SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 11, 1999
Applied Magnetics Corporation
(Exact name of registrant as specified in its charter)
Delaware 1-6635
(State or other jurisdiction of (Commission file number)
incorporation or organization)
95-1950506
(I.R.S. Employer Identification No.)
75 Robin Hill Road, Goleta, CA 93117
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 683-5353
Exhibit Index on Page 39
Page 1 of 170
<PAGE>
Item 2. Acquisition or Disposition of Assets.
Effective February 11, 1999, Applied Magnetics
Corporation ("AMC" or the "Registrant") consummated the
acquisition of DAS Devices, Inc., a Delaware corporation ("DAS"),
through an Agreement and Plan of Merger, dated as of November 24,
1998 and amended and restated as of January 19, 1999 (the "Merger
Agreement"), whereby a wholly owned subsidiary of AMC combined with
DAS in a merger transaction in which DAS became a wholly owned
subsidiary of AMC (the "Merger"). In connection with the Merger,
AMC issued or reserved for issuance to investors, optionees and
certain consultants of DAS, an aggregate of 13,051,872 shares of
the Common Stock, $.10 par value (the "AMC Common Stock"),
constituting approximately 33% of the outstanding AMC Common Stock
after giving effect to the Merger, but excluding the shares of AMC
Common Stock to be sold by AMC to certain investors following the
Merger. See "Item 5. Other Events." The Merger was approved by
the DAS stockholders on February 11, 1999. The number of shares of
AMC Common Stock issued in the Merger was determined through
negotiations between the managements of AMC and DAS and was
approved by their respective boards of directors. Under the terms
of a registration rights agreement with DAS, AMC has agreed to use
commercially reasonable efforts to register the shares for resale
under the Securities Act of 1933 within 60 days following the
effective time of the Merger (the "Effective Time").
AMC is an independent manufacturer of magnetic recording
heads and of head stack assemblies for disk drives. AMC
manufactures advanced inductive thin film disk head products and is
in the process of qualifying its 4.3 gigabyte per 3.5 disk
magnetoresistive (MR) disk head products primarily to supply
manufacturers of 3.5 inch hard disk drives. DAS is primarily
engaged in research and development of high technology advancements
in magnetic recording heads for hard disk drives for computer
applications and production methods for these heads.
Item 5. Other Events.
On November 24, 1998, AMC entered into a Securities
Purchase Agreement, as amended and restated as of January 19, 1999
(the "Securities Purchase Agreement"), with Sierra Ventures VI,
Watershed Partners, L.P., Watershed Cayman, L.L.C., Haussman
Holdings, East River Ventures, L.L.C. and The Chase Manhattan Bank
as Trustee for First Plaza Group Trust (collectively, the
"Investors"). On February 11, 1999 (the "Closing Date"), pursuant
to the Securities Purchase Agreement, AMC issued and sold to the
Investors 4,950,495 shares of AMC Common Stock in consideration of
the payment of the aggregate sum of $20,000,000 to AMC. Under the
terms of a registration rights agreement with the Investors, AMC
has agreed to use commercially reasonable efforts to register the
shares for resale under the Securities Act of 1933, within 60 days
of the Closing Date.
Page 2 of 170
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
Page 3 of 170
<PAGE>
Deloitte & Touche LLP
San Jose, California
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of DAS Devices, Inc.:
We have audited the accompanying balance sheet of DAS Devices, Inc. (the
Company) as of December 31, 1997 and the related statement of operations,
stockholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1997, and the
results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
February 27, 1998
(March 9, 1998 as to the last sentence, second
paragraph of Note 4)
1
Page 4 of 170
<PAGE>
DAS DEVICES, INC.
BALANCE SHEET
DECEMBER 31, 1997
- ------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,806,490
Short-term investments 1,551,304
Trade receivables 2,418
Inventories 236,817
Prepaid expenses and other 816,716
Restricted cash investment 500,000
-----------------
Total current assets 12,913,745
PROPERTY AND EQUIPMENT - Net 11,302,914
CAPITAL EQUIPMENT DEPOSITS 1,221,060
OTHER ASSETS 572,306
TOTAL $ 26,010,025
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables $ 1,646,898
Payables due to equipment vendors 3,834,956
Accrued compensation and related benefits 327,707
Other accrued liabilities 245,647
Current portion of long-term obligations 1,310,813
----------------
Total current liabilities 7,366,021
LONG-TERM OBLIGATIONS 4,086,278
COMMITMENTS (Note 4)
STOCKHOLDERS' EQUITY:
Convertible preferred stock - par value $0.0001; 100,000,000 shares
authorized; 67,958,619 shares issued and outstanding 6,796
Common stock - par value $0.0001; 180,000,000 shares authorized;
23,553,846 shares issued and outstanding 2,355
Additional paid in capital 29,797,988
Stockholder notes receivable (450,975)
Accumulated deficit (14,798,438)
--------------
Total stockholders' equity 14,557,726
TOTAL $ 26,010,025
==============
See notes to financial statements.
2
Page 5 of 170
<PAGE>
DAS DEVICES, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
- ------------------------------------------------------------------------------
PRODUCT REVENUE $ 2,411
COST OF REVENUE 8,262,438
------------
GROSS MARGIN (8,260,027)
OPERATING EXPENSES:
Selling, general and administrative 2,523,328
Research and development 1,970,808
------------
Total operating expenses 4,494,136
------------
LOSS FROM OPERATIONS (12,754,163)
OTHER INCOME:
Interest income 360,083
Interest expense (297,573)
Other income, net 12,464
------------
Other income, net 74,974
------------
NET LOSS $(12,679,189)
============
See notes to financial statements.
3
Page 6 of 170
<PAGE>
DAS DEVICES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Stockholder Total
-------------------- ------------------- Paid In Notes Accumulated Stockholders'
Shares Amount Shares Amount Capital Receivable Deficit Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1997 -- $ -- 9,978,013 $ 998 $1,766,191 $ -- $(2,119,249) $(352,060)
Conversion of common stock into
Series A preferred stock 9,978,013 998 (9,978,013) (998) --
Issuance of Series B preferred
stock, net of issuance costs
of $23,291 38,708,981 3,871 8,035,919 8,039,790
Issuance of Series D preferred
stock, net of issuance
costs of $55,667 19,271,625 1,927 19,214,031 19,215,958
Issuance of founders' stock 20,913,846 2,091 433,545 (435,636) --
Common stock antidilution 1,000,000 100 (100) --
Issuance of common stock for
cash 1,640,000 164 33,998 34,162
Issuance of warrants for
services 314,404 314,404
Accrued interest (15,339) (15,339)
Net loss (12,679,189) (12,679,189)
---------- ------ ---------- ------ ----------- --------- ------------ ------------
BALANCES, December 31, 1997 67,958,619 $6,796 23,553,846 $2,355 $29,797,988 $(450,975) $(14,798,438) $ 14,557,726
========== ====== ========== ====== =========== ========= ============ ============
See notes to financial statements.
</TABLE>
4
Page 7 of 170
<PAGE>
DAS DEVICES, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(12,679,189)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 572,285
Accrued interest on stockholder notes receivable (15,339)
Amortization of cost of warrants issued for services 29,755
Accretion of terminal payment 52,329
Change in assets and liabilities:
Trade receivables 16,924
Inventories (236,817)
Prepaid expenses and other (514,900)
Trade payables 1,646,898
Payables due to equipment vendors 3,834,956
Accrued compensation and related benefits 97,707
Other accrued liabilities 175,774
------------
Net cash used in operating activities (7,019,617)
------------
CASH USED IN INVESTING ACTIVITIES:
Purchases of property and equipment, net (11,141,732)
Capital equipment deposits (1,221,060)
Purchases of short-term investments (65,651,304)
Maturities of short-term investments 64,100,000
Purchase of restricted cash investment (500,000)
Other assets, net (564,306)
------------
Net cash used in investing activities (14,978,402)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of installment notes 4,863,324
Repayments on installment notes (186,273)
Repayments under capital lease obligations (16,804)
Proceeds from issuance of preferred and common stock, net 26,989,910
------------
Net cash provided by financing activities 31,650,157
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,652,138
CASH AND CASH EQUIVALENTS, Beginning of period 154,352
------------
CASH AND CASH EQUIVALENTS, End of period $ 9,806,490
============
NONCASH FINANCING AND INVESTING ACTIVITIES:
Conversion of promissory notes for Series B preferred stock $ 300,000
------------
Issuance of founders' stock for stockholder notes receivable $ 435,636
------------
Issuance of warrants for services $ 314,404
------------
Purchase of equipment in exchange for capital lease obligations $ 659,515
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the year for interest $ 267,818
------------
See notes to financial statements.
</TABLE>
5
Page 8 of 170
<PAGE>
DAS DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - DAS Devices, Inc. (the Company) was incorporated in
Delaware in February 1994. The Company designs, manufactures and markets
magnetic recording heads as head gimble assemblies for the disk drive
industry. The Company markets its products through its direct sales force
which is focused on organizations located in North America and the Far
East.
During fiscal 1997, the Company completed its initial product development
activities and began fulfilling customer orders. Accordingly, management
believes the Company has exited the development stage for financial
reporting purposes as of December 31, 1997.
Financial Statement Estimates - 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, liabilities and expenses during the reporting period.
Such estimates include the depreciable life of property and equipment and
a valuation allowance against net deferred tax assets. Actual results
could differ materially from those estimates.
Cash Equivalents - The Company considers all highly liquid debt
instruments purchased with a remaining maturity of three months or less to
be cash equivalents. The recorded carrying amount of cash equivalents
approximates fair market value.
Short-Term Investments - Short-term investments consist of short-term
investments acquired with maturities exceeding three months and are
classified as "available-for-sale"securities. The investments are reported
at fair value with no unrealized gains or losses as of December 31, 1997.
Realized gains or losses on sales of investments are computed on a
specific identification basis and were not significant in fiscal 1997.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out) or market and are comprised primarily of raw materials.
Restricted Cash Investment - Under the terms of the Company's facility
operating lease, the Company is required to maintain a restricted deposit
with a financial institution to be used as collateral against future
minimum lease obligations (see Note 4).
Property and Equipment - Property and equipment, including leasehold
improvements, are stated at cost. Depreciation and amortization are
computed using the straight-line method over the shorter of the estimated
useful lives, generally three to six years, or the lease term, as
appropriate.
Revenue Recognition - Revenue from product sales to customers is
recognized at the time of shipment.
6
Page 9 of 170
<PAGE>
Stock-Based Compensation - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees" and, accordingly, does not generally recognize compensation
cost in connection with its 1997 Stock Option Plan.
Income Taxes - Income taxes are provided under the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" which requires an asset and liability approach for financial
reporting of income taxes.
Certain Significant Risks and Uncertainties - Financial instruments which
potentially subject the Company to concentration of credit risk consist
primarily of cash, cash equivalents, short-term cash investments, trade
receivables and restricted cash investment. The cash, cash equivalents and
restricted cash investment consist of checking and money market accounts
and a certificate of deposit with one financial institution. The Company
invests in a variety of financial instruments with an investment credit
rating of A and better. By policy, the Company places its investments only
with a high-credit-quality financial institution and, other than U.S.
Government Treasury instruments, limits the amount of credit exposure with
any one financial instrument or commercial issuer.
The Company intends to rely on certain off-shore subcontractors for a
substantial portion of its backend manufacturing operations. Although
management believes other contractors could provide comparable services on
similar terms, it believes changes in subcontractors could adversely
effect the Company's business plan.
The Company operates in a dynamic industry and, accordingly, can be
affected by a variety of factors. For example, management believes that
changes in any of the following areas could have a negative effect on the
Company in terms of its future financial position, results of operations
and cash flows: ability to obtain additional financing; regulatory
changes; fundamental changes in the technology underlying semiconductor
products; market acceptance of the Company's products under development;
development of sales channels; litigation or other intellectual property
claims against the Company; the hiring, training and retention of key
employees; successful and timely completion of product development
efforts; and new product introductions by competitors.
5. SHORT-TERM INVESTMENTS
The estimated fair value (which approximates cost) of available-for-sale
securities at December 31, 1997 is as follows:
Corporate notes $ 1,051,304
Municipal auction rate securities 500,000
------------
$ 1,551,304
============
At December 31, 1997, the estimated fair value of available-for-sale
securities with contracted maturities within one year was $1,551,304.
7
Page 10 of 170
<PAGE>
6. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consist of:
Machinery and equipment $ 9,273,130
Furniture, fixtures and computer equipment 281,869
Leasehold improvements 2,358,331
------------
11,913,330
------------
Accumulated depreciation and amortization (610,416)
Property and equipment, net $ 11,302,914
=============
At December 31, 1997, machinery and equipment with an aggregate cost and
net book value of $659,515 were leased under capital lease obligations
(see Note 4).
7. FINANCING ARRANGEMENTS AND COMMITMENTS
Revolving Line - The Company has available a $750,000 revolving line of
credit facility which bears interest at prime (8.5% at December 31, 1997)
plus 0.5% per annum and is collateralized by the Company's assets. The
credit facility expires in October 1998. At December 31, 1997, the Company
had no outstanding borrowings against the credit facility. In connection
with the credit facility, the Company issued warrants ("Revolving Line
Warrant") to purchase the Company's common stock (see Note 6). The value
of warrants issued was not material.
Capital Lease Line - In December 1997, the Company entered into a
$2,000,000 equipment lease line available to finance equipment purchases.
As of December 31, 1997, no amounts were due under this facility. Under
the terms of the equipment line, the Company issued warrants ("Capital
Lease Line Warrant 1") to acquire shares of Series D convertible preferred
stock (see Note 6). The aggregate value of warrants issued of
approximately $80,000 is classified as a prepaid expense at December 31,
1997 and will be amortized to interest expense ratably over the term of
the lease, generally four years. In March 1998, the Company was advanced
approximately $1,786,000 to be repaid over four years under this facility
of which approximately $666,000 was used to refinance assets included in
property and equipment at December 31, 1997.
Also in December 1997, the Company entered into another equipment lease
line which provides $2,000,000 to finance machinery and equipment
purchases. As of December 31, 1997, no amounts were outstanding under the
facility. In connection with the lease financing, the Company issued
warrants in February 1998 ("Capital Lease Line Warrant 2") to purchase
shares of common stock (see Note 6). The value of warrants issued was not
material. In February 1998, the Company was advanced approximately
$419,000 to be repaid over four years under this facility of which
approximately $268,000 was used to refinance assets included in property
and equipment at December 31, 1997.
8
Page 11 of 170
<PAGE>
Capital Lease Obligation - The Company has entered into a noncancelable
equipment capital lease obligation which expires in December 2001. At the
end of the lease term, the Company is obligated to purchase the equipment
at $65,952. In connection with the agreement, the Company issued the
lessor warrants ("Capital Lease Warrant") to purchase the Company's common
stock (see Note 6). The value of warrants issued was not material.
Purchase Commitments - Commitments for equipment and leasehold
improvements totaled approximately $13,200,000 at December 31, 1997.
Operating Leases - The Company leases its facilities under a noncancelable
five-year operating lease agreement which expires on January 31, 2002. The
Company is responsible for certain maintenance costs, taxes and insurance.
Under the terms of the facility lease, the Company issued a standby letter
of credit totaling $500,000, which is collateralized by a one year
certificate of deposit with a financial institution, and recorded as
restricted cash investment at December 31, 1997. The letter of credit will
be reduced by $100,000 per annum.
The Company leases certain equipment under operating lease agreements
expiring on various dates through 2001. In connection with certain of the
lease agreements, the Company issued warrants ("Equipment Lease Warrant")
to the lessor to purchase Series B and Series D convertible preferred
stock (see Note 6). The aggregate value of warrants issued is
approximately $188,600, of which $23,200 has been amortized to interest
expense.
Future minimum annual operating and capital lease commitments at December
31, 1997 are as follows:
Year Ending December 31, Operating Capital
1998 $ 3,142,188 $ 201,648
1999 3,175,089 201,648
2000 3,206,426 201,648
2001 2,423,702 252,060
2002 63,730 --
----------- ----------
Total minimum lease payments $12,011,135 857,004
===========
Amount representing interest at 14.1% (214,293)
Present value of minimum lease payments 642,711
Current portion (118,891)
----------
Long-term portion $ 523,820
==========
Rent expense under operating leases for fiscal 1997 was $1,550,324.
9
Page 12 of 170
<PAGE>
8. LONG-TERM OBLIGATIONS
Long-term obligations include principal payments due under capital lease
obligations (see Note 4).
In addition, long-term obligations include installment term notes bearing
interest at 13.77% per annum and include a terminal payment of 15% of the
original principal amount payable at maturity in 2001. In connection
therewith, the Company issued the lender warrants ("Installment Note
Warrant") to purchase shares of the Company's Series B convertible
preferred stock (see Note 6). The aggregate value of warrants issued is
approximately $45,700 of which $6,500 has been amortized to interest
expense.
The installment notes agreement requires the Company, among other things,
to maintain certain financial covenants of which the Company was in
compliance at December 31, 1997. The notes are collateralized by certain
machinery and equipment.
Principal payments due under the installment term notes at December 31,
1997 are as follows:
Year Ending
December 31,
1998 $1,166,922
1999 1,338,146
2000 1,534,495
2001 689,817
--------
$4,729,380
==========
Bridge Financing - In January 1997, the Company received an aggregate of
$1,800,000 from the issuance of five year convertible promissory notes,
bearing interest at 8% per annum. In February 1997, the notes were
converted into Series B convertible preferred stock at the rate of
$0.02083 per share.
10
Page 13 of 170
<PAGE>
6. STOCKHOLDERS' EQUITY
Convertible Preferred Stock - At December 31, 1997, convertible preferred
stock consists of:
<TABLE>
<CAPTION>
Amount (Net
Shares Shares Price of Issuance Liquidation
Designated Outstanding Per Share Costs) Preference
---------- ----------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
Series A 9,978,013 9,978,013 $ 0.0001 $ 1,767,189 $ 1,995,603
Series B 39,348,871 38,708,981 $ 0.2083 8,039,790 8,063,081
Series C 10,573,333 -- $ -- -- 4,229,333
Series D 25,000,000 19,271,625 $ 1.0000 19,215,958 19,271,625
Undetermined
Series 15,099,738 -- $ -- -- --
----------- ---------- ----------- -----------
100,000,000 67,958,619 $29,022,937 $33,559,642
=========== =========== ============= ===========
</TABLE>
Significant terms of the convertible preferred stock are as follows:
o The holders of Series B, C and D shall be entitled to annual
noncumulative dividends, prior to any payments of dividends declared
on Series A preferred stock or common stock, of $0.02083, $0.040,
$0.10 per share, respectively. The holders of Series A shall be
entitled to annual noncumulative dividends, prior to any payments of
dividends declared on common stock, of $0.06 per share. Holders are
entitled to such dividends when and if declared by the Board of
Directors. No dividends were declared in fiscal 1997.
o In the event of liquidation, dissolution or winding up of the
Company, the preferred stockholders shall be entitled to receive, on
a pro rata basis, the liquidation preferences disclosed in the table
above plus an amount equal to all declared but unpaid dividends.
Such liquidation preferences will be paid first to holders of Series
B, C and D and second to Series A. Any remaining assets will be
distributed ratably among the holders of preferred stock (up to an
additional 300% of the liquidation preference) and common stock, pro
rata, based on the number of shares of common stock held by each
stockholder on an as-converted basis.
o All series of preferred stock are nonredeemable.
11
Page 14 of 170
<PAGE>
o Each share is convertible, at the option of the holder, into one
share of common stock (subject to adjustment for events of dilution)
and has the same voting rights as the common stock into which it is
convertible. Shares will automatically be converted into common
stock upon the closing of a public offering meeting certain
criteria. In addition, shares will automatically be converted upon
written consent of not less than 75% of the outstanding shares of
preferred stock voting together as a single class.
Series C Warrants - In connection with the Series B financing, the Company
issued to the Series B investors warrants to purchase an aggregate of
10,573,333 shares of Series C convertible preferred stock at $0.40 per
share. The warrants are immediately exercisable and expire in February
2000.
Revolving Line Warrant - In connection with the line of credit facility
(see Note 4), the Company issued warrants to purchase 40,000 shares of
common stock. The warrants are exercisable at $0.75 per share and expire
on April 7, 2002.
Capital Lease Line Warrant 1 - In connection with the equipment line (see
Note 4), the Company issued warrants to purchase 100,000 shares of Series
D convertible preferred stock. The warrants are exercisable at $1.00 per
share and expire at the later of December 2007 or five years from the
closing of the Company's initial public offering.
Capital Lease Line Warrant 2 - In connection with the equipment line (see
Note 4), the Company issued warrants to purchase 100,000 shares of common
stock, exercisable at $1.00 per share and due to expire in January 2008.
Capital Lease Warrant - In connection with the equipment capital lease
obligation (see Note 4), the Company issued warrants to purchase 181,818
shares of common stock. The warrants are exercisable at $1.10 per share
and expire December 31, 2003.
Equipment Lease Warrant - In connection with certain equipment operating
leases (see Note 4), the Company issued to the lessor warrants to purchase
291,667 shares of Series B convertible preferred stock which are
exercisable at $0.2083 per share and 210,000 shares of Series D
convertible preferred stock exercisable at $1.00. The warrants expire at
the later of July 2002 or three years from the closing of the Company's
initial public offering.
Installment Note Warrant - In connection with the installment note
obligations (see Note 5), the Company issued warrants to purchase 347,223
shares of Series B convertible preferred stock. The warrants are
exercisable at $0.2083 per share and expire on December 31, 2004.
12
Page 15 of 170
<PAGE>
Restricted Stock - Common stock issued to the Company's founders is
subject to repurchase agreements whereby the Company has the option to
repurchase the unvested shares upon termination of employment at the
original purchase price. The Company's repurchase right lapses generally
over four years. At December 31, 1997, 20,913,846 shares of common stock
were subject to repurchase by the Company. The founder's stock was issued
in exchange for promissory notes which bear interest at 6.5% per annum,
are due in May 2002 and are secured by the underlying stock.
Antidilution - In connection with the Series B financing, 1,000,000 shares
of common stock were issued to certain existing common stockholders as an
antidilution adjustment.
Stock Option Plan - Under the Company's 1997 Stock Option Plan (the Plan)
the Board of Directors is authorized to grant to employees, directors and
consultants up to 18,000,000 shares of common stock at prices not less
than the fair market value at date of grant for incentive stock options
and not less than 85% of fair market value for nonstatutory options. These
options generally expire ten years from the date of grant and become
exercisable ratably over a four-year period.
A summary of option activity is as follows:
<TABLE>
<CAPTION>
Outstanding
---------------------------------
Weighted
Number Average
of Shares Price
<S> <C> <C> <C>
Granted (weighted average fair value of $.004 per share) 16,032,250 $ 0.026
Exercised -- --
Canceled (245,000) 0.026
---------
Outstanding, December 31, 1997 15,787,250 $ 0.026
----------- =======
</TABLE>
At December 31, 1997, 891,666 shares were exercisable and 2,212,750 shares
were available for future grant under the Plan.
Additional information regarding options outstanding as of December 31,
1997 is as follows:
Options Outstanding Options Exercisable
--------------------------- --------------------------
Weighted
Average Weighted
Remaining Average
Exercise Number Contractual Number Exercise
Price Outstanding Life (Years) Exercisable Price
$ 0.0208 15,166,250 8.2 891,666 $ 0.021
$ 0.1500 621,000 9.9 -- --
15,787,250 8.2 891,666 $ 0.021
========== === ======= =======
13
Page 16 of 170
<PAGE>
Additional Stock Plan Information - As discussed in Note 1, the Company
continues to account for its stock-based awards to employees using the
intrinsic value method in accordance with APB No. 25. Accordingly, no
compensation expense has been recognized in the financial statements for
employee stock arrangements, which are granted with exercise prices equal
to fair market value at grant date.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), requires the disclosure of pro forma
net income or loss had the Company adopted the fair value method as of the
beginning of January 1, 1997. Under SFAS 123, the fair value of
stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option
awards. These models also require subjective assumptions, including future
stock price volatility and expected time to exercise, which greatly affect
the calculated values. The Company's calculations were made using the
minimum value model with the following weighted average assumptions:
expected option life, one year following vesting; risk-free interest rate
of approximately 6%; and no dividends during the expected term. The
Company's calculations are based on a multiple option valuation approach,
and forfeitures are recognized as they occur. If the computed fair values
of the fiscal 1997 awards had been amortized to expense, pro forma net
loss would not have been materially different from the reported amount.
Common Shares Reserved for Issuance - At December 31, 1997, the Company
had reserved shares of common stock for issuance as follows:
Conversion of Series A preferred stock 9,978,013
Conversion of Series B preferred stock 38,708,981
Conversion of Series D preferred stock 19,271,625
Exercise and conversion of Series B warrants 638,890
Exercise and conversion of Series C warrants 10,573,333
Exercise and conversion of Series D warrants 310,000
Exercise of common stock warrants 221,818
Exercise of common stock options 18,000,000
----------
Total 97,702,660
==========
10. INCOME TAXES
Due to the Company's net loss, there was no provision for income taxes for
the year ended December 31, 1997.
Net deferred tax assets at December 31, 1997 consisted primarily of
reserves, accruals and net operating loss and research and development
credit carryforwards totaling approximately $6,640,000. As a result of the
Company's history of recent operating losses, management believes that the
recognition of the deferred tax asset is considered less likely than not.
Accordingly, the Company has recorded a valuation allowance against the
full amount of its net deferred tax assets.
14
Page 17 of 170
<PAGE>
At December 31, 1997, the Company had net operating loss carryforwards to
offset both future federal and California taxable income totaling
approximately $4,830,000 and $830,000, respectively. Such federal and
California carryforwards expire through 2012 and 2002, respectively.
At December 31, 1997, the Company also had research and development tax
credit carryforwards of approximately $207,500 and $182,300 available for
federal and California, respectively. The federal carryforwards expire
through 2012 and the state tax credit carryforwards have no expiration.
Current federal and California tax law includes provisions limiting the
annual use of net operating loss and credit carryforwards in the event of
certain defined changes in stock ownership. The Company's capitalization
described herein may have resulted in such a change. Accordingly, the
annual use of the Company's net operating loss and credit carryforwards
would be limited according to these provisions. Management has not yet
determined the extent of such limitation. Such limitation may result in
the loss of carryforward benefits due to their expiration.
11. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) tax-deferred savings plan (the Plan) for all
employees who meet certain eligibility requirements. Participants may
contribute, on a pre-tax basis, between 2% and 15% of their annual
compensation, but not to exceed a maximum contribution amount pursuant to
Section 401(k) of the Internal Revenue Code. The Company is not required
to contribute, nor has it contributed, to the Plan for the fiscal year
ended December 31, 1997.
* * * * *
15
Page 18 of 170
<PAGE>
DAS Devices,Inc.
CONDENSED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1998 1997
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATION ACTIVITIES
Net loss $ 30,855,505 $ 6,726,166
Adjustments to reconcile net loss to net cash used in operating activities:
used in operating activities:
Depreciation and amortization 3,275,360 259,388
Accrued Interest on stockholders notes receivable (21,237) 0
Accretion of terminal payments 180,414 0
Amortization of cost of warrants issued for services 61,739 0
Changes in assets and liabilities
Trade receivable (38,437) 35,709
Inventories 236,817 0
Prepaid expenses and (11,975) (1,758,125)
other assets
Trade payables 2,084,233 1,717,240
Payables due to equipment vendors (2,130,832) 1,394,368
Accrued compensation and related benefits 17,780 373,441
Other accrued liabilities 586,702 51,805
------------ ------------
Net cash used in operating activities (26,614,942) (4,652,340)
------------ ------------
CASH USED IN INVESTING ACTIVITIES:
Maturities of short term investments 1,551,304 (8,585,095)
Purchase of property and equipment, net (8,204,745) (8,207,421)
Capital equipment deposits 1,069,464 0
Purchase of restricted cash investment 0 (500,000)
Other Assets, net (704,334) (88,808)
------------ ------------
Net cash used in investing activities (6,288,311) (17,381,324)
------------ ------------
CASH FROM FINANCING ACTIVITIES:
Net borrowings under line-of-credit arrangements 600,000 0
Issuance of installment notes 3,928,688 3,024,746
3,928,688
3,024,746
Principal payments on installment notes (992,447) 0
Principal payments on capital leases (1,100,006) 0
Issuance of Common and Preferred Stock- net 22,742,811 26,789,503
------------ ------------
Net cash provided by (used in) financing activities 25,179,046 29,814,249
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,724,207) 7,780,585
------------ ------------
16
Page 19 of 170
<PAGE>
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD (9,806,490) 154,352
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,082,283 $ 7,934,937
============ ============
NON CASH FINANCING AND INVESTING ACTIVITIES
Issuance of warrants for services $ 1,066,494 $ 0
============ ============
Purchase of equipment in exchange for capital lease obligations $ 7,177,209 $ 0
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,283,393 $ 87,315
============ ============
</TABLE>
See accompanying Notes to condensed Financial Statements
17
Page 20 of 170
<PAGE>
DAS Devices, Inc.
CONDENSED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,082,283 $ 9,806,490
Short term investments 0 1,551,304
Restricted cash investment 500,000 500,000
Trade receivables 40,855 2,418
Inventories 0 236,817
Prepaid expenses and other current assets 890,901 816,716
------------ ------------
Total current assets 3,514,039 12,913,745
PROPERTY AND EQUIPMENT - net 23,949,508 11,302,914
CAPITAL EQUIPMENT DEPOSITS 151,596 1,221,060
OTHER ASSETS 2,219,186 572,306
------------ ------------
TOTAL $ 29,834,329 $ 26,010,025
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payable $ 3,731,131 1,646,898
Payables due to equipment vendors 1,704,124 3,834,956
Accrued compensation and related benefits 345,487 327,707
Other Accrued liabilities 832,349 245,647
Current portion of long term debt 3,998,458 1,310,813
------------ ------------
Total current liabilities 10,611,549 7,366,021
LONG-TERM DEBT 11,732,491 4,086,278
------------ ------------
Total liabilities 22,344,040 11,452,299
------------ ------------
STOCKHOLDERS' EQUITY:
Convertible preferred stock $ .0001 par value 124,9002,117 and 1000,000 shares authorized;
88,880,386 and 67,958,619 shares issued and outstanding 8,888 6,796
Common Stock, $.0001 par value 250,000,000 and 180,000,000 authorized;
24,011,762 and 23,553,846 shares issued and outstanding 2,401 2,355
Additional paid in capital 53,605,155 29,797,988
Stockholder notes receivable (472,212) (450,975)
Accumulated deficit (45,653,943) (14,798,438)
------------ ------------
Total stockholders' equity 7,490,289 14,557,726
------------ ------------
TOTAL $ 29,834,329 $ 26,010,025
============ ============
See accompanying Notes to condensed Financial Statements
</TABLE>
18
Page 21 of 170
<PAGE>
DAS Devices, Inc.
CONDENSED INCOME STATEMENTS
- --------------------------------------------------------------------------------
Nine Months ended
September 30,
-------------------------
1998 1997
(Unaudited) (Unaudited)
PRODUCT REVENUE $ 274,9$5 $ 0
COST OF REVENUE 17,662,061 (4,472,398)
----------- -----------
GROSS MARGIN (17,387,096) 4,472,398
OPERATING EXPENSES
Selling, general & administrative (2,152,762) (1,496,686)
Research & development (10,266,739) (857,095)
----------- -----------
Total operating expenses (12,419,501) (2,353,781)
----------- -----------
LOSS FROM OPERATIONS (29,806,597) 6,826,179
OTHER INCOME (EXPENSE):
Interest income 271,928 (182,329)
Interest expense (1,281,380) 87,315
Other income, net (39,456) (5,000)
----------- -----------
NET LOSS $ 30,855,50 $(6,726,165)
=========== ===========
See accompanying Notes to condensed Financial Statements
19
Page 22 of 170
<PAGE>
Das Devices, Inc.
Notes to Condensed Financial Statements
(Unaudited)
1. Going Concern Basis of Presentation.
The accompanying unaudited condensed financial statements for the periods ended
September 30, 1998 and 1997 have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the financial statements, the Company
incurred net losses of approximately $30 million and had a negative working
capital of approximately $7 million. These factors among others may indicate
that the Company will be unable to continue as a going concern for a reasonable
period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that may be necessary should the Company become a
going concern. The Company's continuation as a going concern is dependent upon
its ability to generate sufficient cash flow to meet its obligations on a timely
basis, to develop and commercialize its products based on its core technologies,
to obtain additional financing to complete its research and development
activities and fund its future capital acquisitions and ultimately to attain
profitability. The Company is actively pursuing additional equity and debt
financing and is considering other strategic alternatives (see "The Merger").
However, there cannot be any assurance that any debt or equity financing or
business combination will be ultimately consummated.
2. Interim Financial Information.
The unaudited condensed financial statements included herein have been prepared
in accordance with generally accepted accounting principles and rules and
regulations of the Securities and Exchange Commission for interim statements.
Accordingly, interim statements do not include all the information and
disclosures required for annual financial statements. In the opinion of the
Company's management, all adjustments (consisting solely of adjustments of a
normal recurring nature) necessary for a fair presentation of these interim
financial results have been included. These financial statements and related
notes should be read in conjunction with the audited financial statements for
the year ended December 31,1997 and the notes thereto included elsewhere in this
proxy statement/information statement. The results for the nine-month periods
are not indicative of the results to be expected for the full year or for any
other interim period.
3. New Accounting Pronouncements.
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive
Income, which requires an enterprise to report, by major components and as a
single total, the changes in its net assets during the period from nonowner
sources.
In 1997, the FASB issued SFAS 131, Disclosures About Segments of an Enterprise
and Related Information, which establishes annual and interim reporting
standards for a company's operating segments. SFAS 131 is effective for the
Company's fiscal 1998 year.
20
Page 23 of 170
<PAGE>
In June 1998, the FASB issued SFAS 133, Accounting for Derivative Instruments
and Hedging Activities, which defines derivatives, requires that all derivatives
be carried at fair value, and provides for hedge accounting when certain
conditions are met. This statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999.
The Company does not believe adoption of these statements will have a material
impact on the Company's financial statements.
4. Stockholders Equity.
During the nine months ended September 30,1998, the Company issued Series E
convertible preferred stock for cash of approximately $23 million and
subsequently effected a 1.13636 to 1 stock split to the Series E stockholders of
record at June 19,1998. The condensed financial statements for September 30,
1998 have given effect to this stock split.
5. Stock Options.
During the nine months ended September 30,1998, the Company granted certain
directors and officers options to purchase an aggregate of 7,500,000 shares of
the Company's common stock. The options have an exercise price of $0.01 per
share and are exercisable immediately. Options for 500,000 shares vest 25% on
the first anniversary of grant and thereafter ratably over the three-year period
commencing one year from the date of grant. Such option contains a provision
providing for a vesting of 250,000 additional shares upon a change of control.
Options for the remaining 7,000,000 shares of common stock vest ratably over 24
months and accelerate in full upon a change in control.
6. Warrants.
In connection with the capital lease and installment note facilities entered
into during the nine months ended September 30, 1998, the Company issued
warrants to purchase 100,000 shares of common stock and 1,026,367 shares of
Series E preferred stock. The fair value of the warrants are amortized to
interest expense ratably over the term of the debt, generally four years.
7. Line of Credit.
The Company is presently in breach for the repayment of $600,000 drawn under a
line of credit arrangement. Although no events of default have been declared,
Management is actively engaged in discussion with the lenders to convert the
facility into a term loan repayable on the closing of the merger.
8. Legal Matters.
The Company is involved in various claims and legal actions arising out of the
normal course of business. Management does not expect that the outcome of these
cases will have a material effect on the Company's financial position or results
of operations.
21
Page 24 of 170
<PAGE>
9. Subsequent Events.
A. Merger.
On November 24, 1998, the Company entered into an agreement to merge ("Merger")
with Applied Magnetics Corporation ("AMC") for a consideration of 13,051,872
shares of the common stock of AMC. Completion of the Merger, which is expected
to occur in the first quarter of 1999, is contingent on customary conditions.
Some of the officers, directors and consultants of the Company are entitled to
receive payments of approximately $1,625,000 from the merger consideration under
non-competition agreements entered into with the Company. The Merger also
provides for preferential repayment of the bridge notes from the merger
consideration.
B. Option Repricing.
In November 1998, the Company repriced options to purchase approximately
17,750,000 shares of common stock at $0.01 per share. The repriced options will
retain their original vesting terms.
C. Bridge Notes.
On November 6, 1998, the Company issued junior secured bridge notes aggregating
$2,100,000 and bearing interest at the rate of 10% per annum. The notes are
payable in 30 days and may be extended up to 90 days with the written consent of
the majority of the noteholders. The Company is in default on repayment of these
promissory notes and is currently negotiating to extend the term of the notes.
On November 25, 1998, the Company issued promissory notes aggregating $7,900,000
and bearing interest at 10% per annum. The notes are payable 150 days from
issuance and subject to acceleration under certain events. In the event of a
change in control of the Company resulting from the Merger, the noteholders are
entitled to a premium of 50% of the principal.
D. Installment Notes.
Since November 1998, the Company has not been in compliance with certain
covenants of the $7.6 million installment notes included in long term debt at
September 30,1998.
22
Page 25 of 170
<PAGE>
(b) Pro Forma Financial Information
Page 26 of 170
<PAGE>
UNAUDITED COMBINED PRO FORMA FINANCIAL DATA
The following unaudited combined pro forma financial data reflects the
accounting for the Merger as a purchase, whereby Applied Magnetics Corporation
(AMC) has allocated the purchase price to assets acquired including the
estimated fair market value of in-process technology, which will be expensed
upon consummation of the Merger and liabilities assumed based on their fair
values. The excess of the purchase price plus related transaction costs over the
fair value of tangible and intangible assets acquired and liabilities assumed
has been allocated to (1) developed technology and know-how, which will be
amortized on a straight line basis over 3 years, the estimated period of future
benefit and (2) goodwill (including a value of $1.6 million associated with
assembled workforce), which will be amortized on a straight line basis over the
estimated period of future benefit of 7 years. DAS Devices, Inc. (DAS) is a
research and development company with only nominal sales. All of the assets and
liabilities of DAS, including in-process technology have been appraised by an
independent third party appraiser.
The following summarizes the purchase price and the preliminary allocation of
such price (in millions):
Value of AMC's common shares to be issued in the Merger $ 90.5
Merger related costs 3.5
-------
Total purchase price 94.0
Net assets of DAS acquired 7.5
Increase in fair value of property acquired 3.9
Covenant not to compete 1.6
Proceeds from subsequent bridge financing 10.0
Developed technology & know-how 30.1
Estimated value of in process technology 28.7
-------
Residual goodwill $ 12.2
=======
The following sets forth the unaudited pro forma combined balance sheet of AMC
and DAS as if the proposed merger had occurred on October 3, 1998 and combines
AMC's October 3, 1998 consolidated balance sheet information with the DAS
unaudited balance sheet information as of September 30, 1998. The unaudited pro
forma combined statement of operations assumes the proposed merger took place at
the beginning of the period presented and combines AMC's consolidated statement
of operations for the 53-week period ended October 3,1998 with the DAS unaudited
statement of operations for the year ended September 30, 1998. In addition,
management is in the process of assessing and formulating its integration plans,
which are expected to include employee separation, elimination of duplicate
research and development processes and other restructuring actions. The
estimated costs of these activities have not been included in the unaudited
combined pro forma financial statements.
The merger agreement also requires that up to $20 million (but not less than $15
million) be invested through the purchase of AMC common shares by GM Pension and
other investors. The share price is to be 80 percent of the lesser of the
average closing price at the five trading days prior to the merger agreement or
at the time of the closing. This equity investment is reflected in the unaudited
combined pro forma balance sheet.
1
Page 27 of 170
<PAGE>
As part of the merger agreement, subsequent to September 30, 1998, DAS has
received approximately $10.0 million of bridge financing in the form of a $7.9
million senior secured note and a $2.1 million junior note (secured by
technology rights) from third party investors to provide working capital and
general corporate funds until the merger is consummated. In addition, DAS will
acquire covenants not to compete for approximately $1.6 million. These notes and
covenants will be settled upon closing of the Merger in AMC Common Stock, valued
at approximately $19.7 million. The effect of these transactions, including the
repayment of the notes, has been reflected in the unaudited combined pro forma
balance sheet and the merger purchase price.
Based upon the finalization of the integration plans and other factors, the
final purchase price allocation may differ materially from the pro forma
adjustments presented in the following unaudited combined pro forma financial
statements.
The unaudited combined pro forma financial information is presented for
illustrative purposes only and is not necessarily indicative of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had the Merger been completed during the
specified periods. The unaudited combined pro forma financial information,
including the notes thereto, are qualified in their entirety by reference to,
and should be read in conjunction with, the historical consolidated financial
statements of AMC and DAS, including the notes thereto, incorporated herein by
reference and/or contained elsewhere in this filing.
2
Page 28 of 170
<PAGE>
<TABLE>
Applied Magnetics Corporation
Unaudited Pro Forma Combined Balance Sheet
<CAPTION>
Applied DAS
Magnetics Devices
as of October 3, as of September 30, Pro forma Adjustments Pro Forma
1998 1998 Debit Credit Combined
---------------- ------------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Assets
- ------
Current Assets
Cash and Equivalents $ 71,674 $ 2,082 a 7,900 --
b 2,100 --
c 20,000 --
$ 103,756
Restricted Cash -- 500 -- -- 500
Accounts Receivables 7,291 41 -- -- 7,332
Inventory 13,054 -- -- -- 13,054
Prepaid Expenses and Other 15,590 891 -- -- 16,481
--------- --------- --------- --------- ---------
107,609 3,514 30,000 -- 141,123
--------- --------- --------- --------- ---------
Property & Equipment 365,469 27,986 -- -- 393,455
Less - accumulated depreciation and amortization (188,022) (3,885)d 3,900 -- (188,007)
--------- --------- --------- --------- ---------
Net Property & Equipment 177,447 24,101 3,900 -- 205,448
--------- --------- --------- --------- ---------
Other Assets 14,462 2,219 --
Covenant not to compete d 1,625
Developed technology & know-how d 30,100 --
Goodwill d 12,200
60,606
--------- --------- --------- --------- ---------
$ 299,518 $ 29,834 $ 77,825 -- $407,177
========= ========= ========= =========
</TABLE>
3
Page 29 of 170
<PAGE>
<TABLE>
<CAPTION>
Applied DAS
Magnetics Devices
as of October 3, as of September 30, Pro forma Adjustments Pro Forma
1998 1998 Debit Credit Combined
---------------- ------------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilties:
Current Portion of Long-Term Debt $ 1,610 3,999 -- -- 5,609
Notes Payable 58,468 -- d 7,900 a 7,900
d 2,100 b 2,100
58,468
Accounts Payable 16,409 5,435 -- -- 21,844
Accrued Payroll and Benefits 8,070 346 -- -- 8,416
Other Current Liabilities 9,653 832 -- e 1,500 11,985
--------- --------- --------- --------- ---------
94,210 10,612 10,000 11,500 106,322
--------- --------- --------- --------- ---------
Long-Term Debt, net of Current Portion 116,767 11,732 -- -- 128,499
Other Long-Term Liabilities 2,581 -- -- -- 2,581
</TABLE>
4
Page 30 of 170
<PAGE>
<TABLE>
<CAPTION>
Applied DAS
Magnetics Devices
as of October 3, as of September 30, Pro forma Adjustments Pro Forma
1998 1998 Debit Credit Combined
---------------- ------------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Shareholder's Investment:
Preferred Stock -- 9 d 9 -- --
Common Stock 2,410 2
-- c,d 1,666
Paid-in Capital 191,225 53,605 -- e 2,000
19,640
d 3,605 d 89,209
302,074
Stockholder Notes Receivable -- (472) -- d 472 --
Retained Earnings (106,065) (45,654)
d 28,700 d 45,654
-- -- (134,765)
87,570 7,490 82,316 158,641 171,385
Treasury, at cost (1,577) -- -- -- (1,577)
Unearned Restricted Stock Compensation (33) -- -- -- (33)
85,960 7,490 82,316 158,641 169,775
--------- --------- --------- --------- ---------
$ 299,518 $ 29,834 $ 92,316 $ 170,141 $ 407,177
========= ========= ========= ========= =========
</TABLE>
5
Page 31 of 170
<PAGE>
<TABLE>
Applied Magnetics Corporation
Unaudited Pro forma Combined Statement of Operations
<CAPTION>
Applied Magnetics DAS
53 weeks ended Year-ended Pro Forma Adjustments Pro forma
October 3, 1998 September 30, 1998 Debit Credit Combined
--------------- ------------------ ----- ------ --------
<S> <C> <C> <C> <C> <C>
Net Sales $ 183,597 $ 277 $ -- $ -- $ 183,874
Cost of Sales 198,742 21,452 -- -- 220,194
---------- --------- ------- -- ---------
Gross Profit (15,145) (21,175) -- -- (36,320)
---------- --------- ------- -- ---------
Research and Development Expenses (114,659) (11,380) -- -- (126,039)
Selling, General, and Administrative Expenses (6,514) (3,180)f 933 --
g 800 --
h 10,000
i 1,750 --
(23,177)
Restructuring Charges (8,400) -- -- -- (8,400)
Interest Income 5,877 451 -- -- 6,328
Interest Expense (12,627) (1,494) -- -- (14,121)
Other Expense, net (1,495) (31) -- -- (1,526)
---------- --------- ------- -- ---------
Loss Before Provision for
Income Taxes (152,963) (36,809) 13,483 -- (203,255)
Provision for Income Taxes 2,405 -- -- -- 2,405
---------- --------- ------- -- ---------
Net Loss $ (155,368) $ (36,809) $13,483 $ -- $(205,660)
========== ========= ======= == =========
</TABLE>
6
Page 32 of 170
<PAGE>
<TABLE>
Applied Magnetics Corporation
Unaudited Pro forma Combined Statement of Operations
<CAPTION>
Applied Magnetics DAS
53 weeks ended Year-ended Pro Forma Adjustments Pro forma
October 3, 1998 September 30, 1998 Debit Credit Combined
--------------- ------------------ ----- ------ --------
<S> <C> <C> <C> <C> <C>
Net Loss per Share:
Loss per Common Share $ (6.49) $ (5.07)
Weighted Average Number of Common
Shares Outstanding:
Common Shares 23,931 40,587
</TABLE>
7
Page 33 of 170
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The unaudited pro forma combined balance sheet gives effect to the
proposed merger of AMC and DAS as if the proposed merger had occurred as of
October 3, 1998 and combines AMC's October 3, 1998 consolidated balance sheet
and DAS' unaudited September 30, 1998 balance sheet. The unaudited pro forma
combined statement of operations assumes the proposed merger took place as of
the beginning of the period presented and combines AMC's consolidated statement
of operations for the 53-week period ended October 3, 1998 and DAS' unaudited
statement of operations for the year ended September 30, 1998. DAS' 1998 fiscal
year ended on December 31, 1998. DAS' twelve-month period ended September 30,
1998 has been derived by combining the unaudited results for nine months ended
September 30, 1998 with the unaudited results of operations for the three months
ended December 31, 1997.
On a combined basis, there were no material transactions between AMC and
DAS during the period presented. There are no material differences between the
accounting policies of AMC and DAS. The pro forma combined provision for income
taxes may not represent the amounts that would have resulted had AMC and DAS
filed consolidated income tax returns during the period presented.
Note 2. Pro Forma Adjustments
The pro forma adjustments are based on AMC management's estimates of the
value of the tangible and intangible assets acquired. A valuation of all assets
acquired has been conducted by an independent third-party appraisal company. The
pro forma adjustments may differ materially from those presented in these
unaudited pro forma combined financial statements. A change in the pro forma
adjustments would result in a reallocation of the purchase price affecting the
value assigned to tangible and intangible assets, including purchased in-process
technology and developed technology & know-how. The income statement effect of
these changes will depend on the nature and amount of the assets or liabilities
adjusted.
Management estimates that approximately $28.7 million of the purchase
price represents purchased in-process technology that has not yet reached
technological feasibility and has no alternative future use. This amount will be
expensed as a non-recurring, non-tax deductible charge upon consummation of the
Merger. This amount has been reflected as a reduction to stockholders' equity
and has not been included in the unaudited pro forma combined statement of
operations due to its non-recurring nature.
The value assigned to purchased in-process technology was determined by
identifying research projects in areas for which technological feasibility has
not been established. The value was determined by estimating the costs to
develop the purchased in-process technology into commercially viable 6.4GB and
8.5GB per 3.5 inch GMR products; estimating the resulting net cash flows from
such projects; and discounting the net cash flows back to their present value.
The nature of the efforts to develop the purchased in-process technology
into commercially viable products principally relate to the completion of all
designing, testing, prototyping, and high-volume manufacturing activities that
are necessary to establish that the GMR products can be produced to meet its
design specifications.
8
Page 34 of 170
<PAGE>
The resulting net cash flows from such projects are based on AMC
management's estimates of revenues, cost of sales, research and development
costs, selling, general and administrative costs, and income taxes from such
projects.
Management's estimate of net cash flow was discounted to present value.
The discount rate used in discounting the net cash flows from purchased
in-process technology is __ percent. This discount rate considers an estimate of
AMC cost of capital and the inherent uncertainties in the estimates described
above including the uncertainty surrounding the successful development of the
purchased in-process technology, the useful life of such technology, the
profitability levels of such technology and the uncertainty of technological
advances that are unknown at this time.
If these projects are not successfully developed, the sales and
profitability of the combined AMC may be adversely affected in future periods.
Additionally, the value of other intangible assets acquired may become impaired.
AMC anticipates to begin to benefit from the purchased in-process technology in
late 1999.
Description of pro forma adjustments
- ------------------------------------
(a) Adjustment to record $7.9 million in senior secured bridge notes provided
by third-party creditors. These notes are repayable, at the closing of the
merger at a 50 percent premium, through the issuance of AMC common shares.
(b) Adjustment to record $2.1 million in junior secured bridge notes provided
by third-party creditors. These notes are repayable at the closing of the
merger at face value plus $4.2 million to release the notes' collateral
consisting of DAS technology rights. Repayment will be made through the
issuance of AMC common shares.
(c) Adjustment to record the equity investment in AMC common shares from GM
Pension and other investors. The agreement requires that up to $20 million
(but not less than $15 million) be invested through the purchase of AMC
common shares. The share price is to be 80 percent of the lesser of the
average closing price of AMC common shares for the five trading days prior
to the merger agreement or closing. The pro forma adjustment assumes that
the common share value is $5.55 which represents 80 percent of the five
day average closing price ($6.9375) prior to the date of the merger
agreement. On this basis, 3,603,603 AMC common shares are assumed to be
issued.
(d) Adjustments to record the components of the purchase price - 10,201,422
shares of AMC Common Stock will be issued in exchange for all of the
outstanding shares of DAS Common and Preferred Stock. Included in the
above amount is approximately 555,000 common shares which will initially
be reserved for issuance as DAS common stock options and warrants vest.
These shares have been assumed to be issued since the DAS options and
warrants have nominal exercise prices. In addition, 2,850,450 shares of
AMC Common Stock will be issued to repay the bridge financing and the
9
Page 35 of 170
<PAGE>
obligation for the covenants not to compete. The value of AMC Common Stock
issued is based on the per share value of approximately $6.9375 calculated
as the average closing market price during the five trading days
immediately preceding the date of the Merger Agreement. These adjustments
also reflect the elimination of DAS stockholders' equity and the estimated
valuation of tangible and intangible assets, including purchased
in-process technology which is reflected as a reduction of stockholder's
equity, resulting from the preliminary allocation of the purchase price.
Valuation of the tangible and intangible assets acquired has been
conducted by an independent third-party appraisal company. The excess of
the purchase price plus related transaction costs over the fair value of
tangible and intangible assets acquired and liabilities assumed has been
allocated to (1) developed technology and know-how, which will be
amortized on a straight line basis over 3 years, the estimated period of
future benefit and (2) goodwill (including a value of $1.6 million
associated with assembled workforce), which will be amortized on a
straight line basis over the estimated period of future benefit of 7
years.
(e) Adjustment to reflect the accrual of estimated merger-related costs. AMC
will satisfy approximately $2.0 million of such costs through the issuance
of 800,000 warrants to acquire AMC Common Stock at the lower of the market
price upon vesting or $7.00.
(f) Adjustment to reflect the amortization of the covenants not to compete
over the term of the covenants.
(g) Adjustment to record the additional depreciation expense that would have
been recorded on the write-up of property, plant and equipment assuming an
estimated average useful life of 5 years.
(h) Adjustment to reflect the amortization of developed technology & know-how
over its estimated useful life of 3 years on a straight-line basis.
(i) Adjustment to reflect the amortization of goodwill over its estimated
useful life of 7 years on a straight-line basis.
Note 3. Pro Forma Basic Loss Per Common Share
Basic pro forma loss per common share is calculated based on the
historical AMC weighted average common shares outstanding during the fiscal year
ended October 3, 1998 and the conversion of all DAS Common Stock and Preferred
Stock outstanding at September 30, 1998 into 10,201,422 million shares of AMC
common shares, the settlement of the DAS bridge financing through the issuance
of 2,850,450 AMC common shares and the sale of 3,603,603 AMC common shares to GM
Pension and other investors. Diluted loss per share has not been presented
because the effect of common stock equivalents is antidilutive.
10
Page 36 of 170
<PAGE>
(c) Exhibits
2.1 Amended and Restated Agreement and Plan of
Merger, dated January 19, 1999, by and among
Applied Magnetics Corporation, AMC Acquisition
Subsidiary, Inc. and DAS Devices, Inc.
10.1 Amended and Restated Securities Purchase
Agreement, dated as of January 19, 1999 by and
among Sierra Ventures VI, Watershed Partners,
L.P., Watershed Cayman, L.L.C., Haussman
Holdings, East River Ventures, L.L.C. and The
Chase Manhattan Bank as Trustee for First
Plaza Group Trust (the "Investors").
10.2 Registration Rights Agreement, dated as of
February 11, 1999, by and among Applied
Magnetics and the Investors.
10.3 Registration Rights Agreement, dated as of
February 11, 1999, by and between Applied
Magnetics Corporation and DAS Devices, Inc.
23.1 Consent of Arthur Andersen LLP
99.1 Press Release dated February 11, 1999,
relating to closing of the Merger and the
issuance of shares of AMC Common Stock to the
Investors.
Page 37 of 170
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, hereunto duly authorized.
APPLIED MAGNETICS CORPORATION
By: /s/ Peter T. Altavilla
-------------------------------
Name: Pter T. Altavilla
Title: Secretary and Controller
Date: February 12, 1999
Page 38 of 170
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- --------------------------------------------------------------------------------
2.1 Amended and Restated Agreement and Plan of 40
Merger, dated January 19, 1999, by and among
Applied Magnetics Corporation, AMC Acquisition
Subsidiary, Inc. and DAS Devices, Inc.
10.1 Amended and Restated Securities Purchase 106
Agreement, dated as of January 19, 1999 by and
among Sierra Ventures VI, Watershed Partners,
L.P., Watershed Cayman, L.L.C., Haussman
Holdings, East River Ventures, L.L.C. and The
Chase Manhattan Bank as Trustee for First
Plaza Group Trust (the "Investors").
10.2 Registration Rights Agreement, dated as of 134
February 11, 1999, by and among Applied
Magnetics and the Investors.
10.3 Registration Rights Agreement, dated as of 153
February 11, 1999, by and between Applied
Magnetics Corporation and DAS Devices, Inc.
23.1 Consent of Arthur Andersen LLP 168
99.1 Press Release dated February 11, 1999, 169
relating to closing of the Merger and the
issuance of shares of AMC Common Stock to the
Investors.
Page 39 of 170
<PAGE>
EXHIBIT 2.1
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER,
dated as of November 24, 1998 and as amended on January 19,
1999 (this "Agreement"), among APPLIED MAGNETICS CORPORATION, a
Delaware corporation ("Parent"), AMC MERGER SUBSIDIARY, INC., a
Delaware corporation and a wholly owned subsidiary of Parent
("Merger Sub"), and DAS DEVICES, INC., a Delaware corporation
(the "Company").
WITNESSETH:
WHEREAS, the boards of directors of Parent and the
Company have determined that it is consistent with and in
furtherance of their respective long-term business strategies
and fair to and in the best interests of their respective
companies and stockholders to combine their respective
businesses pursuant to the transaction set forth in this
Agreement;
WHEREAS, the board of directors of each of Parent,
Merger Sub and the Company have approved and declared advisable
the merger of Merger Sub with and into the Company (the
"Merger"), upon the terms and subject to the conditions of this
Agreement and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL") and any applicable
provisions of the California General Corporation Law (the
"CGCL");
WHEREAS, the board of directors of Parent has
approved this Agreement and the Merger and the issuance of
13,051,872 shares of the common stock, par value $.01 per
share, of Parent ("Parent Common Stock");
WHEREAS, the board of directors of the Company has
approved this Agreement and the Merger, as contemplated by this
Agreement, and has recommended that the holders of capital
stock of the Company ("Company Capital Stock"), vote to adopt
this Agreement and the terms of the Merger, as contemplated by
this Agreement;
WHEREAS, the board of directors of Merger Sub has
approved this Agreement and the Merger, as contemplated by this
Agreement, and has recommended that its sole stockholder vote
to adopt this Agreement and the terms of the Merger, and
Parent, as the sole stockholder of Merger Sub, has adopted this
Agreement and terms of the Merger, as contemplated by this
Agreement;
WHEREAS, for United States federal income tax
purposes, it is intended that the Merger shall qualify as a
reorganization under the provisions of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the
-1-
Page 40 of 170
<PAGE>
"Code"), and the Treasury regulations thereunder (the
"Regulations");
NOW, THEREFORE, in consideration of the foregoing and
the respective representations, warranties, covenants and
agreements set forth in this Agreement, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger. Upon the terms and
subject to the conditions set forth in this Agreement, and in
accordance with the DGCL, at the Effective Time (as defined
below), Merger Sub shall be merged with and into the Company.
As a result of the Merger, the separate corporate existence of
Merger Sub shall cease and the Company shall continue as the
surviving corporation of the Merger as a wholly owned
subsidiary of Parent (the "Surviving Corporation").
SECTION 1.02 Closing. Unless this Agreement shall
have been terminated and the Merger herein contemplated shall
have been abandoned pursuant to Section 8.01 and subject to the
satisfaction or waiver of the conditions set forth in
Article VII, the consummation of the Merger shall take place as
promptly as practicable (and in any event within three business
days) after satisfaction or waiver of the conditions set forth
in Article VII, at a closing (the "Closing") to be held at the
offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill
Road, Palo Alto, CA 94304, unless another date, time or place
is agreed to by Parent and the Company.
SECTION 1.03 Effective Time. At the time of the
Closing, the parties shall cause the Merger to be consummated
by filing a certificate of merger (the "Certificate of Merger")
with the Secretary of State of the State of Delaware, in such
form as required by, and executed in accordance with the
relevant provisions of, the DGCL (the date and time of such
filing, or such later date or time as set forth therein, being
the "Effective Time").
SECTION1.04 Effect of the Merger. At the
Effective Time, the effect of the Merger shall be as provided
in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise provided herein, all the
property, rights, privileges, powers and franchises of the
Company and Merger Sub shall vest in the Surviving Corporation,
and all debts, liabilities and duties of the Company and Merger
Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION1.05 Certificate of Incorporation; Bylaws;
Directors and Officers of Surviving Corporation. At the
Effective Time:
-2-
Page 41 of 170
<PAGE>
(a) the Certificate of Incorporation and the Bylaws
of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation and the Bylaws
of the Surviving Corporation (except that Article I of the
Certificate of Incorporation shall be amended as of the
Effective Time to read as follows: "The name of the Corporation
is Das Devices, Inc.");
(b) the officers of Merger Sub immediately prior to
the Effective Time shall be the initial officers of the
Surviving Corporation from and after the Effective Time, in
each case until their successors are elected or appointed and
qualified or until their resignation or removal. If, at the
Effective Time, a vacancy shall exist in any office of the
Surviving Corporation, such vacancy may thereafter be filled in
the manner provided by Law and the Certificate of Incorporation
and Bylaws of the Surviving Corporation. As used in this
Agreement, "Law" means any federal, state or local statute,
law, ordinance, regulation, rule, code, order, judgment, writ,
stipulation, award, injunction, decree or other requirement or
rule of law of the United States or any other jurisdiction; and
(c) the directors of Merger Sub immediately prior to
the Effective Time shall be the initial directors of the
Surviving Corporation from and after the Effective Time, in
each case until their successors are elected or appointed and
qualified or until their resignation or removal. If, at the
Effective Time, a vacancy shall exist on the Board of Directors
of the Surviving Corporation, such vacancy may thereafter be
filled in the manner provided by Law and the Certificate of
Incorporation and Bylaws of the Surviving Corporation.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01 Payment of Merger Consideration.
(a) Certain Definitions. For all purposes of this
Agreement, the following terms shall have the following
meaning:
"Company Capital Stock" shall mean shares of
Company Common Stock, Company Series A Preferred, Company
Series B Preferred, Company Series C Preferred, Company
Series D Preferred, and Company Series E Preferred.
"Company Common Stock" shall mean shares of
common stock, $0.001 par value per share, of the Company.
"Company Preferred Stock" shall mean,
collectively, shares of Company Series A Preferred, Company
Series B Preferred, Company Series C Preferred, Company
Series D Preferred, and Company Series E Preferred.
-3-
Page 42 of 170
<PAGE>
"Company Series A Preferred" shall mean shares
of Series A Preferred Stock, $0.001 par value per share, of the
Company.
"Company Series B Preferred" shall mean shares
of Series B Preferred Stock, $0.001 par value per share, of the
Company.
"Company Series C Preferred" shall mean shares
of Series C Preferred Stock, $0.001 par value per share, of the
Company.
"Company Series D Preferred" shall mean shares
of Series D Preferred Stock, $0.001 par value per share, of the
Company.
"Company Series E Preferred" shall mean shares
of Series E Preferred Stock, $0.001 par value per share, of the
Company.
"Exchange Ratio" shall mean a number equal to
the quotient obtained by dividing (i) the Participating
Consideration by (ii) the Total Participating Shares.
"Junior Bridge Consideration" shall mean an
aggregate of $6,300,000 worth of Parent Common Stock,
determined according to the Trading Price, payable to the
Company, for payment immediately after the Effective Time to
the holders of the Company's Notes Nos. 1 through 6, each dated
November 6, 1998 (the "Junior Notes"). Such consideration is
payable in exchange for repayment and cancellation of the
Junior Notes and for cancellation of that certain license
agreement between the Company and XTA LLC, dated November 6,
1998.
"Merger Consideration" shall mean 13,051,872
shares of Parent Common Stock.
"Non-Competition Consideration" shall mean an
aggregate of $1,625,000 worth of Parent Common Stock,
determined according to the Trading Price, payable to the
Company, for payment immediately after the Effective Time to
the individuals who are parties to those certain Non-
Competition Agreements, each dated as of the date hereof, which
are set forth as items 25, 26 and 27 on Section 3.11 of the
Company Disclosure Schedules (the "Non-Competition
Agreements").
"Parent Common Stock" shall mean shares of the
common stock, par value $0.01, of Parent.
"Senior Bridge Consideration" shall mean an
aggregate of $11,850,000 worth of Parent Common Stock,
determined according to the Trading Price, payable to the
Company, for payment immediately after the Effective Time to
-4-
Page 43 of 170
<PAGE>
the holders of the Company's Notes Nos. A-1 through A-7, each
dated November 25, 1998 (the "Senior Notes"), payable in
exchange for cancellation of the Senior Notes.
"Total Outstanding Shares" shall mean the
aggregate number of shares of Company Common Stock outstanding
immediately prior to the Effective Time plus the aggregate
number of shares of Company Common Stock issuable, with or
without the passage of time or satisfaction of other
conditions, upon exercise or conversion of all options,
warrants and other rights (including the Company Preferred
Stock and securities convertible into Company Preferred Stock)
to acquire or receive shares of Company Common Stock
outstanding immediately prior to the Effective Time.
"Trading Price" shall mean the average closing
sales price of the Parent Common Stock as reported on the New
York Stock Exchange for the five (5) consecutive trading days
ending on the trading day prior to the Closing Date.
(b) Payment of Senior Bridge Consideration. Prior
and in preference to any delivery of Merger Consideration in
payment of the Junior Bridge Consideration, the Non-Competition
Consideration, or to holders of Company Common Stock and
Company Preferred Stock, the Company will receive, for payment
immediately after the Effective Time to the holders of the
Senior Notes, the Senior Bridge Consideration, such payment to
be made to such holders in pro rata proportion relative to each
such noteholder's interest in the Senior Notes; provided that,
if the Merger Consideration is insufficient to pay the Senior
Bridge Consideration, the holders of such Senior Notes will be
entitled to their pro rata share of Parent Common Stock
available in proportion to the respective amounts which would
be received by them if the respective amounts were paid in
full.
After payment of the Senior Bridge Consideration as
set forth in Section 2.01(b) above, then any remaining shares
of Parent Common Stock comprising the Merger Consideration
shall be distributed as follows:
(c) Payment of Junior Bridge Consideration. Prior
and in preference to any delivery of Merger Consideration in
payment of the Non-Competition Consideration, or to holders of
Company Common Stock and Company Preferred Stock, the Company
will receive, for payment immediately after the Effective Time
to the holders of the Junior Notes, the Junior Bridge
Consideration, such payment to be made to such holders in pro
rata proportion relative to each such noteholder's interest in
the Junior Notes; provided that, if the Merger Consideration is
insufficient to pay the Junior Bridge Consideration, the
holders of such Junior Notes will be entitled to their pro rata
share of Parent Common Stock available in proportion to the
respective amounts which would be received by them if the
respective amounts were paid in full.
-5-
Page 44 of 170
<PAGE>
After payment of the Junior Bridge consideration as
set forth in Section 2.01(c) above, then any remaining shares
of Parent Common Stock comprising the Merger Consideration
shall be distributed as follows:
(d) Payment of Non-Competition Consideration. Prior
and in preference to any delivery of Merger Consideration to
the holders of Company Common Stock and Company Preferred
Stock, the Company will receive, for payment immediately after
the Effective Time to the individuals who are parties to the
Non-Competition Agreements, the Non-Competition Consideration
for such payments to be made to such individuals; provided
that, if the Merger Consideration is insufficient to pay such
Non-Competition Consideration, the individuals who are parties
to the Non-Competition Agreements will be entitled to their pro
rata share of Parent Common Stock available in proportion to
the respective amounts which would be received by them if the
respective amounts were paid in full.
After payment of the Non-Competition Consideration as
set forth in Section 2.01(d) above, then any remaining shares
of Parent Common Stock comprising the Merger Consideration
shall be distributed as follows:
(e) Effect on Company Capital Stock. At the
Effective Time, by virtue of the Merger and without any action
on the part of Merger Sub, the Company or the holders of any
shares of the Company Capital Stock, each outstanding share a
share of Company Common Stock, Company Series A Preferred,
Company Series B Preferred, Company Series C Preferred, Company
Series D Preferred, and Company Series E Preferred issued and
outstanding immediately prior to the Effective Time (other than
any Dissenting Shares, as defined below) will be canceled and
extinguished and be converted automatically into the right to
receive, upon surrender of the certificate representing such
share of Company Common Stock, Company Series A Preferred,
Company Series B Preferred, Company Series C Preferred, Company
Series D Preferred, and Company Series E Preferred and upon the
terms and subject to conditions set forth below and throughout
this Agreement as follows; provided however, that with respect
to unexercised Company Options (as defined in paragraph (f)(i)
below), and unexercised Company Warrants (as defined in
paragraph (f)(ii) below), such holders of Company Options and
Warrants (except the holders of Series C Rights (as defined in
Section (f)(ii) below) and with respect to any other Company
Warrants exercised on a net basis) shall be deemed, for
purposes of the calculations set forth in Sections 2.01(b)
through (e), to have exercised such Company Options and Company
Warrants and shall be deemed a holder of the applicable
underlying shares of Company Capital Stock; provided further
that the shares of Parent Common Stock issuable to such holders
of Company Options and Company Warrants shall be reserved for
issuance upon exercise with each such Company Option and
Company Warrant, as more fully described in Section 2.01(f)
below. However, with respect to Company Warrants (as defined
-6-
Page 45 of 170
<PAGE>
in Section 2.01(f)(ii) below) which have been exercised on a
net exercise basis for issuance of Parent Common Stock out of
the Merger Consideration, such holders of Company Warrants
shall not be deemed for purposes of the calculations set forth
in Sections 2.01(b) through (e) to have exercised such Company
Warrants and correspondingly, the holders of such Company
Warrants which have been net exercised shall not receive the
Series E Preference, the Series D Preference, the Series C
Preference, the Series B Preference, or the Series A
Preference, as the case may be, as provided by
Section 2.01(c)(i) or Section 2.01(c)(ii), however, such holder
shall receive the Participating Consideration (as defined in
Section 2.01(c)(iii) below) as if they were a holder of the
shares of Company Preferred Stock underlying such Company
Warrant.
(i) Senior Preferred Consideration. Prior and
in preference to any delivery of Merger Consideration to
holders of Company Common Stock and Series A Preferred Stock,
the holders of Company Series B Preferred, Company Series C
Preferred, Company Series D Preferred, and Company Series E
Preferred will be entitled to receive the following; provided
that, if the Merger Consideration is insufficient to permit the
delivery of all such Parent Common Stock, then holders of
Company Series B Preferred, Company Series C Preferred, Company
Series D Preferred, and Company Series E Preferred will be
entitled to their pro rata share of the Parent Common Stock
available in proportion to the respective amounts which would
be received by them if the respective amounts were paid in
full:
(A) Each share of Company Series E
Preferred issued and outstanding immediately prior to the
Effective Time, shall be entitled to receive that number of
shares of Parent Common Stock equal to $1.10 divided by the
Trading Price. Such number ($1.10 divided by the Trading
Price) multiplied by the number of shares of Company Series E
Preferred issued and outstanding immediately prior to the
Effective Time is herein referred to as the "Series E
Preference."
(B) Each share of Company Series D
Preferred issued and outstanding immediately prior to the
Effective Time, shall be entitled to receive that number of
shares of Parent Common Stock equal to $1.00 divided by the
Trading Price. Such number ($1.00 divided by the Trading
Price) multiplied by the number of shares of Company Series D
Preferred issued and outstanding immediately prior to the
Effective Time is herein referred to as the "Series D
Preference."
(C) Each share of Company Series C
Preferred issued and outstanding immediately prior to the
Effective Time, shall be entitled to receive that number of
shares of Parent Common Stock equal to $0.40 divided by the
-7-
Page 46 of 170
<PAGE>
Trading Price. Such number ($0.40 divided by the Trading
Price) multiplied by the number of shares of Company Series C
Preferred issued and outstanding immediately prior to the
Effective Time is herein referred to as the "Series C
Preference."
(D) Each share of Company Series B
Preferred issued and outstanding immediately prior to the
Effective Time, shall be entitled to receive that number of
shares of Parent Common Stock equal to $0.2083 divided by the
Trading Price. Such number ($0.2083 divided by the Trading
Price) multiplied by the number of shares of Company Series B
Preferred issued and outstanding immediately prior to the
Effective Time is herein referred to as the "Series B
Preference."
(E) The Series E Preference, Series D
Preference, Series C Preference, and Series B Preference are
collectively referred to herein as the "Senior Preferred
Preferences."
(ii) Junior Preferred Consideration. After
payment of the Senior Preferred Preferences set forth in
Section 2.01(e)(i) above, then any remaining shares of Parent
Common Stock comprising the Merger Consideration shall be
distributed as follows:
(A) Series A Preferred Consideration.
Prior and in preference to any delivery of Merger Consideration
to holders of Company Common Stock, the holders of Company
Series A Preferred will be entitled to receive the following;
provided that, if the remaining Merger Consideration is
insufficient to permit the receipt of all such Parent Common
Stock, then holders of Company Series A Preferred will be
entitled to their pro rata share of the Parent Common Stock
available in proportion to the respective amounts which would
be received by them if the respective amounts were paid in
full:
(B) Each share of Company Series A
Preferred issued and outstanding immediately prior to the
Effective Time, shall be entitled to receive that number of
shares of Parent Common Stock equal to $0.20 divided by the
Trading Price. Such number ($0.20 divided by the Trading
Price) multiplied by the number of shares of Company Series A
Preferred issued and outstanding immediately prior to the
Effective Time is herein referred to as "Junior Preferred
Consideration."
(iii) Participating Consideration. After
payment of the Junior Preferred Consideration pursuant to
Section 2.01(e)(ii), then any remaining shares of Parent Common
Stock comprising the Merger Consideration (the "Remaining
Merger Consideration Shares") shall be distributed to the
-8-
Page 47 of 170
<PAGE>
holders of the Company Common Stock and Company Preferred Stock
as follows:
(A) Each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time,
shall be entitled to receive that number of shares of Parent
Common Stock (rounded to the nearest whole number) equal to
(x) the Remaining Merger Consideration Shares multiplied by
(y) a fraction, the numerator of which shall be the number of
shares of Company Common Stock held by such holder immediately
prior to the Effective Time, and the denominator of which shall
be the Total Outstanding Shares. The Remaining Merger
Consideration Shares divided by the Total Outstanding Shares is
referred to hereinafter as the "Common Exchange Ratio."
(B) Subject to paragraphs (C) and (D)
below, each share of Company Series A Preferred, Company
Series B Preferred, Company Series C Preferred, Company
Series D Preferred and Company Series E Preferred issued and
outstanding immediately prior to the Effective Time, shall be
entitled to receive that number of shares of Parent Common
Stock (rounded to the nearest whole number) equal to (x) the
Remaining Merger Consideration Shares multiplied by (y) a
fraction, the numerator of which shall be the number of shares
of Company Common Stock issuable upon conversion of such share
of Company Series A Preferred, Company Series B Preferred,
Company Series C Preferred, Company Series D Preferred or
Company Series E Preferred immediately prior to the Effective
Time pursuant to the Certificate of Incorporation of the
Company as then in effect, and the denominator of which shall
be the Total Outstanding Shares.
(C) The payment of the Remaining Merger
Consideration Shares to the holders of Company Common Stock and
Company Preferred Stock as set forth in Section 2.01(e)(iii)(A)
and (B) above shall be pari passu and not in preference to one
another; provided however, that the payment to the holders of
Company Preferred Stock pursuant to paragraph (B) above shall
be subject to the limitations set forth in the following
paragraph (D).
(D) Notwithstanding anything to the
contrary contained in Section (B), and in accordance with the
Certificate of Incorporation of the Company, (1) under no
circumstances shall the holder of any share of Company Series A
Preferred be entitled pursuant to Section 2.01(e)(iii)(B) to
receive a number of shares of Parent Common Stock equal to a
value in excess of $0.40, determined according to the Trading
Price in respect of any such share (i.e., an aggregate of $0.60
per share of Series A Preferred) , (2) under no circumstances
shall the holder of any share of Company Series B Preferred be
entitled pursuant to Section 2.01(e)(iii)(B) to receive a
number of shares of Parent Common Stock equal to a value in
excess of $0.4166 determined according to the Trading Price in
respect of any such share (i.e., an aggregate of $0.6249 per
-9-
Page 48 of 170
<PAGE>
share of Series B Preferred), (3) under no circumstances shall
the holder of any share of Company Series C Preferred be
entitled pursuant to Section 2.01(e)(iii)(B) to receive a
number of shares of Parent Common Stock equal to a value in
excess of $0.40 determined according to the Trading Price in
respect of any such share (i.e., an aggregate of $1.20 per
share of Series C Preferred), (4) under no circumstances shall
the holder of any share of Company Series D Preferred be
entitled pursuant to Section 2.01(e)(iii)(B) to receive a
number of shares of Parent Common Stock equal to a value in
excess of $2.00 determined according to the Trading Price in
respect of any such share (i.e., an aggregate of $3.00 per
share of Series D Preferred), and (5) under no circumstances
shall the holder of any share of Company Series E Preferred be
entitled pursuant to Section 2.01(e)(iii)(B) to receive a
number of shares of Parent Common Stock equal to a value in
excess of $2.20 determined according to the Trading Price in
respect of any such share (i.e., an aggregate of $3.30 per
share of Series E Preferred).
(f) Company Stock Options and Warrants to Purchase
Company Capital Stock.
(i) At the Effective Time, each outstanding
option or warrant to purchase shares of Company Common Stock
(each a "Company Option"), whether or not exercisable, will be
assumed by Parent. Each Company Option so assumed by Parent
under this Agreement will continue to have, and be subject to,
the same terms and conditions governing such Company Option
immediately prior to the Effective Time (including, without
limitation, any vesting schedule or repurchase rights), except
that (i) each Company Option will be exercisable (or will
become exercisable in accordance with its terms) for that
number of whole shares of Parent Common Stock equal to the
product of the number of shares of Company Common Stock that
were issuable upon exercise of such Company Option immediately
prior to the Effective Time multiplied by the Common Exchange
Ratio, rounded down to the nearest whole number of shares of
Parent Common Stock, and (ii) the per share exercise price for
the shares of Parent Common Stock issuable upon exercise of
such assumed Company Option will be equal to the quotient
determined by dividing (x) the exercise price per share of
Company Common Stock at which such Company Option was
exercisable immediately prior to the Effective Time by (y) the
Common Exchange Ratio, rounded up to the nearest whole cent.
It is the intention of the parties that Company Options assumed
by Parent following the Closing will, to the extent permitted
by applicable law, qualify as incentive stock options as
defined in Section 422 of the Code, to the extent Company
Options qualified as incentive stock options immediately prior
to the Closing. After the Effective Time, Parent will issue to
each holder of an outstanding Company Option a notice
describing the foregoing assumption of such Company Options.
-10-
Page 49 of 170
<PAGE>
(ii) At the Effective Time, each outstanding
warrant to purchase shares of Company Preferred Stock (each a
"Company Warrant"), whether or not exercisable, will be assumed
by Parent. Each Company Warrant so assumed by Parent under
this Agreement will continue to have, and be subject to, the
same terms and conditions governing such Company Warrant
immediately prior to the Effective Time (including, without
limitation, any vesting schedule or repurchase rights), except
that (i) each Company Warrant will be exercisable (or will
become exercisable in accordance with its terms) for that
number of whole shares of Parent Common Stock equal to the
product of the number of shares of Company Preferred Stock that
were issuable upon exercise of such Company Warrant immediately
prior to the Effective Time multiplied by the Applicable
Preferred Exchange Ratio (as defined below), rounded down to
the nearest whole number of shares of Parent Common Stock, and
(ii) the per share exercise price for the shares of Parent
Common Stock issuable upon exercise of such assumed Company
Warrant will be equal to the quotient determined by dividing
the exercise price per share of Company Preferred Stock at
which such Company Warrant was exercisable immediately prior to
the Effective Time by the Applicable Preferred Exchange Ratio,
rounded up to the nearest whole cent. "Applicable Preferred
Exchange Ratio" shall mean with respect to such series of
Company Preferred Stock, the number of shares of Parent Common
Stock distributed for one share of such series of Company
Preferred Stock; provided however, that with respect to any
rights or warrants to purchase Company Preferred Stock which
are exercised on a "net exercise" (or cashless basis) at the
Closing, any holder of such series shall be deemed a holder of
such series of Company Preferred Stock for purposes of this
Section 2.01; provided however, that such holder shall not
receive any of the consideration as provided by
Section 2.01(e)(i) above but shall receive the Parent Common
Stock payable to such holders of Preferred Stock pursuant to
Section 2.01(e)(iii)(B). Pursuant to this section, any rights
or warrants to acquire Company Preferred Stock which are
exercised on a "net exercise" (or cashless) basis shall be paid
at the Closing and not assumed by Parent.
(g) Capital Stock of Merger Sub. Each share of
common stock of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable
share of common stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such
shares shall continue to evidence ownership of such shares of
capital stock of the Surviving Corporation.
(h) Fractional Shares. No fraction of a share of
Parent Common Stock will be issued, but in lieu thereof, each
holder of shares of Company Capital Stock (including Company
Capital Stock issuable upon exercise of outstanding Company
Options and Company Warrants at the Effective Time) who would
otherwise be entitled to a fraction of a share of Parent Common
-11-
Page 50 of 170
<PAGE>
Stock (after aggregating all fractional shares of Parent Common
Stock to be received by such holder) shall be entitled to
receive from Parent an amount of cash (rounded to the nearest
whole cent) equal to the product of (i) such fraction and
(ii) the Trading Price.
SECTION 2.02 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement
to the contrary, any shares of Company Capital Stock held by a
holder who has exercised and perfected appraisal rights for
such shares in accordance with Delaware Law and who, as of the
Effective Time, has not effectively withdrawn or lost such
appraisal rights ("Dissenting Shares"), shall not be converted
into or represent a right to receive the consideration for such
Company Capital Stock pursuant to Section 2.01, but the holder
thereof shall only be entitled to such rights as are granted by
Delaware Law.
(b) Notwithstanding the provisions of
subsection (a), if any holder of Dissenting Shares shall
effectively withdraw or lose (through failure to perfect or
otherwise) his or her appraisal rights, then, as of the later
of the Effective Time and the occurrence of such event, such
holder's shares shall automatically be converted into and
represent only the right to receive the consideration for
Company Capital Stock as provided in Section 2.01, without
interest thereon, upon surrender of the certificate
representing such shares.
(c) The Company shall give Parent (i) prompt notice
of any written demand for appraisal received by the Company
prior to the Closing Date pursuant to the applicable provisions
of Delaware Law and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The
Company shall not, except with the prior written consent of
Parent, voluntarily make any payment with respect to any such
demands or offer to settle or settle any such demands.
SECTION 2.03 Exchange of Certificates. (a) Exchange
Agent. As of the Effective Time, Parent shall deposit, or
shall cause to be deposited, with a bank or trust company
designated by Parent and reasonably acceptable to the Company
(the "Exchange Agent"), for the benefit of the holders of
shares of Company Capital Stock, for exchange in accordance
with this Article II, through the Exchange Agent, certificates
representing the shares of Parent Common Stock (such
certificates for shares of Parent Common Stock, together with
cash in lieu of fractional shares and any dividends or
distributions with respect thereto, being hereinafter referred
to as the "Exchange Fund") issuable pursuant to Section 2.01 in
exchange for outstanding shares of Company Capital Stock. The
Exchange Agent shall, pursuant to irrevocable instructions,
deliver the Parent Common Stock contemplated to be issued
pursuant to Section 2.01 out of the Exchange Fund. Except as
-12-
Page 51 of 170
<PAGE>
contemplated by Section 2.02(e) hereof, the Exchange Fund shall
not be used for any other purpose.
(b) Exchange Procedures. Promptly after the
Effective Time, Parent shall instruct the Exchange Agent to
mail to each holder of record of a certificate or certificates
which immediately prior to the Effective Time represented
outstanding shares of Company Capital Stock (the
"Certificates") (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Exchange Agent, and shall be in
customary form) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates
representing shares of Parent Common Stock. Upon surrender of
a Certificate for cancellation to the Exchange Agent together
with such letter of transmittal, duly executed, and such other
documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of
whole shares of Parent Common Stock which such holder has the
right to receive in respect of the shares of Company Capital
Stock formerly represented by such Certificate (after taking
into account all shares of Company Capital Stock then held by
such holder), cash in lieu of fractional shares of Parent
Common Stock to which such holder is entitled pursuant to
Section 2.01(h) and any dividends or other distributions to
which such holder is entitled with respect thereto, and the
Certificate so surrendered shall forthwith be canceled. No
interest will be paid or accrued on any cash in lieu of
fractional shares or on any unpaid dividends and distributions
payable to holders of Certificates. Notwithstanding anything
to the contrary contained herein, no certificate representing
Parent Common Stock or cash in lieu of a fractional share
interest shall be delivered to a person who is an Affiliate of
Parent or the Company. In the event of a transfer of ownership
of shares of Company Capital Stock which is not registered in
the transfer records of the Company, a certificate representing
the proper number of shares of Parent Common Stock may be
issued to a transferee if the Certificate representing such
shares of Company Capital Stock is presented to the Exchange
Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.03, each Certificate shall be
deemed at any time after the Effective Time to represent only
the right to receive upon such surrender the certificate
representing shares of Parent Common Stock, cash in lieu of any
fractional shares of Parent Common Stock to which such holder
is entitled pursuant to Section 2.01(h) and any dividends or
other distributions to which such holder is entitled with
respect thereto.
(c) Distributions with Respect to Unexchanged Shares
of Parent Common Stock. No dividends or other distributions
-13-
Page 52 of 170
<PAGE>
declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of Parent Common Stock represented
thereby, and no cash payment in lieu of fractional shares shall
be paid to any such holder pursuant to Section 2.01(h), until
the holder of such Certificate shall surrender such
Certificate. Subject to the effect of escheat, tax or other
applicable Laws, following surrender of any such Certificate,
there shall be paid to the holder of the certificates
representing whole shares of Parent Common Stock issued in
exchange therefor, without interest, (i) promptly, the amount
of any cash payable with respect to a fractional share of
Parent Common Stock to which such holder is entitled pursuant
to Section 2.01(h) and the amount of dividends or other
distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent
Common Stock and (ii) at the appropriate payment date, the
amount of dividends or other distributions, with a record date
after the Effective Time but prior to surrender and a payment
date occurring after surrender, payable with respect to such
whole shares of Parent Common Stock.
(d) No Further Rights in Company Capital Stock. All
shares of Parent Common Stock issued upon conversion of the
shares of Company Capital Stock in accordance with the terms
hereof (including any cash paid pursuant to Section 2.03(c) or
(e)) shall be deemed to have been issued in full satisfaction
of all rights pertaining to such shares of Company Capital
Stock, subject, however, to the Surviving Corporation's
obligation to pay dividends or make any other distribution with
respect to shares of Company Capital Stock with a record date
prior to the Effective Time which have been declared or made by
the Company on such shares of Company Capital Stock in
accordance with the terms of this Agreement (to the extent
permitted under Section 5.01) prior to the date hereof and
which remain unpaid at the Effective Time.
(e) No Fractional Shares. (i) No certificates or
scrip representing fractional shares of Parent Common Stock
shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution with respect to
Parent Common Stock shall be payable on or with respect to any
fractional share and such fractional share interests will not
entitle the owner thereof to any rights of a stockholder of
Parent.
(ii) Parent shall pay to the Exchange Agent an
amount in cash sufficient for the Exchange Agent to pay each
holder of Company Capital Stock an amount in cash equal to the
product obtained by multiplying (x) the fractional share
interest to which such holder would otherwise be entitled
(after taking into account all shares of Company Capital Stock
held at the Effective Time by such holder) by (y) the Trading
Price.
-14-
Page 53 of 170
<PAGE>
(iii) As soon as practicable after the
determination of the amount of cash, if any, to be paid to
holders of Company Capital Stock with respect to any fractional
share interests, the Exchange Agent shall promptly pay such
amounts to such holders of Company Capital Stock subject to and
in accordance with the terms of Section 2.02(c).
(f) Termination of Exchange Fund. Any portion of
the Exchange Fund which remains undistributed to the holders of
Company Capital Stock for one year after the Effective Time
shall be delivered to Parent, upon demand, and any holders of
Company Capital Stock who have not theretofore complied with
this Article II shall thereafter look only to Parent for the
shares of Parent Common Stock, any cash in lieu of fractional
shares of Parent Common Stock to which they are entitled
pursuant to Section 2.01(h) and any dividends or other
distributions with respect to Parent Common Stock to which they
are entitled with respect thereto, in each case, without any
interest thereon.
(g) No Liability. Neither Parent nor the Company
shall be liable to any holder of shares of Company Capital
Stock for any such shares of Parent Common Stock (or dividends
or distributions with respect thereto) or cash from the
Exchange Fund delivered to a public official pursuant to any
abandoned property, escheat or similar Law.
(h) Lost Certificates. If any Certificate shall
have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate
to be lost, stolen or destroyed and, if required by Parent, the
posting by such person of a bond, in such reasonable amount as
Parent may direct, as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed
Certificate the shares of Parent Common Stock, any cash in lieu
of fractional shares of Parent Common Stock to which the
holders thereof are entitled pursuant to Section 2.01(h) and
any dividends or other distributions to which the holders
thereof are entitled with respect thereto, in each case,
without any interest thereon.
(i) Withholding. Parent or the Exchange Agent shall
be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of
Company Capital Stock such amounts as Parent or the Exchange
Agent are required to deduct and withhold under the Code, or
any provision of state, local or foreign tax law, with respect
to the making of such payment. To the extent that amounts are
so withheld by Parent or the Exchange Agent, such withheld
amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of Company Capital Stock in
respect of whom such deduction and withholding was made by
Parent or the Exchange Agent.
-15-
Page 54 of 170
<PAGE>
SECTION 2.04 Stock Transfer Books. At the
Effective Time, the stock transfer books of the Company shall
be closed and there shall be no further registration of
transfers of shares of Company Capital Stock thereafter on the
records of the Company. From and after the Effective Time, the
holders of certificates representing shares of Company Capital
Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such shares of Company
Capital Stock except as otherwise provided herein or by Law.
On or after the Effective Time, any Certificates presented to
the Exchange Agent or Parent for any reason shall be converted
into the shares of Parent Common Stock, any cash in lieu of
fractional shares of Parent Common Stock to which the holders
thereof are entitled pursuant to Section 2.01(h) and any
dividends or other distributions to which the holders thereof
are entitled with respect thereto.
SECTION 2.05 Registration of Assumed Company
Options. Parent shall take all corporate action necessary to
reserve and make available for issuance a sufficient number of
shares of Parent Common Stock for delivery under Company
Options assumed by Parent. At or prior to the Effective Time,
Parent shall file a registration statement on Form S-8 (or any
successor or other appropriate forms) with respect to the
shares of Parent Common Stock subject to such options and shall
use its best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain
the current status of the prospectus or prospectuses contained
therein) for so long as such options remain outstanding.
SECTION 2.06 Restricted Stock. At the Effective
Time, any restricted shares of Company Capital Stock awarded
pursuant to any plan, arrangement or transaction and
outstanding immediately prior to the Effective Time shall be
assumed by Parent and converted into restricted shares of
Parent Common Stock in accordance with Section 2.01 hereof,
subject to the same terms, conditions and restrictions as in
effect immediately prior to the Effective Time, except to the
extent that such terms, conditions and restrictions may be
altered in accordance with their terms as a result of the
Merger contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent
as of November 24, 1998 (and not the date that this Agreement
has been amended and restated) that:
SECTION 3.01 Organization and Qualification,
Subsidiaries. Each of the Company and each subsidiary of the
Company (the "Company Subsidiaries") has been duly organized
and is validly existing and in good standing (to the extent
applicable) under the laws of the jurisdiction of its
incorporation or organization, as the case may be, and has the
-16-
Page 55 of 170
<PAGE>
requisite corporate power and authority and all necessary
governmental approvals to own, lease and operate its properties
and to carry on its business as it is now being conducted,
except where the failure to be so organized, existing or in
good standing or to have such power, authority and governmental
approvals would not, individually or in the aggregate, have a
Company Material Adverse Effect. Each of the Company and each
Company Subsidiary is duly qualified or licensed to do
business, and is in good standing (to the extent applicable),
in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for
such failures to be so qualified or licensed and in good
standing that would not, individually or in the aggregate, have
any change in or effect on the business of the Company and the
Company Subsidiaries that is, or is reasonably likely to be,
materially adverse to the business, assets (including
intangible assets), liabilities (contingent or otherwise),
condition (financial or otherwise) or results of operations of
the Company and the Company Subsidiaries taken as a whole (a
"Company Material Adverse Effect"). Section 3.01 (a) of the
Disclosure Schedule delivered by the Company to Parent prior to
the execution of this Agreement (the "Company Disclosure
Schedule") sets forth a complete and correct list of all of the
Company Subsidiaries. Except as set forth in Section 3.01(b)
of the Company Disclosure Schedule, neither the Company nor any
Company Subsidiary holds any interest in any corporation,
limited liability company, partnership, joint venture or other
legal entity of any kind.
SECTION 3.02 Certificate of Incorporation and
Bylaws. The copy of the Company's Restated Certificate of
Incorporation and the copy of the Company's Bylaws, as
heretofore delivered by the Company to Parent, are complete and
correct copies thereof. Such Restated Certificate of
Incorporation and Bylaws are in full force and effect. The
Company is not in violation of any of the provisions of its
Restated Certificate of Incorporation or Bylaws.
SECTION 3.03 Capitalization and Voting Rights. The
authorized capital of the Company consists of:
(a) Preferred Stock. One hundred twenty-four
million, nine hundred thousand, two hundred seventeen
(124,900,217) shares of Preferred Stock (the "Preferred Stock")
having the rights, preferences and privileges as set forth in
the Certificate of Incorporation and designated as follows:
(i) nine million nine hundred seventy-eight
thousand thirteen (9,978,013) shares of which have been
designated Series A Preferred Stock, all of which are currently
issued and outstanding;
(ii) thirty-nine million three hundred forty-
seven thousand eight hundred seventy-one (39,347,871) shares of
-17-
Page 56 of 170
<PAGE>
which have been designated Series B Preferred Stock, thirty-
eight million seven hundred eight thousand nine hundred eighty-
one (38,708,981) of which are currently issued and outstanding;
(iii) ten million five hundred seventy-three
thousand three hundred thirty-three (10,573,333) shares of
which have been designated Series C Preferred Stock, none of
which are outstanding, but all of which are subject to
outstanding warrants to purchase the Series C Preferred Stock
(the "Series C Warrants");
(iv) twenty-five million (25,000,000) shares of
which have been designated Series D Preferred Stock, nineteen
million two hundred seventy-one thousand six hundred twenty-
five (19,271,625) of which are currently issued and
outstanding; and
(v) forty million (40,000,000) shares of which
have been designated Series E Preferred Stock, twenty million
nine hundred twenty-one thousand seven hundred forty-six
(20,921,746) of which are currently issued and outstanding.
(b) Common Stock. Two hundred fifty million
(250,000,000) shares of common stock ("Common Stock") of which
twenty-four million three hundred twenty-eight thousand eight
hundred forty-six (24,328,846) shares are outstanding.
(c) The outstanding shares of Common Stock, Series A
Preferred Stock, Series B Stock and Series D and Series E
Preferred Stock are all duly and validly authorized and issued,
fully paid and nonassessable and have been issued in accordance
with the registration or qualification provisions of the
Securities Act and any relevant state securities laws or
pursuant to valid exemptions therefrom. Except for (i) the
conversion privileges of the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock and the Series E Preferred Stock,
(ii) the Series C Warrants, (iii) the rights provided in
paragraph 2.2 of the Company's Investors' Rights Agreement, and
(iv) the outstanding warrants and options as set forth on
Section 3.03 of the Company Disclosure Schedule, there are no
outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), or agreements
for the purchase or acquisition from the Company of any shares
of its capital stock. The Company has reserved an aggregate of
twenty-five million (25,000,000) shares of its Common Stock for
purchase upon exercise of options to be granted in the future
under the Company's 1997 Stock Option Plan and has outstanding
options to purchase 8,500,000 shares of Common Stock outside of
such Plan. Except as set forth in the Company's Certificate of
Incorporation and herein, the Company is not a party or subject
to any agreement or understanding between any persons that
affects or relates to the voting or giving of written consents
with respect to any security or the voting by a director of the
Company.
-18-
Page 57 of 170
<PAGE>
SECTION 3.04 Authority Relative to this Agreement.
The Company has all necessary corporate power and authority to
execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the Merger. The execution and
delivery of this Agreement by the Company and the consummation
by the Company of the Merger contemplated hereby have been duly
and validly authorized by all necessary corporate action, and
no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the
Merger (other than, with respect to the Merger, the adoption of
this Agreement by the affirmative vote as required by the DGCL,
the applicable provisions of the CGCL, and the Company's
Certificate of Incorporation. This Agreement has been duly
executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the other parties
hereto and thereto, constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms.
SECTION 3.05 No Conflict; Required Filings and
Consents. (a) The execution and delivery of this Agreement by
the Company does not, and the performance by the Company of its
obligations hereunder and the consummation of the Merger will
not, (i) conflict with or violate any provision of the
Certificate of Incorporation or Bylaws of the Company or any
equivalent organizational documents of any Company Subsidiary,
(ii) assuming that all consents, approvals, authorizations and
permits described in Section 3.05(b) have been obtained and all
filings and notifications described in Section 3.05(b) have
been made, conflict with or violate any Law applicable to the
Company or any Company Subsidiary or by which any property or
asset of the Company or any Company Subsidiary is bound or
affected or (iii) except as set forth in Section 3.05(a) of the
Company Disclosure Schedule, result in any breach of or
constitute a default (or an event which with the giving of
notice or lapse of time or both would become a default) under,
or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a
lien or other encumbrance on any property or asset of the
Company or any Company Subsidiary pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license,
Company Permit, franchise or other instrument or obligation,
except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, breaches, defaults or other occurrences
which would neither, individually or in the aggregate, (A) have
a Company Material Adverse Effect nor (B) prevent or materially
delay the performance by the Company of its obligations
pursuant to this Agreement or the consummation of the Merger.
(b) The execution and delivery of this Agreement by
the Company does not, and the performance by the Company of its
obligations hereunder or the consummation of the Merger will
not, require any consent, approval, authorization or permit of,
or filing by the Company with or notification by the Company
to, any United States federal, state or local or any
-19-
Page 58 of 170
<PAGE>
supranational or foreign governmental, regulatory or
administrative authority, agency or commission or any court,
tribunal or arbitral body (a "Governmental Entity"), except
(i) applicable requirements of the Securities Exchange Act of
1934, as amended (together with the rules and regulations
promulgated thereunder, the "Exchange Act"), the Securities Act
of 1933, as amended (together with the rules and regulations
promulgated thereunder, the "Securities Act"), state securities
or "blue sky" laws ("Blue Sky Laws"), the rules and regulations
of the New York Stock Exchange ("NYSE"), state takeover laws,
the premerger notification requirements of the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations thereunder (the "HSR Act"), the filing
and recordation of the Certificate of Merger as required by the
DGCL, and as set forth in Section 3.05(b) of the Company
Disclosure Schedule, and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such
filings or notifications, would not (A) prevent or materially
delay the performance by the Company of its obligations
pursuant to this Agreement and the consummation of the Merger
or (B) individually or in the aggregate have a Company Material
Adverse Effect.
SECTION 3.06 Permits; Compliance with Laws. Each
of the Company and the Company Subsidiaries is in possession of
all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for
the Company or any Company Subsidiary to own, lease and operate
its properties or to carry on its business as it is now being
conducted (the "Company Permits"), and all such Company Permits
are valid and in full force and effect, except where the
failure to have, or the suspension or cancellation of, any of
the Company Permits, or the failure of any of such Company
Permits to be valid and in full force and effect, would not,
individually or in the aggregate, (i) have a Company Material
Adverse Effect, or (ii) except as described in Section 3.05(b)
of the Company Disclosure Schedule, prevent or materially delay
the performance by the Company of its obligations pursuant to
this Agreement and the consummation of the Merger, and, as of
the date of this Agreement, no suspension or cancellation of
any of the Company Permits is pending or, to the knowledge of
the Company, threatened, except where the failure to have, or
the suspension or cancellation of, any of the Company Permits
would not, individually or in the aggregate, (i) have a Company
Material Adverse Effect or (ii) prevent or materially delay the
performance by the Company of its obligations pursuant to this
Agreement and the consummation of the Merger. Except as
disclosed in Section 3.06(a) of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary is in
conflict with, or in default or violation of, (i) any Law
applicable to the Company or any Company Subsidiary or by which
any property or asset of the Company or any Company Subsidiary
is bound or affected or (ii) any Company Permits, except in the
case of clauses (i) and (ii) for any such conflicts, defaults
-20-
Page 59 of 170
<PAGE>
or violations that would neither individually or in the
aggregate, (A) have a Company Material Adverse Effect nor
(B) prevent or materially delay the performance by the Company
of its obligations pursuant to this Agreement and the
consummation of the Merger.
SECTION 3.07 SEC Filings; Financial Statements.
(a) The Company is not subject to the periodic reporting
requirements of the Exchange Act or required to file any form,
report or other document with the SEC, any stock exchange or
any other comparable Governmental Entity.
(b) Except as set forth on Section 3.07(b)(i) of the
Company Disclosure Schedule, the consolidated financial
statements (including, in each case, any notes thereto)
contained in Section 3.07(b)(i) of the Company Disclosure
Schedule were prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods indicated (except as
may be indicated in the notes thereto) and each presented
fairly, in all material respects, the consolidated financial
position of the Company and the consolidated Company
Subsidiaries as at the respective dates thereof and the
consolidated results of operations and consolidated cash flows
for the respective periods indicated therein, except as
otherwise noted therein (subject, in the case of unaudited
statements, to normal and recurring year-end adjustments which
were not and are not expected, individually or in the
aggregate, to have a Company Material Adverse Effect). The
books and records of the Company and the Company Subsidiaries
are being maintained in accordance with GAAP and any other
applicable legal and accounting requirements.
(c) Except as and to the extent set forth on
Section 3.07(c) of the Company Disclosure Schedule, none of the
Company or any Company Subsidiary has any liabilities or
obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would result in the stockholders'
equity of the Company as of October 31, 1998 as set forth in
the Company Disclosure Schedule not fairly reflecting the
financial condition of the Company and the Company
Subsidiaries, taken as a whole, in accordance with GAAP, except
for liabilities or obligations incurred in the ordinary course
of business since October 31, 1998 that would not, individually
or in the aggregate, have a Company Material Adverse Effect.
SECTION 3.08 Absence of Certain Changes or Events.
Since October 31, 1998, except as contemplated by or as
disclosed in this Agreement or as set forth in Section 3.08 of
the Company Disclosure Schedule, the Company and the Company
Subsidiaries have conducted their businesses only in the
ordinary course and in a manner consistent with past practice
and, since such date, there has not been (i) any Company
Material Adverse Effect or any event or development that would
have a Company Material Adverse Effect, excluding any changes
-21-
Page 60 of 170
<PAGE>
and effects resulting from changes in economic, regulatory or
political conditions or changes in conditions generally
applicable to the industries in which the Company and the
Company Subsidiaries are involved, (ii) any event that could
reasonably be expected to prevent or materially delay the
performance of its obligations pursuant to this Agreement and
the consummation of the Merger by the Company, (iii) except as
required by law after the date of this Agreement, any material
change by the Company in its accounting methods, principles or
practices, (iv) any declaration, setting aside or payment of
any dividend or distribution in respect of the shares of
Company Capital Stock or any redemption, purchase or other
acquisition of any of the Company's securities or (v) any
increase in the compensation or benefits or establishment of
any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock
appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any
other increase in the compensation payable or to become payable
to any executive officers of the Company or any Company
Subsidiary except in the ordinary course of business consistent
with past practice.
SECTION 3.09 Employee Benefit Plans; Labor Matters.
(a) With respect to each employee benefit plan, program,
arrangement and contract (including, without limitation, any
"employee benefit plan", as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA")) maintained or contributed to by the Company or any
Company Subsidiary, or with respect to which the Company or any
Company Subsidiary could incur liability under Section 4069,
4212(c) or 4204 of ERISA (the "Company Benefit Plans"), the
Company has delivered (or will, within 15 days of the date
hereof, deliver) to Parent a true and correct copy of (i) such
Company Benefit Plan and the most recent summary plan
description related to each Company Benefit Plan for which a
summary plan description is required, (ii) each trust agreement
or other funding arrangement relating to such Company Benefit
Plan, (iii) the most recent annual report (Form 5500) filed
with the Internal Revenue Service (the "IRS"), (iv) the most
recent actuarial report or financial statement relating to a
Company Benefit Plan and (v) the most recent determination
letter issued by the IRS with respect to any Company Benefit
Plan qualified under Section 401(a) of the Code.
(b) Each Company Benefit Plan has been administered
in all material respects in accordance with its terms and all
contributions required to be made under the terms of any of the
Company Benefit Plans as of the date of this Agreement have
been timely made or have been reflected on the most recent
consolidated balance sheet included in Section 3.09 of the
Company Disclosure Schedule. Except as set forth in
Section 3.09(b) of the Company Disclosure Schedule, with
respect to the Company Benefit Plans, no event has occurred
-22-
Page 61 of 170
<PAGE>
and, to the knowledge of the Company, there exists no condition
or set of circumstances in connection with which the Company or
any Company Subsidiary could be subject to any liability under
the terms of such Company Benefit Plans, ERISA, the Code or any
other applicable Law which, in any case, would individually or
in the aggregate have a Company Material Adverse Effect.
(c) As of the date of this Agreement, there is no
labor dispute, strike or work stoppage against the Company or
any Company Subsidiary pending or, to the knowledge of the
Company, threatened which may interfere with the respective
business activities of the Company or any Company Subsidiary,
except where such dispute, strike or work stoppage would not
have a Company Material Adverse Effect. Except as set forth on
Section 3.09(c) of the Company Disclosure Schedule, as of the
date of this Agreement, to the knowledge of the Company, none
of the Company, any Company Subsidiary, or any of their
respective representatives or employees has committed any
unfair labor practice in connection with the operation of the
respective businesses of the Company or any Company Subsidiary,
and there is no charge or complaint against the Company or any
Company Subsidiary by the National Labor Relations Board or any
comparable governmental agency pending or threatened in
writing, except where such unfair labor practice, charge or
complaint would not have a Company Material Adverse Effect.
(d) The Company has made available to Parent true
and complete copies of (i) all employment agreements with
executive officers of the Company and with each other officer
of the Company and of each Company Subsidiary, (ii) all
severance plans, agreements, programs and policies of the
Company and each Company Subsidiary with or relating to their
respective employees, and (iii) all plans, programs, agreements
and other arrangements of the Company and each Company
Subsidiary with or relating to their respective employees which
contain "change of control" provisions.
(e) Except as set forth in Section 3.09(e) of the
Company Disclosure Schedule, no amount paid or payable by the
Company or any Company Subsidiary in connection with the
transactions contemplated hereby either solely as a result
thereof or as a result of such transactions in conjunction with
any other events will be an "excess parachute payment" within
the meaning of Section 280G of the Code.
(f) Except as provided in Section 3.09(f) of the
Company Disclosure Schedule, except as otherwise required by
Law, no Company Benefit Plan provides retiree medical or
retiree life insurance benefits to any person.
SECTION 3.10 Accounting and Tax Matters. Except as
disclosed in Section 3.10 of the Company Disclosure Schedule,
neither the Company nor, to the knowledge of the Company, any
of its affiliates has taken or agreed to take any action (other
than actions contemplated by this Agreement) that would prevent
-23-
Page 62 of 170
<PAGE>
the Merger from constituting a transaction qualifying under
Section 368(a) of the Code. The Company is not aware of any
agreement, plan or other circumstance that would prevent the
Merger from so qualifying under Section 368(a) of the Code.
SECTION 3.11 Contracts; Company Debt Instruments.
Except as disclosed in Section 3.11 of the Company Disclosure
Schedule, there is no contract or agreement that is material to
the business, financial condition or results of operations of
the Company and the Company Subsidiaries taken as a whole
(each, a "Company Material Contract"). Except as disclosed in
Section 3.11 of the Company Disclosure Schedule, neither the
Company nor any Company Subsidiary is in violation of or in
default under (nor does there exist any condition which with
the passage of time or the giving of notice would cause such a
violation of or default under) any loan or credit agreement,
note, bond, mortgage, indenture or lease, or any other
contract, agreement, arrangement or understanding to which it
is a party or by which it or any of its properties or assets is
bound, except for violations or defaults that would not,
individually or in the aggregate, result in a Company Material
Adverse Effect. Set forth in Section 3.11 of the Company
Disclosure Schedule is a list of indebtedness of the Company
and the Company Subsidiaries as of October 31, 1998.
SECTION 3.12 Litigation. Except as disclosed in
Section 3.12 of the Company Disclosure Schedule, there is no
suit, claim, action, proceeding or investigation pending or, to
the knowledge of the Company, threatened against the Company or
any Company Subsidiary before any Governmental Entity that,
individually or in the aggregate, is reasonably likely to have
a Company Material Adverse Effect, and, except as disclosed to
Parent, to the knowledge of the Company, there are no existing
facts or circumstances that would be reasonably likely to
result in such a suit, claim, action, proceeding or
investigation. Except as disclosed to Parent, the Company is
not aware of any facts or circumstances which would result in
the denial of insurance coverage under policies issued to the
Company and the Company Subsidiaries in respect of such suits,
claims, actions, proceedings and investigations, except in any
case as would not, individually or in the aggregate, have a
Company Material Adverse Effect. Except as disclosed in
Section 3.12 of the Company Disclosure Schedule, neither the
Company nor any Company Subsidiary is subject to any
outstanding order, writ, injunction or decree which, insofar as
can be reasonably foreseen, individually or in the aggregate,
would have a Company Material Adverse Effect.
SECTION 3.13 Environmental Matters. Except as
disclosed in Section 3.13 of the Company Disclosure Schedule or
as would not, individually or in the aggregate, have a Company
Material Adverse Effect:
(a) the Company and the Company Subsidiaries (i) are in
compliance with all, and are not subject to any asserted
-24-
Page 63 of 170
<PAGE>
liability or, to the Company's knowledge, any liability, in
each case with respect to any, applicable Environmental Laws
(as defined below), (ii) hold or have applied for all
Environmental Permits (as defined below) and (iii) are in
compliance with their respective Environmental Permits;
(b) neither the Company nor any Company Subsidiary has
received any written notice, demand, letter, claim or request
for information alleging that the Company or any of its
Subsidiaries may be in violation of, or liable under, any
Environmental Law;
(c) neither the Company nor any Company Subsidiary
(i) has entered into or agreed to any consent decree or order
or is subject to any judgment, decree or judicial order
relating to compliance with Environmental Laws, Environmental
Permits or the investigation, sampling, monitoring, treatment,
remediation, removal or cleanup of Hazardous Materials (as
defined below) and, to the knowledge of the Company, no
investigation, litigation or other proceeding is pending or
threatened in writing with respect thereto, or (ii) is an
indemnitor in connection with any threatened or asserted claim
by any third-party indemnitee for any liability under any
Environmental Law or relating to any Hazardous Materials; and
(d) to the knowledge of the Company, none of the real
property owned or leased by the Company or any Company
Subsidiary is listed or proposed for listing on the "National
Priorities List" under CERCLA, as updated through the date
hereof, or any similar state or foreign list of sites requiring
investigation or cleanup.
For purposes of this Agreement:
"CERCLA" means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended as
of the date hereof.
"Environmental Laws" means any federal, state, local
or foreign statute, law, ordinance, regulation, rule, code,
treaty, writ or order and any enforceable judicial or
administrative interpretation thereof, including any judicial
or administrative order, consent decree, judgment, stipulation,
injunction, permit, authorization, policy, opinion, or agency
requirement, in each case having the force and effect of law,
relating to the pollution, protection, investigation or
restoration of the environment, health and safety or natural
resources, including, without limitation, those relating to the
use, handling, presence, transportation, treatment, storage,
disposal, release, threatened release or discharge of Hazardous
Materials or noise, odor, wetlands, pollution, contamination or
any injury or threat of injury to persons or property or to the
siting, construction, operation, closure and post-closure care
of, waste disposal, handling and transfer facilities.
-25-
Page 64 of 170
<PAGE>
"Environmental Permits" means any permit, approval,
identification number, license and other authorization required
under any applicable Environmental Law.
"Hazardous Materials" means (a) any petroleum,
petroleum products, by-products or breakdown products,
radioactive materials, asbestos-containing materials or
polychlorinated biphenyls or (b) any chemical, material or
other substance defined or regulated as toxic or hazardous or
as a pollutant or contaminant or waste under any applicable
Environmental Law.
SECTION 3.14 Taxes. (a) Except as set forth in
Section 3.14 of the Company Disclosure Schedule and except for
such matters that, individually or in the aggregate, would not
have a Company Material Adverse Effect, (i) the Company and
each of the Company Subsidiaries have timely filed or shall
timely file all returns and reports required to be filed by
them with any taxing authority with respect to Taxes for any
period ending on or before the Effective Time, taking into
account any extension of time to file granted to or obtained on
behalf of the Company and the Company Subsidiaries, (ii) all
Taxes that are due prior to the Effective Time have been paid
or shall be paid on or before the applicable due date, (iii) as
of the date hereof, no deficiency for any amount of Tax has
been asserted or assessed by a taxing authority against the
Company or any of the Company Subsidiaries and (iv) the Company
and each of the Company Subsidiaries have provided adequate
reserves in their financial statements for any Taxes that have
not been paid, whether or not shown as being due on any
returns. As used in this Agreement, "Taxes" shall mean any and
all taxes, fees, levies, duties, tariffs, imposts and other
charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any government or taxing authority,
including, without limitation, taxes or other charges on or
with respect to income, franchises, windfall or other profits,
gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation,
unemployment compensation or net worth; taxes or other charges
in the nature of excise, withholding, ad valorem, stamp,
transfer, value-added or gains taxes; license, registration and
documentation fees; and customers' duties, tariffs and similar
charges.
(a) Except as set forth in Section 3.14 of the
Company Disclosure Schedule, to the Company's knowledge, no
disputes or audits regarding Taxes are pending against, and no
claims for Taxes have been received in writing by the Company
or any of the Company Subsidiaries, other than disputes, audits
and claims that are not reasonably likely to have a Company
Material Adverse Effect.
(b) There are no Tax liens upon any property or
assets of the Company or any of the Company Subsidiaries except
-26-
Page 65 of 170
<PAGE>
liens for current Taxes not yet due and liens which have not
had and are not reasonably likely to have a Company Material
Adverse Effect.
SECTION 3.15 Non-Competition Agreements. Except as
set forth on Section 3.15 of the Company Disclosure Schedule,
neither the Company nor any Company Subsidiary is a party to
any agreement which purports to restrict or prohibit the
Company and the Company Subsidiaries individually or
collectively from, directly or indirectly, engaging in any
business involving the design, manufacture and sale of
recording heads for disk drives or any other businesses
currently engaged in by the Company, or any corporations
affiliated with the Company. None of the Company's officers,
directors or key employees is a party to any agreement which,
by virtue of such person's relationship with the Company,
restricts the Company or any Company Subsidiary or affiliate
from, directly or indirectly, engaging in any of the businesses
described above.
SECTION 3.16 Brokers. No broker, finder or
investment banker (other than Lehman Brothers) is entitled to
any brokerage, finder's or other fee or commission in
connection with the Merger based upon arrangements made by or
on behalf of the Company. The Company has heretofore made
available to Parent complete and correct copies of all
agreements between the Company and Lehman Brothers pursuant to
which such firm would be entitled to any payment relating to
the Merger.
SECTION 3.17 Insurance. Set forth on Schedule
3.17 of the Company Disclosure Schedule is a description of
material insurance policies maintained by the Company with
respect to the businesses of the Company and the Company
Subsidiaries.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally
represent and warrant to the Company as of November 24, 1998
(and not the date that this Agreement has been amended and
restated) that:
SECTION 4.01 Organization and Qualification;
Subsidiaries. Each of Parent, Merger Sub and each other
subsidiary of Parent (together with Merger Sub, the "Parent
Subsidiaries") has been duly organized and is validly existing
and in good standing (to the extent applicable) under the laws
of the jurisdiction of its incorporation or organization, as
the case may be, and has the requisite corporate power and
authority and all necessary governmental approvals to own,
lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so
-27-
Page 66 of 170
<PAGE>
organized, existing or in good standing or to have such power,
authority and governmental approvals would not, individually or
in the aggregate, have a Parent Material Adverse Effect. Each
of Parent and each Parent Subsidiary is duly qualified or
licensed to do business, and is in good standing (to the extent
applicable), in each jurisdiction where the character of the
properties owned, leased or operated by it or the nature of its
business makes such qualification or licensing necessary,
except for such failures to be so qualified or licensed and in
good standing that would not, individually or in the aggregate,
have any change in or effect on the business of Parent and the
Parent Subsidiaries that is, or is reasonably likely to be,
materially adverse to the business, assets (including
intangible assets), liabilities (contingent or otherwise),
condition (financial or otherwise) or results of operations of
Parent and the Parent Subsidiaries taken as a whole (a "Parent
Material Adverse Effect"). Section 4.01(a) of the Disclosure
Schedule delivered by Parent to the Company prior to the
execution of this Agreement (the "Parent Disclosure Schedule")
sets forth a complete and correct list of all of Parent
Subsidiaries. Except as set forth in Section 4.01(b) of the
Parent Disclosure Schedule, neither Parent nor any Parent
Subsidiary holds any interest in any corporation, limited
liability company, partnership, joint venture or other legal
entity of any kind.
SECTION 4.02 Certificate of Incorporation and
Bylaws. The copy of Parent's Certificate of Incorporation that
is incorporated by reference as an exhibit to Parent's Form 10-
Q for the period ending July 4, 1998 and the copy of Parent's
Bylaws that is incorporated by reference as an exhibit to
Parent's Form 10-K for the period ending September 30, 1997
(the "Parent 1997 10-K") are complete and correct copies
thereof. Parent has heretofore furnished to the Company a
complete and correct copy of the Certificate of Incorporation
and Bylaws of Merger Sub. Such Certificate of Incorporation,
Certificate of Incorporation and Bylaws of Parent and Merger
Sub are in full force and effect. Neither Parent nor Merger Sub
is in violation of any of the provisions of its Certificate of
Incorporation or Bylaws.
SECTION 4.03 Capitalization. The authorized
capital stock of Parent consists of 80,000,000 shares of Parent
Common Stock and 5,000,000 shares of preferred stock (the
"Parent Preferred Stock"). As of November 23, 1998, (i)
24,103,294 shares of Parent Common Stock were issued and
outstanding, all of which were validly issued, fully paid and
nonassessable, (ii) no shares of Parent Preferred Stock were
issued and outstanding, (iii) 130,552 shares of Parent Common
Stock were held in the treasury of Parent or by Parent
Subsidiaries, (iv) 6,199,947 shares of Parent Common Stock were
reserved for future issuance pursuant to the terms of Parent's
7% Convertible Subordinated Debentures due 2006 (the "Parent
Subordinated Notes"), (v) 6,622,695 shares of Parent Common
Stock were reserved for issuance pursuant to outstanding
-28-
Page 67 of 170
<PAGE>
options or warrants to purchase shares of Parent Common Stock
("Parent Stock Options") issued under the benefits plans set
forth on Section 4.03(v) of the Parent Disclosure Schedule or
otherwise (the "Parent Stock Plans"). Between July 4, 1998 and
the date of this Agreement, no Parent Stock Options have been
granted and no awards have been made under Parent Stock Plans,
and no shares of Parent Common Stock (or securities convertible
into Parent Common Stock) have been issued other than shares of
Parent Common Stock reserved for issuance as set forth in this
Section 4.03. Except for Parent Stock Options granted pursuant
to Parent Stock Plans and shares of Parent Common Stock
issuable upon the exercise of warrants and upon the conversion
of the Parent Subordinated Notes or pursuant to agreements or
arrangements described in Section 4.03 of the Parent Disclosure
Schedule, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character to
which Parent is a party or by which Parent is bound relating to
the issued or unissued capital stock of Parent or any Parent
Subsidiary or obligating Parent or any Parent Subsidiary to
issue or sell any shares of capital stock of, or other equity
interests in, Parent or any Parent Subsidiary. All shares of
Parent Common Stock subject to issuance as aforesaid, upon
issuance prior to the Effective Time on the terms and
conditions specified in the instruments pursuant to which they
are issuable, will be duly authorized, validly issued, fully
paid and nonassessable. Except as set forth in Section 4.03 of
the Parent Disclosure Schedule, there are no outstanding
contractual obligations of Parent or any Parent Subsidiary to
repurchase, redeem or otherwise acquire any shares of Parent
Common Stock or any capital stock of any Parent Subsidiary.
Except as disclosed in Section 4.03 of the Parent Disclosure
Schedule, each outstanding share of capital stock of each
Parent Subsidiary is duly authorized, validly issued, fully
paid and nonassessable and each such share owned by Parent or
another Parent Subsidiary is free and clear of all security
interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on Parent's or such other
Parent Subsidiary's voting rights, charges and other
encumbrances of any nature whatsoever, except where the failure
to own such shares free and clear would not, individually or in
the aggregate, have a Parent Material Adverse Effect. Except
as set forth in Section 4.03 of the Parent Disclosure Schedule
or as set forth in the Parent Reports (as hereinafter defined),
there are no material outstanding contractual obligations of
Parent or any Parent Subsidiary to provide funds to, or make
any material investment (in the form of a loan, capital
contribution or otherwise) in, any Parent Subsidiary which is
not wholly owned by Parent or in any other person.
SECTION 4.04 Authority Relative to this Agreement.
Each of Parent and Merger Sub has all necessary corporate power
and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the Merger. Each
of (i) the execution and delivery of this Agreement by Parent
and Merger Sub and the consummation by Parent and Merger Sub of
-29-
Page 68 of 170
<PAGE>
the transactions contemplated hereby, (ii) the amendment to the
Certificate of Incorporation of Parent to increase the number
of authorized shares of Parent Common Stock to a number
sufficient to consummate the transactions contemplated hereby
(the "Certificate Amendment") and (iii) the issuance (the
"Share Issuance") of shares of Parent Common Stock in the
Merger (including the shares of Parent Common Stock to be
issued to the holders of the Promissory Notes), have been duly
and validly authorized by all necessary corporate action, and
no other corporate proceedings on the part of Parent or Merger
Sub are necessary to authorize this Agreement or to consummate
such transactions (other than, with respect to (a) the adoption
of the Certificate Amendment, the affirmative vote of a
majority of the votes entitled to be cast and (b) the adoption
of the Share Issuance, the approval thereof by the affirmative
vote of a majority of votes cast by the holders of outstanding
shares of Parent Common Stock at the Parent Stockholders'
Meeting). This Agreement has been duly executed and delivered
by Parent and Merger Sub and, assuming the due authorization,
execution and delivery by the Company, this Agreement
constitutes a legal, valid and binding obligation of each of
Parent and Merger Sub, enforceable against Parent and Merger
Sub, as the case may be, in accordance with its terms.
SECTION 4.05 No Conflict; Required Filings and
Consents. (a) The execution and delivery of this Agreement by
Parent and Merger Sub, do not, and the performance by Parent
and Merger Sub of their respective obligations hereunder and
the consummation of the Merger will not, (i) conflict with or
violate any provision of the Certificate of Incorporation or
Bylaws of Parent or any equivalent organizational documents of
any Parent Subsidiary, (ii) assuming that all consents,
approvals, authorizations and permits described in
Section 4.05(b) have been obtained and all filings and
notifications described in Section 4.05(b) have been made,
conflict with or violate any Law applicable to Parent or any
Parent Subsidiary or by which any property or asset of Parent
or any Parent Subsidiary is bound or affected or (iii) except
as set forth in Section 4.05(a) of the Parent Disclosure
Schedule, result in any breach of or constitute a default (or
an event which with the giving of notice or lapse of time or
both would become a default) under, or give to others any right
of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or other encumbrance on any
property or asset of Parent or any Parent subsidiary pursuant
to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, Parent Permit, franchise or other instrument or
obligation, except, with respect to clauses (ii) and (iii), for
any such conflicts, violations, breaches, defaults or other
occurrences which would neither, individually or in the
aggregate, (A) have a Parent Material Adverse Effect nor
(B) prevent or materially delay the performance by Parent or
Merger Sub of their respective obligations pursuant to this
Agreement or the consummation of the Merger.
-30-
Page 69 of 170
<PAGE>
(b) The execution and delivery of this Agreement by each
of Parent and Merger Sub does not, and the performance by
Parent and Merger Sub of their respective obligations hereunder
or the consummation of the Merger will not, require any
consent, approval, authorization or permit of, or filing by
Parent or Merger Sub with or notification by Parent or Merger
Sub to, any Governmental Entity, except (i) applicable
requirements of the Exchange Act, the Securities Act, Blue Sky
Laws, the rules and regulations of the NYSE, state takeover
laws, the premerger notification requirements of the HSR Act,
the filing and recordation of the Certificate of Merger as
required by the DGCL, and as set forth in Section 4.05(b) of
the Parent Disclosure Schedule, and (ii) where failure to
obtain such consents, approvals, authorizations or permits, or
to make such filings or notifications, would not (A) prevent or
materially delay the performance by Parent or Merger Sub of
their respective obligations pursuant to this Agreement and the
consummation of the Merger or (B) individually or in the
aggregate have a Parent Material Adverse Effect.
SECTION 4.06 Permits; Compliance with Laws. Each
of Parent and the Parent Subsidiaries is in possession of all
franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for
Parent or any Parent Subsidiary to own, lease and operate its
properties or to carry on its business as it is now being
conducted (the "Parent Permits"), and all such Parent Permits
are valid and in full force and effect, except where the
failure to have, or the suspension or cancellation of, any of
Parent Permits, or the failure of any such Parent Permits to be
valid and in full force and effect, would not, individually or
in the aggregate, (i) have a Parent Material Adverse Effect, or
(ii) prevent or materially delay the performance by Parent or
Merger Sub of their respective obligations pursuant to this
Agreement and the consummation of the Merger, and, as of the
date of this Agreement, no suspension or cancellation of any of
Parent Permits is pending or, to the knowledge of Parent,
threatened, except where the failure to have, or the suspension
or cancellation of, any of Parent Permits would not,
individually or in the aggregate, (i) have a Parent Material
Adverse Effect or (ii) prevent or materially delay the
performance by Parent or Merger Sub of their respective
obligations pursuant to this Agreement and the consummation of
the Merger. Except as disclosed in Section 4.06 of the Parent
Disclosure Schedule, neither Parent nor any Parent Subsidiary
is in conflict with, or in default or violation of, (i) any Law
applicable to Parent or any Parent Subsidiary or by which any
property or asset of Parent or any Parent Subsidiary is bound
or affected or (ii) any Parent Permits, except in the case of
clauses (i) and (ii) for any such conflicts, defaults or
violations that would neither individually or in the aggregate,
(A) have a Parent Material Adverse Effect nor (B) prevent or
materially delay the performance by Parent or Merger Sub of
-31-
Page 70 of 170
<PAGE>
their respective obligations pursuant to this Agreement and the
consummation of the Merger.
SECTION 4.07 SEC Filings; Financial Statements.
(a) No Parent Subsidiary is subject to the periodic reporting
requirements of the Exchange Act or required to file any form,
report or other document with the SEC, NYSE, any other stock
exchange or any other comparable Governmental Entity. Except
as disclosed in Section 4.07(a) of the Parent Disclosure
Schedule, Parent has timely filed all forms, reports and
documents required to be filed by it with the SEC, the NYSE,
any other stock exchange or comparable Governmental Entity
since January 1, 1995 through the date of this Agreement
(collectively and as amended, the "Parent Reports"). None of
such forms, reports or documents, including, without
limitation, any financial statements or schedules included or
incorporated by reference therein, contained, when filed, any
untrue statement of a material fact or omitted to state a
material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. Except as would not have a Parent
Material Adverse Effect, each Parent Report was prepared in
accordance with the requirements of the Securities Act, the
Exchange Act, the NYSE, other stock exchange or comparable
Governmental Entity, as the case may be.
(b) Each of the consolidated financial statements
(including, in each case, any notes thereto) contained in the
Parent Reports and the consolidated financial statements at
July 4, 1998 set forth in Section 4.07(b) of the Parent
Disclosure Schedule were prepared in accordance with GAAP
applied on a consistent basis throughout the periods indicated
(except as may be indicated in the notes thereto) and each
presented fairly, in all material respects, the consolidated
financial position of Parent and the consolidated Parent
Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and their consolidated
cash flows for the respective periods indicated therein, except
as otherwise noted therein (subject, in the case of unaudited
statements, to normal and recurring year-end adjustments which
were not and are not expected, individually or in the
aggregate, to have a Parent Material Adverse Effect). The
books and records of Parent and the Parent Subsidiaries have
been, and are being, maintained in accordance with GAAP and any
other applicable legal and accounting requirements.
(c) Except as and to the extent set forth on the
consolidated balance sheet of Parent and the Parent
Subsidiaries as set forth in Schedule 4.07(b) of the Parent
Disclosure Schedule, including the notes thereto, none of
Parent or any Parent Subsidiary has any liabilities or
obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected
on a balance sheet or in notes thereto prepared in accordance
-32-
Page 71 of 170
<PAGE>
with GAAP, except for liabilities or obligations incurred in
the ordinary course of business since July 4, 1998 that would
not, individually or in the aggregate, have a Parent Material
Adverse Effect.
SECTION 4.08 Absence of Certain Changes or Events.
Since July 4, 1998, except as contemplated by or as disclosed
in this Agreement, as set forth in Section 4.08 of the Parent
Disclosure Schedule or as disclosed in any Parent Report filed
since July 4, 1998, Parent and the Parent Subsidiaries have
conducted their businesses only in the ordinary course and in a
manner consistent with past practice and, since such date,
there has not been (i) any Parent Material Adverse Effect or
any event or development that would have a Parent Material
Adverse Effect, excluding any changes and effects resulting
from changes in economic, regulatory or political conditions or
changes in conditions generally applicable to the industries in
which Parent and the Parent Subsidiaries are involved, (ii) any
event that could reasonably be expected to prevent or
materially delay the performance of Parent's and Merger Sub's
obligations pursuant to this Agreement and the consummation of
the Merger by Parent and Merger Sub, (iii) any material change
by Parent in its accounting methods, principles or practices,
(iv) any declaration, setting aside or payment of any dividend
or distribution in respect of the shares of Parent Common Stock
or any redemption, purchase or other acquisition of any of
Parent's securities or (v) any increase in the compensation or
benefits or establishment of any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing,
stock option (including, without limitation, the granting of
stock options, stock appreciation rights, performance awards or
restricted stock awards), stock purchase or other employee
benefit plan, or any other increase in the compensation payable
or to become payable to any executive officers of Parent or any
Parent Subsidiary except in the ordinary course of business
consistent with past practice.
SECTION 4.09 Employee Benefit Plans; Labor Matters.
(a) With respect to each employee benefit plan, program,
arrangement and contract (including, without limitation, any
"employee benefit plan", as defined in Section 3(3) of ERISA
maintained or contributed to by Parent or any Parent
Subsidiary, or with respect to which Parent or any Parent
Subsidiary could incur liability under Section 4069, 4212(c) or
4204 of ERISA (the "Parent Benefit Plans"), Parent has
delivered (or will, within 15 days of the date hereof, deliver)
to the Company a true and correct copy of (i) such Parent
Benefit Plan and the most recent summary plan description
related to each Company Benefit Plan for which a summary plan
description is required, (ii) each trust agreement or other
funding arrangement relating to such Parent Benefit Plan,
(iii) the most recent annual report (Form 5500) filed with the
IRS, (iv) the most recent actuarial report or financial
statement relating to a Parent Benefit Plan and (v) the most
recent determination letter issued by the IRS with respect to
-33-
Page 72 of 170
<PAGE>
any Parent Benefit Plan qualified under Section 401(a) of the
Code.
(b) Each Parent Benefit Plan has been administered in all
material respects in accordance with its terms and all
contributions required to be made under the terms of any of the
Parent Benefit Plans as of the date of this Agreement have been
timely made or have been reflected on the most recent
consolidated balance sheet filed or incorporated by reference
in the Parent Reports prior to the date of this Agreement.
Except as set forth in Section 4.09(b) of the Parent Disclosure
Schedule, with respect to the Parent Benefit Plans, no event
has occurred and, to the knowledge of Parent, there exists no
condition or set of circumstances in connection with which
Parent or any Parent Subsidiary could be subject to any
liability under the terms of such Parent Benefit Plans, ERISA,
the Code or any other applicable Law which, in any case, would
individually or in the aggregate have a Parent Material Adverse
Effect.
(c) As of the date of this Agreement, there is no labor
dispute, strike or work stoppage against Parent or any Parent
Subsidiary pending or, to the knowledge of Parent, threatened
which may interfere with the respective business activities of
Parent or any Parent Subsidiary, except where such dispute,
strike or work stoppage would not have a Parent Material
Adverse Effect. As of the date of this Agreement, to the
knowledge of the Parent, none of Parent, any Parent Subsidiary,
or any of their respective representatives or employees has
committed any unfair labor practice in connection with the
operation of the respective businesses of Parent or any Parent
Subsidiary, and there is no charge or complaint against Parent
or any Parent Subsidiary by the National Labor Relations Board
or any comparable governmental agency pending or threatened in
writing, except where such unfair labor practice, charge or
complaint would not have a Parent Material Adverse Effect.
(d) Parent has made available to the Company true and
complete copies of (i) all employment agreements with executive
officers of Parent and with each other officer of Parent and of
each Parent Subsidiary (ii) all severance plans, agreements,
programs and policies of Parent and each Parent Subsidiary with
or relating to their respective employees, and (iii) all plans,
programs, agreements and other arrangements of Parent and each
Parent Subsidiary with or relating to their respective
employees which contain "change of control" provisions.
(e) No amount paid or payable by Parent or any Parent
Subsidiary in connection with the transactions contemplated
hereby either solely as a result thereof or as a result of such
transactions in conjunction with any other events will be an
"excess parachute payment" within the meaning of Section 280G
of the Code.
-34-
Page 73 of 170
<PAGE>
(f) Except as provided in Section 4.09(g) of the Parent
Disclosure Schedule or as otherwise required by Law, no Parent
Benefit Plan provides retiree medical or retiree life insurance
benefits to any person.
SECTION 4.10 Accounting and Tax Matters.
(a) Except as disclosed in the Parent Reports, neither Parent
nor, to the knowledge of Parent, any of its affiliates has
taken or agreed to take any action (other than actions
contemplated by this Agreement) that would prevent the Merger
from constituting a transaction qualifying under Section 368(a)
of the Code. Parent is not aware of any agreement, plan or
other circumstance that would prevent the Merger from so
qualifying under Section 368(a) of the Code.
SECTION 4.11 Contracts; Parent Debt Instruments.
Except as disclosed in the Parent Reports or in Section 4.11
(a) of the Parent Disclosure Schedule, there is no contract or
agreement that is material to the business, financial condition
or results of operations of Parent and the Parent Subsidiaries
taken as a whole (each, a "Parent Material Contract"). Except
as disclosed in the Parent Reports or in Section 4.11(b) of the
Parent Disclosure Schedule, neither the Parent nor any Parent
Subsidiary is in violation of or in default under (nor does
there exist any condition which with the passage of time or the
giving of notice would cause such a violation of or default
under) any loan or credit agreement, note, bond, mortgage,
indenture or lease, or any other contract, agreement,
arrangement or understanding to which it is a party or by which
it or any of its properties or assets is bound, except for
violations or defaults that would not, individually or in the
aggregate, result in a Parent Material Adverse Effect. Set
forth in Section 4.11(c) of the Parent Disclosure Schedule is a
description of any material changes to the amount and terms of
the indebtedness of Parent and the Parent Subsidiaries as
described in the notes to the financial statements incorporated
in the Parent 1997 10-K.
SECTION 4.12 Litigation. Except as disclosed in
the Parent Reports or in Section 4.12 of the Parent Disclosure
Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of Parent,
threatened against Parent or any Parent Subsidiary before any
Governmental Entity that, individually or in the aggregate, is
reasonably likely to have a Parent Material Adverse Effect,
and, except as disclosed to the Company, to the knowledge of
Parent, there are no existing facts or circumstances that would
be reasonably likely to result in such a suit, claim, action,
proceeding or investigation. Except as disclosed to the
Company, Parent is not aware of any facts or circumstances
which would result in the denial of insurance coverage under
policies issued to Parent and the Parent Subsidiaries in
respect of such suits, claims, actions, proceedings and
investigations, except in any case as would not, individually
or in the aggregate, have a Parent Material Adverse Effect.
-35-
Page 74 of 170
<PAGE>
Except as disclosed in the Parent Reports or in Section 4.12 of
the Parent Disclosure Schedule, neither Parent nor any Parent
Subsidiary is subject to any outstanding order, writ,
injunction or decree which, insofar as can be reasonably
foreseen, individually or in the aggregate, would have a Parent
Material Adverse Effect.
SECTION 4.13 Environmental Matters. Except as
disclosed in the Parent Reports or in Section 4.13 of the
Parent Disclosure Schedule or as would not, individually or in
the aggregate, have a Parent Material Adverse Effect.
(a) Parent and the Parent Subsidiaries (i) are in
compliance with all, and are not subject to any asserted
liability or, to Parent's knowledge, any liability, in each
case with respect to any, applicable Environmental Laws,
(ii) hold or have applied for all Environmental Permits and
(iii) are in compliance with their respective Environmental
Permits;
(b) neither Parent nor any Parent Subsidiary has received
any written notice, demand, letter, claim or request for
information alleging that Parent or any of its Subsidiaries may
be in violation of, or liable under, any Environmental Law;
(c) neither Parent nor any Parent Subsidiary (i) has
entered into or agreed to any consent decree or order or is
subject to any judgment, decree or judicial order relating to
compliance with Environmental Laws, Environmental Permits or
the investigation, sampling, monitoring, treatment,
remediation, removal or cleanup of Hazardous Materials and, to
the knowledge of Parent, no investigation, litigation or other
proceeding is pending or threatened in writing with respect
thereto, or (ii) is an indemnitor in connection with any
threatened or asserted claim by any third-party indemnitee for
any liability under any Environmental Law or relating to any
Hazardous Materials; and
(d) to the knowledge of Parent, none of the real property
owned or leased by Parent or any Parent Subsidiary is listed
or, proposed for listing on the "National Priorities List"
under CERCLA, as updated through the date hereof, or any
similar state or foreign list of sites requiring investigation
or cleanup.
SECTION 4.14 Taxes. (a) Except as set forth in
Section 4.14 of the Parent Disclosure Schedule and except for
such matters that, individually or in the aggregate, would not
have a Parent Material Adverse Effect, (i) Parent and each of
the Parent Subsidiaries have timely filed or shall timely file
all returns and reports required to be filed by them with any
taxing authority with respect to Taxes for any period ending on
or before the Effective Time, taking into account any extension
of time to file granted to or obtained on behalf of Parent and
the Parent Subsidiaries, (ii) all Taxes that are due prior to
-36-
Page 75 of 170
<PAGE>
the Effective Time have been paid or shall be paid on or before
the applicable due date, (iii) as of the date hereof, no
deficiency for any amount of Tax has been asserted or assessed
by a taxing authority against Parent or any of the Parent
Subsidiaries and (iv) Parent and each of the Parent
Subsidiaries have provided adequate reserves in their financial
statements for any Taxes that have not been paid, whether or
not shown as being due on any returns.
(a) To the best of Parent's knowledge, no Tax disputes or
audits are pending against, and no claims for Taxes have been
received in writing by or any of Parent Subsidiaries, other
than disputes, audits and claims that are not reasonably likely
to have a Parent Material Adverse Effect.
(b) There are no Tax liens upon any property or assets of
Parent or any of the Parent Subsidiaries except liens for
current Taxes not yet due and liens which have not had and are
not reasonably likely to have a Parent Material Adverse Effect.
SECTION 4.15 Non-Competition Agreements. Except as
set forth on Section 4.15 of the Parent Disclosure Schedule,
neither Parent nor any Parent Subsidiary is a party to any
agreement which purports to restrict or prohibit in any
material respect Parent and the Parent Subsidiaries
collectively from, directly or indirectly, engaging in any
business involving the design, manufacture and sale of
recording heads for disk drives or any other businesses
currently engaged in by Parent or any corporations affiliated
with Parent. None of Parent's officers, directors or key
employees is a party to any agreement which, by virtue of such
person's relationship with Parent, restricts in any material
respect Parent or any Parent Subsidiary or affiliate from,
directly or indirectly, engaging in any of the businesses
described above.
SECTION 4.16 Opinion of Financial Advisor.
Gleacher Natwest, Inc. ("GNI") has delivered to the board of
directors of Parent its written opinion to the effect that, as
of the date of the opinion, the consideration was fair to
Parent from a financial point of view. GNI has authorized the
inclusion of its opinion in the Proxy Statement and Parent
shall promptly, after the date of this Agreement, deliver a
signed copy of such opinion to the Company.
SECTION 4.17 Brokers. No broker, finder or
investment banker (other than GNI) is entitled to any
brokerage, finder's or other fee or commission in connection
with the Merger based upon arrangements made by or on behalf of
Parent. Parent has heretofore made available to the Company
complete and correct copies of all agreements between Parent,
on the one hand, and GNI, on the other hand, pursuant to which
such firm would be entitled to any payment relating to the
Merger.
-37-
Page 76 of 170
<PAGE>
SECTION 4.18 Insurance. Parent maintains insurance
coverage with reputable insurers in such amounts and covering
such risks as are in accordance with normal industry practice
for companies engaged in businesses similar to that of Parent
(taking into account the cost and availability of such
insurance).
SECTION 4.19 Ownership of Merger Sub; No Prior
Activities. (a) Merger Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement.
(b) As of the Effective Time, all of the outstanding
capital stock of Merger Sub will be owned directly by Parent.
As of the Effective Time, there will be no options, warrants or
other rights, agreements, arrangements or commitments to which
Merger Sub is a party of any character relating to the issued
or unissued capital stock of, or other equity interests in,
Merger Sub or obligating Merger Sub to grant, issue or sell any
shares of the capital stock of, or other equity interests in,
Merger Sub, by sale, lease, license or otherwise. There are no
obligations, contingent or otherwise, of Merger Sub to
repurchase, redeem or otherwise acquire any shares of the
capital stock of Merger Sub.
(c) As of the date hereof and the Effective Time, except
for obligations or liabilities incurred in connection with its
incorporation or organization and the transactions contemplated
by this Agreement, Merger Sub has not and will not have
incurred, directly or indirectly, through any subsidiary or
affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered
into any agreements or arrangements with any person.
ARTICLE V
COVENANTS
SECTION 5.01 Conduct of Business by the Company
Pending the Closing. The Company agrees that, between the date
of this Agreement and the Effective Time, except as set forth
in Section 5.01 of the Company Disclosure Schedule or as
expressly contemplated by any other provision of this Agreement
(including, without limitation, Section 5.12(b)), unless Parent
shall otherwise agree in writing, which agreement shall not be
unreasonably withheld or delayed, (x) the respective businesses
of the Company and the Company Subsidiaries shall be conducted
only in, and the Company and the Company Subsidiaries shall not
take any action except in, the ordinary course of business
consistent with past practice, (y) the Company shall use
commercially reasonable efforts to keep available the services
of such of the current officers, significant employees and
consultants of the Company and the Company Subsidiaries and to
preserve the current relationships of the Company and the
Company Subsidiaries with such of the customers, suppliers and
other persons with which the Company or any Company Subsidiary
has significant business relations in order to preserve
-38-
Page 77 of 170
<PAGE>
substantially intact its business organization. By way of
amplification and not limitation, except as set forth in
Section 5.01 of the Company Disclosure Schedule or as expressly
contemplated by any other provision of this Agreement, neither
the Company nor any Company Subsidiary shall, between the date
of this Agreement and the Effective Time, directly or
indirectly, do, or agree to do, any of the following without
the prior written consent of Parent, which consent shall not be
unreasonably withheld or delayed:
(a) amend or otherwise change its certificate of
incorporation or bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer,
lease, license, guarantee or encumber, or authorize the
issuance, sale, pledge, disposition, grant, transfer, lease,
license or encumbrance of any property or assets of the Company
or any Company Subsidiary, except in the ordinary course of
business and in a manner consistent with past practice or in an
aggregate amount not in excess of $150,000. The Company shall
also provide Parent with prior written notice of the issuance,
sale or grant of any shares of capital stock of the Company or
any Company Subsidiary of any class, or securities convertible
into or exchangeable or exercisable for any shares of such
capital stock, or any options, warrants or other rights of any
kind to acquire any shares of such capital stock, or any other
ownership interest (including, without limitation, any phantom
interest), of the Company or any Company Subsidiary (except for
the issuance of shares of Company Common Stock issuable
pursuant to the Company Stock Options outstanding on the date
of this Agreement, or the declaration, setting aside, making or
payment of any dividend or other distribution, payable in
cash, stock, property or otherwise, with respect to any of its
capital stock;
(c) (i) acquire (including, without limitation, by
merger, consolidation, or acquisition of stock or assets) any
interest in any corporation, partnership, other business
organization or person or any division thereof or any assets;
(ii) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse, or otherwise
as an accommodation become responsible for, the obligations of
any person for borrowed money, except for (x) indebtedness for
borrowed money incurred in the ordinary course of business and
consistent with past practice and incurred to refinance
outstanding indebtedness for borrowed money existing on the
date of this Agreement and (y) the Promissory Notes,
(iii) terminate, cancel or request any material change in, or
agree to any material change in, any Company Material Contract
or enter into any contract or agreement material to the
business, results of operations or financial condition of the
Company and the Company Subsidiaries taken as a whole, in
either case other than in the ordinary course of business,
consistent with past practice; (iv) make or authorize any
capital expenditure, other than capital expenditures in the
-39-
Page 78 of 170
<PAGE>
ordinary course of business consistent with past practice that
are not, in the aggregate, in excess of $1,000,000 or (v) enter
into or amend any contract, agreement, commitment or
arrangement that, if fully performed, would not be permitted
under this Section 5.01(c);
(d) increase the compensation payable or to become
payable to its officers or employees, except for increases in
accordance with past practices in salaries or wages of
employees or officers of the Company or any Company Subsidiary
who are not executive officers of the Company, or grant any
rights to severance or termination pay to, or enter into any
employment or severance agreement with, any director, officer
or other employee of the Company or any Company Subsidiary, or
establish, adopt, enter into or amend any bonus, profit
sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any director, officer
or employee of the Company or any Company Subsidiary, except to
the extent required by applicable Law or the terms of a
collective bargaining agreement;
(e) take any action with respect to accounting policies
or procedures, other than actions in the ordinary course of
business and consistent with past practice as required by GAAP;
(f) make any tax election or settle or compromise any
material federal, state or local United States income tax
liability, or any income tax liability of any other
jurisdiction, other than those made in the ordinary course of
business consistent with past practice and those for which
specific reserves have been recorded on the consolidated
balance sheet of the Company and the consolidated Company
Subsidiaries dated as of October 31, 1998 and only to the
extent of such reserves; or
(g) authorize or enter into any formal or informal
agreement or otherwise make any commitment to do any of the
foregoing.
SECTION 5.02 Conduct of Business by Parent Pending
the Closing. Parent agrees that, between the date of this
Agreement and the Effective Time, except as set forth in
Section 5.02 of the Parent Disclosure Schedule or as expressly
contemplated by any other provision of this Agreement
(including, without limitation, Section 5.12(b)), unless the
Company shall otherwise agree in writing, which agreement shall
not be unreasonably withheld or delayed, (x) the respective
businesses of Parent and the Parent Subsidiaries shall be
conducted only in, and Parent and the Parent Subsidiaries shall
not take any action except in, the ordinary course of business
consistent with past practice and (y) Parent shall use its
reasonable efforts to keep available the services of such of
the current officers, significant employees and consultants of
-40-
Page 79 of 170
<PAGE>
Parent and the Parent Subsidiaries and to preserve the current
relationships of Parent and the Parent Subsidiaries with such
of the customers, suppliers and other persons with which Parent
or any Parent Subsidiary has significant business relations in
order to preserve substantially intact its business
organization. By way of amplification and not limitation,
except as set forth in Section 5.02 of the Parent Disclosure
Schedule or as expressly contemplated by any other provision of
this Agreement, neither Parent nor any Parent Subsidiary shall,
between the date of this Agreement and the Effective Time,
directly or indirectly, do, or agree to do, any of the
following without the prior written consent of the Company,
which consent shall not be unreasonably withheld or delayed:
(a) amend or otherwise change its certificate of
incorporation or bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer,
lease, license, guarantee or encumber, or authorize the
issuance, sale, pledge, disposition, grant, transfer, lease,
license or encumbrance of, any shares of capital stock of
Parent or any Parent Subsidiary of any class, or securities
convertible into or exchangeable or exercisable for any shares
of such capital stock, or any options, warrants or other rights
of any kind to acquire any shares of such capital stock, or any
other ownership interest (including, without limitation, any
phantom interest), of Parent or any Parent Subsidiary (except
for the issuance of (A) shares of Parent Common Stock issuable
pursuant to Parent Stock Options outstanding on the date of
this Agreement and the grant, in the ordinary course of
business, consistent with past practices and on terms no more
favorable than customary prior grants, of Parent Stock Options
to acquire shares of Parent Common Stock and the shares of
Parent Common Stock issuable pursuant to such Parent Stock
Options, in accordance with the terms of the Parent Stock
Plans, (B) a maximum of 6,199,947 shares of Parent Common Stock
issuable pursuant to the Parent Subordinated Notes;
(c) (i) acquire (including, without limitation, by
merger, consolidation or acquisition of stock or assets) any
interest in any corporation, partnership, other business
organization or person or any division thereof or any assets;
(ii) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse, or otherwise
as an accommodation become responsible for, the obligations of
any person for borrowed money, except for indebtedness for
borrowed money incurred in the ordinary course of business and
consistent with past practice and incurred to refinance
outstanding indebtedness for borrowed money existing on the
date of this Agreement; (iii) terminate, cancel or request any
material change in, or agree to any material change in, any
Parent Material Contract or enter into any contract or
agreement material to the business, consistent with past
practice; (iv) make or authorize any capital expenditure, other
than capital expenditures in the ordinary course of business
-41-
Page 80 of 170
<PAGE>
consistent with past practice that are not, in the aggregate,
in excess of $10 million or (v) enter into or amend any
contract, agreement, commitment or arrangement that, if fully
performed, would not be permitted under this Section 5.02(c);
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise,
with respect to any of its capital stock;
(e) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of
its capital stock;
(f) take any action with respect to accounting policies
or procedures, other than actions in the ordinary course of
business and consistent with past practice, as required by GAAP
or as may be required by the SEC; or
(g) authorize or enter into any formal or informal
agreement or otherwise make any commitment to do any of the
foregoing.
SECTION 5.03 Cooperation. The Company and Parent
shall coordinate and cooperate in connection with (i) the
preparation of the Proxy Statement (as defined in
Section 6.01), (ii) determining whether any action by or in
respect of, or filing with, any Governmental Entity is
required, or any actions, consents, approvals or waivers are
required to be obtained from parties to any Parent Material
Contracts or any Company Material Contracts, in connection with
the consummation of the Merger and (iii) seeking any such
actions, consents, approvals or waivers or making any such
filings, furnishing information required in connection
therewith or with the Registration Statement and the Proxy
Statement and timely seeking to obtain any such actions,
consents, approvals or waivers.
SECTION 5.04 Notices of Certain Events. Each of
Parent and the Company shall give prompt notice to the other of
(i) any notice or other communication from any person alleging
that the consent of such person is or may be required in
connection with the Merger; (ii) any notice or other
communication from any Governmental Entity in connection with
the Merger; (iii) any actions, suits, claims, investigations or
proceedings commenced or, to its knowledge, threatened against,
relating to or involving or otherwise affecting Parent, the
Company, the Parent Subsidiaries or the Company Subsidiaries
that relate to the consummation of the Merger; (iv) the
occurrence of a default or event that, with the giving of
notice or lapse of time or both, will become a default under
any Company Material Contract or Parent Material Contract; and
(v) any change that is reasonably likely to result in a Company
Material Adverse Effect or a Parent Material Adverse Effect or
is reasonably likely to delay or impede the ability of either
the Company or Parent to perform its respective obligations
-42-
Page 81 of 170
<PAGE>
pursuant to this Agreement and to effect the consummation of
the Merger.
SECTION 5.05 Access to Information;
Confidentiality. (a) Except as prohibited by any
confidentiality agreement or similar agreement or arrangement
to which Parent or the Company or any of the Parent
Subsidiaries or the Company Subsidiaries is a party or by
applicable Law or the regulations or requirements of any stock
exchange or other regulatory organization with whose rules a
party hereto is required to comply, from the date of this
Agreement to the Effective Time, Parent and the Company shall
(and shall cause the Parent Subsidiaries and the Company
Subsidiaries, respectively, to): (i) provide to the other (and
its officers, directors, employees, accountants, consultants,
legal counsel, agents and other representatives (collectively,
"Representatives")) access at reasonable times upon prior
notice to its and its subsidiaries' officers, employees,
agents, properties, offices and other facilities and to the
books and records thereof, and (ii) furnish promptly such
information concerning its and its subsidiaries' business,
properties, contracts, assets, liabilities and personnel as the
other party or its Representatives may reasonably request. No
investigation conducted pursuant to this Section 5.05 shall
affect or be deemed to modify any representation or warranty
made in this Agreement.
(b) The parties hereto shall comply with their respective
obligations under the Confidentiality Agreement heretofore
entered into by Parent and the Company (the "Confidentiality
Agreement") with respect to the information disclosed pursuant
to this Agreement.
SECTION 5.06 No Solicitation of Transactions. (a)
Each party to this Agreement shall not, directly or indirectly,
and shall instruct its officers, directors, employees,
subsidiaries, agents or advisors or other representatives
(including, without limitation, any investment banker, attorney
or accountant retained by it), not to, directly or indirectly,
solicit, initiate or knowingly encourage (including by way of
furnishing nonpublic information), or take any other action
knowingly to facilitate, any inquiries or the making of any
proposal or offer (including, without limitation, any proposal
or offer to its stockholders) that constitutes, or may
reasonably be expected to lead to, any Competing Transaction,
or enter into or maintain or continue discussions or negotiate
with any person in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize or permit any of the officers,
directors or employees of such party or any of its
subsidiaries, or any investment banker, financial advisor,
attorney, accountant or other representative retained by such
party or any of such party's subsidiaries, to take any such
action; provided, however, that nothing contained in this
Section 5.06 shall prohibit the Board of Directors of Parent or
-43-
Page 82 of 170
<PAGE>
the Company from furnishing information to, or entering into
discussions or negotiations with, any person in connection with
an unsolicited (from the date of this Agreement) proposal by
such person to acquire such party pursuant to a merger,
consolidation, share exchange, tender offer, exchange offer,
business combination or other similar transaction or to acquire
all or substantially all of the assets of such party or any of
its subsidiaries, if, and only to the extent that, (i) such
Board of Directors, after consultation with outside legal
counsel (which may include its regularly engaged outside legal
counsel), determines in good faith that such action is required
for such Board of Directors to comply with its duties to its
stockholders imposed by applicable Law and (ii) prior to
furnishing such information to, or entering into discussions or
negotiations with, such person, such party obtains from such
person an executed confidentiality agreement on terms no less
favorable to the Company or Parent, as the case may be, than
those contained in the Confidentiality Agreement. Each party
hereto shall notify the other parties hereto promptly if any
proposal or offer, or any inquiry or contact with any person
with respect thereto, regarding a Competing Transaction is
made. Each party hereto immediately shall cease and cause to
be terminated all existing discussions or negotiations with any
parties conducted heretofore with respect to a Competing
Transaction. Each party hereto agrees not to release any third
party from, or waive any provision of, any confidentiality or
standstill agreement to which it is a party. Notwithstanding
the foregoing, either party may enter into a confidentiality
agreement containing a standstill provision which permits, or
waives compliance with any existing standstill agreement in
order to permit, a third party to make a confidential takeover
proposal to the Board of Directors which could reasonably be
expected to result in a Competing Transaction; provided,
however, that either party may then further waive compliance
with a standstill agreement in order to permit a third party to
make such takeover proposal to such party's stockholders so as
to enable the Company or Parent to terminate this Agreement
pursuant to the provisions of Section 8.01(i) or (j), as the
case may be; provided further that nothing in this
Section 5.06(a) shall affect the obligation of the Company or
Parent to pay the Company Termination Fee or the Parent
Termination Fee (each as hereinafter defined) pursuant to the
terms of Section 8.05.
(b) A "Competing Transaction" means any of the following
involving the Company or Parent, as the case may be (other than
the Merger contemplated by this Agreement): (i) a merger,
consolidation, share exchange, business combination or other
similar transaction, (ii) any sale, lease, exchange, transfer
or other disposition of 25 percent or more of the assets of
such party and its subsidiaries, taken as a whole, or of assets
of such party and its subsidiaries generating 25 percent or
more of such party's revenues or operating income, or (iii) a
tender offer or exchange offer for 25 percent or more of the
outstanding voting securities of such party.
-44-
Page 83 of 170
<PAGE>
SECTION 5.07 Plan of Reorganization. This
Agreement is intended to constitute a "plan of reorganization"
within the meaning of Section 1.368-2(g) of the income tax
regulations promulgated under the Code. From and after the
date of this Agreement, each party hereto shall use all
reasonable efforts to cause the Merger to qualify, and shall
not, without the prior written consent of the other parties
hereto, knowingly take any actions or cause any actions to be
taken which could prevent the Merger from qualifying as a
reorganization under the provisions of Section 368(a) of the
Code.
SECTION 5.08 Subsequent Financial Statements. As
of their respective dates, none of the financial statements
prepared by Parent, Parent Subsidiaries or by the Company after
the date of this Agreement shall contain any untrue statement
of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading. The respective audited financial statements and
unaudited interim financial statements of each of the Company
and Parent, as the case may be, shall fairly present the
financial position of such party and its Subsidiaries as at the
dates thereof and the results of their operations and cash
flows for the periods then ended in accordance with GAAP
applied on a consistent basis and subject, in the case of
unaudited interim financial statements, to normal year-end
adjustments.
SECTION 5.09 Control of Operations. Nothing
contained in this Agreement shall give Parent, directly or
indirectly, the right to control or direct the operations of
the Company and the Company Subsidiaries prior to the Effective
Time. Nothing contained in this Agreement shall give the
Company, directly or indirectly, the right to control or direct
the operations of Parent and the Parent Subsidiaries prior to
the Effective Time. Prior to the Effective Time, each of
Parent and the Company shall exercise, consistent with the
terms and conditions of this Agreement, complete control and
supervision over its respective operations.
SECTION 5.10 Further Action; Consents; Filings.
(a) Upon the terms and subject to the conditions hereof, each
of the parties hereto shall use all reasonable efforts to
(i) take, or cause to be taken, all appropriate action, and do,
or cause to be done, all things necessary, proper or advisable
under applicable Law or otherwise to consummate and make
effective the Merger, (ii) obtain from Governmental Entities
any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by
Parent, the Company or the Surviving Corporation or any of
their subsidiaries in connection with the authorization,
execution and delivery of this Agreement and the consummation
of the Merger, (iii) make all necessary filings, and thereafter
make any other required or appropriate submissions, with
-45-
Page 84 of 170
<PAGE>
respect to this Agreement and the Merger required under (A) the
rules and regulations of the NYSE, including the filing of a
listing application covering the Shares of Parent Common Stock
to be issued to the Company's stockholders, persons entitled to
non-competition payments and the holders of the Promissory
Notes in the Merger and upon exercise of the options pursuant
to Section 2.04, (B) the Securities Act, the Exchange Act and
any other applicable federal or state securities Laws, (C) the
HSR Act and (D) any other applicable Law and (iv) obtain any
consents necessary such that the Merger will not constitute a
change of control, or any similar event, which constitutes a
default (or an event which with notice or lapse of time or both
would become a default) under any material contract, agreement,
lease, license, permit, franchise or other instrument or
obligation to which the Company, Parent or any of their
subsidiaries is a party. The parties hereto shall cooperate
and consult with each other in connection with the making of
all such filings, including by providing copies of all such
documents to the nonfiling parties and their advisors prior to
filing, and any comments of the nonfiling parties and their
advisors shall be considered prior to the filing of such
document. No party shall consent to any voluntary extension of
any statutory deadline or waiting period or to any voluntary
delay of the consummation of the Merger at the behest of any
Governmental Entity without the consent and agreement of the
other parties hereto.
(b) Without limiting the generality of the foregoing, and
subject to the following sentence, each of the parties hereto
agrees, and shall cause each of its respective Subsidiaries to
cooperate and to use their commercially reasonable efforts to
obtain any government clearances required for completion of the
Merger (including compliance with the HSR Act), to respond to
any government requests for information, and to contest and
resist any action, including any legislative, administrative or
judicial action, and to have vacated, lifted, reversed or
overturned any Governmental Order (whether temporary,
preliminary or permanent) that restricts, prevents or prohibits
the consummation of the Merger, including, without limitation,
by vigorously pursuing all available avenues of administrative
and judicial appeal and all available legislative action. Each
of the parties hereto also agrees to take or cause to be taken
the following actions: (i) provide promptly to Governmental
Entities with regulatory jurisdiction over enforcement of any
applicable antitrust laws ("Government Antitrust Entity")
information and documents requested by any Government Antitrust
Entity or necessary, proper or advisable to permit consummation
of the transactions contemplated by this Agreement; (ii) file
any Notification and Report Form and related material required
under the HSR Act as soon as practicable after the date hereof,
and thereafter use its reasonable efforts to certify as soon as
practicable its substantial compliance with any requests for
additional information or documentary material that may be made
under the HSR Act; (iii) deliver the proffer of Parent and the
Company of their willingness to (A) sell or otherwise dispose
-46-
Page 85 of 170
<PAGE>
of, or hold separate and agree to sell or otherwise dispose of,
such assets, categories of assets or businesses of Parent or
Parent Subsidiaries or Company or Company Subsidiaries, as
applicable, and (B) terminate such existing relationships and
contractual rights and obligations (and, in each case, to enter
into agreements with the relevant Government Antitrust Entity
giving effect thereto) in each case with respect to the
foregoing clause (A) or (B), if such action is necessary or
reasonably advisable for the purpose of avoiding or preventing
any action by any Government Antitrust Entity which would
restrain, enjoin or otherwise prevent or materially delay
consummation of the transactions contemplated by this
Agreement; provided however; that no party shall be required to
take any actions described in this clause (iii) if such actions
would be reasonably likely, individually or in the aggregate,
to have a Parent Material Adverse Effect after giving effect to
the Merger; and (iv) Parent or the Company, as applicable,
shall take promptly, in the event that any permanent of
preliminary injunction or other order is entered or becomes
reasonably foreseeable to be entered in any proceeding that
would make consummation of the transactions contemplated hereby
in accordance with the terms of this Agreement unlawful or that
would prevent or delay consummation of the transactions
contemplated hereby, any and all steps (including the appeal
thereof, the posting of a bond or the taking of the steps
contemplated by clause (iii) of this subsection (b)) necessary
to vacate, modify or suspend such injunction or order so as to
permit such consummation prior to the deadline specified in
Section 8.01(b). The parties hereto will consult and cooperate
with one another, and consider in good faith the views of one
another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or in behalf of any party hereto
in connection with proceedings under or relating to the HSR Act
or any other federal, state or foreign antitrust or fair trade
law. The parties hereto will provide to the other copies of
all correspondence between it (or its advisors) and any
Government Antitrust Entity relating to this Agreement or any
of the matters described in this Section 5.12(b). The parties
hereto agree that all material telephonic calls and meetings
with a Government Antitrust Entity regarding the transactions
contemplated hereby or any of the matters described in this
Section 5.12(b) shall include representatives of each of Parent
and the Company. Parent shall coordinate and be the principal
spokesperson in connection with any proceedings or negotiations
with any Governmental Entity relating to any of the foregoing,
provided that it shall afford the Company a reasonable
opportunity to participate therein.
SECTION 5.11 Stockholder Rights Plan.
Notwithstanding the limitations set forth in this Agreement
with respect to the conduct of the Parent's business prior to
the Effective Time, including the limitations set forth in
Sections 5.01 and 5.02, Parent may, at any time prior to the
Effective Time, take all actions necessary to adopt and
-47-
Page 86 of 170
<PAGE>
implement a stockholder rights plan or amend its existing
stockholder rights plan, provided that the terms of such
stockholder rights plan shall specifically exclude the
consummation of the Merger as contemplated by this Agreement.
SECTION 5.12 Employee Benefit Plans. (a) Following
the Effective Time, Parent shall arrange for each employee of
the Company or any Company Subsidiary to participate in any
counterpart Parent Benefit Plans in accordance with the
eligibility criteria thereof, provided that (i) such
participants shall receive full credit for years of service
with the Company or any Company Subsidiary (and service
otherwise credited by the Company or any Company Subsidiary)
prior to the Effective Time for all purposes for which such
service was recognized under the Company Benefit Plans
including, but not limited to, eligibility to participate,
vesting, and, to the extent not duplicative of benefits
received under such Company Benefit Plan, the amount of
benefits, (ii) such participants shall participate in the
Parent Benefit Plans on terms no less favorable than those
offered by Parent to similarly situated employees of Parent,
and (iii) Parent shall cause any and all pre-existing condition
limitations, eligibility waiting periods and evidence of
insurability requirements under any group plans to be waived
with respect to such participants and their eligible dependents
and shall provide each such participant with credit for any co-
payments and deductibles paid prior to the Effective Time for
purposes of satisfying any applicable deductible, out-of-
pocket, or similar requirements under any health plans in which
such participants are eligible to participate after the
Effective Time. Notwithstanding any of the foregoing to the
contrary, none of the provisions contained herein shall operate
to duplicate any benefit provided to any employee of the
Company or the funding of any such benefit.
(b) Following the Effective Time, Parent shall cause the
Surviving Corporation to honor and perform, pursuant to their
terms, all employee benefit obligations to current and former
employees and directors of the Company under any Company
Benefit Plans; provided however, that nothing contained herein
shall limit any reserved right in any Company Benefit Plan to
amend, modify, suspend, revoke or terminate any such plan.
(c) To the extent that Parent elects to terminate after
the Effective Time any employee pension benefit plan maintained
by the Company or any Company Subsidiary which is a defined
benefit plan, then all accrued benefits thereunder shall be
fully vested and the accrued benefits shall be paid as promptly
as practicable to participants thereunder who so elect in a
lump sum payment.
-48-
Page 87 of 170
<PAGE>
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 Proxy Statement. (a) As promptly as
practicable after the execution of this Agreement, (i) Parent
and the Company shall jointly prepare a proxy
statement/information statement with respect to the Merger
relating to the special meeting of the Company's stockholders
(the "Company Stockholders' Meeting") to be held in connection
with the Merger (together with any amendments thereto, the
"Proxy Statement"). The parties hereto shall take all action
required under any applicable Laws in connection with the
issuance of shares of Parent Common Stock pursuant to the
Merger. Parent or the Company, as the case may be, shall
furnish all information concerning Parent or the Company as the
other party may reasonably request in connection with such
actions and the preparation of the Proxy Statement. As
promptly as practicable after completion of the Proxy
Statement, the Proxy Statement shall be mailed to the
stockholders of the Company. Each of the parties hereto shall
cause the Proxy Statement to comply as to form and substance in
all material respects with the applicable requirements of
(i) the Securities Act and the regulations thereunder and
(ii) the DGCL.
(b) The Proxy Statement shall include the approval of
this Agreement and the recommendation of the Board of Directors
of the Company to the Company's stockholders that they vote in
favor of adoption of this Agreement; provided, however, that
the Board of Directors of the Company may, at any time prior to
the Effective Time, withdraw, modify or change any such
recommendation to the extent that the Board of Directors of the
Company determines in good faith, after consultation with
outside legal counsel (who may be the Company's regularly
engaged outside legal counsel), that such withdrawal,
modification or change of its recommendation is required by its
fiduciary duties to the Company's stockholders under applicable
Law.
(c) No amendment or supplement to the Proxy Statement
shall be made without the prior review of Parent and the
Company, and any comments of Parent or the Company shall be
considered prior to delivery of such amendment or supplement to
the stockholders of the Company. Each of the parties hereto
shall advise the other parties hereto promptly after it
receives notice thereof, of the suspension of the qualification
of the Parent Common Stock issuable in connection with the
Merger for offering or sale in any jurisdiction.
(d) The information supplied by the Company for inclusion
in the Proxy Statement shall not, at (i) the time the Proxy
Statement (or any amendment thereof or supplement thereto) is
first mailed to the stockholders of the Company, (ii) the time
of the Company Stockholders' Meeting and (iii) the Effective
Time, contain any untrue statement of a material fact or omit
-49-
Page 88 of 170
<PAGE>
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 were made, not misleading.
If at any time prior to the Effective Time any event or
circumstance relating to the Company or any Company Subsidiary,
or their respective officers or directors, should be discovered
by the Company that should be set forth in an amendment or a
supplement to the Proxy Statement, the Company shall promptly
inform Parent.
(e) The information supplied by Parent for inclusion in
the Proxy Statement shall not, at (i) the time the Proxy
Statement (or any amendment thereof or supplement thereto) is
first mailed to the stockholders of the Company, (ii) the time
of the Company Stockholders' Meeting and (iii) 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 were made, not misleading.
If, at any time prior to the Effective Time, any event or
circumstance relating to Parent or any Parent Subsidiary, or
their respective officers or directors, should be discovered by
Parent that should be set forth in an amendment or a supplement
to the Proxy Statement, Parent shall promptly inform the
Company. All documents that Parent is responsible for filing
with the SEC in connection with the Merger will comply as to
form in all material respects with the applicable requirements
of the DGCL, the Securities Act and the Exchange Act and the
NYSE. Parent shall deliver copies of all filings made under
the Exchange Act subsequent to the mailing of the Proxy
Statement and prior to the Company Stockholders' meeting to the
Stockholders of the Company.
SECTION 6.02 Stockholders' Meetings. The Company
shall call and hold the Company Stockholders' Meeting as
promptly as practicable, for the purpose of voting upon the
adoption of this Agreement and the Merger contemplated hereby,
and the Company shall use its reasonable efforts to hold the
Stockholders' Meeting on February 11, 1999. The Company shall
use its reasonable efforts to solicit from its stockholders
proxies in favor of the adoption of this Agreement pursuant to
the Proxy Statement and shall take all other action necessary
or advisable to secure the vote or consent of stockholders
required by the DGCL, except to the extent that the Board of
Directors of the Company determines in good faith after
consultation with outside legal counsel (who may be the
Company's regularly engaged outside legal counsel) that the
withdrawal, modification or change of its recommendation is
required by its fiduciary duties to the Company stockholders
under applicable Law. The Company, subject to the exercise of
its fiduciary duties to its stockholders, as described in this
Section 6.02, shall take all other action necessary or, in the
opinion of the other parties hereto, advisable to promptly and
expeditiously secure any vote or consent of stockholders
-50-
Page 89 of 170
<PAGE>
required by applicable Law and the Company's Certificate of
Incorporation and Bylaws to effect the Merger.
SECTION 6.03 Post-Merger Directors and Chief
Executive Officer of Parent. (a) The Board of Directors of
Parent shall take such action as may be necessary to cause
Parent's Board of Directors immediately following the 1999
Annual Meeting of Parent Stockholders to be composed of seven
members, and to cause two persons designated by the Board of
Directors of the Company prior to the Closing (the "Company
Designees") to be elected to Parent's Board of Directors. In
furtherance thereof and at such time, Parent shall increase the
size of its Board of Directors to effectuate the foregoing
sentence. The Company Designees shall serve in accordance with
the Restated Certificate of Incorporation and Bylaws of Parent
until their respective successors are duly elected or appointed
and qualified.
(b) The current Chairman of the Board and Chief Executive
Officer of Parent shall remain as Chairman of the Board and
Chief Executive Officer of Parent following the Effective Time.
SECTION 6.04 Affiliates. Not less than 15 days
prior to the Effective Time, the Company shall deliver to
Parent a list of names and addresses of those persons, in the
Company's reasonable judgment, at the record date for the
Company Stockholders' Meeting, who were directors and 5%
stockholders of the Company ("Affiliates"). The Company shall
provide Parent such information and documents as Parent shall
reasonably request for purposes of reviewing such list.
Affiliates (other than officers of the Company who cease to be
officers of the Company after the Effective Time) may not offer
for sale, sell, or otherwise dispose of the Parent Common Stock
received in the Merger until the earlier to occur of (i) 48
hours after results covering 30 days of post-merger combined
operations of Parent and the Company have been filed with the
Securities and Exchange Commission, sent to stockholders of
Parent or otherwise publicly issued, or (ii) 60 days following
the Effective Time. Parent shall be entitled to place legends
regarding Rule 145 promulgated under the Securities Act on the
certificates evidencing any of the Parent Common Stock to be
received by any Affiliate and to issue appropriate stop
transfer instructions to the transfer agent for the Parent
Common Stock with respect to Rule 145 promulgated under the
Securities Act.
SECTION 6.05 Assumption of Debt. With respect to
the Company's indebtedness identified on Section 6.05 of the
Company Disclosure Schedule issued by the Company under an
indenture qualified under the Trust Indenture Act of 1939 (the
"Company Indentures"), if required by the Company Indentures,
the Surviving Corporation shall execute and deliver to the
trustee under each Company Indenture a supplemental indenture,
in form satisfactory to the trustee, expressly assuming the
obligations of the Company with respect to the due and punctual
-51-
Page 90 of 170
<PAGE>
payment of the principal of (and premium, if any) and interest
on such indebtedness and the due and punctual performance of
all the terms, covenants and conditions of the Company
Indentures to be kept or performed by the Company, and shall
deliver such supplemental indenture to the trustee under each
Company Indenture. Holders of any Company convertible debt
instruments who convert after the Effective Time shall be
entitled to receive Parent Common Stock based on a ratio
determined in accordance with Section 2.01(a).
SECTION 6.06 Indemnification of Directors and
Officers. (a) Parent and Merger Sub agree that the
indemnification obligations set forth in the Company's Restated
Certificate of Incorporation and Bylaws, in each case as of the
date of this Agreement, shall survive the Merger (and, prior to
the Effective Time, Parent shall cause the Certificate of
Incorporation and Bylaws of Merger Sub to reflect such
provisions) and shall not be amended, repealed or otherwise
modified for a period of three years after the Effective Time
in any manner that would adversely affect the rights thereunder
of the individuals who on or prior to the Effective Time were
directors, officers, employees or agents of the Company or the
Company Subsidiaries.
(b) Parent and the Company shall, to the fullest extent
permitted under applicable Law and regardless of whether the
Merger becomes effective, indemnify and hold harmless, and,
after the Effective Time, the Surviving Corporation shall, to
the fullest extent permitted under applicable Law, indemnify
and hold harmless, each present and former director, officer,
trustee, fiduciary, employee or agent of the Company and each
Company Subsidiary and each such person who served at the
request of the Company or any Company Subsidiary as a director,
officer, trustee, partner, fiduciary, employee or agent of
another corporation, partnership, joint venture, trust, pension
or other employee benefit plan or enterprise through the
Effective Time (collectively, the "Indemnified Parties")
against all costs and expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims, damages, liabilities
and settlement amounts paid in connection with any claim,
action, suit, proceeding or investigation (whether arising
before or after the Effective Time), whether civil,
administrative or investigative, arising out of or pertaining
to any action or omission in their capacity as an officer or
director, in each case occurring before the Effective Time
(including the transactions contemplated by this Agreement).
Without limiting the foregoing, in the event of any such claim,
action, suit, proceeding or investigation, the Company or the
Surviving Corporation, as the case may be, shall defend such
action with counsel selected by Company or the Surviving
Corporation as the case may be, which counsel shall be
reasonably satisfactory to the Indemnified Party.
(c) Following the Effective Time, Parent will fully
guaranty the prompt payment and performance of all obligations
-52-
Page 91 of 170
<PAGE>
of the Surviving Corporation pursuant to this Section 6.06 and
under any and all director and officer indemnification
agreements entered into by the Company and/or any Company
Subsidiary.
(d) The obligations of the Company, the Surviving
Corporation, and Parent under this Section 6.06 shall not be
terminated or modified in such a manner as to adversely affect
any Indemnified Party without the consent of such affected
party (it being expressly agreed that each such party shall be
a third-party beneficiary of this Section 6.06).
(e) The rights of an Indemnified Party to indemnification
and advancement of expenses under this Section 6.06 shall not
be deemed exclusive of any other rights which the Indemnified
Party may at any time be entitled to under applicable Law, any
charter or bylaw provision, any agreement, vote of
stockholders, resolution of disinterested directors or
otherwise.
(f) For three years from the Effective Time, the
Surviving Corporation shall provide (to the extent available in
the market) to the Company's current directors and officers
liability insurance protection of the same kind and scope as
that provided by the Company's directors' and officers'
liability insurance policies (copies of which have been made
available to Parent); provided, however, that in no event shall
the Surviving Corporation be required to expend more than 200%
of the current amount expended by the Company (the "Insurance
Amount") to maintain or procure insurance coverage pursuant
hereto and further provided that if the Surviving Corporation
is unable to maintain or obtain the insurance called for by
this Section 6.06(c), it shall use its commercially reasonable
efforts to obtain as much comparable insurance as is available
for the Insurance Amount.
SECTION 6.07 Registration Statement. The shares
of Parent Common Stock are being issued in reliance upon the
exemption from the requirements of Section 5 of the Securities
Act provided by Section 4(2) of the Securities Act and Rule 506
of Regulation D promulgated thereunder. Immediately after the
Effective Time, Parent shall file a Registration Statement with
the SEC to provide for the registration of the Parent Common
Stock for a period of one year after the Effective Time
pursuant to the Registration Rights Agreement attached hereto
as Annex I. The certificates representing the shares of Parent
Common Stock to be issued shall contain such legends as
required by applicable laws.
SECTION 6.08 Public Announcements. The initial
press release concerning the Merger shall be a joint press
release and, thereafter, Parent and the Company shall consult
with each other before issuing any press release or otherwise
making any public statements with respect to this Agreement or
the Merger and shall not issue any such press release or make
-53-
Page 92 of 170
<PAGE>
any such public statement without the prior written approval of
the other, except to the extent required by applicable Law or,
in the case of Parent, the requirements of the NYSE, in which
case the issuing party shall use its reasonable efforts to
consult with the other party before issuing any such release or
making any such public statement.
SECTION 6.09 Stock Exchange Listing. Each of the
parties hereto shall use its reasonable efforts to obtain,
prior to the Effective Time, the approval for listing on the
NYSE, effective upon official notice of issuance, of the shares
of Parent Common Stock issuable to the Company's stockholders,
the recipients of non-competition payments and the holders of
Junior Notes and Senior Notes in the Merger and upon the
exercise of options pursuant to Section 2.04 hereof.
SECTION 6.10 Blue Sky. Each of the parties hereto
shall use all reasonable efforts to obtain prior to the
Effective Time all necessary blue sky permits and approvals
required under Blue Sky Laws to permit the distribution of the
shares of Parent Common Stock to be issued in accordance with
the provisions of this Agreement.
SECTION 6.11 Agreements with Respect to Promissory
Notes. (a) The Company makes the same representations and
warranties to the holders of Junior Notes and Senior Notes as
the Company makes to the Parent pursuant to Article III of this
Agreement.
(b) Parent makes the same representations and
warranties to the holders of Promissory Notes who receive
shares of Parent Common Stock pursuant to the Merger as Parent
makes to the Company pursuant to Article IV of this Agreement.
(c) Notwithstanding Section 6.07, for a period of
one year after the Effective Time Parent shall be required to
provide holders of Junior Notes and Senior Notes who receive
shares of Parent Common Stock pursuant to the Merger a current
prospectus pursuant to an effective registration statement that
may be reasonably required by such holders for the purposes of
resale of such shares of Parent Common Stock and will take such
further action at any time, and from time to time, to amend or
supplement the prospectus or registration statement in order to
comply with the Securities Act and the rules and regulations of
the Commission promulgated thereunder.
(d) The obligations of the Company, the Surviving
Corporation and Parent under this Section 6.11 shall not be
terminated or modified on such a manner as to adversely affect
any holder of Senior Notes or Junior Notes without the consent
of such affected party (it being expressly agreed that each
such party shall be a third-party beneficiary of this
Section 6.11).
-54-
Page 93 of 170
<PAGE>
SECTION 6.12 Acknowledgment of Matters Concerning
Legal Representation. Each party hereto, and each third party
beneficiary hereunder is hereby noticed and acknowledges and
agrees that such counsel set forth below its respective
client's name in each of Section 9.02(a) and Section 9.02(b)
represents only such client and no other person. Additionally,
Parent (on behalf of itself and the Company at the Closing)
shall wire transfer to each of Sheppard, Mullin, Richter &
Hampton LLP and to Wilson Sonsini Goodrich & Rosati amounts
equal to all legal fees incurred in connection with the
transactions contemplated hereby and all legal fees owed by
either of Parent or the Company to its counsel which have not
then been paid.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01 Conditions to the Obligations of Each
Party to Consummate the Merger. The obligations of the parties
hereto to consummate the Merger, or to permit the consummation
of the Merger, are subject to the satisfaction or, if permitted
by applicable Law, waiver of the following conditions:
(a) Intentionally left blank.
(b) this Agreement shall have been duly adopted by
the requisite vote of stockholders of the Company;
(c) no court of competent jurisdiction shall have
issued or entered any order, writ, injunction or decree, and no
other Governmental Entity shall have issued any order, which is
then in effect and has the effect of making the Merger illegal
or otherwise prohibiting its consummation;
(d) any waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act
or any other applicable competition, merger control or similar
Law shall have expired or been terminated;
(e) the shares of Parent Common Stock issuable to
the Company's stockholders and the holders of the Promissory
Notes in the Merger and upon the exercise of options pursuant
to Section 2.04 hereof shall have been authorized for listing
on the NYSE, subject to official notice of issuance; and
SECTION 7.02 Conditions to the Obligations of the
Company. The obligations of the Company to consummate the
Merger, or to permit the consummation of the Merger, are
subject to the satisfaction or, if permitted by applicable Law,
waiver of the following further conditions:
(a) Parent shall have performed or complied in all
material respects with all material agreements and covenants
required by this Agreement to be performed or complied with by
-55-
Page 94 of 170
<PAGE>
it on or prior to the Effective Time and the Company shall have
received a certificate of the Chairman and Chief Executive
Officer of Parent to that effect.
(b) The stockholders of the Company shall have
received an opinion of Sheppard, Mullin, Richter & Hampton in
the form attached hereto as Annex II.
SECTION 7.03 Conditions to the Obligations of
Parent. The obligations of Parent to consummate the Merger, or
to permit the consummation of the Merger, are subject to the
satisfaction or, if permitted by applicable Law, waiver of the
following further conditions:
(a) The Company shall have performed or complied in
all material respects with all material agreements and
covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time and
Parent shall have received a certificate of the Chairman or
President and Chief Financial Officer of the Company to that
effect;
(b) In the event that the conditions set forth in
Section 7.1(l) and 7.2(j) (the "conditions") of that Securities
Purchase Agreement heretofore entered into by Parent and
certain investors (the "Investors") to purchase not less than
$15 million of Parent Common Stock (the "Securities Purchase
Agreement") shall not have been satisfied, Parent shall receive
at the Closing from the Investors or other investors not less
than $15 million in Parent equity securities on terms in all
material respects no less favorable to Parent than those
contained in the Securities Purchase Agreement; provided
however, that Parents' right to terminate this Agreement is
subject to proviso (iii) in 8.01(b). If the condition set
forth in Section 7.1(1) and 7.2(j) of the Securities Purchase
Agreement shall have been satisfied, this condition shall be
deemed to have been satisfied.
(c) The Company shall have entered into the Non-
Competition Agreements payable at the Closing out of the Merger
Consideration in shares of Parent Common Stock.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 Termination. This Agreement may be
terminated and the Merger may be abandoned at any time prior to
the Effective Time, notwithstanding any requisite adoption of
this Agreement, as follows:
(a) by mutual written consent duly authorized by the
Boards of Directors of each of Parent and the Company;
(b) by either Parent or the Company, if the
Effective Time shall not have occurred on or before April 30,
-56-
Page 95 of 170
<PAGE>
1999; provided, however, that (i) the right to terminate this
Agreement under this Section 8.01(b) shall not be available to
any party whose failure to fulfill any obligation under this
Agreement shall have caused, or resulted in, the failure of the
Effective Time to occur on or before such date; (ii) this
Agreement may be extended not more than 60 days by Parent or
the Company by written notice to the other party if the Merger
shall not have been consummated as a direct result of (A) the
Company or Parent having failed to receive all regulatory
approvals or consents required to be obtained by the Company or
Parent with respect to the Merger in order to satisfy the
condition set forth in Section 7.01(e) or (B) the existence of
litigation or any governmental proceeding seeking to prevent or
prohibit consummation of the Merger and (iii) in the event the
conditions (as defined in Section 7.03(b)) are not met, the
date set forth above shall automatically be extended for an
additional sixty (60) days.
(c) by either Parent or the Company, if any
Governmental Order, writ, injunction or decree preventing the
consummation of the Merger shall have been entered by any court
of competent jurisdiction and shall have become final and
nonappealable;
(d) by Parent, if (i) in accordance with the
provisions of Section 6.01.(b)(i), the Board of Directors of
the Company withdraws, modifies or changes its recommendation
of this Agreement and the Merger in a manner adverse to Parent
or its stockholders or shall have resolved to do so, or if the
Board of Directors of the Company shall have refused to affirm
its recommendation of this Agreement and the Merger as promptly
as practicable (but in any event within three business days)
after receipt of any request by Parent, (ii) the Board of
Directors of the Company shall have recommended to the
stockholders of the Company a Competing Transaction or shall
have resolved to do so or (iii) a tender offer or exchange
offer for 20% or more of the outstanding shares of capital
stock of the Company is commenced and the Board of Directors of
the Company fails to recommend against acceptance of such
tender offer or exchange offer by its stockholders (including
by taking no position with respect to the acceptance of such
tender offer or exchange offer by its stockholders);
(e) by the Company, if (i) the Board of Directors of
Parent withdraws, modifies or changes its recommendation of
this Agreement and the Merger in a manner adverse to the
Company or its stockholders or shall have resolved to do so, or
if the Board of Directors of Parent shall have refused to
affirm its recommendation of this Agreement and the Merger as
promptly as practicable (but in any event within three business
days) after receipt of any request by the Company, (ii) the
Board of Directors of Parent shall have recommended to the
stockholders of Parent a Competing Transaction or shall have
resolved to do so or (iii) a tender offer or exchange offer for
20% or more of the outstanding shares of capital stock of
-57-
Page 96 of 170
<PAGE>
Parent is commenced and the Board of Directors of Parent fails
to recommend against acceptance of such tender offer or
exchange offer by its stockholders (including by taking no
position with respect to the acceptance of such tender offer or
exchange offer by its stockholders);
(f) by Parent or the Company, if the transactions
contemplated by this Agreement shall not have been approved by
the requisite votes for adoption at the Company Stockholders'
Meeting or any adjournment or postponement thereof;
(g) by Parent, upon a material breach of any
covenant or agreement on the part of the Company set forth in
this Agreement, or if, any representation or warranty of the
Company shall have been untrue on the date of this Agreement,
in either case such that the conditions set forth in
Section 7.03 would not be satisfied (a "Terminating Company
Breach"); provided, however, that, if such Terminating Company
Breach is curable by the Company through the exercise of its
reasonable efforts and for so long as the Company continues to
exercise such reasonable efforts, Parent may not terminate this
Agreement under this Section 8.01(g); and provided further that
the preceding proviso shall not in any event be deemed to
extend any date set forth in paragraph (b) of this
Section 8.01;
(h) by the Company, upon a material breach of any
covenant or agreement on the part of Parent set forth in this
Agreement, or if any representation or warranty of Parent shall
have been untrue on the date of this Agreement, in either case
such that the conditions set forth in Section 7.02 would not be
satisfied (a "Terminating Parent Breach"); provided however,
that, if such Terminating Parent Breach is curable by Parent
through the exercise of its reasonable efforts and for so long
as Parent continues to exercise such reasonable efforts, the
Company may not terminate this Agreement under this
Section 8.01(h); and provided further, that the preceding
proviso shall not in any event be deemed to extend any date set
forth in paragraph (b) of this Section 8.01;
(i) by the Company, if the Board of Directors of the
Company shall, following receipt of written advice of outside
legal counsel (who may be the Company's regularly engaged
outside legal counsel) that failure to so terminate would be
required in order to exercise its fiduciary duties to its
stockholders under applicable Law, in good faith have
withdrawn, modified or changed its recommendation of the
adoption of this Agreement and the Merger in a manner adverse
to Parent; provided that such termination under this
Section 8.01(i) shall not be effective until the Company has
made payment to Parent of the amounts required to be paid
pursuant to Section 8.05(b).
SECTION 8.02 Effect of Termination. Except as
provided in Section 9.01, in the event of termination of this
-58-
Page 97 of 170
<PAGE>
Agreement pursuant to Section 8.01, this Agreement, shall
forthwith become void, there shall be no liability under this
Agreement on the part of Parent or the Company or any of their
respective officers or directors, and all rights and
obligations of each party hereto shall cease, subject to the
remedies of the parties hereto set forth in Section 8.05(b)
through and including (f); provided, however, that nothing
herein shall relieve any party hereto from liability for the
willful or intentional breach of any of its representations and
warranties or the willful or intentional breach of any of its
covenants or agreements set forth in this Agreement; provided
further, that the Confidentiality Agreement shall survive any
termination of this Agreement.
SECTION 8.03 Amendment. This Agreement may be
amended by the parties hereto by action taken by or on behalf
of their respective Boards of Directors at any time prior to
the Effective Time; provided, however, that, after the adoption
of this Agreement by the stockholders of the Company, no
amendment may be made, except such amendments that have
received the requisite stockholder approval and such amendments
as are permitted to be made without stockholder approval under
the DGCL, provided further, that Articles III and IV, and
Sections 2.01(b), 6.01(a)(ii) (with respect to registration of
Parent Common Stock issuable to holders of the Promissory
Notes) and 6.11 cannot be amended without the prior written
consent of the holders of the Promissory Notes (it being
expressly agreed that such holders shall be third-party
beneficiaries of such Articles and Sections). This Agreement
may not be amended except by an instrument in writing signed by
the parties hereto.
SECTION 8.04 Waiver. At any time prior to the
Effective Time, any party hereto may (a) extend the time for or
waive compliance with the performance of any obligation or
other act of any other party hereto or (b) waive any inaccuracy
in the representations and warranties contained herein or in
any document delivered pursuant hereto. Any such extension or
waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
SECTION 8.05 Fees and Expenses. (a) Except as set
forth in this Section 8.05, all Expenses incurred in connection
with this Agreement and the Merger shall be paid by the party
incurring such Expenses, whether or not the Merger is
consummated, except that Parent and the Company each shall pay
one-half of all Expenses incurred solely for printing, filing
and mailing the Registration Statement and the Proxy Statement
and all SEC and other regulatory filing fees incurred in
connection with the Registration Statement and the Proxy
Statement and the fee required to be paid in connection with
the HSR Act. "Expenses", as used in this Agreement, shall
include all reasonable out-of-pocket expenses (including,
without limitation, all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a
-59-
Page 98 of 170
<PAGE>
party hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of its
obligations pursuant to this Agreement and the consummation of
the Merger, the preparation, printing, filing and mailing of
the Registration Statement and the Proxy Statement, the
solicitation of stockholder approvals, the filing of HSR Act
notice and all other matters related to the closing of the
Merger.
(b) The Company agrees that, if:
(i) the Company shall terminate this Agreement
pursuant to Section 8.01(i),
(ii) Parent shall terminate this Agreement
pursuant to Section 8.01(d),
(iii) Parent or the Company shall terminate
this Agreement pursuant to Section 8.01(f), or
(iv) Parent shall terminate this Agreement
pursuant to Section 8.01(g),
then, in the case of (i), prior to such termination, or in the
case of (ii), (iii) or (iv), promptly after such termination,
the Company shall pay to Parent an amount equal to $3,000,000
(the "Company Termination Fee").
(c) Parent agrees that, if:
(i) the Company shall terminate this Agreement
pursuant to Section 8.01(e), or
(ii) The Company shall terminate this Agreement
pursuant to Section 8.01(h),
then, promptly after such termination, Parent shall pay to the
Company an amount equal to $3,000,000 (the "Parent Termination
Fee"). Parent shall, in addition to paying the Company the
Parent Termination Fee, loan to the Company seven million
dollars ($7,000,000) pursuant to the subordinated promissory
note attached hereto as Exhibit A. Such promissory note shall
have a five-year term and will bear interest at a rate equal to
the rate of interest publicly announced by Bank of America NT &
SA, in the City of San Francisco, from time to time as such
bank's reference rate plus 5.00%.
(d) (i) The Company agrees that, if Parent
terminates this Agreement pursuant to Section 8.01(g), the
Company shall reimburse Parent for Parent's Expenses incurred
in connection with pursuing the Merger and (ii) Parent agrees
that, if the Company terminates this Agreement pursuant to
Section 8.01(h), Parent shall reimburse the Company for the
Company's Expenses incurred in connection with pursuing the
-60-
Page 99 of 170
<PAGE>
Merger; provided, however, that no party shall be obligated to
reimburse the other party for Expenses in excess of $250,000 in
the aggregate.
(e) Any payment required to be made pursuant to
Section 8.05(a), (b), (c) or (d) shall be made to the party
entitled to receive such payment not later than two business
days after delivery to the other party of notice of demand for
payment and shall be made by wire transfer of immediately
available funds to an account designated by the party entitled
to receive payment in the notice of demand for payment
delivered pursuant to this Section 8.05(e).
(f) In the event that Parent or the Company, as the
case may be, shall fail to pay the Parent Termination Fee or
the Company Termination Fee, as the case may be, the amount of
any such Parent Termination Fee or Company Termination Fee
shall be increased to include the costs and expenses actually
incurred by the other (including, without limitation, fees and
expenses of counsel) in connection with the collection under
and enforcement of this Section 8.05, together with interest on
such unpaid Parent Termination Fee or Company Termination Fee,
commencing on the date that such Parent Termination Fee or
Company Termination Fee became due, at a rate equal to the rate
of interest publicly announced by Bank of America NT & SA, in
the City of San Francisco, from time to time, as such bank's
reference rate plus 5.00%.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01 Non-Survival of Representations and
Warranties. The representations, warranties, covenants and
agreements in this Agreement shall terminate at the Effective
Time; provided however, that each of the Company's
Representations and Warranties and each of the Parent's
Representations and Warranties shall be made only as of the
date hereof, (and no other date), and shall remain effective
through the Effective Time solely for purposes of making a
determination as to whether such Representations and Warranties
were true and correct as of the date hereof pursuant to
Sections 8.01(g) and 8.01(h), or upon the termination of this
Agreement pursuant to Section 8.01, as the case may be, except
for those covenants and agreements contained herein that by
their terms apply or are to be performed in whole or in part
after the Effective Time or after termination of this
Agreement. This Section 9.01 shall not limit any covenant or
agreement of the parties which by its terms contemplates
performance after the Effective Time or after termination of
this Agreement. Each party agrees that, except for the
representations and warranties contained in this Agreement, the
Parent Disclosure Schedule and the Company Disclosure Schedule,
no party hereto has made any other representations and
warranties, and each party hereby disclaims any other
representations and warranties made by itself or any of its
-61-
Page 100 of 170
<PAGE>
officers, directors, employees, agents, financial and legal
advisors or other representatives, with respect to the
execution and delivery of this Agreement or the Merger
contemplated herein, notwithstanding the delivery or disclosure
to any other party or any party's representatives of any
documentation or other information with respect to any one or
more of the foregoing.
SECTION 9.02 Notices. All notices, requests,
claims, demands and other communications hereunder shall be in
writing and shall be given (and shall be deemed to have been
duly given upon receipt) by delivery in person, by telecopy or
facsimile, by certified mail (postage prepaid, return receipt
requested) or by a nationally recognized courier service to the
respective parties at the following addresses (or at such other
address for a party as shall be specified in a notice given in
accordance with this Section 9.02):
(a) if to the Company:
Das Devices, Inc.
1504 McCarthy Boulevard
Milpitas, California 95035
Attention: Bert Zaccaria
Telecopier: (408) 894-9816
with a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: David J. Segre, Esq.
Fax: (650) 496-7556
(b) if to Parent or Merger Sub:
Applied Magnetics Corporation
75 Robin Hill Road
Goleta, California 93117
Attention: Craig D. Crisman
Telecopier: (805) 967-2677
with a copy to:
Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street, 48th Floor
Los Angeles, California 90071
Attention: James J. Slaby, Esq.
Telecopier: (323) 620-1398
-62-
Page 101 of 170
<PAGE>
SECTION 9.03 Certain Definitions. For purposes of
this Agreement, the following terms have the following
meanings:
(a) "affiliate" has the meaning specified in Rule
144 promulgated by the SEC under the Securities Act;
(b) "beneficial owner" with respect to any shares of
capital stock means a person who shall be deemed to be the
beneficial owner of such shares (i) which such person or any of
its affiliates or associates (as such term is defined in
Rule 12b-2 promulgated under the Exchange Act) beneficially
owns, directly or indirectly, (ii) which such person or any of
its affiliates or associates has, directly or indirectly,
(A) the right to acquire (whether such right is exercisable
immediately or subject only to the passage of time), pursuant
to any agreement, arrangement or understanding or upon the
exercise of consideration rights, exchange rights, warrants or
options, or otherwise, or (B) the right to vote pursuant to any
agreement, arrangement or understanding, or (iii) which are
beneficially owned, directly or indirectly, by any other
persons with whom such person or any of its affiliates or
associates or person with whom such person or any of its
affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock;
(c) "business day" means any day on which the
principal offices of the SEC in Washington, D.C. are open to
accept filings, or, in the case of determining a date when any
payment is due, any day on which banks are not required or
authorized by law or executive order to close in The City of
Los Angeles, USA;
(d) "$" means United States Dollars;
(e) "Governmental Order" means any order, writ,
judgment, injunction, decree, stipulation, determination or
award entered* by or with any Governmental Entity;
(f) "knowledge" means, with respect to any matter in
question, that the executive officers (including Chairman of
the Board of Directors) of Parent or the Company, as the case
may be, have actual knowledge of such matter;
(g) "person" means an individual, corporation,
partnership, limited partnership, limited liability company,
syndicate, person (including, without limitation, a "person" as
defined in Section 13(d)(3) of the Exchange Act), trust,
association, entity or government or political subdivision,
agency or instrumentality of a government; and
(h) "subsidiary" or "subsidiaries" of any person
means any corporation, limited liability company, partnership,
-63-
Page 102 of 170
<PAGE>
joint venture or other legal entity of which such person
(either alone or through or together with any other subsidiary
of such person) owns, directly or indirectly, more than fifty
percent of the stock or other equity interests, the holders of
which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation
or other legal entity.
SECTION 9.04 Severability. If any term or other
provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of Law or public policy, all other
conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or
legal substance of the Merger is not affected in any manner
materially adverse to any party. Upon such determination that
any term or other provision is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually
acceptable manner to the fullest extent permitted by applicable
Law in order that the Merger may be consummated as originally
contemplated to the fullest extent possible.
SECTION 9.05 Assignment; Binding Effect; Benefit.
Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of Law or otherwise) without the
prior written consent of the other parties hereto. Subject to
the preceding sentence, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Notwithstanding
anything contained in this Agreement to the contrary, other
than Sections 6.06 and 6.11, which shall survive the Effective
Time and be enforceable by the beneficiaries thereof as
contemplated by Sections 6.06(e) and 6.11(d), and
Sections 2.01(b) and 6.01(a)(ii), nothing in this Agreement,
expressed or implied, is intended to confer on any person other
than the parties hereto or their respective successors and
permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
SECTION 9.06 Incorporation of Exhibits. The Parent
Disclosure Schedule, the Company Disclosure Schedule and all
Exhibits attached hereto and referred to herein are hereby
incorporated herein and made a part of this Agreement for all
purposes as if fully set forth herein.
SECTION 9.07 Specific Performance. The parties
hereto agree that irreparable damage would occur in the event
any provision of this Agreement were not performed in
accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in
addition to any other remedy at law or in equity.
-64-
Page 103 of 170
<PAGE>
SECTION 9.08 Governing Law. Except to the extent
that the Laws of the jurisdiction of organization of any party
hereto, or any other jurisdiction, are mandatorily applicable
to the Merger or to matters arising under or in connection with
this Agreement, this Agreement shall be governed by the Laws of
the State of Delaware. All actions and proceedings arising out
of or relating to this Agreement shall be heard and determined
in any state or federal court sitting in the State of Delaware.
SECTION 9.09 Consent to Jurisdiction; Venue.
(a) Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of the state courts of Delaware and to
the jurisdiction of the United States District Court for
Delaware for the purpose of any action or proceeding arising
out of or relating to this Agreement, and each of the parties
hereto irrevocably agrees that all claims in respect to such
action or proceeding may be heard and determined exclusively in
any Delaware state or federal court sitting in Delaware. Each
of the parties hereto agrees that a final judgment in any
action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any, other
manner provided by Law.
(b) Each of the parties hereto irrevocably consents to
the service of any summons and complaint and any other process
in any other action or proceeding relating to the Merger, on
behalf of itself or its property, by the personal delivery of
copies of such process to such party. Nothing in this
Section 9.09 shall affect the right of any party hereto to
serve legal process in any other manner permitted by Law.
SECTION 9.10 Headings. The descriptive headings
contained in this Agreement are included for convenience of
reference only and shall not affect in any way the meaning or
interpretation of this Agreement,
SECTION 9.11 Counterparts. This Agreement may be
executed and delivered (including by facsimile transmission) in
one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed and
delivered shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 9.12 Entire Agreement. This Agreement
(including the Exhibits, the Parent Disclosure Schedule and the
Company Disclosure Schedule), the Confidentiality Agreement and
the Registration Rights Agreement attached hereto as Annex I
constitute the entire agreement among the parties with respect
to the subject matters hereof and thereof and supersedes all
prior agreements and understandings among the parties with
respect thereto. No addition to or modification of any
provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
-65-
Page 104 of 170
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed as of the date first written
above by their respective officers thereunto duly authorized.
APPLIED MAGNETICS CORPORATION
By: /s/ Craig D. Crisman
------------------------------
Craig D. Crisman
Title:Chairman of the
Board and Chief
Executive Officer
DAS DEVICES, INC.
By: /s/ Mitchell Underseth
------------------------------
Name: Mitchell Underseth
Title:Chief Financial
Officer
AMC MERGER SUBSIDIARY, INC.
By: /s/ Craig D. Crisman
------------------------------
Name: Craig D. Crisman
Title:President
-66-
Page 105 of 170
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
dated as of
November 24, 1998
by and among
APPLIED MAGNETICS CORPORATION,
SIERRA VENTURES VI,
WATERSHED PARTNERS, L.P.,
WATERSHED CAYMAN, L.L.C.,
HAUSSMAN HOLDINGS,
EAST RIVER VENTURES, L.L.C.
and
THE CHASE MANHATTAN BANK,
as Trustee for
FIRST PLAZA GROUP TRUST
Page 106 of 170
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 DEFINITIONS.....................................................1
SECTION 1.1 Definitions.............................................1
ARTICLE 2 PURCHASE AND SALE...............................................6
SECTION 2.1 Purchase and Sale.......................................6
SECTION 2.2 Closing.................................................6
ARTICLE 3 STOCKHOLDER APPROVAL [Intentionally Omitted]...................7
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................7
SECTION 4.2 Authority; No Conflict..................................7
SECTION 4.3 Due Authorization and Validity of
Shares................................................9
SECTION 4.4 Brokers and Finders; Advisors...........................9
SECTION 4.5 Governmental Regulations................................9
SECTION 4.6 No Violation of Regulations of Board
of Governors of Federal Reserve System..................9
SECTION 4.7 Listing of Common Stock................................10
SECTION 4.8 Proxy Material.........................................10
SECTION 4.9 Private Offering.......................................10
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
...................................................................10
SECTION 5.1 Organization and Existence.............................10
SECTION 5.2 Authorization..........................................10
SECTION 5.3 Governmental Authorization.............................10
SECTION 5.4 Brokers and Finders; Advisors..........................11
SECTION 5.5 Proxy Material.........................................11
SECTION 5.6 Purchase Entirely for Own Account......................11
SECTION 5.7 Disclosure of Information..............................11
SECTION 5.8 Investment Experience..................................11
SECTION 5.9 Accredited Investor....................................12
SECTION 5.10 Restricted Securities..................................12
SECTION 5.11 Company Reliance.......................................12
ARTICLE 6 COVENANTS OF THE INVESTORS AND THE COMPANY.....................12
SECTION 6.1 Best Efforts...........................................12
SECTION 6.2 Operation of Business..................................12
SECTION 6.3 Certain Consents and Approvals.........................12
ARTICLE 7 CONDITIONS TO CLOSING..........................................13
SECTION 7.1 Conditions to Obligations of the
Investors............................................13
SECTION 7.2 Conditions to Obligations of the
Company..............................................15
-i-
Page 107 of 170
<PAGE>
ARTICLE 8 TERMINATION....................................................16
SECTION 8.1 Grounds for Termination................................16
SECTION 8.2 Effect of Termination..................................17
ARTICLE 9 MISCELLANEOUS..................................................17
SECTION 9.1 Notices................................................17
SECTION 9.2 Amendments; No Waivers.................................19
SECTION 9.3 Expenses...............................................19
SECTION 9.4 Successors and Assigns.................................20
SECTION 9.5 Choice of Law..........................................20
SECTION 9.6 Entire Agreement; Amendments and
Waivers..............................................20
SECTION 9.7 Multiple Counterparts..................................20
SECTION 9.8 Invalidity.............................................20
SECTION 9.9 Titles.................................................21
SECTION 9.10 Publicity..............................................21
SECTION 9.11 Survival...............................................21
SECTION 9.12 Burden and Benefit.....................................21
SECTION 9.13 Waiver of Jury Trial...................................21
SECTION 9.14 Attorneys' Fees........................................22
SECTION 9.15 Representation by Counsel..............................22
SECTION 9.16 No Interpretation Against Drafter......................22
SECTION 9.17 Counterparts; Effectiveness............................22
SECTION 9.18 Captions...............................................22
Investor and Investment Amount ANNEX 1
Registration Rights Agreement EXHIBIT A
Opinion of Sheppard, Mullin,
Richter & Hampton, LLP EXHIBIT B
-ii-
Page 108 of 170
<PAGE>
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
THIS AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT
is made and effective as of November 24, 1998 and is amended and
restated as of January 19, 1999, by and among Applied Magnetics
Corporation, a Delaware corporation (the "Company"), and each
other person whose name appears on the signature pages hereof
(collectively, the "Investors" and, individually, an "Investor").
RECITALS
A. The Investors desire to make an investment of up
to $20,000,000 (but in no event less than $15,000,000) in the
common stock, $0.10 par value (the "Common Stock"), of the
Company.
B. The Investors desire to purchase from the Company,
and the Company desires to issue and sell to the Investors, such
shares on the terms and subject to the conditions set forth
herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and
the mutual covenants and agreements contained herein, the parties
agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The following terms, as used
herein, have the following meanings:
"Affiliate" shall have the meaning set forth in the
Exchange Act. Without limiting the foregoing, all directors
and executive officers of a Person that is a corporation,
all general partners of a Person that is a limited
partnership and all managing members of a Person that is a
limited liability company, shall be deemed Affiliates of
such Person for all purposes hereunder.
"Agreement" shall mean this Securities Purchase
Agreement.
-1-
Page 109 of 170
<PAGE>
"Best Efforts" shall mean the efforts that a prudent
Person desirous of achieving a result would use in similar
circumstances to ensure that such result is achieved as
expeditiously as possible on commercially reasonable terms;
provided, however, that an obligation to use Best Efforts
under this Agreement shall not in any event require the
Person subject to that obligation to pay any material
consent fee or take actions that would result in a Material
Adverse Change in the benefits to such Person of this
Agreement and the Transaction.
"Breach" shall mean, and a breach of a representation,
warranty, covenant, obligation or other provision of this
Agreement will be deemed to have occurred if there is or has
been, any inaccuracy in or breach of, or any failure to
perform or comply with, such representation, warranty,
covenant, obligation or other provision.
"Business Day" mean any day except a Saturday, Sunday
or other day on which the NYSE is closed.
"Closing" shall have the meaning set forth in
Section 2.2.
"Closing Date" shall mean the date of the Closing.
"Commission" shall mean the United States Securities
and Exchange Commission.
"Common Stock" shall mean the common stock, $0.10 par
value, of the Company.
"Company" shall mean Applied Magnetics Corporation.
"Consent" shall mean any approval, consent,
ratification, waiver, or other authorization (including any
Governmental Authorization).
"Contract" shall mean any document filed as an exhibit
pursuant to Item 601 of Regulation S-K to any Annual Report
on Form 10-K, Quarterly Report on Form 10-Q, Current Report
on Form 8-K, proxy statement or registration statement filed
by the Company pursuant to the Securities Act or the
Exchange Act.
"Disclosure Schedules" shall mean the schedules
prepared and delivered by the parties hereto and dated as of
the date hereof which set forth the exceptions to the
representations and warranties contained herein and certain
other information called for by this Agreement. Unless
otherwise specified, each reference in this Agreement to any
-2-
Page 110 of 170
<PAGE>
numbered schedule is a reference to that numbered schedule
which is included in the Disclosure Schedules.
"Encumbrance" shall mean any charge, claim, community
property interest, condition, equitable interest, lien,
option, pledge, security interest, right of first refusal or
restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other
attribute of ownership.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, or any successor law, and the rules and
regulations issued pursuant to that Act or any successor
law.
"Governmental Authorization" shall mean any approval,
Consent, license, permit, waiver or other authorization
issued, granted, given or otherwise made available by or
under the authority of any Governmental Body or pursuant to
any Legal Requirement.
"Governmental Body" shall mean any:
(a) nation, state, county, city, town,
village, district or other jurisdiction of any nature;
(b) federal, state, local, municipal,
foreign or other government; or
(c) body exercising, or entitled to
exercise, any administrative, executive, judicial,
legislative, police, regulatory or taxing authority or
power of any nature.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, or any successor law,
and the rules and regulations issued pursuant to that Act or
any successor law.
"Investors" and "Investor" shall have the meanings set
forth in the first paragraph of this Agreement.
"Knowledge" shall mean and an individual will be deemed
to have "Knowledge" of a particular fact or other matter if
such individual is actually aware of such fact or other
matter, provided that such individual shall be required to
make a reasonable investigation of the circumstances related
thereto in light of the facts known to such individual.
"Legal Requirement" shall mean any federal, state,
local, municipal, foreign, international, multinational or
-3-
Page 111 of 170
<PAGE>
other administrative order, constitution, law, ordinance,
principle of common law, regulation, statute or treaty.
"Liability" shall mean any liability, indebtedness or
obligation, whether accrued, absolute, contingent, matured
or unmatured.
"Market Price" shall mean 80% of the lesser of (a) the
average of the daily closing prices per share of the Common
Stock for the five Trading Days prior to the date of the
Merger Agreement and (b) the average of the daily closing
prices per share of the Common Stock for the five Trading
Days prior to the effective date of the Merger. The closing
price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated
transaction reporting system with respect to securities
listed or admitted to trading on the NYSE.
"Material Adverse Effect" or "Material Adverse Change"
shall mean any material adverse effect or change in the
condition (financial or other), business, results of
operations, liabilities, operations or prospects of any
party, its business and/or assets or on the ability of such
party to consummate the Transaction, or any event or
condition which could, with the passage of time, reasonably
be expected to constitute a "Material Adverse Effect" or
"Material Adverse Change."
"Merger" shall mean the merger of AMC Merger
Subsidiary, Inc. with and into Das Devices, Inc.
contemplated by the Merger Agreement.
"Merger Agreement" shall mean that certain Agreement
and Plan of Merger dated as of November 24, 1998, as amended
and restated as of January 19, 1999, by and among the
Company, Das Devices, Inc. and AMC Merger Subsidiary, Inc.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Order" shall mean any award, decision, injunction,
judgment, order, ruling, subpoena or verdict entered,
issued, made or rendered by any court, administrative agency
or other Governmental Body or by any arbitrator.
"Organizational Documents" shall mean (a) the articles
or certificate of incorporation, all certificates of
determination and designation, and the bylaws of a
corporation; (b) the partnership agreement and any statement
of partnership of a general partnership; (c) the limited
partnership agreement and the certificate or articles of
-4-
Page 112 of 170
<PAGE>
limited partnership of a limited partnership; (d) the
operating agreement, limited liability company agreement and
the certificate or articles of organization or formation of
a limited liability company; (e) any charter or similar
document adopted or filed in connection with the creation,
formation or organization of a Person (including, without
limitation, any trust); and (f) any amendment to any of the
foregoing.
"Permitted Encumbrances" shall mean any
(i) Encumbrances for taxes, assessments or governmental
charges or landlords', mechanics', workmens', materialmans'
or other similar liens, in each case not yet due or
delinquent or which are being contested in good faith and
which, in the aggregate, are not material in amount, do not
materially detract from the value of the property or assets
subject thereto or interfere with the present use thereof,
(ii) Encumbrances of the owner of real property in which the
Company owns a leasehold interest, secured by such real
property, which, in the aggregate, do not materially detract
from the value of the Company's interest in such real
property or interfere with the Company's present use thereof
and (iii) liens or Encumbrances that in the aggregate are
not material in amount, do not materially detract from the
value of the property or assets subject thereto or interfere
with the present use thereof.
"Person" shall mean any individual, corporation
(including any non-profit corporation), general or limited
partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union or
other entity or Governmental Body.
"Proceeding" shall mean any action, arbitration, audit,
hearing, investigation, litigation or suit (whether civil,
criminal, administrative, investigative or informal)
commenced, brought, conducted or heard by or before, or
otherwise involving, any Governmental Body or arbitrator.
"Registration Rights Agreement" shall have the meaning
set forth in Section 7.1(j).
"Representative" shall mean any officer, director,
principal, attorney, agent, employee or other
representative.
"Securities Act" shall mean the Securities Act of 1933,
as amended, or any successor law, and the rules and
regulations issued pursuant to that Act or any successor
law.
-5-
Page 113 of 170
<PAGE>
"Shares" shall mean the shares of the Common Stock of
the Company to be purchased by the Investors under this
Agreement.
"Subsidiary" shall mean, with respect to any Person
(for the purposes of this definition, the "Owner"), any
corporation or other Person of which securities or other
interests having the power to elect a majority of that
corporation's or other Person's board of directors or
similar governing body, or otherwise having the power to
direct the business and policies of that corporation or
other Person (other than securities or other interests
having such power only upon the happening of a contingency
that has not occurred), are held by the Owner or one or more
of its Subsidiaries.
"Threatened" shall describe any claim, Proceeding,
dispute, action or other matter if (i) any demand or
statement has been made (orally or in writing) with respect
to such claim, Proceeding, dispute, action or other matter,
or (ii) any notice has been given (orally or in writing)
with respect thereto.
"Transaction" shall mean the purchase and sale of the
Shares contemplated by this Agreement.
"Trading Day" shall mean a day on which the principal
national securities exchange on which the Common Stock is
listed or admitted to trading is open for the transaction of
business or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, a Business
Day.
ARTICLE 2
PURCHASE AND SALE
SECTION 2.1 Purchase and Sale. Upon the terms and
subject to the conditions of this Agreement, the Company agrees
to issue and sell to each of the Investors, and each of the
Investors agrees to purchase from the Company, at the Closing the
largest whole number of shares of Common Stock determined by
dividing (x) the purchase price set forth opposite such
Investor's name on Annex 1 by (y) the Market Price.
SECTION 2.2 Closing. The closing (the "Closing") of
the purchase and sale of the Shares hereunder shall take place at
the offices of Sheppard, Mullin, Richter & Hampton, LLP, 333
South Hope Street, Forty-Eighth Floor, Los Angeles, California
90071 on the third Business Day after all the conditions to the
parties' respective obligations under Article 7 are satisfied or
-6-
Page 114 of 170
<PAGE>
waived as provided herein, or at such other time or place as the
parties may agree. At the Closing:
(a) Each of the Investors shall deliver to the
Company the amount set forth opposite its name on Annex 1
hereto in immediately available funds by wire or intrabank
transfer to an account of the Company designated by the
Company by notice to the Investor given not later than three
Business Days prior to the Closing Date.
(b) The Company shall deliver to each of the
Investors certificates for the shares of Common Stock
purchased, duly registered in the name of the Investor in
such denominations as the Investor may designate to the
Company by notice given not less than three Business Days
prior to the Closing.
ARTICLE 3
STOCKHOLDER APPROVAL
[Intentionally Omitted]
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the
Investors as of the date hereof and as of the Closing Date that:
SECTION 4.1 Representations Under the Merger
Agreement. Each representation and warranty of the Company
contained in Article IV of the Merger Agreement and, provided
that the Merger is consummated, each representation and warranty
of Das Devices, Inc. contained in Article III of the Merger
Agreement is true and correct in all material respects.
SECTION 4.2 Authority; No Conflict.
(a) This Agreement has, and the Registration
Rights Agreement when executed and delivered in accordance
with this Agreement will be, duly executed and delivered by
the Company, and will constitute the legal, valid, and
binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, in each
case except as such enforceability may be limited by
(i) bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance, fraudulent transfer, preferential
transfer or distribution laws and other similar laws
affecting creditors' rights generally, (ii) the general
-7-
Page 115 of 170
<PAGE>
principles of equity, regardless of whether asserted in a
proceeding in equity or at law and (iii) public policy
issues that may affect the enforceability of provisions of
the Registration Rights Agreement with respect to
indemnification and contribution. The Company has all
requisite corporate power, authority and capacity to execute
and deliver this Agreement and the Registration Rights
Agreement and to perform its obligations hereunder and
thereunder.
(b) Neither the execution and delivery of this
Agreement and the Registration Rights Agreement nor the
consummation or performance of the Transaction will,
directly or indirectly (with or without notice or lapse of
time):
(i) contravene, conflict with or result in
a violation of any provision of the Organizational
Documents of the Company;
(ii) contravene, conflict with or result in
a violation of, or give any Governmental Body or other
Person the right to exercise any remedy or obtain any
relief under, any Legal Requirement or any Order to
which the Company or any of the assets owned or used by
the Company, may be subject;
(iii) contravene, conflict with or result in
a violation of any of the terms or requirements of, or
give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any
Governmental Authorization that is held by the Company
or that otherwise relates to the business of, or any of
the assets owned or used by, the Company;
(iv) contravene, conflict with or result in
a violation or breach of any provision of, or give any
Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate or modify, any
Contract; or
(v) result in the imposition or creation of
any Encumbrance (other than a Permitted Encumbrance)
upon or with respect to any of the assets owned or used
by the Company,
except in the case of each of clauses (ii) through (v) above, for
such contraventions, conflicts, violations, Liabilities,
reassessments, revaluations, breaches or creations of
Encumbrances which, individually and in the aggregate, would not
-8-
Page 116 of 170
<PAGE>
have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole.
The Company is not, and will not be, required to give
any notice to or obtain any Consent from any Person in connection
with the execution and delivery of this Agreement or the
consummation of the Transaction, except for (i) any Consent
required under the HSR Act and (ii) the approval by the NYSE to
list the Shares.
SECTION 4.3 Due Authorization and Validity of Shares.
The shares of Common Stock to be issued and sold by the Company
hereunder have been duly authorized and, when delivered against
payment therefor as contemplated hereby, will be validly issued,
fully paid and non-assessable and will not be subject to any
preemptive or similar rights.
SECTION 4.4 Brokers and Finders; Advisors. The
Company has incurred no obligation or Liability for brokerage or
finders' fees or agents' commissions or other similar payment in
connection with the Transaction. The Company agrees to indemnify
the Investors against, and to hold the Investors harmless from,
any claims for brokerage or similar commissions or other
compensation which may be made against the Investors by any third
party in connection with the Transaction, which claim is based
upon such third party having acted as broker, finder, investment
banker, advisor, consultant or appraiser or in any similar
capacity on behalf of the Company.
SECTION 4.5 Governmental Regulations. None of the
Company
nor any of its Subsidiaries is, or will upon issuance and sale of
the Shares and the use of the proceeds as contemplated by this
Agreement be, subject to regulation under the Investment Company
Act of 1940, as amended, the Public Utility Holding Company Act
of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act or to any federal or state statute or regulation
limiting its ability to incur indebtedness for borrowed money.
SECTION 4.6 No Violation of Regulations of Board of
Governors of Federal Reserve System. Neither the Company nor any
agent thereof acting on the behalf of the Company has taken, and
none of them will take, any action that might cause this
Agreement or the issuance or sale of the Shares, or the
application of proceeds thereof, to violate Section 7 of the
Exchange Act or any regulation issued pursuant thereto,
including, without limitation, Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System, in each case as
in effect now or as the same may hereafter be in effect on the
Closing Date.
-9-
Page 117 of 170
<PAGE>
SECTION 4.7 Listing of Common Stock. The outstanding
Common Stock is listed on the NYSE, and the Company's listing
agreement with respect thereto is in full force and effect. No
action has been taken or threatened by the NYSE with respect to
the delisting or permanent suspension from trading of the Common
Stock.
SECTION 4.8 Proxy Material. [Intentionally Omitted]
SECTION 4.9 Private Offering. Assuming the
representations of the Investors are true and complete, the sale
of the Shares is exempt from the registration and prospectus
delivery requirements of the Securities Act.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each of the Investors hereby represents and warrants to
the Company as of the date hereof and as of the Closing Date
that, as to itself:
SECTION 5.1 Organization and Existence. Such Investor
is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization and has all
necessary powers, and all material governmental licenses,
authorizations, consents and approvals required to carry on its
business as now conducted.
SECTION 5.2 Authorization.
(a) The execution, delivery and performance by
the Investor of this Agreement and the Registration Rights
Agreement are within the powers of such Investor and have
been duly authorized by all necessary action on the part of
the Investor and its general partner, if any. This
Agreement constitutes the valid and binding agreement of
such Investor.
(b) Neither the execution and delivery of this
Agreement and the Registration Rights Agreement nor the
consummation or performance of the Transaction will,
directly or indirectly (with or without notice or lapse of
time), contravene, conflict with or result in a violation of
any provision of the Organizational Documents of such
Investor.
SECTION 5.3 Governmental Authorization. The
execution, delivery and performance by such Investor of this
Agreement requires no consent, approval or authorization of, or
filing, registration or qualification with, any governmental
body, agency, official or authority on the part of the Investor,
-10-
Page 118 of 170
<PAGE>
other than (i) pursuant to the HSR Act or (ii) such actions or
filings which have been taken or made or will have been taken or
made prior to the Closing Date.
SECTION 5.4 Brokers and Finders; Advisors. Such
Investor has incurred no obligation or Liability for brokerage or
finders' fees or agents' commissions or other similar payment in
connection with the Transaction contemplated by this Agreement.
Such Investor agrees to indemnify the Company against, and to
hold the Company harmless from, any claims for brokerage or
similar commissions or other compensation which may be made
against the Company by any third party in connection with the
Transaction, which claim is based upon such third party having
acted as broker, finder, investment banker, advisor, consultant
or appraiser or in any similar capacity on behalf of such
Investor.
SECTION 5.5 Proxy Material. [Intentionally Omitted]
SECTION 5.6 Purchase Entirely for Own Account. This
Agreement is made with the Investors in reliance upon the
representation of each of the Investors to the Company, which by
an Investor's execution of this Agreement the Investor hereby
confirms, that the Shares will be acquired for investment for the
Investor's own account, not as a nominee or agent, and not with
a view to the resale or distribution of any part thereof in
contravention of applicable law, and that the Investor has no
present intention of selling, granting any participation in, or
otherwise distributing the same in contravention of applicable
law. Each of the Investors further represents that it does not
have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person
or to any third person, with respect to any of the Shares.
SECTION 5.7 Disclosure of Information. Such Investor
and its Representatives have received all the information that
any of them considers necessary or appropriate for deciding
whether to purchase the Shares. Such Investor further represents
that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of
the offering of the Shares. The foregoing, however, does not
limit or modify the representations and warranties of the Company
in Article 4 of this Agreement or the right of the Investors to
rely thereon.
SECTION 5.8 Investment Experience. Such Investor is
an institutional investor in securities of companies in the
development or growth stage and acknowledges that it is able to
fend for itself, can bear the economic risk of its investment and
has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of
the investment in the Shares.
-11-
Page 119 of 170
<PAGE>
SECTION 5.9 Accredited Investor. Such Investor is and
at the Closing will be an "accredited investor" within the
meaning of Rule 501 of Regulation D, as presently in effect.
SECTION 5.10 Restricted Securities. Such Investor
understands that the Shares it is purchasing are characterized as
"restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold
without registration under the Securities Act only in certain
limited circumstances. In this connection, such Investor
represents that it is familiar with Rule 144, as presently in
effect, and understands the resale limitations imposed thereby
and by the Securities Act. Such Investor acknowledges and
consents to the inclusion on any certificates representing the
Shares of such legends as shall be required by applicable law.
SECTION 5.11 Company Reliance. Such Investor
acknowledges that its representations and warranties are being
relied upon by the Company in order to, among other things,
structure the transactions contemplated by this Agreement to
comply with the applicable federal and state securities laws.
ARTICLE 6
COVENANTS OF THE INVESTORS AND THE COMPANY
SECTION 6.1 Best Efforts. Subject to the terms and
conditions of this Agreement, each of the Company and the
Investors shall use their Best Efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things
necessary or desirable under applicable laws and regulations to
consummate the Transaction. The Company and the Investors agree
to execute and deliver such other documents, certificates,
agreements and other writings and to take such other actions as
may be necessary or desirable in order to consummate or implement
expeditiously the transactions contemplated hereby.
SECTION 6.2 Operation of Business. Between the date
of this Agreement and the Closing, the Company will conduct its
business only as set forth in Section 5.02 of the Merger
Agreement. The Company also agrees that Section 5.02 of the
Merger Agreement will not be amended without the written consent
of the Investors.
SECTION 6.3 Certain Consents and Approvals.
(a) Each party shall use its Best Efforts to file
or cause to be filed any reports, notifications or other
-12-
Page 120 of 170
<PAGE>
information that may be required under the HSR Act and to
furnish or cause to be furnished to the other all such
information in its possession as may be reasonably necessary
for the completion of the reports, notifications or
submissions to be filed by the other. Each party hereto
agrees to use its Best Efforts to comply and cause its
Affiliates to comply in full and timely manner with any
request from a Governmental Body for additional information.
(b) [Intentionally Omitted]
(c) The Company shall use its Best Efforts to
cause the Shares to be listed on the NYSE (subject to notice
of issuance) and to maintain, at all times while any Shares
are outstanding, the effectiveness of such listing on the
NYSE.
ARTICLE 7
CONDITIONS TO CLOSING
SECTION 7.1 Conditions to Obligations of the
Investors. The obligation of an Investor to consummate the
purchase of the Shares to be purchased by it pursuant to this
Agreement is subject to the satisfaction of the following
conditions:
(a) The representations and warranties of the
Company and of Das Devices, Inc. contained in this
Agreement, the Merger Agreement and any certificate
delivered by the Company pursuant hereto or thereto shall be
true and correct in all material respects as of the Closing
Date as though made on and as of such date;
(b) The Company shall have performed and complied
in all material respects with its covenants and agreements
contained in this Agreement or the Merger Agreement or
contemplated hereby or thereby to be performed or complied
with on or before the Closing Date;
(c) The Company shall have delivered to such
Investor a certificate signed by its chief executive officer
to the effect that the conditions set forth in
Section 7.1(a) and (b) have been satisfied;
(d) [Intentionally Omitted]
(e) No Material Adverse Change shall have
occurred with respect to the Company or Das Devices, Inc.
since July 4, 1998;
-13-
Page 121 of 170
<PAGE>
(f) The Company shall have duly received all
authorizations, consents, approvals, licenses, franchises,
permits and certificates by or of, and shall have made all
filings and effected all registrations and qualifications
with, all federal, state and local Governmental Authorities
necessary for the issuance of the Shares, and all thereof
shall be in full force and effect at the time of Closing and
shall be effective to permit such issuance. The Shares
shall have been duly approved for listing on the NYSE
(subject to notice of issuance) and such approval shall be
in full force and effect at the time of Closing;
(g) No injunction or other court order
restraining or prohibiting the consummation of the
Transaction shall have been issued and be in effect on the
Closing Date, and no action, suit or other proceeding, by
any Governmental Authority or any other party, shall be
pending or Threatened, that in the reasonable opinion of
such Investor (after consultation with the Company) has a
substantial likelihood of success, seeking to restrain or
prohibit the purchase and sale of the Shares hereunder or
seeking material damages with respect thereto;
(h) Any waiting period required under the HSR
Act, including any extension thereof, that is applicable to
the Transaction shall have expired or been earlier
terminated;
(i) The Merger shall have been consummated on the
terms and conditions set forth in the Merger Agreement;
(j) The Company shall have executed and delivered
to such Investor the Registration Rights Agreement in
substantially the form attached hereto as Exhibit A (the
"Registration Rights Agreement");
(k) Such Investor shall have received the opinion
of Sheppard, Mullin, Richter & Hampton, LLP in substantially
the form attached hereto as Exhibit B;
(l) Not less than $15,000,000 of Shares shall be
purchased by the Investors at the Closing;
(m) Such Investor shall have received from
Sheppard, Mullin, Richter & Hampton LLP a letter permitting
such Investor to rely on the opinion of Sheppard, Mullin,
Richter & Hampton LLP issued pursuant to Section 7.02(b) of
the Merger Agreement; and
(n) Such Investor shall have received all shares
of Common Stock payable to it pursuant to Sections 2.01(b)
-14-
Page 122 of 170
<PAGE>
and (c) of the Merger Agreement with respect to the Junior
Notes and the Senior Notes (as such terms are defined in the
Merger Agreement).
SECTION 7.2 Conditions to Obligations of the Company.
The obligation of the Company to consummate the sale to an
Investor of the Shares to be purchased by it pursuant to this
Agreement is subject to the satisfaction of the following
conditions:
(a) The representations and warranties of such
Investor contained in this Agreement and in any certificate
delivered by such Investor pursuant hereto shall be true and
correct in all material respects at and as of the date
hereof;
(b) Such Investor shall have performed and
complied in all material respects with its covenants and
agreements contained in this Agreement or contemplated
hereby to be performed or complied with on or before the
Closing Date;
(c) Such Investor shall have delivered to the
Company a certificate signed by its authorized
representative to the effect that the conditions set forth
in Section 7.2(a) and (b) have been satisfied;
(d) No injunction or other court order
restraining or prohibiting the consummation of the
Transaction shall have been issued and be in effect on the
Closing Date, and no action, suit or other proceeding by any
Governmental Authority or any other party shall be pending
or Threatened, that in the reasonable opinion of the Company
(after consultation with the Investors) has a substantial
likelihood of success, seeking to restrain or prohibit the
purchase and sale of the Shares hereunder or seeking
material damages with respect thereto;
(e) Any waiting period required under the HSR
Act, including any extension thereof, that is applicable to
the Transaction shall have expired or been earlier
terminated;
(f) [Intentionally Omitted]
(g) The Company shall have duly received all
authorizations, consents, approvals, licenses, franchises,
permits and certificates by or of, and shall have made all
filings and effected all registrations and qualifications
with, all federal, state and local Governmental Authorities
necessary for the issuance of the Shares, and all thereof
-15-
Page 123 of 170
<PAGE>
shall be in full force and effect at the time of the filing
and shall be effective to permit such issuance. The Shares
shall have been duly approved for listing on the NYSE
(subject to notice of issuance) and such approval shall be
in full force and effect at the time of Closing;
(h) The Merger shall have been consummated on the
terms and conditions set forth in the Merger Agreement;
(i) Such Investor shall have executed and
delivered to the Company the Registration Rights Agreement;
and
(j) Not less than $15,000,000 of Shares shall be
purchased by the Investors at the Closing.
ARTICLE 8
TERMINATION
SECTION 8.1 Grounds for Termination. The obligation
of an Investor to purchase any Shares hereunder, and the
obligation of the Company to sell any Shares to an Investor
hereunder, may be terminated at any time prior to the Closing:
(a) by mutual written agreement of the Company
and such Investor;
(b) by either the Company or such Investor if the
Closing shall not have been consummated for any reason on or
before April 30, 1999;
(c) by either the Company or such Investor if
consummation of the Transaction would violate any order,
decree or judgment of any court or Governmental Body having
competent jurisdiction;
(d) by the Company, on the one hand, or by such
Investor, on the other hand, if a material Breach of any
provision of this Agreement has been committed by the other
party (i.e., the Company, on the one hand, or the Investor,
on the other) and such material Breach has not been
expressly waived in writing;
(e) (i) by such Investor if any of the conditions
in Section 7.1 have not been satisfied as of the Closing or
if satisfaction of such a condition is or becomes impossible
(other than through the failure of such Investor to comply
with its obligations under this Agreement) and such Investor
has not expressly waived such condition in writing on or
before the Closing; or (ii) by the Company, if any of the
-16-
Page 124 of 170
<PAGE>
conditions in Section 7.2 have not been satisfied as of the
Closing or if satisfaction of such a condition is or becomes
impossible (other than through the failure of the Company to
comply with its obligations under this Agreement) and the
Company has not expressly waived such condition in writing
on or before the Closing; or
(f) by the Company if the closing price per share
of the Common Stock on the Trading Day immediately preceding
the Closing Date shall be less than $4.00.
The party desiring to terminate this Agreement
shall give notice of such termination to the other party.
SECTION 8.2 Effect of Termination. If this Agreement
is terminated as permitted by Section 8.1, termination shall be
without liability of any party (or any stockholder, director,
officer, employee, agent, consultant or Representative of such
party) to any other party to this Agreement; provided, however,
that if such termination shall result from the willful and
intentional failure of any party to fulfill a condition to the
performance of the obligations of the other parties, the willful
and intentional failure of any party to perform a covenant of
this Agreement or the willful and intentional breach by any party
of any representation, warranty or agreement contained herein,
such party shall be fully liable for any and all damages incurred
or suffered by the other parties as a result of such failure or
breach.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 Notices. All notices, requests, offers,
acceptances, consents, and other communications to be given
pursuant hereto shall be in writing and be effective upon receipt
and may be given by overnight courier, by hand delivery or
facsimile transmission and shall be given at the addresses or
facsimile numbers set forth below, with copies provided as
follows:
If notice is given to the Company, to:
Applied Magnetics Corporation
75 Robin Hill Road
Goleta, California 93117
Attention: Chief Executive Officer
Telecopier: (805) 967-2677
-17-
Page 125 of 170
<PAGE>
with a copy to:
Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street, 48th Floor
Los Angeles, CA 90071
Attention: James J. Slaby, Esq.
Fax: (213) 620-1398
If notice is given to the Investors, to:
Sierra Ventures VI
3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, CA 94025
Attention: Jeffrey M. Drazen
Telecopier: (650) 854-5593
Watershed Partners, L.P.
Watershed Cayman, L.L.C.
Haussman Holdings
c/o Brookhaven Capital
3000 Sand Hill Road
Building 3, Suite 105
Menlo Park, CA 94025
Attention: Dan Coleman
Telecopier: (650) 854-0545
East River Ventures, L.L.C.
645 Madison Avenue
New York, New York 10022
Attention: Walter Carozza
Telecopier: (212) 644-5498
JAFCO America Ventures, Inc.
505 Hamilton Avenue, Suite 310
Palo Alto, CA 94301
Attention: Phil Wicklam
Telecopier: (650) 463-8801
The Chase Manhattan Bank,
as trustee for
First Plaza Group Trust
4 Chase Metrotech Center
Brooklyn, New York 11245
Attention: Senior Relationship Manager
Telecopier: (718) 242-8596
-18-
Page 126 of 170
<PAGE>
with a copy to:
General Motors Investment Management Corporation
767 Fifth Avenue
New York, New York 10153
Attention: Ellen Oster
Telecopier: (212) 418-6123
and
Attention: Jeffrey Barman
Telecopier: (212) 418-3644
with a copy to:
Weil, Gotshal & Manges, L.L.P.
767 Fifth Avenue
New York, New York 10153
Attention: Gerald S. Backman, Esq.
Telecopier: (212) 310-8007
or to such other address or Person as such party may designate by
written notice hereunder and, in the case of any other person
becoming a party hereto or bound hereby, such address as such
person shall specify.
SECTION 9.2 Amendments; No Waivers.
(a) Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver
is in writing and signed, in the case of an amendment, by
each of the Investors and the Company, or in the case of a
waiver, by the party against whom the waiver is to be
effective.
(b) No failure or delay by any party in
exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 9.3 Expenses. All reasonable costs and
expenses incurred by the Investors, including reasonable expenses
of Investors' counsel, in connection with this Agreement and the
Registration Rights Agreement, incurred on or prior to Closing,
shall be paid by the Company at the Closing, or, if the Closing
does not occur, upon termination of this Agreement in the event
that such termination occurs by reason of the fact that (a) the
Company chooses not to continue with the transaction and there
has been no material change in the terms and conditions of the
-19-
Page 127 of 170
<PAGE>
investment as outlined in this Agreement; (b) the Investors
discover through their due diligence procedures or otherwise a
material misrepresentation with respect to the business (e.g.,
financial statements, capitalization, etc.) of the Company; or
(c) the Company is unable to satisfy a condition precedent to the
Investors' obligation to close; provided, however, that the
aggregate obligation of the Company shall not exceed $20,000.
The Company shall pay its own expenses incurred in connection
with this Agreement and the Registration Rights Agreement. In
all other circumstances under which the Transaction does not
close, each party to this Agreement will bear its own expenses.
SECTION 9.4 Successors and Assigns. The provisions of
this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns;
provided, however, that prior to the Closing no party may assign,
delegate or otherwise transfer any of its rights or obligations
under this Agreement, other than to an Affiliate, without the
consent of the other parties hereto.
SECTION 9.5 Choice of Law. This Agreement shall be
construed in accordance with and governed by the laws of the
State of California (without giving effect to its choice of law
principles), except with respect to matters of law concerning the
internal corporate affairs of any corporate entity which is a
party to or the subject of this Agreement, and as to those
matters the law of the jurisdiction under which the respective
entity derives its powers shall govern.
SECTION 9.6 Entire Agreement; Amendments and Waivers.
This Agreement, together with all exhibits and schedules hereto
(including the Disclosure Schedules referred to herein),
constitutes the entire agreement among the parties pertaining to
the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or
written, of the parties. This Agreement may not be amended
except in an instrument in writing signed on behalf of each of
the parties hereto. No amendment, supplement, modification or
waiver of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
SECTION 9.7 Multiple Counterparts. This Agreement may
be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION 9.8 Invalidity. In the event that any one or
more of the provisions contained in this Agreement or in any
-20-
Page 128 of 170
<PAGE>
other instrument referred to herein, shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, then
to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other
provision of this Agreement or any other such instrument.
SECTION 9.9 Titles. The titles, captions or headings
of the Articles and Sections herein are inserted for convenience
of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
SECTION 9.10 Publicity. Except as required by law,
none of the Company or the Investors shall, directly or through
an Affiliate, issue any press release or make any public
statement regarding this Agreement and the Transaction
contemplated hereby, without prior written approval of the other
parties; provided, however, that in the case of announcements,
statements, acknowledgments or revelations which either party is
required by law to make, issue or release, the making, issuing or
releasing of any such announcement, statement, acknowledgment or
revelation by the party so required to do so by law shall not
constitute a breach of this Agreement if such party shall have
given, to the extent reasonably possible, not less than two (2)
calendar days prior notice to the other party, and shall have
attempted, to the extent reasonably possible, to clear such
announcement, statement, acknowledgment or revelation with the
other party. Each party hereto agrees that it will not
unreasonably withhold any such consent or clearance.
SECTION 9.11 Survival. The representations and
warranties contained in this Agreement, the Merger Agreement and
the Registration Rights Agreement or in any certificate or other
writing delivered pursuant hereto or thereto or in connection
herewith or therewith shall survive the Closing, and any
investigation by the Investors and the issuance of the Shares.
In the event of termination of this Agreement pursuant to Section
8.1, the provisions of Sections 8.2, 9.3, and 9.13 shall survive
such termination.
SECTION 9.12 Burden and Benefit. There are no third
party beneficiaries of this Agreement.
SECTION 9.13 Waiver of Jury Trial. EACH SIGNATORY TO
THIS AGREEMENT HEREBY WAIVES ITS RESPECTIVE RIGHT TO A JURY TRIAL
OF ANY PERMITTED CLAIM OR CAUSE OF ACTION ARISING OUT OF THIS
AGREEMENT, ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, OR ANY
DEALINGS BETWEEN ANY OF THE SIGNATORIES HERETO RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY. The scope of this waiver is intended to be
all encompassing of any and all disputes that may be filed in any
court and that relate the subject matter of this Agreement or any
of the transactions contemplated hereby, including, without
-21-
Page 129 of 170
<PAGE>
limitation, contract claims, tort claims, and all other common
law and statutory claims. This waiver is irrevocable, meaning
that it may not be modified either orally or in writing, and this
waiver shall apply to any subsequent amendments, supplements or
other modifications to this Agreement, any of the transactions
contemplated hereby or to any other document or agreement
relating to the transactions contemplated hereby.
SECTION 9.14 Attorneys' Fees. If any party to this
Agreement brings an action to enforce its rights under this
Agreement in accordance with the provision, hereof, the
prevailing party shall be entitled to recover its costs and
expenses, including, without limitation, reasonable attorneys'
fees and costs, incurred in connection with such action,
including any appeal of such action.
SECTION 9.15 Representation by Counsel. Each party
hereto represents and agrees with each other that it has been
represented by, or had the opportunity to be represented by,
independent counsel of its own choosing, and that it has had the
full right and opportunity to consult with its respective
attorney(s), that to the extent, if any, that it desired, it
availed itself of this right and opportunity, that it or its
authorized officers (as the case may be) have carefully read and
fully understand this Agreement in its entirety and have had it
fully explained to them by such party's respective counsel, that
each is fully aware of the contents thereof and its meaning,
intent and legal effect, and that it or its authorized officer
(as the case may be) is competent to execute this Agreement and
has executed this Agreement free from coercion, duress or undue
influence.
SECTION 9.16 No Interpretation Against Drafter. This
Agreement is the product of negotiations between the parties
hereto represented by counsel and any rules of construction
relating to interpretation against the drafter of an agreement
shall not apply to this Agreement and are expressly waived.
SECTION 9.17 Counterparts; Effectiveness. This
Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto
shall have received a counterpart hereof signed by the other
parties hereto.
SECTION 9.18 Captions. The captions herein are
included for convenience of reference only and shall be ignored
in the construction or interpretation hereof.
-22-
Page 130 of 170
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized
signatories as of the day and year first above written.
Applied Magnetics Corporation
By /s/ Craig D. Crisman
------------------------------
Craig D. Crisman,
Chairman of the Board and
Chief Executive Officer
Sierra Ventures
By /s/ Jeffrey M. Drazen
------------------------------
Jeffrey M. Drazen,
General Partner
Watershed Partners, L.P.
By /s/
------------------------------
------------------------------
[Print Name and Title]
Watershed Cayman, L.L.C.
By /s/
------------------------------
------------------------------
[Print Name and Title]
Haussman Holdings
By /s/
------------------------------
------------------------------
[Print Name and Title]
-23-
Page 131 of 170
<PAGE>
East River Ventures, L.L.C.
By /s/ Walter A. Carozza
------------------------------
Walter A. Carozza, Manager
------------------------------
[Print Name and Title]
JAFCO America Ventures, Inc.
By /s/
------------------------------
------------------------------
[Print Name and Title]
The Chase Manhattan Bank, As
Trustee for First Plaza Group
Trust
By The Chase Manhattan Bank
By /s/ John F. Weeda
------------------------------
John F. Weeda, Vice President
------------------------------
[Print Name and Title]
-24-
Page 132 of 170
<PAGE>
ANNEX 1
Aggregate
Investor Purchase Price
- -------- --------------
Sierra Ventures VI $1,250,000
Watershed Partners, L.P. 625,000
Watershed Cayman, L.L.C. 375,000
Haussman Holdings 250,000
East River Ventures, L.L.C. 1,250,000
JAFCO America Ventures, Inc. 1,250,000
The Chase Manhattan Bank, as 15,000,000
Trustee for First Plaza Group
Trust
Page 133 of 170
<PAGE>
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is
made and effective as of February 11, 1999, by and among Applied
Magnetics Corporation, a Delaware corporation (the "Company"),
and each other person whose name is set forth on the signature
pages hereof (collectively, the "Investors" and, individually, an
"Investor").
RECITALS
A. Upon the terms and subject to the conditions of a
Securities Purchase Agreement, dated as of November 24, 1998 and
amended and restated as of January 19, 1999 (the "Securities
Purchase Agreement"), by and among the Company and the Investors,
the Investors have purchased an aggregate of 4,950,495 shares of
the common stock, $0.10 par value ("Common Stock"), of the
Company.
B. A material inducement for the parties to
consummate the purchase and sale of such shares was that the
Company enter into this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and
the mutual covenants and agreements of the parties contained
herein, the parties agree as follows:
1. Definitions. As used herein, the terms below
shall have the following meanings. Any such term, unless the
context otherwise requires, may be used in the singular or
plural, depending upon the reference.
"Affiliate" shall have the meaning provided in the
Exchange Act and the rules and regulations of the Commission
promulgated thereunder.
"Agreement" shall mean this Registration Rights
Agreement.
"Closing Date" shall have the meaning provided in the
Securities Purchase Agreement.
"Commission" shall mean the United States Securities
and Exchange Commission.
"Common Stock" shall have the meaning provided in
Recital A.
"Company" shall mean Applied Magnetics Corporation.
"Demand Registration" shall mean a registration made
pursuant to Section 2 or 3(a).
-1-
Page 134 of 170
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, or any successor law, and the rules and
regulations issued pursuant to that Act or any successor law.
"Form S-3" shall mean such form under the Securities
Act as in effect on the date hereof or any registration form
under the Securities Act subsequently adopted by the Commission
which permits inclusion or incorporation of comparable
information by reference to other documents filed by the Company
with the Commission.
"Holder" shall mean any Person who is the record owner
of Registrable Shares, or any permitted assignee thereof in
accordance with Section 20.
"Initiating Holders" shall have the meaning provided in
Section 3(b).
"Investors" shall have the meaning provided in the
first paragraph of this Agreement.
"Person" shall mean an individual, partnership, limited
liability company, joint venture, corporation, trust or
unincorporated organization or any other similar entity.
"Register," "registered" and "registration" shall refer
to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities
Act, and the declaration or ordering of effectiveness of such
registration statement or document by the Commission.
"Registrable Shares" shall mean (a) the Shares
beneficially owned by any Holder, (b) any Common Stock of the
Company issued to a Holder as a dividend or other distribution
with respect to, or in exchange for or in replacement of, any of
the Shares or (c) any other shares of Common Stock of the Company
held by a Holder; provided, however, that shares of Common Stock
shall only be treated as Registrable Shares if and so long as
(i) they have not been sold by the Investor to or through a
broker or dealer or underwriter in a public distribution or
otherwise pursuant to an effective Registration Statement under
the Securities Act, (ii) they have not been sold in a transaction
exempt from the registration and prospectus delivery requirements
of the Securities Act under Section 4(l) thereof (including any
sale pursuant to Rule 144 under the Securities Act or any similar
provision) so that all transfer restrictions and restrictive
legends with respect thereto are removed upon the consummation of
such sale, or (iii) if the Holder shall have received from the
Company an opinion of counsel reasonably acceptable to the Holder
stating that they may immediately be resold by the Holder
pursuant to Rule 144(k) under the Securities Act without any
volume limitation and without any additional unreasonable
expense.
-2-
Page 135 of 170
<PAGE>
"Securities Act" shall mean the Securities Act of 1933,
as amended, or any successor law, and the rules and regulations
issued pursuant to that Act or any successor law.
"Securities Purchase Agreement" shall have the meaning
provided in Recital A.
"Shares" shall mean the shares of Common Stock issued
and sold by the Company to the Investors pursuant to the
Securities Purchase Agreement.
"Violation" shall have the meaning provided in
Section 8(a).
2. Initial Registration. The Company shall use all
reasonable commercial efforts to effect as soon as practicable
after the Closing Date (as defined in the Securities Purchase
Agreement), and in any event within 60 days of the Closing Date,
the registration under the Securities Act for resale of the
Registerable Shares. Such registration shall be deemed to be a
Demand Registration requested pursuant to Section 3(a), subject
to all terms and conditions of this Agreement applicable to such
Demand Registration; provided, however, that (i) the selection of
any managing underwriter shall be made as provided in
Section 3(b) by written notice to the Company not less than 30
days prior to the Closing Date, (ii) the term "Initiating
Holders" shall mean, with respect to the registration referred to
in this Section 2, all the Holders and (iii) the Company shall
register under the Securities Act for resale on such registration
statement all shares of Common Stock required to be registered by
it pursuant to that certain Registration Rights Agreement entered
into by the Company pursuant to that certain Amended and Restated
Agreement and Plan of Merger dated as of November 24, 1998 and
amended and restated as of January 19, 1999, by and among the
Company, AMC Merger Subsidiary, Inc. and DAS Devices, Inc.
3. Demand Registration.
(a) General. If the Company shall receive, at
any time after 180 days after the Closing Date, a written
request from the Holders of at least the lesser of
(x) 1,500,000 Registrable Shares (adjusted for all stock
splits or similar transactions) or (y) Registrable Shares
with a fair market value, based on the closing market price
on the trading day immediately prior to the date of notice
(as reported in the Wall Street Journal), of not less than
$10,000,000, that the Company file a registration statement
under the Securities Act covering the registration of such
Registrable Shares, then the Company shall, within ten (10)
days of the receipt thereof, give written notice of such
request to all Holders and shall, subject to the limitations
of this Section 3, use all reasonable commercial efforts to
effect as soon as practicable, and in any event within 90
days of the receipt of such request, the registration under
-3-
Page 136 of 170
<PAGE>
the Securities Act for resale of all such Registrable Shares
and all such additional Registrable Shares which the Holders
request to be so registered within thirty (30) days of the
mailing of such notice by the Company in accordance with
Section 17 hereof (a "Demand Registration").
(b) Underwriters Cut-back. If the Holders
initiating the registration request under Section 3(a) (the
"Initiating Holders") intend to distribute the Registrable
Shares covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request
made pursuant to Section 3(a), and the Company shall include
such information in the written notice referred to in such
Section. The selection of the managing underwriter of any
registration under this Section 3 shall be made by a
majority of the Initiating Holders, with the consent of the
Company (such consent not to be unreasonably withheld). In
the case of an underwritten offering, the right of any
Holder to include Registrable Shares in such registration
shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's
Registrable Shares in the underwriting (unless otherwise
mutually agreed by a majority of the Initiating Holders and
such Holder to the extent provided herein). All Holders
proposing to distribute their securities through such
underwriting shall (together with the Company as provided in
Section 5(e)) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected
for such underwriting. Notwithstanding any other provision
of this Agreement, if the underwriter advises the Initiating
Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then
the Initiating Holders shall so advise all Holders of
Registrable Shares which would otherwise be underwritten
pursuant hereto, and the number of shares of Registrable
Shares that may be included in the underwriting shall be
allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable)
to the amount of Registrable Shares of the Company owned by
each Holder; provided, however, that the number of shares of
Registrable Shares to be included in such underwriting shall
not be reduced unless all other securities are first
entirely excluded from the underwriting.
(c) Limit on Demand Registrations. The Company
is obligated to effect only two (2) Demand Registrations
pursuant to Section 3(a); provided, however, that such
limitation shall not include a Demand Registration effected
by means of a Form S-3. For purposes of this Section 3(c),
no such Demand Registration shall be deemed to have taken
place unless (i) the registration statement filed pursuant
to such Demand Registration has been declared effective by
the Commission and sales of the securities have been
permitted consistent with the plan of distribution described
-4-
Page 137 of 170
<PAGE>
in the registration statement or (ii) a Demand Registration
shall be forfeited by operation of Section 3(f).
(d) Right to Defer. Notwithstanding the
foregoing, if the Company shall furnish to the Initiating
Holders a certificate signed by the Secretary of the Company
stating that, in the good faith judgment of the Board of
Directors of the Company as set forth in a duly adopted
written resolution, there is a reasonable likelihood that
the filing of such registration statement would materially
and adversely affect any existing or prospective material
business situation, transaction or negotiation or otherwise
materially and adversely affect the Company and, therefore,
it is necessary to defer the filing of such registration
statement, the Company shall have the right to defer such
filing for a period of not more than 90 days after receipt
of the request of the Initiating Holders; provided, however,
that the Company may not use this right more than once in
any twelve month period.
(e) Right to Defer for other Company Offering.
Notwithstanding the foregoing, if the Company receives a
request for registration under Section 3(a) of this
Agreement, then the Company may postpone such registration
for forty-five (45) days in order to file a registration
statement for a primary offering of Common Stock. In such
event, the Holders of Registrable Shares shall have the
piggyback registration rights, if any, granted pursuant to
Section 4 hereof.
(f) Expenses of Demand Registration. All
expenses, other than underwriting discounts and
commissions, stock transfer taxes and the fees and
disbursements of separate counsel, if any, retained by the
Holders, incurred in connection with the first two
(2) Demand Registrations, including (without limitation) all
registration, filing and qualification fees, printers' fees,
accounting fees, and fees and disbursements of counsel for
the Company, shall be borne by the Company and, thereafter,
shall be borne by the selling Holders (in proportion to the
number of Registerable Shares included therein).
Notwithstanding the foregoing, however, in the event a
registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable
Shares to be registered, then either (i) such expenses shall
be borne solely by the Holders that requested Registrable
Shares to be included in such registration and not by the
Company (in which case all Holders participating in such
registration shall bear such expenses pro rata based on the
Registrable Shares to be registered), or (ii) one of the
demand registration rights provided for in Section 3(a)
shall be deemed forfeited. The election permitted by the
previous sentence shall be made by the Initiating Holders in
proportion to the Registrable Shares to be registered held
by each.
-5-
Page 138 of 170
<PAGE>
(g) Notwithstanding anything to the contrary
contained in this Agreement, Registerable Shares may not be
offered for sale, sold or otherwise disposed of (other than
to an Affiliate of the Holder who shall agree in writing to
be bound by this Section 3(g)) until the earlier to occur of
(i) 48 hours after results covering 30 days of post-merger
combined operations of the Company and Das Devices, Inc.
have been filed with the Commission, sent to stockholders of
the Company or otherwise publicly issued by the Company or
(ii) 60 days following the Closing Date.
4. Piggy-Back Registration.
(a) General. If, at any time after 180 days
after the Closing Date, the Company proposes to register
(including for this purpose a registration effected by the
Company pursuant to Section 3 of this Agreement) any of its
Common Stock under the Securities Act in connection with the
public offering of such securities solely for cash (other
than (i) a registration relating to the sale of securities
to participants in a Company stock plan, or (ii) a
transaction pursuant to Rule 145), the Company shall, at
such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given
within fifteen (15) days after mailing of such notice by the
Company in accordance with Section 17 hereof, the Company
shall cause to be registered under the Securities Act all of
the Registrable Shares that each such Holder has requested
to be registered subject to the underwriter cutback and
other provisions of Section 4(b) hereof.
(b) Underwriting Requirements. In connection
with any offering which constitutes an underwriting, the
Company shall not be required under this Section 4 to
include any of the Holders' Registrable Shares in such
underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the
underwriters selected by the Company, and then only in such
quantity as the underwriters determine in their sole
discretion will not materially and adversely affect the
distribution of the Registrable Shares, such determination
to be confirmed in writing upon the request of any Holder.
If the total amount of Registrable Shares requested by
Holders to be included in such offering exceeds the amount
of securities sold other than by the Company that the
underwriters determine in their sole discretion is
compatible with the success of the offering, then the
Company shall be required to include in the offering only
that number of Registrable Shares which the underwriters
determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be
apportioned pro rata among all selling Holders according to
the total amount of Registrable Shares owned by each selling
-6-
Page 139 of 170
<PAGE>
Holder or in such other proportions as shall mutually be
agreed to by such selling Holders).
(c) Expenses of Company Registration. The
Company shall bear and pay all expenses incurred in
connection with any registration, filing, qualification or
sale of Registrable Shares pursuant to this Section 4,
including (without limitation) all registration, filing, and
qualification fees, and printers' fees, accounting fees and
the fees and disbursements of counsel for the Company
relating or apportionable thereto, but excluding
underwriting discounts and commissions, stock transfer taxes
and the fees and expenses of separate counsel, if any,
retained by the selling Holders.
5. Obligations of the Company. Whenever required
under this Agreement to effect the registration of any
Registrable Shares, the Company shall, as expeditiously as
reasonably possible, use reasonable commercial efforts to do the
following:
(a) Commission Filing. Prepare and file with the
Commission a registration statement with respect to such
Registrable Shares and to cause such registration statement
to become effective, and, upon the request of the Holders of
a majority of the Registrable Shares registered thereunder,
keep such registration statement effective until the sooner
to occur of (i) 365 days after the effective date thereof in
the case of a registration statement filed pursuant to
Section 2 and 180 days after the effective date thereof in
the case of any other registration statement or (ii) until
all of the Shares registered thereunder are sold.
(b) Amendments. Prepare and file with the
Commission such amendments and supplements to such
registration statement and the prospectus used in connection
with such registration statement as may be necessary to
comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
registration statement, and furnish such copies thereof to
the Holders and any underwriters as they may reasonably
request.
(c) Prospectus. Furnish to the Holders and any
underwriters such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents
as they may reasonably request in order to facilitate the
disposition of Registrable Shares owned by them, and cause
all related filings to be made with the Commission as
required by Rule 424.
(d) Blue Sky Qualification. Register and qualify
the Registrable Shares covered by such registration
-7-
Page 140 of 170
<PAGE>
statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the
Holders and any underwriters; provided, however, that the
Company shall not be required in connection therewith or as
a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or
jurisdictions.
(e) Underwriting Agreement. In the event of any
underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such
offering, including, without limitation, delivering opinions
of counsel and "comfort letters" of accountants; provided,
however, that such managing underwriter has been selected
consistent with the provisions of Section 3(b). Each Holder
participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(f) Prospectus Delivery. Promptly notify each
Holder of Registrable Shares covered by the registration
statement at any time when the Company becomes aware of the
happening of any event as a result of which the registration
statement or the prospectus included in such registration
statement or any supplement to the prospectus (as then in
effect) contains any untrue statement of a material fact or
omits to state a material fact necessary to make the
statements therein (in the case of the prospectus, in light
of the circumstances under which they were made) not
misleading or, if for any other reason it shall be necessary
during such time period to amend or supplement the
registration statement or the prospectus in order to comply
with the Securities Act, whereupon, in either case, each
Holder shall immediately cease to use such registration
statement or prospectus for any purpose and, as promptly as
practicable thereafter, the Company shall prepare and file
with the Commission, and furnish without charge to the
appropriate Holders and managing underwriters, if any, a
supplement or amendment to such registration statement or
prospectus which will correct such statement or omission or
effect such compliance and such copies thereof as the
Holders and any underwriters may reasonably request.
6. Furnish Information. It shall be a condition
precedent to the obligations of the Company to take any action
pursuant to this Agreement with respect to the Registrable Shares
of any selling Holder that such Holder shall furnish to the
Company such information regarding itself, the Registrable Shares
held by it, and the intended method of disposition of such
securities as shall be required to effect the registration of
such Holder's Registrable Shares.
7. Delay of Registration. No Holder shall have any
right to obtain or seek an injunction restraining or otherwise
-8-
Page 141 of 170
<PAGE>
delaying any such registration as the result of any controversy
that might arise with respect to the interpretation or
implementation of this Agreement.
8. Indemnification. In the event (i) any Registrable
Shares are included in a registration statement under this
Agreement or (ii) any other shares of Common Stock held by the
Investors are included in any registration statement:
(a) Indemnification by the Company. To the
fullest extent permitted by law, the Company will indemnify
and hold harmless each Holder, each of its directors, any
underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act, or other
federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following
statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration
statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission
to state therein a material fact required to be stated
therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, or any
state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act, or any state
securities law, and the Company will pay to each such
Holder, director, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by
one law firm retained by them, plus appropriate local
counsel in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this
Section 8(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action if
such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any
such loss, claim, damage, liability, or action to which any
Holder, underwriter or controlling person may become subject
to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in
connection with such registration by such Holder,
underwriter or controlling person. This right to
indemnification shall remain in full force and effect
notwithstanding any investigation made by or on behalf of
-9-
Page 142 of 170
<PAGE>
such Holder or underwriter and shall survive the transfer of
such securities by such Holder.
(b) Indemnification by Selling Holder. To the
fullest extent permitted by law, each selling Holder
severally, but not jointly, will indemnify and hold harmless
the Company, each of its directors, each of its officers who
has signed the registration statement, each person, if any,
who controls the Company within the meaning of the
Securities Act or the Exchange Act, any underwriter, any
other Holder selling securities in such registration
statement and any controlling person of any such underwriter
or other Holder against any losses, claims, damages, or
liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the
Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder
expressly for use in connection with such registration;
provided, however, that the indemnity agreement contained in
this Section 8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of
the Holder, which consent shall not be unreasonably
withheld; provided, further, that in no event shall any
indemnity under this Section 8(b) exceed the net proceeds
from the offering received by such Holder.
(c) Procedures. Promptly after receipt by an
indemnified party under this Section 8 of notice of the
commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under
this Section 8, deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any
other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the
right to retain one separate counsel (plus appropriate local
counsel), with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within
a reasonable time of the commencement of any such action, if
-10-
Page 143 of 170
<PAGE>
prejudicial in any material respect to its ability to defend
such action, shall to the extent prejudicial relieve such
indemnifying party of any liability to the indemnified party
under this Section 8, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party
otherwise than under this Section 8.
(d) Contribution. If the indemnification
provided for in this Section 8 from the indemnifying party
is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses
referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses in
such proportion as is appropriate to reflect the relative
fault of the indemnifying party on the one hand and the
indemnified parties on the other in connection with the
actions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission
to state a material fact, has been made by, or related to
information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent,
knowledge, access to information and opportunity to correct
or prevent such action; provided, however, that in no event
shall the liability of any selling Holder hereunder be
greater in amount than the difference between the dollar
amount of the proceeds received by such Holder upon the sale
of the Registrable Shares giving rise to such contribution
obligation and all amounts previously contributed by such
Holder with respect to such losses, claims, damages,
liabilities and expenses. The amount paid or payable to a
party as a result of the losses, claims damages, liabilities
and expenses referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or
proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable
considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall
be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation.
-11-
Page 144 of 170
<PAGE>
(e) Survival. The obligations of the Company and
Holders under this Section 8 shall survive the completion of
any offering of Registrable Shares in a registration
statement under this Agreement, and otherwise.
9. Reports Under Exchange Act. With a view to making
available to the Holders the benefits of Rule 144 promulgated
under the Securities Act and any other rule or regulation of the
Commission that may at any time permit a Holder to sell
securities of the Company to the public without registration
generally or pursuant to a registration on Form S-3, the Company
agrees to use reasonable commercial efforts to:
(a) make and keep public information available,
as those terms are understood and defined in Rule 144;
(b) qualify for registration on Form S-3 for the
sale of Registrable Shares;
(c) file with the Commission in a timely manner
all reports and other documents required of the Company
under the Securities Act and the Exchange Act; and
(d) furnish to any Holder, so long as the Holder
owns any Registrable Shares, promptly upon request (i) a
written statement by the Company that it has complied with
the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, or that it qualifies as a registrant
whose securities may be resold pursuant to Form S-3, (ii) a
copy of the most recent annual and/or quarterly report of
the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or
regulation of the Commission which permits the selling of
any Registrable Shares without registration or pursuant to
such form.
10. "Market Stand-Off" Agreement. Each Holder hereby
agrees that for a period of 90 days following the effective date
of any registration effected subsequent thereto pursuant to
Sections 1, 2 or 3 (provided the Holders are given written notice
of the offering and the right to participate therein as provided
for in this Agreement), such Holder, if requested by the managing
underwriter, shall not, directly or indirectly sell, offer to
sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or
dispose of (other than to donees who agree to be similarly bound)
any securities of the Company held by it at any time during such
period, except Common Stock included in such registration. In
addition, each Holder agrees, if applicable, to acknowledge the
undertaking provided for in this Section 10 by entering into
customary written "lock-up" agreements with the managers of the
relevant underwriting. The requirements of this Section 10 shall
not apply to a Holder that, at the time of receipt of the
-12-
Page 145 of 170
<PAGE>
referenced notice from the Company, (i) beneficially owned less
than 5% of the outstanding shares of each class of the capital
stock of the Company, (ii) is not an Affiliate or an employee of
the Company and (iii) waives any further benefits of this
Agreement for it or any subsequent assignee or transferee of its
Registrable Shares.
In order to enforce the foregoing covenant, the Company
may impose stop transfer instructions with respect to the
Registrable Shares of each Holder (and the shares or securities
of every other person subject to the foregoing restriction) until
the end of such period.
11. Amendment of Registration Rights. Any provision
of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and
either retroactively or prospectively only with the written
consent of the Company and the holders of sixty-six percent (66%)
of the Registrable Shares then outstanding. Any amendment or
waiver effected in accordance with this Section 10 shall be
binding upon each Holder of any Registrable Shares then
outstanding, each future holder of all such Registrable Shares
and the Company.
12. Termination. The rights provided in this
Agreement shall terminate on the second anniversary of the
effective date of this Agreement.
13. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED,
INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA (WITHOUT
REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF).
14. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
15. Titles and Subtitles. The titles and subtitles
used in this Agreement are used for convenience only and are not
to be considered in construing or interpreting this Agreement.
16. Negotiation of Agreement. Each of the parties
acknowledges that it has been represented by independent counsel
of its choice throughout all negotiations that have preceded the
execution of this Agreement and that it has executed the same
with consent and upon the advice of said independent counsel.
Each party and its counsel cooperated in the drafting and
preparation of this Agreement and the documents referred to
herein, and any and all drafts relating thereto shall be deemed
the work product of the parties and may not be construed against
any party by reason of its preparation. Accordingly, any rule of
law or any legal decision that would require interpretation of
any ambiguities in this Agreement against the party that drafted
-13-
Page 146 of 170
<PAGE>
it is of no application and is hereby expressly waived. The
provisions of this Agreement shall be interpreted in a reasonable
manner to effect the intentions of the parties and this
Agreement.
17. Notices. Any notice, request, instruction or
other document to be given hereunder by any party hereto to
another party hereto shall be in writing, shall be deemed to have
been duly given or delivered when delivered personally or
telecopied (receipt confirmed, with a copy sent by reputable
overnight courier), or one business day after delivery to a
reputable overnight courier, postage prepaid, to the address of
the party set forth below such person's signature on this
Agreement or to such address as the party to whom notice is to be
given may provide in a written notice to each of the other
parties to this Agreement, a copy of which written notice shall
be on file with the Secretary of the Company.
18. Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such
provision shall be excluded from this Agreement and the balance
of the Agreement shall be interpreted as if such provision were
so excluded and shall be enforceable in accordance with its terms
to the fullest extent permitted by law.
19. Further Assurances. Each of the parties shall,
without further consideration, use reasonable efforts to execute
and deliver such additional documents and take such other action
as the other parties, or any of them may reasonably request to
carry out the intent of this Agreement and the transactions
contemplated hereby.
20. Successors and Assigns. This Agreement shall be
binding upon, and all rights hereto shall inure to the benefit
of, the parties hereto, and their respective successors and
permitted assigns; provided, however, that a transferee of
Registrable Shares shall be deemed to be a Holder of such
Registerable Shares only if such transferee shall have executed
and delivered to the Company a Registration Rights Agreement
Joinder in the form attached hereto as Exhibit A.
21. Entire Agreement. This Agreement embodies the
entire agreement and understanding of the parties hereto in
respect of the actions and transactions contemplated by this
Agreement. There are no restrictions, promises, inducements,
representations, warranties, covenants or undertakings with
regard to the registration of the Company's capital stock
pursuant to the Securities Act, other than those expressly set
forth or referred to in this Agreement.
22. Recapitalizations, etc. The provisions of this
Agreement (including any calculation of share ownership) shall
apply, to the full extent set forth herein with respect to the
Registrable Shares, to any and all shares of capital stock of the
-14-
Page 147 of 170
<PAGE>
Company or any capital stock, partnership units or, any other
security evidencing ownership interests in any successor or
assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) that may be issued in respect of, in
exchange for, or in substitution of the Common Stock by reason of
any stock dividend, split, combination, recapitalization,
liquidation, reclassification, merger, consolidation or
otherwise.
(Signature Pages Follow)
-15-
Page 148 of 170
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
APPLIED MAGNETICS CORPORATION
By: /s/ Craig D. Crisman
--------------------------------
Craig D. Crisman,
Chairman of the Board and
Chief Executive Officer
Address:
75 Robin Hill Road
Goleta, California 93117
Attention: Chief Executive Officer
Telecopier: (805) 967-2677
SIERRA VENTURES VI
By: /s/ Jeffrey M. Drazen
--------------------------------
Jeffrey M. Drazen,
General Partner
Address:
3000 Sand Hill Road
Building #4, Suite 210
Menlo, Park, CA 94025
Attention: Jeffrey M. Drazen
Telecopier: (650) 854-5593
WATERSHED PARTNERS, L.P.
By: /s/
--------------------------------
---------------------------------
[Print Name and Title]
Address:
c/o Brookhaven Capital
3000 Sand Hill Road
Building #3, Suite 105
Menlo Park, CA 94025
Attention: Dan Coleman
Telecopier: __________
S-1
Page 149 of 170
<PAGE>
WATERSHED CAYMAN, L.L.C.
By: /s/
--------------------------------
---------------------------------
[Print Name and Title]
Address:
c/o Brookhaven Capital
3000 Sand Hill Road
Building #3, Suite 105
Menlo Park, CA 94025
Attention: Dan Coleman
Telecopier: __________
HAUSSMAN HOLDINGS
By: /s/
--------------------------------
---------------------------------
[Print Name and Title]
Address:
c/o Brookhaven Capital
3000 Sand Hill Road
Building #3, Suite 105
Menlo Park, CA 94025
Attention: Dan Coleman
Telecopier: __________
EAST RIVER VENTURES, L.L.C.
By: /s/
--------------------------------
---------------------------------
[Print Name and Title]
Address:
645 Madison Avenue
New York, New York 10022
Attention: Walter Carozza
Telecopier: (212) 644-5498
S-2
Page 150 of 170
<PAGE>
JAFCO AMERICA VENTURES, INC.
By: /s/
--------------------------------
---------------------------------
[Print Name and Title]
Address:
505 Hamilton Avenue, Suite 310
Palo Alto, CA 94301
Attention: Phil Wiescham
Telecopier: (650) 463-8801
THE CHASE MANHATTAN BANK,
AS TRUSTEE FOR FIRST PLAZA GROUP
TRUST
By: The Chase Manhattan Bank
By:
----------------------------
----------------------------
[Print Name and Title]
S-3
Page 151 of 170
<PAGE>
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT JOINDER
As of the date set forth below, the undersigned is
acquiring from _________________ _____ shares of the Common Stock
(the "Shares"), of Applied Magnetics Corporation (the "Company").
By execution of this Registration Rights Agreement Joinder, the
undersigned, as successor to ________________ in respect of the
Shares, shall be deemed to be a party to that certain Registration
Rights Agreement, dated as of _________ __, 1999, by and among the
Company and the "Investors" identified on the signature pages
thereof (the "Registration Rights Agreement"). Pursuant to
Section 23 of the Registration Rights Agreement, the undersigned,
as successor to ____________________, in respect of the Shares,
shall have all rights, and shall observe all the obligations,
applicable to a "Holder" under such Registration Rights Agreement.
Name:
Address for Notices: with copies to:
_____________________________
By:__________________________
Name:
Title:
Date:
S-4
Page 152 of 170
<PAGE>
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
effective as of ___________, 1999, by and among Applied Magnetics Corporation,
a Delaware corporation (the "Company"), and Das Devices, Inc. ("DAS"), for the
benefit of those persons who are to receive the merger consideration pursuant
to the Merger Agreement (as defined below).
RECITALS
A. Upon the terms and subject to the conditions of an Agreement
and Plan of Merger dated as of November 24, 1998, as amended (the "Merger
Agreement"), by and among the Company, DAS, and AMC Merger Subsidiary, Inc., a
wholly owned subsidiary of the Company (the "Merger Sub"), the Merger Sub will
be merged with and into DAS and the Company will issue 13,051,872 shares of the
common stock, $0.10 par value ("Common Stock"), of the Company to investors,
optionees and certain consultants of DAS (the "Third Party Beneficiaries").
B. A material inducement for the parties to consummate the
transactions contemplated by the Merger Agreement was that the Company enter
into this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements of the parties contained herein, the parties agree as
follows:
1. Definitions. As used herein, the terms below shall have the
following meanings. Any such term, unless the context otherwise requires, may
be used in the singular or plural, depending upon the reference.
"Affiliate" shall have the meaning provided in the Exchange Act
and the rules and regulations of the Commission promulgated thereunder.
"Agreement" shall mean this Registration Rights Agreement.
"Commission" shall mean the United States Securities and
Exchange Commission.
"Common Stock" shall have the meaning provided in Recital A.
"Company" shall mean Applied Magnetics Corporation.
-1-
Page 153 of 170
<PAGE>
"DAS Stockholders" shall mean those Persons who are entitled to
receive shares of Common Stock pursuant to the Merger Agreement.
"Effective Time" shall have the meaning provided in
the Merger Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor law, and the rules and regulations issued pursuant to
that Act or any successor law.
"Holder" shall mean any Person who is the record owner of
Registrable Shares, or any permitted assignee thereof in accordance with
Section 17.
"Merger Agreement" shall have the meaning provided in Recital A.
"Person" shall mean an individual, partnership, limited liability
company, joint venture, corporation, trust or unincorporated organization or
any other similar entity.
"Register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document by the
Commission.
"Registrable Shares" shall mean (a) the Shares beneficially owned
by any Holder and (b) any Common Stock of the Company issued to a Holder as a
dividend or other distribution with respect to, or in exchange for or in
replacement of, any of the Shares; provided, however, that shares of Common
Stock shall only be treated as Registrable Shares if and so long as (i) they
have not been sold by any Holder thereof to or through a broker or dealer or
underwriter in a public distribution or otherwise pursuant to an effective
Registration Statement under the Securities Act, (ii) they have not been sold in
a transaction exempt from the registration and prospectus delivery requirements
of the Securities Act under Section 4(l) thereof (including any sale pursuant to
Rule 144 under the Securities Act or any similar provision) so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale, or (iii) if the Holder shall have received from the
Company an opinion of counsel reasonably acceptable to the Holder stating that
they may immediately be resold by the Holder pursuant to Rule 144(k) under the
Securities Act without any volume limitation and without any additional
unreasonable expense.
"Registration" shall mean a registration made pursuant to Section 2.
-2-
Page 154 of 170
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any successor law, and the rules and regulations issued pursuant to that Act
or any successor law.
"Shares" shall mean the shares of Common Stock issued and sold by
the Company to the Third Party Beneficiaries pursuant to the Merger Agreement.
"Third Party Beneficiaries" shall have the meaning
provided in Recital A.
"Violation" shall have the meaning provided in
Section 6(a).
2. Registration.
(a) The Company shall use its best efforts (without regard to
expenses) to effect as soon as practicable after the Effective Time, and
in any event within 60 days of the Effective Time, the registration under
the Securities Act for resale of the Registerable Shares.
(b) Expenses of Registration. All expenses, other than
underwriting discounts and commissions, stock transfer taxes and the fees
and disbursements of separate counsel, if any, retained by the Holders,
incurred in connection with the Registration, including (without
limitation) all registration, filing and qualification fees, printers'
fees, accounting fees, and fees and disbursements of counsel for the
Company, shall be borne by the Company.
3. Obligations of the Company. Whenever required under this
Agreement to effect the registration of any Registrable Shares, the Company
shall, as expeditiously as reasonably possible, use reasonable commercial
efforts (without regard to expense) to do the following:
(a) Commission Filing. Prepare and file with the Commission
on February 12, 1999 a registration statement with respect to such
Registrable Shares and to cause such registration statement to become
effective, and keep such registration statement effective for up to 365
days or until all of the Shares registered thereunder are sold, whichever
occurs sooner.
(b) Amendments. Prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration
statement, and furnish such copies thereof to the Holders.
-3-
Page 155 of 170
<PAGE>
(c) Prospectus. Furnish to the Holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as they
may reasonably request in order to facilitate the disposition of
Registrable Shares owned by them, and cause all related filings to be made
with the Commission as required by Rule 424.
(d) Blue Sky Qualification. Register and qualify the
Registrable Shares covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to qualify to
do business or to file a general consent to service of process in any such
states or jurisdictions.
(e) Prospectus Delivery. Promptly notify each Holder of
Registrable Shares covered by the registration statement at any time when
the Company becomes aware of the happening of any event as a result of
which the registration statement or the prospectus included in such
registration statement or any supplement to the prospectus (as then in
effect) contains any untrue statement of a material fact or omits to state
a material fact necessary to make the statements therein (in the case of
the prospectus, in light of the circumstances under which they were made)
not misleading or, if for any other reason it shall be necessary during
such time period to amend or supplement the registration statement or the
prospectus in order to comply with the Securities Act, whereupon, in
either case, each Holder shall immediately cease to use such registration
statement or prospectus for any purpose and, as promptly as practicable
thereafter, the Company shall prepare and file with the Commission, and
furnish without charge to the Holders, a supplement or amendment to such
registration statement or prospectus which will correct such statement or
omission or effect such compliance and such copies thereof as the Holders
may reasonably request.
4. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to the Registrable Shares of any Holder that such Holder (i) shall
furnish to the Company such information regarding itself, the Registrable Shares
held by it, and the intended method of disposition of such securities as shall
be required to effect the registration of such Holder's Registrable Shares and
(ii) shall agree in writing to observe all obligations applicable to a "Holder"
under this Agreement.
-4-
Page 156 of 170
<PAGE>
5. Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Agreement.
6. Indemnification. In the event any Registrable
Shares are included in a registration statement under this
Agreement:
(a) Indemnification by the Company. To the fullest extent
permitted by law, the Company will indemnify and hold harmless each
Holder, each of its directors, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages, or liabilities (joint
or several) to which they may become subject under the Securities Act, the
Exchange Act, or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to
be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, or any state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act,
or any state securities law, and the Company will pay to each such Holder,
director, underwriter or controlling person, as incurred, any legal or
other expenses reasonably incurred by one law firm retained by them, plus
appropriate local counsel in connection with investigating or defending
any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this Section 6(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of
the Company (which consent shall not be unreasonably withheld), nor shall
the Company be liable in any such case for any such loss, claim, damage,
liability, or action to which any Holder, underwriter or controlling
person may become subject to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by such Holder, underwriter or controlling person. This right
-5-
Page 157 of 170
<PAGE>
to indemnification shall remain in full force and effect notwithstanding
any investigation made by or on behalf of such Holder or underwriter and
shall survive the transfer of such securities by such Holder.
(b) Indemnification by Holder. To the fullest extent permitted
by law, each Holder severally, but not jointly, will indemnify and hold
harmless the Company, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act, any
underwriter, each other Holder and any controlling person of any such
underwriter or other Holder against any losses, claims, damages, or
liabilities (joint or several) to which any of the foregoing persons may
become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with
such registration; provided, however, that the indemnity agreement
contained in this Section 6(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided, further, that in no event
shall any indemnity under this Section 6(b) exceed the net proceeds from
the offering received by such Holder.
(c) Procedures. Promptly after receipt by an indemnified
party under this Section 6 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party
under this Section 6, deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to
assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party (together with all
other indemnified parties which may be represented without conflict by
one counsel) shall have the right to retain one separate counsel (plus
appropriate local counsel), with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party
-6-
Page 158 of 170
<PAGE>
and any other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if prejudicial
in any material respect to its ability to defend such action, shall to
the extent prejudicial relieve such indemnifying party of any liability
to the indemnified party under this Section 6, but the omission so to
deliver written notice to the indemnifying party will not relieve it of
any liability that it may have to any indemnified party otherwise than
under this Section 6.
(d) Contribution. If the indemnification provided for in this
Section 6 from the indemnifying party is unavailable to an indemnified
party hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and
the indemnified parties on the other in connection with the actions which
resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact, has been made by,
or related to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action;
provided, however, that in no event shall the liability of any selling
Holder hereunder be greater in amount than the difference between the
dollar amount of the proceeds received by such Holder upon the sale of the
Registrable Shares giving rise to such contribution obligation and all
amounts previously contributed by such Holder with respect to such losses,
claims, damages, liabilities and expenses. The amount paid or payable to a
party as a result of the losses, claims damages, liabilities and expenses
referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation or by any other method of allocation which does not
take into account the equitable considerations referred to in the
-7-
Page 159 of 170
<PAGE>
immediately preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person who was not guilty
of such fraudulent misrepresentation.
(e) Survival. The obligations of the Company and Holders under
this Section 6 shall survive the completion of any offering of Registrable
Shares in a registration statement under this Agreement, and otherwise.
7. Reports Under Exchange Act. With a view to making available to
the Holders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the Commission that may at any time permit a
Holder to sell securities of the Company to the public without registration
generally, the Company agrees to use reasonable commercial efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and
the Exchange Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Shares, promptly upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144,
the Securities Act and the Exchange Act, (ii) a copy of the most recent
annual and/or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation
of the Commission which permits the selling of any Registrable Shares
without registration or pursuant to such form.
8. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively only with the
written consent of the Company and the holders of sixty-six percent (66%) of the
Registrable Shares then outstanding. Any amendment or waiver effected in
accordance with this Section 8 shall be binding upon each Holder of any
Registrable Shares then outstanding, each future holder of all such Registrable
Shares and the Company.
9. Termination. The rights provided in this Agreement shall
terminate on the second anniversary of the effective date of this Agreement.
-8-
Page 160 of 170
<PAGE>
10. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED
AND THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA (WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF).
11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
13. Negotiation of Agreement. Each of the parties acknowledges that
it has been represented by independent counsel of its choice throughout all
negotiations that have preceded the execution of this Agreement and that it has
executed the same with consent and upon the advice of said independent counsel.
Each party and its counsel cooperated in the drafting and preparation of this
Agreement and the documents referred to herein, and any and all drafts relating
thereto shall be deemed the work product of the parties and may not be construed
against any party by reason of its preparation. Accordingly, any rule of law or
any legal decision that would require interpretation of any ambiguities in this
Agreement against the party that drafted it is of no application and is hereby
expressly waived. The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the intentions of the parties and this Agreement.
14. Notices. Any notice, request, instruction or other document to
be given hereunder by any party hereto to another party hereto shall be in
writing, shall be deemed to have been duly given or delivered when delivered
personally or telecopied (receipt confirmed, with a copy sent by reputable
overnight courier), or one business day after delivery to a reputable overnight
courier, postage prepaid, to the address of the party set forth below such
person's signature on this Agreement or to such address as the party to whom
notice is to be given may provide in a written notice to each of the other
parties to this Agreement, a copy of which written notice shall be on file with
the Secretary of the Company.
15. Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms to the fullest extent permitted by law.
-9-
Page 161 of 170
<PAGE>
16. Further Assurances. Each of the parties shall, without further
consideration, use reasonable efforts to execute and deliver such additional
documents and take such other action as the other parties, or any of them may
reasonably request to carry out the intent of this Agreement and the
transactions contemplated hereby.
17. Successors and Assigns. This Agreement shall be binding upon,
and all rights hereto shall inure to the benefit of, the parties hereto, and
their respective successors and permitted assigns.
18. Entire Agreement. This Agreement embodies the entire agreement
and understanding of the parties hereto in respect of the actions and
transactions contemplated by this Agreement. There are no restrictions,
promises, inducements, representations, warranties, covenants or undertakings
with regard to the registration of the Company's capital stock pursuant to the
Securities Act, other than those expressly set forth or referred to in this
Agreement.
19. Recapitalizations, etc. The provisions of this Agreement
(including any calculation of share ownership) shall apply, to the full extent
set forth herein with respect to the Registrable Shares, to any and all shares
of capital stock of the Company or any capital stock, partnership units or, any
other security evidencing ownership interests in any successor or assign of the
Company (whether by merger, consolidation, sale of assets or otherwise) that may
be issued in respect of, in exchange for, or in substitution of the Common Stock
by reason of any stock dividend, split, combination, recapitalization,
liquidation, reclassification, merger, consolidation or otherwise.
20. Third Party Beneficiary. Each of the Third Party
Beneficiaries shall be a third party beneficiary of this Agreement.
21. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
(Signature Pages Follow)
-10-
Page 162 of 170
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
APPLIED MAGNETICS CORPORATION
By: /s/ Craig D. Crisman
--------------------------------
Craig D. Crisman,
Chairman of the Board and
Chief Executive Officer
Address:
75 Robin Hill Road
Goleta, California 93117
Attention: Chief Executive Officer
Telecopier: (805) 967-2677
DAS DEVICES, INC.
By: /s/ Mitchel Underseth
--------------------------------
Mitchel Underseth
Chief Financial Officer
CERTAIN THIRD PARTY BENEFICIARIES:
SIERRA VENTURES VI
By: /s/ Jeffrey M. Drazan
--------------------------------
Jeffrey M. Drazan,
General Partner
Address:
3000 Sand Hill Road
Building #4, Suite 210
Menlo, Park, CA 94025
Attention: Jeffrey M. Drazan
Telecopier: (650) 854-5593
S-1
Page 163 of 170
<PAGE>
/s/ Bert Zaccaria
-----------------------------------
BERT ZACCARIA
Address:
------------------------------
------------------------------
Telecopier:
-------------------
/s/ Prabhakar Goel
-----------------------------------
PRABHAKAR GOEL
Address:
------------------------------
------------------------------
Telecopier:
-------------------
/s/ Brendan Joseph Cassin
-----------------------------------
BRENDAN JOSEPH CASSIN
Address:
------------------------------
------------------------------
Telecopier:
-------------------
/s/ Mitchel Underseth
-----------------------------------
MITCHEL UNDERSETH
Address:
------------------------------
------------------------------
Telecopier:
-------------------
S-2
Page 164 of 170
<PAGE>
/s/ Jeffrey Drazan
-----------------------------------
JEFFREY DRAZAN
Address:
------------------------------
------------------------------
Telecopier:
-------------------
/s/ Philip Wickham
-----------------------------------
PHILIP WICKHAM
Address:
------------------------------
------------------------------
Telecopier:
-------------------
JAFCO AMERICA VENTURES, INC.
By: /s/ Philip Wickham
--------------------------------
Philip Wickham
---------------------------------
Address:
505 Hamilton Avenue, Suite 310
Palo Alto, CA 94301
Attention: Phil Wickham
Telecopier: (650) 463-8801
S-3
Page 165 of 170
<PAGE>
Exhibit A
REGISTRATION RIGHTS AGREEMENT JOINDER
As of the date set forth below, the undersigned is acquiring from
_________________ _____ shares of the Common Stock (the "Shares"), of Applied
Magnetics Corporation (the "Company"). By execution of this Registration Rights
Agreement Joinder, the undersigned, as successor to ________________ in respect
of the Shares, shall be deemed to be a party to that certain Registration Rights
Agreement, dated as of _________ __, 1999, by and among the Company and the
"Investors" identified on the signature pages thereof (the "Registration Rights
Agreement"). Pursuant to Section 17 of the Registration Rights Agreement, the
undersigned, as successor to ____________________, in respect of the Shares,
S-4
Page 166 of 170
<PAGE>
shall have all rights, and shall observe all the obligations, applicable to a
"Holder" under such Registration Rights Agreement.
Name:
Address for Notices: with copies to:
----------------------------
By:-------------------------
Name:
Title:
Date:
S-5
Page 167 of 170
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our reports dated December 15,
1998 included (or incorporated by reference) in Applied Magnetics Corporation's
Form 10-K for the fiscal year ended October 3, 1998 and to all references to our
firm included in this Registration Statement
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Los Angeles, California
February 11, 1999
Page 168 of 170
<PAGE>
EXHIBIT 99.1
Applied Magnetics NEWS RELEASE
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE Contact: Craig D. Crisman
Chief Executive Officer
(805) 683-5353
APPLIED MAGNETICS AND DAS DEVICES COMPLETE MERGER
GOLETA, California, February 12,1999 - APPLIED MAGNETICS
CORPORATION (APM:NYSE) today announced that it has completed
its previously announced merger with DAS Devices Inc.
Concurrent with the closing, a private placement was also
completed with certain institutional investors which will net
the Company $20 million dollars in new working capital.
The newly merged company will operate under the Applied
Magnetics name with Wafer and Advanced Product Development
centered in the Milpitas, California facility. Manufacturing
will continue to reside in the companies facilities located in
Goleta, California, and offshore in Malaysia, Korea and China.
The combined Company's headquarters will continue to be in
Goleta, California.
The completion of the merger has resulted in the, creation of a
new company leading edge GMR based wafer technology with an
extensive worldwide manufacturing infrastructure and customer
support network to satisfy the demand for GMR recording heads,
the fastest growing segment of the recording head inarket. The
company currently has GMR product under evaluation at several
US, Japanese and Korean hard disk drive manufacturers at aerial
densities up to 8.2 gigabits per square inch.
"We are very excited to have completed the merger of Applied
Magnetics Corporation and DAS Devices Inc. and are already
experiencing near term as well as long term benefits by
leveraging the strengths of the two companies." said Craig
Crisman Chairman and CEO of Applied Magnetics.
Forward-looking statements included in this release are based
on estimates and assumptions made by management of the Company,
which, although believed to be reasonable, are inherently
uncertain and difficult to predict. Therefore, undue reliance
should not be placed upon such estimates. Such statements are
subject to certain risks and uncertainties inherent in the
Company's business that could cause actual results to differ
Materially from those projected. These factors include, but
are not limited to: successful transition to volume production
of MR and GMR disk head products with profitable yields; the
limited number of customers and customer changes in short range
and long range plans; competitive pricing pressures; changes in
business conditions affecting the Company's financial position
or results of operations which significantly increase the
Company's working capital needs; the Company's inability to
-more-
Page 169 of 170
<PAGE>
generate or obtain sufficient capital to fund its working
capital needs; the Company's ability to control inventory
levels; domestic and international competition in the Company's
product areas; risks related to international transactions; and
general economic risks and uncertainties.
Applied Magnetics Corporation is an independent manufacturer
of magnetic recording heads, head-gimbal assemblies ("HGAs")
and headstock assemblies ("HSAs") for computer hard disk
drives. Founded in 1957, Applied Magnetics is the oldest
independent U.S. based supplier of disk heads to the merchant
market. Headquartered in Goleta, California, the Company
employs over 4700 people around the world with facilities in
Malaysia, Korea, Singapore and China. The Company's worldwide
web site can be found at www.appmag.com.
# # # #
Page 170 of 170
