirty-five (35).
In addition, if an Employee becomes a Participant after age
thirty-two (32), the written explanation must be given to him by the end of the
three-year period beginning with the first day of the first Plan Year for which
the Employee is a Participant. If an Employee separates from service before age
thirty-two (32), the written explanation must be given to him within one (1)
year of separation.
-45-
<PAGE>
SECTION 15. HOW PLAN BENEFIT WILL BE DISTRIBUTED.
------------------------------------
(a) Form of Distribution
--------------------
Distribution of a Participant's Company Stock Account and Other
Investments Account may be made entirely in cash unless a Participant elects to
receive his distribution in the form of Company Stock, in which case his Plan
Benefit will be distributed in the form of whole shares of Company Stock with
the value of any fractional shares paid in cash.
The Trustee will make distributions from the Trust only on
instructions from the Committee.
(b) Beneficiaries.
-------------
(1) Designation.
-----------
Distribution will be made to the Participant if living, and if
not, to his Beneficiary. A Participant may designate his Beneficiary upon
becoming a Participant and may change such designation at any time by filing a
written designation with the Committee. Notwithstanding anything in this Section
15 to the contrary, if a Participant is married, a Participant shall not
designate anyone other than his spouse as primary beneficiary of his Plan
Benefit unless such spouse consents in writing to such designation, such spouse
acknowledges the effect of such election, and such writing is witnessed by a
Plan representative or notary public and filed with the Plan Committee.
(2) Absence of Valid Designation.
----------------------------
If, upon the death of a Participant, former Participant or
Beneficiary, there is no valid designation of a Beneficiary on file with the
Company or the benefit is not claimed by any Beneficiary within a reasonable
period of time after the death of the Participant, the benefit shall be paid to
the Participant's surviving spouse. If the Participant in not married or if his
spouse does not survive the Participant, the benefit shall be paid to the
Participant's estate.
-46-
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SECTION 16. RIGHTS AND OPTIONS ON DISTRIBUTED SHARES OF COMPANY STOCK.
---------------------------------------------------------
(a) Right of First Refusal.
----------------------
If the distribution of the Plan Benefit is made in the form of shares
of Company Stock, such shares of Company Stock distributed by the Trustee may,
as determined by the Company or the Committee, be subject to a "right of first
refusal," until such time as such shares are publicly traded. Such a "right"
shall provide that prior to any subsequent transfer, the shares must first be
offered by written offer, to the Trust, and then, if refused by the Trust, to
the Company. In the event that the proposed transfer constitutes a gift or
other such transfer at less than fair market value, the price per share shall be
determined by an Independent Appraiser (appointed by the Board of Directors) as
of the Anniversary Date coinciding with or immediately preceding the date of
exercise, except in the case of a transfer to a Disqualified Person. The term
"Disqualified Person" shall mean a person who is a fiduciary with respect to the
Plan; a person providing services to the Plan; an Employer any of whose
employees are covered by the Plan; an employee organization any of whose members
are covered by the Plan; an owner, directly or indirectly, of fifty percent
(50%) or more of (i) the total combined voting power of all classes of voting
stock or of the total value of all classes of the stock of a Corporation, (ii)
the capital interest or the profits interest of a partnership, or (iii) the
beneficial interest of a trust or unincorporated enterprise, which is an
Employer or an employee organization any of whose employees or members are
covered by the Plan; a member of the family of any Disqualified Person; a
corporation, partnership, trust or estate of which (or in which) fifty percent
(50%) or more of (i) the combined voting power of all classes of stock entitled
to vote or the total value of all classes of stock of such corporation, (ii) the
capital interest or profits interest of such partnership, or (iii) the
beneficial interest of such trust or estate is owned, directly or indirectly, or
held by Disqualified Persons; an employee, officer, director (or any individual
having powers, similar powers and responsibilities), a ten percent (10%) or more
shareholder, or a highly compensated employee (earning ten percent (10%) or more
of the yearly wages of an employer) of a Disqualified Person; or a ten percent
(10%) or more (in capital or profits) partner or joint venturer of a
Disqualified Person.
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<PAGE>
In the event of a proposed purchase by a prospective bona fide
purchaser, the offer to the Trust and the Company shall be at the greater of
fair market value, as determined by an Independent Appraiser as of the
Anniversary Date coinciding with or immediately preceding the date of exercise
(except in the case of a purchase by a Disqualified Person), or at the price
offered by the prospective bona fide purchaser. In the case of a purchase by or
transfer to a Disqualified Person, fair market value shall be determined as of
the actual date of the transaction. Valuations must be made in good faith and
based on all relevant factors for determining the fair market value of
securities. The Trust may accept the offer at any time during a period not
exceeding fourteen (14) days after receipt of such offer. In the event the
Trust does not accept such offer, the Company may accept such offer at any time
during said fourteen (14) day period.
In the case of a purchase from a Disqualified Person, all purchases of
Company Stock shall be made at prices which, in the judgment of an Independent
Appraiser, do not exceed the fair market value of such shares as of the date of
the transaction.
(b) "Put" Option.
------------
If the distribution of the Plan Benefit is made in the form of shares
of Company Stock, then the "Qualified Holder" (as define below) of such stock
shall be granted, at the time that such shares are distributed to him, an option
to "put" the shares to the company; provided, however, that all such shares are
so put; and provided, further, that the Trust shall have the option to assume
the rights and obligations of the Company at the time the "put" option is
exercised. The term "Qualified Holder" shall mean the Participant or
Beneficiary receiving the distribution of such shares, any other party to whom
the shares are transferred by gift or by reason of death, and also any trustee
of an individual retirement account (as defined under Code Section 408) to which
all or any portion of the distributed shares is transferred pursuant to a tax-
free "rollover" transaction satisfying the requirements of Sections 402 and 408
of the Code. A "put" option shall provide that, for a period of sixty (60) days
after such shares are distributed to a Qualified Bolder (as defined above) (and,
if the "put" is not exercised within such sixty (60) day period, for an
additional period of sixty (60) days in the following Plan Year), he would have
the right to have the Company purchase such shares at their fair market value,
as defined hereinabove in subsection (a). Such "put" option shall be exercised
by notifying the Company in writing.
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<PAGE>
In the case of a lump sum distribution of Company Stock, the terms of
payment for the purchase of such shares of stock shall be as set forth in the
"put" and may be paid either in a lump sum or in up to five (5) equal annual
installments (with interest on the unpaid principal balance at a reasonable rate
of interest), as determined by the Committee. Payment for the purchase of such
shares must commence within thirty (30) days after the "put" is exercised. The
period during which the put option is exercisable does not include any time
during which the distributee is unable to exercise it because the party bound by
the put option is prohibited from honoring it by applicable federal or state
law. If payment is made in installments, adequate security and a reasonable
rate of interest must be provided. In the case of an installment distribution,
payment must be made within thirty (30) days after the put option is exercised
with respect to any installment distribution of Company Stock.
In the case of a purchase from a Disqualified Person, all purchases of
Company Stock shall be made at prices which, in the judgment of an Independent
Appraiser, do not exceed the fair market value of such shares as of the date of
the transaction.
The requirements of this Subsection 16(b) shall not apply to the
distribution of any portion of a Participant's Plan Benefit which has been
diversified, distributed or transferred to another plan pursuant to the
provisions of Subsection 17(a) hereof.
(c) Other Options.
-------------
Except as otherwise provided in this Section 16, no security acquired
with the proceeds of a Securities Acquisition Loan may be subject to a put,
call, buy-sell or similar arrangement while held by or when distributed from the
Plan.
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<PAGE>
SECTION 17. SPECIAL PROVISIONS.
------------------
(a) Diversification of Investments.
------------------------------
Within ninety (90) days after the close of each Plan Year in the
Qualified Election Period, each Qualified Participant shall be permitted to
direct the Plan an to the investment of not more than twenty-five percent (25%)
of the value of his Company Stock Account to the extent such value exceeds the
amount to which a prior election, if any, applies. In the case of the sixth
(6th) year of the Qualified Election Period, the preceding sentence shall be
applied by substituting "fifty percent (50%)" for "twenty-five percent (25%)."
The Participant's direction shall be completed no later than ninety (90) days
after the close of the ninety (90) day election period.
The Plan Committee shall offer at least three investment options (not
inconsistent with regulations prescribed by the Internal Revenue Service) to
each Participant who makes an election under this Subsection.
In lieu of offering such investment options, the Plan Committee may
direct that all amounts subject to Participant elections under this Subsection
be distributed to Qualified Participants. All such distributions shall be
distributed within ninety (90) days after the close of the ninety (90) day
election period and shall be made in cash.
In lieu of receiving a distribution under this Subsection, a Qualified
Participant may direct the Plan to transfer his distribution to another
qualified plan of the Company which accepts such transfers, provided that such
plan permits employee directed investments and does not invest in Employer
Securities to a substantial degree. Such transfer shall be made within ninety
(90) days after the close of the ninety (90) day election period.
(b) Cash Dividends.
--------------
Cash dividends, if any, on shares of Company Stock allocated to
Participants' Accounts may be accumulated in the Trust or may be paid to
Participants currently as determined in the sole discretion of the Committee,
exercised in a uniform and nondiscriminatory manner. Provided that the Plan is
primarily invested in Employer Securities, it is intended that the Company shall
be allowed a deduction with respect to any dividends paid on allocated shares of
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Company Stock of any class held by the Plan on the record date to the extent
such dividends are paid in cash directly to the Participants, or their
Beneficiaries, or are paid to the Plan and are distributed from the Plan to the
Participants or their Beneficiaries not later than ninety (90) days after the
close of the Plan Year in which paid; provided, however, that the Company shall
not be required to pay or distribute say dividends with respect to the nonvested
portion of the Company Stock Account of a Participant who has terminated
employment prior to the date such dividends are paid directly to Participants,
or are distributed from the Plan to the Participants provided that the Plan is
primarily invested in Employer Securities, it is also intended that the Company
shall be allowed a deduction for any dividends paid on shares of Employer
Securities (whether or not allocated) and used to make payments on a Securities
Acquisition Loan, provided that in the case of dividends paid on allocated
shares, Employer Securities in an amount equal to such dividends are allocated
to such Participants for the year in which such dividends would otherwise have
been allocated to such Participants. The Company shall be allowed a deduction
for dividends paid only in the taxable year of the Company in which the dividend
is either paid to a Participant or Beneficiary or held to make payments on a
Securities Acquisition Loan.
(c) Loans.
-----
A Participant may apply to the Committee for a loan from the Trust, to
be secured by his current vested interest in his Money Purchase Pension and
Profit Sharing Accounts under the Plan. Any such loan will be treated as a loan
from the Participant's Accounts and will be repaid with interest. Such loan
will not be considered a taxable distribution if the aggregate amount of such
loan (together with the aggregate amount of any other loans from any other Plans
maintained by the Employer) is $10, 000 or less (for loans granted or renewed
before October 18, 1989), or (for loans granted or renewed after October 18,
1989) if it is the lesser of (i) fifty percent (50%) of his current vested
interest, or (ii) $50,000, reduced by the excess, if any, of the highest
outstanding balance of any loan to the Participant during the one-year period
ending on the day before the new loan is to be made, over the outstanding
balance of any loan still outstanding as of the date the new loan is to be made.
The Committee, in its sole discretion, exercised in a uniform and
nondiscriminatory manner, shall determine whether the Trust should grant such a
loan. Any loan made hereunder by the Trust shall provide for substantially
level
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<PAGE>
amortization, with payments not less frequent than quarterly. Repayment
shall not extend beyond the date of the Participant's Normal Retirement Date,
nor shall the loan be for a period exceeding five (5) year, except in the case
of a loan made for the purpose of acquiring any dwelling unit which within a
reasonable time is to be used as the principal residence of the Participant.
Each loan shall be evidenced by the Participant's promissory note bearing
interest at a rate comparable to the rate currently being charged by
institutional lenders in the area of the Company's principal place of business
for other loans of this type. If, upon termination of employment, for any
reason, the Participant owes money to the Trust, or if the Participant defaults
in the repayment of a loan from the Trust, the Committee may deduct the loan
amount and any unpaid interest thereon from the distribution. In the event the
amount of any such distribution is not sufficient to repay such amount, such
Participant shall continue to be liable for any balance still due from him.
Notwithstanding the foregoing, for Plan loans granted or renewed on or
after October 18, 1989, the following provisions will also apply:
(1) Participant loans will be available on a
nondiscriminatory basis to all Participants.
(2) The borrowing Participant shall apply for such a loan on
forms supplied by the Company. Applications shall be made to the Committee, who
is the administrator of the loan program.
(3) Participant loans shall be limited to and secured by no more
than fifty percent (50%) of the Participant's vested interest in his Plan
Benefit. If the Participant's vested interest in his Plan Benefit exceeds
$100,000, the maximum loan amount will be $50,000.
Notwithstanding the foregoing, if a Participant's loan is secured
by a Plan Benefit that is distributable in the form of a Qualified Preretirement
Survivor Annuity or a Qualified Joint and Survivor Annuity, the consent of the
Participant's spouse to use the Plan Benefit as security must be obtained.
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<PAGE>
SECTION 18. ADMINISTRATION.
--------------
(a) Named Fiduciaries for Administration of Plan and for Investment and
-------------------------------------------------------------------
Control of Plan Assets.
----------------------
(1) Board of Directors.
------------------
The Board of Directors shall have the following duties and
responsibilities in connection with the administration of the Plan:
(A) Making decisions with respect to amending or terminating the
Plan.
(B) Making decisions with respect to the selection, retention or
removal of the Trustee and the Committee.
(C) Periodically reviewing the performance of the Trustee, the
members of the Committee, persons to whom duties have been allocated or
delegated and any advisers appointed pursuant to paragraph (f)(l) below.
(D) Determining the form and amount of Employer Contributions.
The Board of Directors may by written resolution allocate its duties
and responsibilities to one or more of its members or delegate such duties and
responsibilities to any other persons; provided, however, that any such
allocation or delegation shall be terminable upon such notice as the Board of
Directors deems reasonable and prudent under the circumstances.
(2) Plan Committee.
--------------
(A) General.
-------
The Company shall administer the Plan and is designated as
the "Plan Administrator" within the meaning of Section 3(16) of ERISA and
Section 414(g) of the Code. The Committee and the Company shall each be a "named
fiduciary" within the meaning of Section 402 of ERISA, but each party's role as
a named fiduciary shall be limited solely to the exercise of its own authority
and discretion, as defined under this Plan, to control and manage the
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<PAGE>
operation and administration of this Plan. A named fiduciary may designate other
persons who are not named fiduciaries to carry out its fiduciary duties
hereunder, and any such person shall become a fiduciary under the Plan with
respect to such delegated responsibilities. The members of the Committee shall
be comprised of seven (7) persons who shall be appointed by the Board of
Directors and who shall serve, without compensation, until such time as they
resign, die or become incapable of exercising their duties or are removed by the
Board of Directors. All members of the Committee are designated as agents of the
Plan for purposes of service of legal process. The Company shall certify to the
Trustee the names and specimen signatures of the members of the Committee. Any
member may resign at any time by submitting an appropriate written instrument to
the Company, and while any vacancy exists, the remaining members of the
Committee may perform any act which the Committee is authorized to perform. All
decisions required to be made by the Committee involving the interpretation,
application and administration of the Plan shall be resolved by action of the
Committee either with a meeting or in writing without a meeting.
(B) Duties and Responsibilities.
---------------------------
The Committee shall have the following duties and
responsibilities in connection with the administration of the Plan:
(i) Establishing and implementing a funding policy
as described in Paragraph (c) below.
(ii) Determining the eligibility of Employees for
participation in the Plan.
(iii) Determining the eligibility of Employees for
benefits provided by the Plan including such duties and responsibilities as are
necessary and appropriate under the Plan's claims procedures.
(iv) Making recommendations to the Board of
Directors with respect to amendment or termination of the Plan, including
recommendations with respect to contributions under the Plan.
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<PAGE>
(v) Assuring that bonding requirements imposed by
ERISA are satisfied.
(vi) Authorizing, allocating and reviewing
expenses incurred by the Plan.
(vii) Communicating with Participants and
other persons.
(viii) Reviewing periodically any allocation
or delegation of duties and responsibilities and any appointment of advisers.
(ix) Investing and controlling the Plan assets.
(x) Directing the Trustee with respect to voting
shares of Company Stock, in accordance with the provisions of Section 9.
The Committee may establish rules and regulations and may take
any other necessary or proper action to carry out its duties and
responsibilities. Notwithstanding the foregoing provisions, the Trustee shall
have the primary responsibility for the withholding of income taxes from Plan
distributions, for the payment of withheld income taxes on Plan distributions to
the Internal Revenue Service, and for notification to Participants of their
right to elect not to have income tax withheld from Plan distributions.
Compliance with record keeping and reporting requirements of ERISA shall be the
primary responsibility of the Company.
(C) Allocation and Delegation of Responsibilities.
---------------------------------------------
The Committee may, by written resolution, allocate its
administrative duties and responsibilities to one or more of its members or it
may delegate such duties and responsibilities to any other persons; provided,
however, that any such allocation or delegation shall be terminable upon such
notice as the Committee deems reasonable and prudent under the circumstances.
(b) Investment of Plan Assets.
-------------------------
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<PAGE>
The Plan assets shall be invested and controlled by the Committee;
provided, however, that the actual management of Trust investments, other than
Company Stock, may be delegated to the Trustee or may be delegated to one or
more investment managers appointed by the Committee. Any investment manager
appointed hereunder shall have the power to manage, acquire or dispose of assets
of the Plan and shall be either an investment adviser registered under the
Investment Advisers Act of 1940, or a bank, as defined in that Act, or an
insurance company qualified to perform such services under the laws of one or
more states. If an investment manager has been appointed, the Trustee shall
neither be liable for acts or omissions of such investment manager nor be under
any obligation to invest or otherwise manage any asset of the Trust fund, nor
shall the Committee be liable for any act or omission of the investment manager
in carrying out such responsibility. The custody of Plan assets shall at all
times be retained by the Trustee, unless they consist of insurance contracts or
policies issued and held by an insurance company authorized to conduct an
insurance business in a state. In addition to appointment of investment
managers, the Committee shall have the following duties and responsibilities:
(1) Periodically reviewing the investment of Plan assets and the
performance of the Trustee and any investment managers. With respect to the
Trustee, the Committee shall advise the Board of Directors of any matters which
might be relevant to the decision as to whether the services of the Trustee
should be retained. Based on its review, the Committee shall determine the
desirability of appointing or retaining investment managers.
(2) Determining an investment policy to be followed with respect to
the Plan assets and communicating this policy to the person or persons
responsible for investing the Plan assets.
The Committee may by written resolution, allocate its investment
duties and responsibilities to one or more of its members or delegate such
duties and responsibilities to any other persons; provided, however, that any
such allocation or delegation shall be terminable upon such notice as the
Committee deems reasonable and prudent under the circumstances.
(c) Funding Policy.
--------------
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<PAGE>
The Committee shall cause to be made at reasonable intervals an
analysis of the future cash requirements of the Plan for payment of benefits and
expenses, including in the analysis such information as may be appropriate to
design an investment policy to satisfy the requirements.
(d) Claims Procedures.
-----------------
Any person whose claim for benefits under the Plan has been denied in
whole or in part shall receive a written notice from the Committee setting forth
the specific reasons for such denial, specific references to the Plan provisions
on which the denial was based and an explanation of the procedure for review of
the denial. Such person, or his duly authorized representative, may appeal to
the Committee for a review of the denial by sending to the Committee a written
request for review within sixty (60) days after receiving notice of the denial.
The request for review shall set forth all grounds on which it is based,
together with supporting facts and evidence which the claimant deems pertinent,
and the Committee shall give the claimant the opportunity to review pertinent
documents in preparing the request. The Committee may require the claimant to
submit such additional facts, documents or other material as it deems necessary
or advisable in making its review. Within sixty (60) days after the receipt of
the request for review, the Committee shall communicate to the claimant in
writing its decision, and if the Committee confirms the denial, in whole or in
part, the communication shall set forth the reasons for the decision and
specific references to the Plan provisions on which the decision is based. Such
decisions of the Committee shall be final and conclusive upon all parties.
(e) Qualified Domestic Relations Orders.
-----------------------------------
(1) In the case of any Domestic Relations Order received by the Plan,
the Committee shall promptly notify the Participant and any other Alternate
Payee of the receipt of such order and of the Plan's procedures for determining
the qualified status of Domestic Relations Orders. Any Alternate Payee shall be
permitted to designate a representative for receipt of copies of notices that
are sent to the Alternate Payee with respect to such order. The amount that
would be payable to the Alternate Payee shall be segregated in a segregated
account as of the first day of the Plan Year during which the Domestic Relations
Order is received by the
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<PAGE>
Committee. Such segregated account shall continue to be treated as a Company
Stock Account and Other Investments Account, but will not be credited with any
further contributions or forfeitures. Such segregated account shall not require
a segregation of Trust Assets. If the order is determined to be not qualified
order within the eighteen (18) month period described below, the segregated
amount (including any interest or earnings thereon) shall continue to be treated
as a segregated account in the name of the Alternate Payee. If the Committee
determines that the order in not qualified, or if the Committee (or the
appropriate court) is not able to resolve the issue within the eighteen (18)
month period, the segregated amount (including any interest or earnings thereon)
shall be restored to the Participant. For purposes of this Paragraph, the
"eighteen (18) month period" shall mean the eighteen (18) month period beginning
with the date on which the first payment would be required to be made under the
Domestic Relations Order.
(2) In determining whether a Domestic Relations Order is qualified,
the Committee shall follow the procedure set forth in Section 18(d) with respect
to claims for Plan Benefits.
(3) A Domestic Relations Order will constitute a qualified Domestic
Relations Order only if such order (i) does not require the Plan to provide any
type or form of benefit (or any option) not otherwise provided under the Plan,
(ii) does not require the Plan to provide increased benefits, and (iii) does not
require the payment of benefits to an Alternate Payee which are required to be
paid to another Alternate Payee under another order previously determined to be
a qualified order. In addition, a Domestic Relations Order will constitute a
qualified order only if such order clearly specifies (i) the name and last known
mailing address of the Participant and of each Alternate Payee covered by the
order, (ii) the amount or the percentage of a Participant's Plan Benefit that is
to be paid to each Alternate Payee, or the manner in which such amount or
percentage is to be determined, (iii) the number of payments or the period to
which such order applies, and (iv) each plan to which such order applies.
(4) In the case of any payment to an Alternate Payee before a
Participant has separated from service, the Plan shall not be required to make
any payment to an Alternate Payee prior to the date the Participant attains (or
would have attained) the Earliest Retirement Age. For purposes of this
Paragraph, the term "Earliest Retirement Age" means the earliest of (i) the date
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<PAGE>
on which the Participant is entitled to a distribution under the Plan, or (ii)
the later of the date the Participant attains age fifty (50) or the earliest
date on which the Participant could begin receiving benefit if he separated from
service.
(f) General.
-------
(1) The Board of Directors, the Committee or any person to whom
duties and responsibilities have been allocated or delegated, may employ other
persons for advice in connection with their respective responsibilities,
including actuaries, plan consultants, investment advisers, attorneys and
accountants.
(2) Any person may serve in more than one capacity with respect
to the Plan.
(3) The Board of Directors, the Committee or any person to whom
duties and responsibilities have been allocated or delegated shall be
indemnified and held harmless by the Company from any expense or liability
hereunder unless due to or arising from fraud, dishonesty, gross negligence, or
misconduct of the Board of Directors, the Committee, or such person, as the case
may be.
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<PAGE>
SECTION 19. AMENDMENT AND TERMINATION.
-------------------------
(a) Amendment.
---------
To provide for contingencies which may require or make advisable the
clarification, modification or amendment of this Agreement, the Company reserves
the right to amend the Plan at any time and from time to time, in whole or in
part, including without limitation, retroactive amendments necessary or
advisable to qualify the Plan and Trust under the provisions of Sections 401(a)
and 4975(e)(7) of the Code or any successor or similar statute hereafter
enacted. However, no such amendment shall (1) cause any part of the assets of
the Plan and Trust to revert to or be recoverable by the Company or be used for
or diverted to purposes other than the exclusive benefit of Participants, former
Participants and Beneficiaries, (2) deprive any Participant, former Participant
or Beneficiary of any benefit already vested, except to the extent that such
amendment may be necessary to permit the Plan or the Trust to qualify or
continue to qualify as tax-exempt, (3) terminate the protections and rights
described in Section 16, (4) alter, change or modify the duties, powers or
liabilities of the Trustee hereunder without its written consent, or (5) with
respect to any benefit previously accrued, eliminate or reduce any early
retirement benefit or retirement type subsidy, or eliminate any optional form of
benefit.
(b) Changes in the Code.
-------------------
Any other provision of this Plan to the contrary notwithstanding, if
any amendment to the Code requires that a conforming plan amendment must be
adopted effective as of a stated effective date in order for this Plan to
continue to be a qualified plan, this Plan shall be operated in accordance with
the requirement of such amendment to that law until the date when a conforming
plan amendment is adopted, or the date when a clear and unambiguous
nonconforming plan amendment is adopted, whichever occurs first.
(c) Termination, Partial Termination or Complete Discontinuance of
--------------------------------------------------------------
Contributions.
- -------------
Although the Company has established the Plan with the bona fide
intention and expectation that it will be able to make contributions
indefinitely, nevertheless, the Company shall not be under any obligation or
liability to continue its contributions or to maintain the Plan for any given
length of time. The Company may in its sole discretion discontinue such
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<PAGE>
contributions or terminate the Plan in whole or in part in accordance with its
provisions at any time without any liability for such discontinuance or
termination. In the event of such termination, if the Plan is not replaced by a
comparable plan qualified under Section 401(a) of the Code, then the Accounts of
all Participants affected by the termination, partial termination or
discontinuance of contributions will become nonforfeitable. After termination
of the Plan, the Committee and the Trust will continue until the Plan benefit of
each Participant has been distributed. Plan Benefits may be distributed
promptly after they are computed or distribution may be deferred as provided in
Section 14 of the Plan, as the Committee may direct. Distributions made due to
termination of the Plan shall be in accordance with the modes of distribution
provided in the Plan.
(d) Determination by Internal Revenue Service.
-----------------------------------------
Notwithstanding any other provision of the Plan, if the Internal
Revenue Service shall fail or refuse to issue a favorable written determination
or ruling with respect to the continued qualification of the Plan and exemption
of the Trust from tax under Section 50l(a) of the Code, all Employer
Contributions under Section 401(a), together with any income received or accrued
thereon less any benefits or expenses paid shall, upon the written direction of
the Company, be deemed held by the Trustee under the Profit Sharing and/or Money
Purchase Pension Plan as they existed prior to the adoption of this Plan and
this Plan and the Trust shall terminate.
(e) Return of Employer's Contribution.
---------------------------------
Notwithstanding any other provision of the Plan, if a Contribution is
made due to mistake of fact, or if a Contribution is conditioned on its
deductibility and the deduction is disallowed, such Employer Contribution may be
returned to the Employer if such Contribution is returned within one (1) year
thereafter and if the amount returned does not exceed the excess of the actual
Contribution over the amount which would have been contributed had there been no
mistake of fact or error in determining the deduction.
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<PAGE>
SECTION 20. MISCELLANEOUS.
-------------
(a) Participation by Affiliated Company.
-----------------------------------
(1) Any Affiliated Company presently existing or hereafter acquired
may, with the consent of the Company, adopt the Plan and Trust and thereby
enable its employees to participate herein.
(2) In the event any Participant is transferred to an Affiliated
Company which is a participating Employer, he shall continue to participate
hereunder in the allocation of Employer Contributions and his Accounts shall
continue to vest in accordance with Section 13. Any Participant who is
transferred to an Affiliated Company which is not a participating Employer shall
be treated as a suspended Participant in accordance with Section 4(c).
(b) Limitation of Rights: Employment Relationship.
---------------------------------------------
All Plan Benefits will be paid only from the Trust assets and neither
the Company nor any Employer nor the Committee nor the Trustee shall have any
duty or liability to furnish the Trust with any funds, securities or other
assets except as expressly provided in the Plan. Nothing herein shall be
construed to obligate any Employer to continue to employ any Employee.
(c) Merger; Transfer of Assets.
--------------------------
In no event shall this Plan be merged or consolidated with any other
employee benefit plan, nor shall there be any transfer of assets or liabilities
from this Plan to any other such plan, unless immediately after such merger,
consolidation or transfer, each Participant's benefits, determined as if the
plan had terminated, are at least equal to or greater than the benefits which
the Participant would have been entitled to had this Plan been terminated
immediately before such merger, consolidation or transfer.
(d) Prohibition Against Assignment.
------------------------------
The benefits provided by this Plan may not be assigned or alienated;
provided, however, that a qualified Domestic Relations Order shall not be
construed as an assignment or
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<PAGE>
alienation. Except for indebtedness to the Trust and orders to make payments or
assign benefits to a spouse, former spouse, child or other dependent under a
qualified Domestic Relations Order, neither the Company nor the Trustee shall
recognize any transfer, mortgage, pledge, hypothecation, order or assignment by
any Participant or Beneficiary of all or part of his interest hereunder, and
such interest shall not be subject in any manner to transfer by operation of
law, and shall be exempt from the claims of creditors or other claimants from
all orders, decrees, levies, garnishment and/or executions and other legal or
equitable process or proceedings against such Participant or beneficiary to the
fullest extent which may be permitted by law.
(e) Applicable Law; Severability.
----------------------------
The Plan hereby created shall be construed, administered and governed in
all respects in accordance with ERISA and to the extent not superseded by
federal law, in accordance with the laws of the State of California; provided,
however, that if any provision is susceptible of more than one interpretation,
such interpretation shall be given thereto as is consistent with the Plan being
a qualified Employee Stock Ownership Plan within the meaning of the Code. If
any provision of this instrument shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provision hereof
shall continue to be fully effective.
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<PAGE>
SECTION 21. TOP HEAVY PROVISIONS.
--------------------
(a) Definitions.
-----------
For purposes of this Section 21, the following capitalized words shall
have the following meanings:
AGGREGATION GROUP
(1) Required Aggregation Group: In determining a Required Aggregation Group
hereunder, each plan of the Employer in which a Key Employee is a
participant, and each other plan of the Employer which enables any plan in
which a Key Employee participates to meet the requirements of Code Sections
401(a)(4) or 410, will be required to be aggregated. Such group shall be
known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the group will be
considered a Top Heavy Plan if the Required Aggregation Group is a Top
Heavy Group. No plan in the Required Aggregation Group will be considered
a Top Heavy Plan if the Required Aggregation Group is not a Top Heavy
Group.
(2) Permissive Aggregation Group: The Employer may also include any other
plan not required to be included in the Required Aggregation Group,
provided the resulting group, taken as a whole, would continue to satisfy
the provisions of Code Sections 401(a)(4) and 410. Such group shall be
known as a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a plan that is part of
the Required Aggregation Group will be considered a Top Heavy Plan if the
Permissive Aggregation Group is a Top Heavy Group. No plan in the
Permissive Aggregation Group will be considered a Top Heavy Plan if the
Permissive Aggregation Group is not a Top Heavy Group.
(3) Only those plans of the Employer in which the Determination Dates fall
within the same calendar year shall be aggregated in order to determine
whether such plans are Top Heavy Plans.
(4) An Aggregation Group shall include any terminated plan of the Employer
if it was maintained within the last five (5) years ending on the
Determination Date.
DETERMINATION DATE
With respect to any Plan Year, the last day of the preceding Plan Year, or
in the case of the first Plan Year of any Plan, the last day of such Plan
Year.
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KEY EMPLOYEE
Any Employee, or former Employee, or Beneficiary of an Employee or former
Employee, who at any time during the Plan Year containing the Determination
Date or during any of the four (4) preceding Plan Years is (or was) (i) an
officer (and employee) having an annual compensation greater than fifty
percent (50%) of the amount in effect under Section 415(b)(1)(A) of the
Code for any such Plan Year, (ii) a shareholder (and employee) who owns
(excluding any stock held under the Plan) both more than one-half percent
(.5%) ownership interest in value and one of the ten (10) largest
interests, in the Company (whether directly or through constructive
ownership rules) and having annual compensation of more than the limitation
in effect under Section 415 (c)(l)(A) of the Code, (iii) a more than five
percent (5%) shareholder, or (iv) a more than one percent (1%) shareholder
if such shareholder receives more than $150,000 of compensation from the
Company during the Plan Year. For purposes of (iii) and (iv) above, the
terms "five percent (5%) shareholder" and "one percent (1%) shareholder"
mean any employee who owns (excluding any stock held under the Plan) more
than five percent (5%) (or more than one percent (1%) of the outstanding
stock of the corporation, or who owns stock possessing more than five
percent (5%) (or one percent (1%) of the total combined voting power of all
stock of the corporation (determined without regard to the aggregation
rules under Section 414 of the Code)). For purposes of (ii) above, if two
or more Employees have the same interest in the Company, the Employee
having the greater annual compensation from the Company shall be treated as
having the larger interest. For purposes of (i) above, the term "officers"
means persons whose regular duties include executive administrative duties;
however, no more than three (3) Employees or ten percent (10%) of all
Employees (up to a maximum of fifty (50) Employees), whichever is greater,
may be counted as officers. If the number of officers of the Company
exceeds these limitations, those officers with the highest compensation in
the Plan Year containing the Determination Date or any of the four
preceding Plan Years shall be treated as Key Employees.
NON-KEY EMPLOYEE
Any Employee who is not a Key Employee.
TOP HEAVY GROUP
Any Aggregation Group, if as of the Determination Date, the sum of (1) the
present value of the accrued benefits for Key Employees under all defined
benefit plans included in such group and (2) the aggregate Account balances
of Key Employees under all defined contribution plans included in such
group, exceeds sixty percent (60%) of a similar sum determined for all
Employees.
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TOP HEAVY PLAN
With respect to any Plan Year, of the Company or of any Affiliated Company,
any plan or Aggregation Group of plans of the Company or of any Affiliated
Company if, as of the Determination Date, the aggregate Account balances of
Key Employees under the plan or plans exceeds sixty percent (60%) of the
aggregate Account balances of all Employees under such plan or plans. For
purposes of this definition, the term, "Account balances" shall include
Account balances of Participants attributable to Employer Contributions,
the Account balances attributable to Employees' Nondeductible
Contributions, and the amount of the aggregate distributions, i(Pounds)
any, made with respect to any Participant during the five (5) year period
ending on the Determination Date, including any distributions under a
terminated plan which would have been required to be included in an
aggregation group had such plan not been terminated. The Account balances
of an individual shall not be taken into account if such individual has not
performed any services for the Company (other than benefits under the plan)
at any time during the five year period ending on the Determination Date.
The Account balances of a non-key employee with respect to any Plan Year
shall not be taken into account if such individual was formerly a Key
Employee for any prior Plan Year. Any rollover contributions or transfers
that are unrelated (i.e., both initiated by the Employee and made from a
plan maintained by one Employer to a plan maintained by another Employer)
shall not be taken into account for purposes of determining whether a plan
is a Top Heavy Plan or whether any Aggregation Group is a Top Heavy Group.
(b) Vesting Requirements.
--------------------
With respect to any Plan Year, if as of the relevant Determination
Date, this Plan is deemed to be a Top Heavy Plan or part of a Top Heavy Group,
the vesting of Plan Benefits for such Plan Year with respect to any Participant
who completes one or more Hours of Service after the Plan becomes a Top Heavy
Plan or part of a Top Heavy Group will be based upon Years of Service, as
defined in Section 2 in accordance with the following vesting schedule, until
such time as the Plan is no longer deemed to be top heavy:
<TABLE>
<CAPTION>
Years of Service Percentage of Accounts Vested
---------------- -----------------------------
<S> <C>
Two Years 20
Three Years 40
Four Years 60
Five Years 80
Six Years or More 100
</TABLE>
With respect to any Plan Year, if as of the relevant Determination
Date, this Plan ceases to be a Top Heavy Plan or part of a Top Heavy Group, any
portion of the accrued benefit
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<PAGE>
of a Participant's Account that was nonforfeitable before the Plan ceased to be
top heavy will remain nonforfeitable, and any Employee who was a Participant
during the Top Heavy Plan Year and who had three or more Years of Service
(including any Years of Service not yet taken into account under the Plan) will
automatically remain under the top heavy vesting schedule.
(c) Minimum Benefits.
----------------
With respect to any Plan Year, if as of the relevant Determination
Date, this Plan is deemed to be a Top Heavy Plan or part of a Top Heavy Group,
Employer Contributions for such Plan Year for each Participant who is not a Key
Employee shall be not less than three percent (3%) of each Participant's Total
Compensation until such time as this Plan is no longer deemed to be top heavy.
Notwithstanding the foregoing, such percentage for any such Plan Year shall not
exceed the highest percentage at which Contributions are made for such Plan Year
for any Key Employee, as determined by dividing the Contribution for such Key
Employee by so much of his Total Compensation for the Plan Year as does not
exceed $200,000. The minimum benefit otherwise required under this paragraph
shall be reduced to the extent a Participant who is not a Key Employee has
received a benefit under any other plan maintained by the Employer and to the
extent permitted by Section 416 of the Code and the regulations thereunder
dealing with nonduplication of minimum benefits.
Amounts paid by the Company under the Federal Insurance Contributions
Act or under the Social Security Act may not be taken into account for purposes
of providing the required minimum benefits to Participants who are not Key
Employees.
For purposes of this Subsection (c), the term "Participant" shall
refer to any Employee who has not separated from service at the end of the Plan
Year, including Employees who have failed to complete 1,000 Hours of Service,
and any Employees who have been excluded because their compensation is less than
a stated amount but who must nevertheless be considered Participants in order to
satisfy the coverage requirements of Section 410(b) of the Code.
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<PAGE>
(d) Limitation on Annual Additions.
------------------------------
With respect to any Plan Year, if as of the relevant Determination
Date, this Plan is deemed to be a Top Heavy plan or part of a Top Heavy Group,
the dollar limitation in the denominator of the defined contribution plan
fraction and the defined benefit fraction shall be multiplied by 1.0 rather than
by 1.25, for purposes of determining the aggregate limit on Contributions and
Forfeitures for a Key employee for such Plan Year, unless the sum of the Key
Employees' benefit under all defined contribution plans does not exceed ninety
percent (90%) of the total of all Participants' benefits for such Plan Year, and
the Employer provides a minimum contribution of not less than four percent (4%)
of each Participant's Total Compensation. The minimum benefit otherwise
required under this paragraph shall be reduced to the extent a Participant who
is not a Key Employee has received a benefit under any other plan maintained by
the Employer and to the extent permitted by Section 416 of the Code and the
regulations thereunder dealing with nonduplication of minimum benefits.
With respect to any Plan Year, if, as of the relevant Determination
Date, any Employee is covered by both a top heavy defined contribution plan and
a top heavy defined benefit plan, the minimum benefit provided for each such
Participant who is not a Key Employee under the defined contribution plan shall
be not less than five percent (5%) of his Total Compensation; provided, however,
that if the Employer desires to use a factor of 1.25 in computing the
denominators of the defined benefit fraction and in the denominator of defined
contribution fraction, the defined contribution minimum benefit shall be seven
and one-half percent (7.5%) of compensation.
Solely for the purpose of determining if the Plan, or any other plan
included in a required Aggregation Group of which this Plan is a part, is a Top
Heavy Plan, the accrued benefit of an Employee (other than a Key Employee under
a defined benefit plan or target benefit plan) shall be determined under (i) the
method, if any, that uniformly applies for accrual purposes under all plans
maintained by the Affiliated Employers, or (ii) if there is no such method, as
if such benefit accrued not more rapidly than the slowest accrual rate permitted
under the fractional accrual rate of Section 411(b)(l)(C) of the Code.
-68-
<PAGE>
EXHIBIT 23.1
The Board of Directors
Aeronomics Incorporated:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
June 23, 1996
<PAGE>
EXHIBIT 23.2
The Board of Directors
Decision Focus Incorporated:
We consent to the incorporation by reference in this registration statement
of DFI/Aeronomics Incorporated on Form S-4 of our report dated February 25, 1997
on our audits of the consolidated financial statements and consolidated
financial statement schedules of Decision Focus Incorporated and subsidiaries as
of December 31, 1996 and 1995 and for each of the years in the two-year period
ended December 31, 1996 We also consent to the reference to our firm under the
caption "Experts."
SHILLING & KENYON, INC.
San Jose, California
June 23, 1997
<PAGE>
EXHIBIT 23.4
The Board of Directors
Aeronomics Incorporated:
We hereby consent to the references to our firm and to the valuation
analysis regarding the merger of (i) Aeronomics Incorporated and DFI/Aeronomics
Incorporated and the merger of (ii) Decision Focus Incorporated and
DFI/Aeronomics Incorporated, in this Registration Statement of DFI/Aeronomics
Incorporated on Form S-4.
HOULIHAN LOKEY HOWARD & ZUKIN
San Francisco, California
June 25, 1997
