<PAGE> 1
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) OCTOBER 18, 1999
OPHTHALMIC IMAGING SYSTEMS
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
CALIFORNIA 1-11140 94-3035367
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
221 LATHROP WAY, SUITE I, SACRAMENTO, CA 95815
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (916) 646-2020
- --------------------------------------------------------------------------------
N/A
- --------------------------------------------------------------------------------
(Former Name and Former Address, if Changed Since Last Report.)
<PAGE> 2
ITEM 5. OTHER EVENTS.
This Report is filed by Ophthalmic Imaging Systems, a California
corporation (the "Company" or "Registrant"), pursuant to Item 5 to Form 8-K, to
report (a) the filing of a certificate of determination with the California
Secretary of State on October 18, 1999, establishing the rights and privileges
of Registrant's convertible Series B Preferred Stock ("Series B Stock"); (b) the
further amendment of Registrant's Rights Agreement; (c) a Series B Preferred
Stock Purchase Agreement, dated October 21, 1999, by and between Registrant and
Premier Laser Systems, Inc., a California corporation ("Premier"), allowing
Premier to purchase shares of Series B Stock; (d) an agreement, dated October
21, 1999, by and among the Registrant, Premier and three of Registrant's outside
directors, and the resulting issuance of 150 shares of Series B Stock to Premier
on October 21, 1999; and (e) an agreement and Plan of Reorganization By and
Among Premier Laser Systems, Inc., Ophthalmic Acquisition Corporation and
Ophthalmic Imaging System, dated October 21, 1999 (the "Merger Agreement"). Each
event is described more fully below.
(a) CERTIFICATE OF DETERMINATION.
On October 18, 1999, the Company filed a certificate of determination
with the California Secretary of State to designate 2,000 shares of the
Company's preferred stock as Series B Stock. A copy of the Certificate of
Determination of Preferences of Series B Preferred Stock of Ophthalmic Imaging
Systems (the "Certificate") has been filed as Exhibit 3.1 hereto.
The Company's Series B Stock has dividend and liquidation preferences
over the Company's Series A Preferred Stock and common stock, including a
liquidation preference of $25.00 per share, upon any liquidation, dissolution or
winding up of the Company. The Certificate expressly provides that a merger,
consolidation, sale of all or substantially all of the Company's assets, or a
transaction or series of transactions resulting in a disposal of more than 50%
of the Company's voting power shall not be deemed a liquidation.
Each share of Series B Stock is currently entitled to one thousand
(1,000) votes, and will vote together with common stock, except as may be
otherwise required by law. However, if Premier sells any of its shares of the
Company's common stock, then each share of Series B Stock will only be entitled
to one (1) vote per share.
In addition, the Series B Stock is convertible upon demand of the holder
into common stock, initially at a one-for-one ratio, with certain anti-dilution
protections against stock-splits and similar events. The Series B Stock is
automatically converted into common stock upon the sale or transfer by Premier
of one or more shares of Series B Stock.
Finally, the Series B Stock is redeemable at any time after or from time
to time after October 14, 2001.
As long as any shares of Series B Stock remain outstanding, the Company
may not adversely alter or change the rights, preferences or privileges of the
Series B Stock or increase
2
<PAGE> 3
the authorized number of authorized shares of Series B Stock without the
affirmative vote of the holders of a majority of the then-outstanding shares of
Series B Stock.
(b) AMENDMENTS TO RIGHTS AGREEMENT.
By unanimous written consent, Registrant's Board of Directors approved
two amendments to the Rights Agreement dated December 31, 1997 (the "Rights
Agreement"), as previously amended, by and between Registrant and American
Securities Transfer, Inc., as transfer agent, to allow (i) the purchase of
Series B Stock by Premier; and (ii) the merger with Premier, described below.
(c) SERIES B STOCK PURCHASE AGREEMENT.
As of August 31, 1999, the Company owed Premier approximately
$1,600,000, subject to a potential reduction by a $500,000 "Termination Fee,"
which the Company asserts is owed to it in connection with the termination of
the Stock Purchase Agreement between Premier and Company, dated February 25,
1998. A more detailed description of the Termination Fee is set forth in Item 6
of the Company's 10-KSB for year ended August 31, 1998, which was filed on
December 15, 1998 and is incorporated herein by reference.
As of October 21, 1999, the Company's employees, directors, consultants
and other related persons held options issued under the Company's non-qualified
stock option plans as well as under individual option grant agreements with the
Company to purchase approximately 1,495,000 shares of Company's common stock
("Outstanding Options"). Of those nearly 1,140,000 options were vested and
immediately exercisable at exercise prices ranging from $0.63 to $4.50 per
share.
On October 21, 1999, Premier and the Company entered into a Series B
Preferred Stock Purchase Agreement, pursuant to which Premier will purchase 50
shares of Series B Stock, in exchange for the cancellation of debt then held by
Premier in the amount of $25.00 per share of Series B Stock, whenever one or
more persons (other than three of the Company's outside directors) exercise
Outstanding Options to purchase, in the aggregate, 50,000 shares of Company
common stock.
As a result, Premier will retain a majority of the voting power of
Registrant's outstanding securities even if all of the Outstanding Options are
exercised.
(d) AGREEMENT.
On October 21, 1999, the Company, Premier and three of the Company's
outside directors entered into a stock purchase agreement pursuant to which
those exercising directors, each having exercised options to purchase 50,000
shares of common stock at an exercise price of $0.375 per share, each received
50,000 shares of restricted common stock.
The stock purchased by the exercising directors is subject to repurchase
by the Company until the earlier of May 9, 2000 and the closing date of the
Company's proposed merger with
3
<PAGE> 4
Premier, as defined by the Merger Agreement. Also, under the terms of this
agreement, Premier purchased 150 shares of Series B Stock in exchange for the
cancellation of debt then held by Premier in the amount of $25.00 per share of
Series B Stock. This 150 shares of Series B Stock is also restricted and subject
to repurchase by the Company if the Company repurchases any of the restricted
common stock purchased by the exercising directors.
(e) PREMIER MERGER AGREEMENT.
On October 21, 1999, the Company and Premier entered into an agreement
and plan of merger, whereby, upon requisite shareholder approval, Registrant
will become a wholly-owned subsidiary of Premier, with each share of
Registrant's common stock, other than any dissenting shares and any stock then
owned by Premier, converting into 0.80 shares of Premier Class A common stock.
Company shareholders will have dissenters' rights available to them
pursuant to California law. As part of the transaction, Premier will prepare and
file an S-4 registration statement.
Finally, in order to permit the acquisition by Premier and all other
actions contemplated by the Merger Agreement, the Board of Directors of the
Company, after considering the terms of the Merger Agreement and an opinion
rendered by the Company's independent financial advisors as to the fairness of
Premier's offer to the shareholders of the Company, amended the Company's Rights
Agreement (see above).
A copy of the Merger Agreement was filed as Exhibit 2.1 hereto. The
foregoing summary of the Merger Agreement and the terms of the acquisition
transaction are qualified in their entirety by reference to Exhibit 2.1 hereto.
ITEM 7. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
2.1 Agreement and Plan of Reorganization By and Among Premier Laser
Systems, Inc., Ophthalmic Acquisition Corporation and Ophthalmic
Imaging Systems, dated as of October 21, 1999
3.1 Certificate of Determination of Preferences of Series B Preferred
Stock of Ophthalmic Imaging Systems, filed October 18, 1999
4.1 Second Amendment to Rights Agreement, effective as of October 20,
1998, between Ophthalmic Imaging Systems and American Securities
Transfer, Inc.
4.2 Series B Preferred Stock Purchase Agreement, dated as of October 21,
1999, by and between the Company and Premier
4.3 Agreement, dated October 21, 1999, by and among the Company, Premier
and three outside directors of the Company
</TABLE>
4
<PAGE> 5
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.
OPHTHALMIC IMAGING SYSTEMS
Date 11/22/99 By /s/ STEVEN R. VERDOONER
--------------------------------------
Steven R. Verdooner,
Chief Executive Officer and President
5
<PAGE> 6
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
2.1 Agreement and Plan of Reorganization By and Among Premier Laser
Systems, Inc., Ophthalmic Acquisition Corporation and Ophthalmic
Imaging Systems, dated as of October 21, 1999
3.1 Certificate of Determination of Preferences of Series B Preferred
Stock of Ophthalmic Imaging Systems, filed October 18, 1999
4.1 Second Amendment to Rights Agreement, effective as of October 20,
1998, between Ophthalmic Imaging Systems and American Securities
Transfer, Inc.
4.2 Series B Preferred Stock Purchase Agreement, dated as of October 21,
1999, by and between the Company and Premier
4.3 Agreement, dated October 21, 1999, by and among the Company, Premier
and three outside directors of the Company
</TABLE>
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PREMIER LASER SYSTEMS, INC.
OPHTHALMIC ACQUISITION CORPORATION
AND
OPHTHALMIC IMAGING SYSTEMS
OCTOBER 21, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE MERGER....................................................................1
1.1 The Merger.............................................................................1
1.2 Closing; Effective Time................................................................2
1.3 Effect of the Merger...................................................................2
1.4 Articles of Incorporation; Bylaws......................................................2
1.5 Directors and Officers.................................................................2
1.6 Effect on Capital Stock................................................................3
(a) Conversion of Target Common Stock.............................................3
(b) Cancellation of Target Common Stock Owned by Acquiror or Target...............3
(c) Cancellation of Series B Preferred Stock......................................3
(d) Target Stock Option Plans.....................................................3
(e) Capital Stock of Merger Sub...................................................4
(f) Adjustments to Exchange Ratio.................................................4
(g) Dissenting Shares.............................................................4
(h) Fractional Shares.............................................................4
1.7 Surrender of Certificates..............................................................5
(a) Exchange Agent................................................................5
(b) Acquiror to Provide Common Stock..............................................5
(c) Exchange Procedures...........................................................5
(d) Distributions With Respect to Unexchanged Shares..............................5
(e) Transfers of Ownership........................................................6
(f) No Liability..................................................................6
1.8 No Further Ownership Rights in Target Common Stock.....................................6
1.9 Lost, Stolen or Destroyed Certificates.................................................6
1.10 Tax Consequences.......................................................................7
1.11 Taking of Necessary Action; Further Action.............................................7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET......................................7
2.1 Organization, and Qualification; No Subsidiaries.......................................7
2.2 Capitalization.........................................................................8
2.3 Authority Relative to this Agreement...................................................9
2.4 No Violation...........................................................................9
2.5 SEC Reports and Financial Statements..................................................10
2.6 Compliance with Applicable Laws and Permits; Regulatory Matters.......................11
2.7 Change of Control.....................................................................11
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
2.8 Litigation............................................................................12
2.9 Registration Statement; Proxy Statement/Prospectus....................................12
2.10 Employee Benefit Plans................................................................13
2.11 Taxes.................................................................................15
2.12 Intellectual Property.................................................................16
2.13 Contracts.............................................................................18
2.14 Vote Required.........................................................................19
2.15 Absence of Certain Changes............................................................19
2.16 Rights Plan...........................................................................19
2.17 Brokers' and Finders' Fees............................................................20
2.18 Opinion of Financial Advisor..........................................................20
2.19 Restrictions on Business Activities...................................................20
2.20 Title to Property.....................................................................20
2.21 Environmental Matters.................................................................21
2.22 Certain Agreements Affected by the Merger.............................................21
2.23 Employee Matters......................................................................21
2.24 Interested Party Transactions.........................................................22
2.25 Insurance.............................................................................22
2.26 Minute Books..........................................................................23
2.27 Complete Copies of Materials..........................................................23
2.28 Board Approval........................................................................23
2.29 State Anti-Takeover Statutes..........................................................23
2.30 Inventory.............................................................................23
2.31 Accounts Receivable...................................................................23
2.32 Customers and Suppliers...............................................................24
2.33 YEAR 2000.............................................................................24
2.34 Series B Preferred Stock Purchase Agreement...........................................24
2.35 Exercise of Stock Options.............................................................25
2.36 Representations Complete..............................................................25
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR
AND MERGER SUB...............................................................25
3.1 Organization and Qualification........................................................25
3.2 Authority Relative to this Agreement..................................................26
3.3 No Violation..........................................................................26
3.4 Registration Statement; Proxy Statement/Prospectus....................................27
3.5 SEC Reports and Financial Statements..................................................27
3.6 Absence of Certain Changes............................................................28
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.7 Litigation............................................................................29
3.8 Governmental Authorization............................................................29
3.9 Compliance With Laws..................................................................29
3.10 Broker's and Finders' Fees............................................................30
3.11 Board Approval........................................................................30
3.12 YEAR 2000.............................................................................30
3.13 Representations Complete..............................................................30
3.14 Capital Structure.....................................................................31
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME..........................................31
4.1 Conduct of Business of Target and Acquiror............................................31
4.2 Conduct of Business of Target.........................................................31
4.3 Conduct of Business of Acquiror.......................................................35
4.4 No Solicitation.......................................................................36
4.5 Conduct of Acquiror...................................................................37
4.6 Performance of Manufacturing Agreement................................................37
ARTICLE V ADDITIONAL AGREEMENTS........................................................38
5.1 Proxy Statement/Prospectus; Registration Statement....................................38
5.2 Meeting of Shareholders...............................................................38
5.3 Access to Information.................................................................38
5.4 Confidentiality.......................................................................39
5.5 Public Disclosure.....................................................................39
5.6 Consents; Cooperation.................................................................39
5.7 Merger Filings........................................................................41
5.8 Legal Requirements....................................................................41
5.9 Blue Sky Laws.........................................................................41
5.10 Assumed Options.......................................................................41
5.11 Letter of Acquiror's and Target's Accountants.........................................42
5.12 Form S-8..............................................................................42
5.13 Listing of Additional Shares..........................................................42
5.14 Fairness Opinion......................................................................42
5.15 Determination Letter..................................................................43
5.16 Target Rights Agreement...............................................................43
5.17 Indemnification.......................................................................43
5.18 Best Efforts and Further Assurances...................................................44
5.19 Employment by Acquiror................................................................45
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VI CONDITIONS TO THE MERGER.....................................................45
6.1 Conditions to Obligations of Each Party to Effect the Merger..........................45
6.2 Additional Conditions to Obligations of Target........................................46
6.3 Additional Conditions to the Obligations of Acquiror and Merger Sub...................47
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER............................................48
7.1 Termination...........................................................................48
7.2 Effect of Termination.................................................................49
7.3 Expenses and Termination Fees; Definitions............................................49
7.4 Amendment.............................................................................49
7.5 Extension; Waiver.....................................................................50
ARTICLE VIII GENERAL PROVISIONS....................................................................50
8.1 Non-Survival at Effective Time........................................................50
8.2 Notices...............................................................................50
8.3 Interpretation........................................................................51
8.4 Counterparts..........................................................................51
8.5 Entire Agreement; Nonassignability; Parties in Interest...............................52
8.6 Severability..........................................................................52
8.7 Remedies Cumulative...................................................................52
8.8 Governing Law.........................................................................52
8.9 Rules of Construction.................................................................52
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<S> <C>
Target Disclosure Schedule
Section 1.6(d) - Effect on Capital Stock
Section 1.6(d) - Employee Benefit Plans
Section 2.5 - SEC Reports and Financial Statements
Section 2.6 - Compliance with Applicable Laws and Permits;
Regulatory Matters
Section 2.10(a)/(b) - Employee Benefit Plans
Section 2.10(d) - Employee Benefit Plans
Section 2.11 - Taxes
Section 2.12(b) - Intellectual Property (Marks)
Section 2.12(c) - Intellectual Property (Owned Patents)
Section 2.12(e) - Intellectual Property (Trade Secrets)
Section 2.12(f) - Intellectual Property (Software)
Section 2.12(g) - Intellectual Property (Infringement)
Section 2.14 - Conduct of Business of Target (Employee
Benefit Plans; New Hires; Pay Increases)
Section 2.15 - Absence of Certain Changes
Section 2.20 - Title to Property
Section 2.22 - Certain Agreements Affected by the Merger
Section 2.25 - Insurance
Section 5.10 - Assumed Options
Acquiror Disclosure Schedule
Section 3.5 - SEC Reports and Financial Statements
Section 3.9 - Compliance With Laws
Exhibits
Exhibit A - Agreement of Merger
Exhibit B - Merger Sub Officer's Certificate
Exhibit C - Target Officer's Certificate
</TABLE>
-v-
<PAGE> 7
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of October 21, 1999, by and among Premier Laser Systems, Inc., a
California corporation ("Acquiror"), Ophthalmic Acquisition Corporation, a
California corporation ("Merger Sub") and wholly-owned subsidiary of Acquiror,
and Ophthalmic Imaging Systems, a California corporation ("Target").
RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub have
approved the statutory merger of Merger Sub with and into Target (the "Merger")
subject to approval of a majority of the minority shareholders of Target.
B. Pursuant to the Merger, among other things, the outstanding shares of
Target Common Stock, no par value ("Target Common Stock"), shall be converted
into shares of Acquiror Class A Common Stock, no par value ("Acquiror Common
Stock"), at the exchange ratio set forth herein.
C. Target, Acquiror and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a)(1)(B) of the Code.
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the Agreement of
Merger attached hereto as EXHIBIT A (the "Agreement of Merger") and the
applicable provisions of the California Corporations Code ("California Law"),
-1-
<PAGE> 8
Merger Sub shall be merged with and into Target, the separate corporate
existence of Merger Sub shall cease and Target shall continue as the surviving
corporation. Target as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
1.2 CLOSING; EFFECTIVE TIME. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in Article
VI hereof or at such other time as the parties hereto agree (the "Closing
Date"). The Closing shall take place at the offices of Paul, Hastings, Janofsky
& Walker LLP, Seventeenth Floor, 695 Town Center Drive, Costa Mesa, California
92626, or at such other location as the parties hereto agree. In connection with
the Closing, the parties hereto shall cause the Merger to be consummated by
filing (a) the Agreement of Merger, (b) an officer's certificate on behalf of
Merger Sub in the form of EXHIBIT B (the "Merger Sub Officer's Certificate"),
and (c) an officer's certificate on behalf of Target in the form of EXHIBIT C
(the "Target Officer's Certificate" and together with the Merger Sub Officer's
Certificate, the "Officer's Certificates") with the Secretary of State of the
State of California, in accordance with the relevant provisions of California
Law (the time of such filing being the "Effective Time").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Agreement of Merger and the
applicable provisions of California Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Target and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Target and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 ARTICLES OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the articles of incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
articles of incorporation of the Surviving Corporation until thereafter amended
as provided by California Law and such articles of incorporation; provided,
however, Article I of such articles of incorporation shall be amended to read as
follows: "The name of the corporation is Ophthalmic Imaging Systems."
(b) The bylaws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the bylaws of the Surviving Corporation until
thereafter amended.
1.5 DIRECTORS AND OFFICERS. At the Effective Time, the directors of the
Surviving Corporation shall be Colette Cozean, Tom Hazen and Robert V. Mahoney.
The initial officers of the Surviving Corporation shall be the officers of
Merger Sub until their respective successors are duly elected or appointed and
qualified.
-2-
<PAGE> 9
1.6 EFFECT ON CAPITAL STOCK. By virtue of the Merger and without any
action on the part of Merger Sub, Target or the holders of any of the following
securities:
(a) CONVERSION OF TARGET COMMON STOCK. At the Effective Time,
each share of Target Common Stock issued and outstanding immediately prior to
the Effective Time together with the corresponding Right (as defined in the
Rights Agreement dated as of December 31, 1997, as amended, the "Target Rights
Agreement"), between Target and American Securities Transfer, Inc. (other than
(i) Dissenting Shares and (ii) any shares of Target Common Stock to be canceled
pursuant to Section 1.6(b)) will be canceled and extinguished and be converted
automatically into the right to receive 0.80 shares of Acquiror Common Stock
(the "Exchange Ratio").
(b) CANCELLATION OF TARGET COMMON STOCK OWNED BY ACQUIROR OR
TARGET. At the Effective Time, all shares of Target Common Stock that are owned
by Acquiror or any direct or indirect wholly owned subsidiary of Acquiror or of
Target immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) CANCELLATION OF SERIES B PREFERRED STOCK. At the Effective
Time, all shares of Series B Preferred Stock (as defined at Section 2.2) that
are owned by Acquiror, if any, immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(d) TARGET STOCK OPTION PLANS. At the Effective Time, all
outstanding options to purchase Target Common Stock ("Target Options") issued
pursuant to (i) those certain stock option agreements set forth on SECTION
1.6(d) of the Target Disclosure Schedule; and (ii) Target's 1997 Nonstatutory
Stock Option Plan, shall be assumed by Acquiror (the "Assumed Options"). Each
Assumed Option shall continue to have, and be subject to, the same terms and
conditions set forth in Target's 1997 Nonstatutory Stock Option Plan and the
applicable stock option agreements, immediately prior to the Effective Time,
except that (i) such options will be exercisable for that number of whole shares
of Acquiror Common Stock equal to the product of the number of shares of Target
Common Stock that were issuable upon exercise of such option (assuming
acceleration of vesting) multiplied by the Exchange Ratio and, in the case of
fractional shares, such number shall be rounded down to the nearest whole share
of Acquiror Common Stock unless such fractional share is 0.5 of a share or
above, in which case such number shall be rounded up to the nearest whole share
of Acquiror Common Stock, and (ii) the per share exercise price for the shares
of Acquiror Common Stock issuable upon exercise of the Assumed Option will be
equal to the quotient determined by dividing the exercise price per share of
Target Common Stock at which such Assumed Option was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded to the nearest whole
cent. Target Options that are not Assumed Options shall terminate upon the
Effective Time in accordance with the terms of the option plans pursuant to
which such options were issued.
-3-
<PAGE> 10
(e) CAPITAL STOCK OF MERGER SUB. At the Effective Time, each
share of Common Stock, no par value, of Merger Sub ("Merger Sub Common Stock")
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, no par value, of the Surviving Corporation,
and the Surviving Corporation shall be a wholly-owned subsidiary of Acquiror.
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.
(f) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Acquiror Common Stock or Target Common Stock), reorganization, recapitalization
or other like change with respect to Acquiror Common Stock or Target Common
Stock occurring after the date hereof and prior to the Effective Time.
(g) DISSENTING SHARES. Shares of Target Common Stock held by a
shareholder who has properly exercised dissenters' rights with respect thereto
(collectively, the "Dissenting Shares") in accordance with Section 1300, et seq.
of the California Law (the "Dissenters Law") shall not be converted into
Acquiror Common Stock. A shareholder who has properly exercised such dissenters'
rights shall no longer retain any rights of a shareholder of Target or the
Surviving Corporation, except those provided under the California Law. Target
shall give Acquiror (i) prompt notice of any written demands under the
Dissenters Law with respect to any shares of Target Common Stock, any withdrawal
of any such demands and any other instruments served pursuant to the Dissenters
Law and received by Target, and (ii) the right to participate in all
negotiations and proceedings with respect to any demands under the Dissenters
Law with respect to any shares of Target Common Stock. Target shall cooperate
with Acquiror concerning, and shall not, except with the prior written consent
of Acquiror, voluntarily make any payment with respect to, or offer to settle or
settle, any such demands.
(h) FRACTIONAL SHARES. No fraction of a share of Acquiror Common
Stock will be issued. The number of shares of Acquiror Common Stock awardable
hereunder (after aggregating all fractional shares of Acquiror Common Stock
resulting from the application of the Exchange Ratio) shall be rounded down to
the nearest whole share of Acquiror Common Stock, unless such fraction is .5 or
more, in which case the number of shares of Acquiror Common Stock awardable
shall be rounded up to the nearest whole share of Acquiror Common Stock.
-4-
<PAGE> 11
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. American Stock Transfer & Trust Company
shall act as exchange agent (the "Exchange Agent") in the Merger.
(b) ACQUIROR TO PROVIDE COMMON STOCK. Promptly after the
Effective Time, Acquiror shall make available to the Exchange Agent for exchange
in accordance with this Article I, through such reasonable procedures as
Acquiror may adopt, the shares of Acquiror Common Stock issuable pursuant to
Section 1.6(a) in exchange for shares of Target Common Stock outstanding
immediately prior to the Effective Time.
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Target Common Stock, whose
shares were converted into the right to receive shares of Acquiror Common Stock
pursuant to Section 1.6, (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 receipt of the Certificates by the Exchange Agent, and shall be
in such form and have such other provisions as Acquiror may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Acquiror Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Acquiror, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Acquiror Common Stock which such holder has the right to receive
pursuant to Section 1.6, and the Certificate so surrendered shall forthwith be
canceled. Until so surrendered, each outstanding Certificate that, prior to the
Effective Time, represented shares of Target Common Stock will be deemed from
and after the Effective Time, for all corporate purposes, other than the payment
of dividends, to evidence the ownership of the number of full shares of Acquiror
Common Stock into which such shares of Target Common Stock shall have been so
converted in accordance with Section 1.6.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Acquiror Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Acquiror Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Acquiror Common Stock issued in
exchange therefor, without interest, at the time of such surrender, the amount
of any such dividends or other distributions with a record date after the
Effective Time theretofore payable (but for the provisions of this Section
1.7(d)) with respect to such shares of Acquiror Common Stock.
-5-
<PAGE> 12
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of
Acquiror Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Acquiror or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of Acquiror Common Stock in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of Acquiror or any agent designated by it that such tax has been
paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in
this Section 1.7, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to any person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
1.8 NO FURTHER OWNERSHIP RIGHTS IN TARGET COMMON STOCK. All shares of
Acquiror Common Stock issued upon the surrender for exchange of shares of Target
Common Stock in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of Target
Common Stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of Target Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of
Acquiror Common Stock as may be required pursuant to Section 1.6; provided,
however, that Acquiror may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Acquiror, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
-6-
<PAGE> 13
1.10 TAX CONSEQUENCES. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code.
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Target and Merger Sub, the officers and directors of Target
and Merger Sub are fully authorized in the name of their respective corporations
or otherwise to take, and will take, all such lawful and necessary action, so
long as such action is not inconsistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET
In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any person means any material event,
change, condition or effect related to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of such person and its subsidiaries, taken
as a whole. In this Agreement, any reference to a "Material Adverse Effect" with
respect to any person means any event, change or effect that is materially
adverse to the condition (financial or otherwise), properties, assets,
liabilities, business, operations or results of operations of such person and
its subsidiaries, taken as a whole. In this Agreement, any reference to a
party's "knowledge" means such party's actual knowledge after reasonable inquiry
of officers and directors of such party charged with senior administrative or
operational responsibility for such matters. No representation or warranty is
made by Target with respect to Acquiror in its capacity as a shareholder, or to
its contracts and other relationships with Acquiror. Except as disclosed in that
section of the document of even date herewith delivered by Target to Acquiror
prior to the execution and delivery of this Agreement (the "Target Disclosure
Schedule") corresponding to the Section of this Agreement to which any of the
following representations and warranties specifically relate or as disclosed in
another section of the Target Disclosure Schedule if it is reasonably apparent
on the face of the disclosure that it is applicable to another Section of this
Agreement, Target represents and warrants to Acquiror and Merger Sub as follows:
2.1 ORGANIZATION, AND QUALIFICATION; NO SUBSIDIARIES. Target is a
corporation duly organized, validly existing and in good standing under the laws
of the state of California and is in good standing as a foreign corporation in
each jurisdiction where the properties owned, leased or operated, or the
business conducted, by it require such qualification, except where failure to be
in good standing or to so qualify would not have a Material Adverse Effect on
Target. Target 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 have such
power, or authority and governmental approvals would not, individually or in the
-7-
<PAGE> 14
aggregate, have a Material Adverse Effect. Target has heretofore made available
to Acquiror a complete and correct copy of its Restated Articles of
Incorporation (including all Certificates of Determination) and Bylaws, each as
amended to the date hereof (the "Articles of Incorporation" and "Bylaws",
respectively). Such Articles of Incorporation, Bylaws and equivalent
organizational documents are in full force and effect. Target is not in
violation of any provision of its Articles of Incorporation, Bylaws, or
equivalent organizational documents. Target does not have any subsidiaries.
2.2 CAPITALIZATION. The authorized capital stock of Target consists of
20,000,000 shares of Target Common Stock and 20,000,000 shares of preferred
stock ("Preferred Stock"), 100,000 shares of which are designated Series A
Junior Participating Preferred Stock, no par value ("Junior Preferred Stock")
and 2,000 shares of which are designated Series B Preferred Stock, no par value
(the "Series B Preferred Stock"). As of the close of business on October 21,
1999, 4,305,428 shares of Target Common Stock were issued and outstanding.
Target has no shares of Preferred Stock issued and outstanding. As of the date
hereof, except for (i) 1,494,972 shares of Target Common Stock reserved for
issuance pursuant to outstanding Target Options, (ii) 2,000 shares of Target
Common Stock reserved for issuance pursuant to the potential conversion of the
Series B Preferred Stock, and (iii) 100,000 shares of Junior Preferred Stock
reserved for issuance upon exercise of the Rights, there are not now, and at the
Effective Time there will not be, any existing options, warrants, calls,
subscriptions, or other rights, or other agreements or commitments, obligating
Target to issue, transfer or sell any shares of capital stock of Target or
bonds, debentures, notes or other indebtedness having general voting rights (or
convertible into securities having such rights) of, or other equity interest in,
Target or securities convertible into or exchangeable for such shares or equity
interest or obligating Target to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement, arrangement or
commitment. Since May 31, 1999, Target has not issued any shares of its capital
stock, except pursuant to Target Options outstanding on such date. All issued
and outstanding shares of Target Common Stock are and all shares of Target
Common Stock which may be issued pursuant to the exercise of outstanding Target
Options will be, when issued in accordance with the respective terms thereof,
duly authorized and validly issued, fully paid and nonassessable, and such
issuance will not violate any preemptive rights under law or otherwise. There
are no outstanding contractual obligations of Target to repurchase, redeem or
otherwise acquire any shares of Target Common Stock or the capital stock of
Target.
2.3 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) Target has the requisite corporate power and authority to
execute and deliver this Agreement and, to the extent required by applicable law
or Target's Articles of Incorporation, subject only to the approval and adoption
of the Merger by the shareholders of Target as contemplated by Section 6.1(a) to
-8-
<PAGE> 15
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Target and the consummation by Target of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Target, subject, in the case of the Merger, to
the approval thereof by the shareholders of Target. This Agreement has been duly
and validly executed and delivered by Target, and, assuming this Agreement
constitutes a valid and binding obligation of Acquiror and Merger Sub, this
Agreement constitutes a valid and binding agreement of Target, enforceable
against Target in accordance with its terms (except in all cases as such
enforceability may be limited to applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the enforcement of
creditor's rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of any court before which any proceeding may be brought).
(b) Other than in connection with, or in compliance with, the
provisions of California Law with respect to the transactions contemplated
hereby, the federal securities laws, the securities laws of the various states,
the rules of the National Association of Securities Dealers and other than
notices to or filings with the Internal Revenue Service or the Pension Benefit
Guaranty Corporation with respect to employee benefit plans, or under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), no authorization, consent or approval of, or filing with, any
Governmental Entity (as hereinafter defined) is necessary for the consummation
by Target of the transactions contemplated by this Agreement other than
authorizations, consents and approvals the failure to obtain, or filings the
failure to make, which would not, individually or in the aggregate, have a
Material Adverse Effect on Target. As used in this Agreement, the term
"Governmental Entity" means any government or subdivision thereof, domestic,
foreign or supranational or any administrative, governmental or regulatory
authority, agency, commission, tribunal or body, domestic, foreign or
supranational.
2.4 NO VIOLATION. Neither the execution or delivery of this Agreement by
Target nor the consummation by Target of the transactions contemplated hereby
will (i) constitute a breach or violation of any provision of the Articles of
Incorporation or Bylaws of Target, (ii) constitute a breach, violation or
default (or any event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in the creation of any lien or encumbrance
upon any material property or asset of Target under, any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument to which
Target, or by which it or any of its properties or assets, are bound, or (iii)
subject to the receipt of the requisite consents, approvals, or authorizations
-9-
<PAGE> 16
of, or filings with Governmental Entities under federal securities laws,
applicable corporate and securities laws, the rules of The Nasdaq Stock Market,
Inc. and the National Association of Securities Dealers, and laws relating to
employee benefit plans, conflict with or violate any order, judgment or decree,
or to the knowledge of Target, any statute, ordinance, rule or regulation
applicable to Target, or by which it or any of its properties or assets may be
bound or affected, other than, in the case of the foregoing clauses (ii) or
(iii), conflicts, breaches, violations, defaults, terminations, accelerations or
creation of liens and encumbrances which, individually or in the aggregate,
would not have a Material Adverse Effect on Target.
2.5 SEC REPORTS AND FINANCIAL STATEMENTS. Target has filed with the
Securities and Exchange Commission ("SEC"), and has made available to Acquiror,
copies of all forms, reports and documents ("Target SEC Documents") required to
be filed by it since September 1, 1995 under the Securities Act of 1933, as
amended (the "Securities Act") or the Exchange Act of 1934, as amended (the
"Exchange Act"). None of such Target SEC Documents (as of their respective
filing dates) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading (except any statement or omission therein which has been
corrected or otherwise disclosed or updated in a subsequent Target SEC
Document). The audited and unaudited consolidated financial statements of Target
included in any Target SEC Document on Form 10-QSB or Form 10-KSB (the "Target
Financial Statements") have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as otherwise stated
in such financial statements, including the related notes or, in the case of
unaudited statements, as permitted by Form 10-QSB of the SEC rules), comply as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto and fairly
present the financial position of Target as of the dates thereof and the results
of its operations and changes in financial position for the periods then ended,
subject, in the case of the unaudited financial statements, to year-end audit
adjustments, and except for the absence of certain footnote information in the
unaudited statements. Target does not have any material liabilities or
obligations of any nature (whether absolute, accrued, contingent, unmatured,
unaccrued, unliquidated, unasserted, conditional or otherwise), except for
liabilities or obligations (i) reflected or reserved against on the balance
sheet as at May 31, 1999 (including the notes thereto and the other disclosures
made in Target's Form 10-QSB for the quarter ended May 31, 1999) (the "Target
Balance Sheet") included in the Target SEC Documents, or (ii) incurred in the
ordinary course of business consistent with past practice since such date. The
reserves disclosed in Target SEC Documents as of the Target Balance Sheet Date
and in any subsequently filed Target SEC Documents are sufficient to provide for
Target's warranty obligations.
-10-
<PAGE> 17
2.6 COMPLIANCE WITH APPLICABLE LAWS AND PERMITS; REGULATORY MATTERS. To
the knowledge of Target, it has in effect and holds all permits, licenses,
orders, authorizations, registrations, approvals and other analogous
instruments, and Target has made all filings and registrations and the like
necessary or required by law to conduct its business as presently conducted,
other than such permits, licenses, orders, authorizations, registrations,
approvals, and other instruments, the absence of which do not have a Material
Adverse Effect on Target. Target has not received any written governmental
notices within two years of the date hereof of any violation by Target of any
such laws, rules, regulations or orders. Except as disclosed at Section 2.6 of
the Target Disclosure Schedule or where the failure to comply would not have a
Material Adverse Effect on Target, to the knowledge of Target, Target is not in
default or noncompliance under any (a) permits, consents, or similar
instruments, and (b) the business and local and county laws, ordinances,
regulations, judgments, orders, decrees or rules of any court, arbitrator or
governmental, regulatory or administrative agency or entity, other than such
default or noncompliance which is not reasonably likely to have a Material
Adverse Effect on Target. Without limiting the generality of the foregoing, all
of the products presently marketed by Target have been approved or cleared to
market pursuant to valid and subsisting Premarket Approvals or Section 510(k)
Clearances issued by the United States Food and Drug Administration ("FDA").
Target has never conducted any clinical trials which have required
Investigational Device Exemptions (IDE's). No written notification has been
furnished to Target of any medical complications arising in connection with or
resulting from clinical trials conducted by Target either directly or under its
direction, or from the use of its products following FDA approval or clearance.
Target has not received any written complaint nor has Steven Verdooner, during
the past six months, been made aware of any oral complaint made with respect to
such procedures and no Medical Device Reports have been filed by Target or have
been required to be filed. The design, manufacture and distribution of all of
Target products, to the extent required, has been conducted, and shall continue
through the Effective Date to be conducted, substantially in accordance with
"good manufacturing practices" as required by the FDA.
2.7 CHANGE OF CONTROL. Except as provided by the terms of any Target
Stock Option Plan, or any Target Options, transactions contemplated by this
Agreement will not constitute a "change of control" under, require the consent
from or the giving of notice to a third party pursuant to, permit a third party
to terminate or accelerate vesting or repurchase rights, or create any other
detriment under the terms, conditions or provisions of any material note, bond,
mortgage, indenture, license, lease, contract, agreement or other instrument or
obligation to which Target is a party or by which it or any of its properties or
assets may be bound, except where the adverse consequences resulting from such
change of control or where the failure to obtain such consents or provide such
notices would not, individually or in the aggregate, reasonably be expect to
have a Material Adverse Effect on Target.
-11-
<PAGE> 18
2.8 LITIGATION. Except as disclosed in the Target Disclosure Schedule,
in a Target SEC Document or otherwise fully covered by insurance, there is no
suit, claim, action, proceeding or investigation pending or, to the knowledge of
Target, threatened, against Target, individually or in the aggregate, which
would have a Material Adverse Effect on Target or would reasonably be expected
to prevent or materially delay the consummation of the transactions contemplated
by this Agreement. Except as disclosed in the Target SEC Documents filed prior
to the date of this Agreement, Target is not subject to any outstanding order,
writ, injunction or decree which, individually or in the aggregate, would have a
Material Adverse Effect on Target or would reasonably be expected to prevent or
materially delay the consummation of the transactions contemplated hereby.
2.9 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The information
supplied by Target for inclusion in the registration statement on Form S-4 (or
such other or successor form as shall be appropriate) pursuant to which the
shares of Acquiror Common Stock to be issued in the Merger will be registered
with the SEC (the "Registration Statement") shall not at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC 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. The information supplied by Target for inclusion
in the proxy statement/prospectus to be sent to the shareholders of Target in
connection with the meeting of Target's shareholders to consider the Merger (the
"Target Shareholders Meeting") (such proxy statement/prospectus as amended or
supplemented is referred to herein as the "Proxy Statement") shall not, on the
date the Proxy Statement is first mailed to Target's shareholders, at the time
of the Target Shareholders Meeting and at the Effective Time, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Target Shareholders Meeting which has become
false or misleading. If at any time prior to the Effective Time any event or
information should be discovered by Target which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy Statement,
Target shall promptly inform Acquiror and Merger Sub. Notwithstanding the
foregoing, Target makes no representation, warranty or covenant with respect to
any information supplied by or respecting Acquiror or Merger Sub (other than
information with respect to Target) which is contained in any of the foregoing
documents.
-12-
<PAGE> 19
2.10 EMPLOYEE BENEFIT PLANS.
(a) SECTION 2.10(a)/(b) of the Target Disclosure Schedule
includes a complete list of all material employee benefit plans and programs
providing benefits to any employee or former employee of Target sponsored or
maintained by Target or to which Target contributes or is obligated to
contribute ("Plans") and all written employment, severance, consulting and other
compensation contracts between Target and any current or former director,
officer, employee or consultant thereof ("Employment Contracts"). Target is not
party to any oral Employment Contracts that are not terminable at will. Without
limiting the generality of the foregoing, the term "Plans" includes all employee
welfare benefit plans within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended, and the regulations
thereunder ("ERISA"), and all employee pension benefit plans within the meaning
of Section 3(2) of ERISA.
(b) With respect to each Plan, Target has made available to
Acquiror a true, correct and complete copy of: (i) all plan documents, benefit
schedules, trust agreements, and insurance contracts and other funding vehicles;
(ii) the most recent Annual Report (Form 5500 Series) and accompanying schedule,
if any; (iii) the current summary plan description, if any; (iv) the most recent
annual financial report, if any; (v) the most recent actuarial report, if any;
(vi) the most recent determination letter from the United States Internal
Revenue Service (the "IRS"), if any; and (vii) each Employment Contract.
(c) Except as set forth in SECTION 2.10(d) of the Target
Disclosure Schedule, all Plans are in compliance, in all material respects with
all applicable provisions of ERISA, the Code and all laws and regulations
applicable to the Plans. With respect to each Plan that is intended to be a
"qualified plan" within the meaning of Section 401(a) of the Code ("Qualified
Plans"), the IRS has issued a favorable determination letter.
(d) Except as set forth in SECTION 2.10(d) of the Target
Disclosure Schedule, all contributions required to be made by Target to any Plan
under applicable law or regulation or by any plan document or other contractual
undertaking, and all premiums due or payable with respect to insurance policies
funding any Plan, have been timely made or paid in full or, to the extent not
required to be made or paid, have been fully reflected in the financial
statements of Target included in the Target SEC Documents to the extent required
under generally accepted accounting principles.
(e) No Plan is subject to Title IV or Section 302 of ERISA or
Section 412 or 4971 of the Code. Without limiting the generality of the
foregoing, no Plan is a "multi-employer plan" within the meaning of Section
4001(a)(3) of ERISA (a "Multi-Employer Plan") or a plan that has two or more
contributing sponsors at least two of whom are not under common control, within
the meaning of Section 4063 of ERISA and which is subject to Title IV of ERISA
(a "Multiple Employer Plan").
-13-
<PAGE> 20
(f) There does not now exist, nor do any circumstances exist
that would reasonably be expected to result in, any liability under (i) Title IV
of ERISA, (ii) Section 302 of ERISA, (iii) Sections 412 and 4971 of the Code,
(iv) the continuation coverage requirements of Section 601 et seq. of ERISA and
Section 4980B of the Code, or (v) corresponding or similar provisions of foreign
laws or regulations, other than a liability that arises solely out of, or relate
solely to, the Plans, that would be a liability of Target following the
Effective Time. Without limiting the generality of the foregoing, (i) neither of
Target nor any ERISA Affiliate of Target has engaged in any transaction
described in Section 4069 or Section 4204 or 4212 of ERISA, (ii) no liability
under Title IV or a violation of Section 302 of ERISA has been incurred by
Target that has not been satisfied in full, and Target is not aware of any
condition that exists that presents a material risk to Target of incurring any
such liability, other than liability for premiums due to the Pension Benefit
Guaranty Corporation (which premiums have been paid when due) and for
contributions due to a pension plan (for which a contribution has been paid
through the end of 1998), and (iii) no Plan or any trust established thereunder
has incurred any "accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, as of the last day of
the most recent fiscal year of each Plan ended prior to the Effective Date. An
"ERISA Affiliate" means any entity, trade or business that is a member of a
group described in Section 414(b), (c), (m) or (o) of the Code or Section
4001(b)(1) of ERISA that includes Target, or that is a member of the same
"controlled group" as Target, pursuant to Section 4001(a)(14) of ERISA.
(g) To the knowledge of Target, there are no pending, threatened
or anticipated claims by or on behalf of any Plan, by any employee or
beneficiary covered under any such Plan, or otherwise involving any such Plan
(other than routine claims for benefits).
(h) With respect to each Plan, Target has complied except to the
extent that such failure to comply would not, individually or in the aggregate,
have a Material Adverse Effect on Target, with (i) the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and the regulations (including proposed
regulations) thereunder, (ii) the applicable requirements of the Family Medical
and Leave Act of 1993 and the regulations thereunder, and (iii) the applicable
requirements of the Health Insurance Portability and Accountability Act of 1996
and the regulations (including proposed regulations) thereunder.
-14-
<PAGE> 21
2.11 TAXES.
(a) Except a set forth in SECTION 2.11 of the Target Disclosure
Schedule, Target has (i) timely filed all income Tax Returns (as hereinafter
defined), and all other material Tax Returns required to be filed by or with
respect to it, or requests for extensions have been filed, granted, and have not
expired, for the periods ending on or after December 31, 1996, and on or before
the date of the most recent fiscal year and immediately preceding the date
hereof, and to the knowledge of Target all such Tax Returns are true, correct
and complete in all material respects, and (ii) to the knowledge of Target, all
Taxes (as hereinafter defined) shown as due and payable on such Tax Returns have
been paid, and (iii) made adequate provision in Target's financial statements
for payment of all Taxes anticipated to be payable in respect of all taxable
periods or portions thereof ending on or before the date hereof, except where
the failures to so file or pay or make adequate provision would not,
individually or in the aggregate, have a Material Adverse Effect on Target.
There are no outstanding agreements or waivers extending the statutory period of
limitation applicable to any Tax Return of Target. Target (i) has not been a
member of a group filing consolidated returns for federal income tax purposes,
or (ii) is not a party to a Tax sharing or Tax indemnity agreement or any other
agreement of a similar nature that remains in effect. There is no audit
examination, deficiency, refund litigation, proposed adjustment or matter in
controversy with respect to any Taxes due and owing by Target which would,
individually or in the aggregate, have a Material Adverse Effect on Target.
There are no Tax liens upon any of the assets or property of Target, except
liens for current Taxes not yet due and payable. Target has provided Acquiror
with written schedules with respect to income taxes of (i) the taxable years of
Target as to which the statutes of limitations with respect to Taxes have not
expired and (ii) with respect to such taxable years, those years for which
examinations have been completed, those years for which examinations are
presently being conducted, those years for which examinations have not been
initiated and those years for which required Tax Returns have not yet been
filed.
(b) For purposes of this Agreement, the term "Taxes" means all
taxes, levies or other assessments, including, without limitation, income, gross
receipts, escheat, excise, property, sales, license, payroll, withholding and
franchise taxes, imposed by the United States or any state or local government
or subdivision or agency thereof, including any interest, penalties or additions
thereto. For purposes of this Agreement, the term "Tax Return" means any report,
return or other information or document required to be supplied to a taxing
authority in connection with Taxes.
-15-
<PAGE> 22
2.12 INTELLECTUAL PROPERTY.
(a) Certain Definitions. When used in this Section 2.12, the
term "Intellectual Property Rights" shall mean intellectual property rights
arising from or in respect to the following:
(i) fictional business names, trade names, trademarks and
service marks, logos, Internet domain names, and general intangibles of a like
nature (collectively, "Marks");
(ii) patents and applications therefor, including continuation,
divisional, continuation-in-part, or reissue patent applications and patents
issuing thereon (collectively, "Patents");
(iii) copyrights and registrations and applications therefor
(collectively, "Copyrights") and mask work rights;
(iv) know-how, inventions, discoveries, concepts, methods,
processes, designs, formulae, technical data, drawings, specifications, data
bases and other proprietary and confidential information, including customer
lists (collectively, "Trade Secrets"); and
(v) computer programs, including any and all software
implementations of algorithms, models and methodologies, whether in source code
or object code, databases and compilations, flow-charts and other work product
used to design, plan, organize and develop any of the foregoing (collectively,
"Software").
(b) Marks. SECTION 2.12(b) of the Target Disclosure Schedule
sets forth an accurate and complete list of all registered Marks, pending
applications for registration of any Marks and material unregistered Marks, in
each case owned by Target and used by Target in its business as presently
conducted (collectively, "Owned Marks"). Except as set forth in SECTION 2.12(b)
of the Target Disclosure Schedule, Target owns all right, title and interest in
each of the Owned Marks, free and clear of any and all liens, covenants,
conditions and restrictions or other adverse claims or interests of any kind or
nature, and Target has not received any written notice or claim challenging
Target's exclusive and complete ownership of such Marks.
(c) Owned Patents. SECTION 2.12(c) of the Target Disclosure
Schedule sets forth an accurate and complete list of all Patents owned by Target
(collectively, "Owned Patents"). Except as set forth on SECTION 2.12(c) of the
Target Disclosure Schedule:
(i) Target is the owner of all right, title and interest in and
to all Owned Patents, in each case free and clear of any and all liens,
covenants, conditions and restrictions or other adverse claims or interests of
any kind or nature, and Target has taken commercially reasonable steps to
protect Target's rights in and to the Owned Patents, and Target has not received
any written notice or claim challenging Target's exclusive ownership of the
Owned Patents or challenging or questioning the validity, enforceability or use
of any of the Owned Patents;
-16-
<PAGE> 23
(ii) to Target's knowledge, the Owned Patents are valid and
enforceable, provided that no representation regarding validity or
enforceability is made with respect to patent applications;
(iii) to Target's knowledge, Target has not taken any action or
failed to take any action, conducted its business, or used or enforced (or
failed to use or enforce) any of the Owned Patents in a manner that would result
in the abandonment or unenforceability of any of the Owned Patents;
(iv) to Target's knowledge, the inventions disclosed in the
Owned Patents may be practiced by Target without infringing any other patents
owned by any other person;
(v) Target has not granted to any other person any right,
license or permission to practice any Owned Patents except as disclosed in
SECTION 2.12(c) of the Target Disclosure Schedule;
(vi) no Owned Patent has been or is now involved in any
interference, reissue, reexamination or opposition proceeding or any other
litigation or proceeding of any kind; and
(vii) to Target's knowledge, there is no patent or patent
application issued to or filed by any other person, which patent or patent
application is actually interfering with any Owned Patents, and, to Target's
knowledge, the activities, technology, products or operations of no other person
has infringed or is infringing in any material respect on any of the Owned
Patents.
(d) Owned Copyrights/Maskworks. There are no Copyrights or mask
works owned by Target in connection with its business.
(e) Trade Secrets. SECTION 2.12(e) of the Target Disclosure
Schedule sets forth a summary of all memoranda of invention or invention
disclosures owned by Target that relate to its business and that are not covered
by any patents or patent applications included in the Owned Patents
(collectively, the "Invention Disclosures"). Target has taken reasonable
precautions in accordance with standard industry practice to protect the
secrecy, confidentiality and value of all Invention Disclosures and all other
material Trade Secrets of Target (collectively, "Owned Trade Secrets"). Except
as set forth in SECTION 2.12(e) of the Target Disclosure Schedule, Target has
the absolute and unrestricted right to use all of the Owned Trade Secrets and
none of the Owned Trade Secrets is subject to any liens, covenants, conditions
and restrictions or other adverse claims or interests of any kind or nature, and
Target has not received any notice or claim challenging Target's absolute and
unrestricted right to use any of the Owned Trade Secrets, and, to Target's
knowledge, no other person has misappropriated any of Target's Owned Trade
Secrets.
(f) Software. SECTION 2.12(f) of the Target Disclosure Schedule
sets forth a complete and accurate list of all of the Software that is owned
exclusively by Target and used in the conduct of its business (collectively, the
"Owned Software"), and all Software that is used by Target in the conduct of the
Business that is not exclusively owned by Target (collectively, the "Licensed
Software"), excluding off-the-shelf desktop applications available on reasonable
terms through commercial distributors or in consumer retail stores for a license
fee of no more than Fifty Thousand Dollars ($50,000). Except as set forth in
Section 2.12(f) of the Target Disclosure Schedule:
-17-
<PAGE> 24
(i) Target is the owner of all right, title and interest in and
to all Owned Software, including all Copyrights, Trade Secrets and other
Intellectual Property Rights relating thereto, in each case free and clear of
any and all liens, encumbrances, covenants, conditions and restrictions or other
adverse claims or interests of any kind or nature, and Target has not received
any notice or claim challenging Target's exclusive ownership of all Owned
Software and all such Intellectual Property Rights relating thereto;
(ii) Target has not assigned, licensed, transferred or
encumbered to or for the benefit of any other person any of its rights in or to
any Software in which it has rights, excluding any non-exclusive licenses
granted to customers in the ordinary course of business;
(iii) No source code of any Owned Software has been licensed or
otherwise made available to any other person, Target has treated the source code
of the Owned Software, and the data associated therewith, as confidential and
proprietary business information, and has taken all reasonable steps to protect
the same as trade secrets of Target; and
(iv) Target has lawfully acquired the right to use the Licensed
Software as it is used in the conduct of its business as presently conducted,
and has not exercised any rights in respect of any Licensed Software, including
any reproduction, distribution or derivative work rights, outside the scope of
any license expressly granted by the person from which the right to use such
Licensed Software was obtained.
(g) Infringement. Except as set forth in SECTION 2.12(g) of the
Target Disclosure Schedule, Target is not, nor has it been during the three-year
period prior to the date hereof, a party to any proceeding involving a claim of
infringement, misappropriation or other wrongful use or exploitation by Target
of any other person's Intellectual Property Rights. Target is not, nor will it
be as a result of the execution and delivery of this Agreement or the
performance of its obligations under this Agreement, in breach of any material
license, sublicense or other agreement relating to its Intellectual Property
Rights.
2.13 CONTRACTS. Each material note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which Target
is a party or by which it or any of its properties or assets may be bound (the
"Material Contracts") is in full force and effect, except where failure to be in
full force and effect would not have a Material Adverse Effect on Target, and
there are no defaults by Target or, to Target's knowledge, any other party
thereto, thereunder, except those defaults that would not have a Material
Adverse Effect on Target.
-18-
<PAGE> 25
2.14 VOTE REQUIRED. The affirmative vote of the holders of at least 75%
of the shares of Target Common Stock outstanding on the record date set for the
Target Shareholders Meeting (and such affirmative vote must include the
affirmative vote of the holders of at least a majority of the shares of Target
Common Stock not owned by Acquiror) is the only vote of the holders of any of
Target's capital stock necessary to approve this Agreement and the transactions
contemplated hereby.
2.15 ABSENCE OF CERTAIN CHANGES. Since May 31, 1999 (the "Target Balance
Sheet Date"), Target has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect to Target;
(ii) any acquisition, sale or transfer of any material asset of Target other
than in the ordinary course of business and consistent with past practice; (iii)
any change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by Target or any revaluation by
Target of its assets; (iv) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of Target, or any
direct or indirect redemption, purchase or other acquisition by Target of any of
its shares of capital stock; (v) any material contract entered into by Target,
other than in the ordinary course of business and as provided to Acquiror, or
any material amendment or termination of, or default under, any material
contract to which Target is a party or by which it is bound; (vi) any amendment
or change to the Articles of Incorporation or Bylaws or, except as contemplated
by Section 2.16 hereof, the Target Rights Agreement of Target; or (vii) any
increase in or modification of the compensation or benefits payable or to become
payable by Target to any of its directors or employees. Other than with respect
to the stock option and incentive plans described in Target's proxy statement
for the annual meeting of its shareholders held on January 18, 1999 or as
disclosed on Section 2.15 of the Target Disclosure Schedule, Target has not
agreed since the Target Balance Sheet Date to do any of the things described in
the preceding clauses (i) through (vii) and is not currently involved in any
negotiations to do any of the things described in the preceding clauses (i)
through (vii) (other than negotiations with Acquiror and its representatives
regarding the transactions contemplated by this Agreement).
2.16 RIGHTS PLAN. Target's Board of Directors has duly authorized and
Target has executed an amendment (the "Rights Agreement Amendment") to the
Target Rights Agreement (without redeeming the Rights) which permits the
execution and delivery of this Agreement and the consummation of the Merger
without (i) causing any Rights issued pursuant to the Rights Agreement to become
exercisable or to separate from the stock certificates to which they are
attached, (ii) causing Acquiror or any of its Affiliates to be an Acquiring
Person (as each such term is defined in the Rights Agreement), or (iii)
triggering other provisions of the Rights Agreement, including giving rise to a
Distribution Date (as such term is defined in the Rights Agreement), and the
Rights Agreement Amendment shall be in full force and effect from and after the
date hereof until such time as, after being advised by its outside counsel with
respect to fiduciary obligations, Target's Board of Directors determines in good
faith by a majority vote that it is necessary to terminate or revise such
amendment or the Rights Agreement in the exercise of its fiduciary obligations
under applicable law.
-19-
<PAGE> 26
2.17 BROKERS' AND FINDERS' FEES. Except for payment obligations to HCFP
Brenner Securities, LLC set forth in an engagement letter, a copy of which has
been provided to Acquiror, Target has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders fees or agents commissions
or investment bankers fees or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
2.18 OPINION OF FINANCIAL ADVISOR. Target has been advised by its
financial advisor, HCFP Brenner Securities, LLC, that in such advisor's opinion,
as of the date hereof, the Exchange Ratio to be received by the shareholders of
Target (other than Acquiror and its Affiliates) is fair, from a financial point
of view, to such shareholders.
2.19 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon Target which has or
reasonably would be expected to have the effect of prohibiting or materially
impairing any business practice of Target, any acquisition of property by Target
or the conduct of business by Target.
2.20 TITLE TO PROPERTY. Target has good and valid title to its
properties, interests in properties and assets, real and personal, reflected in
the Target Balance Sheet or acquired after the Target Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed of
since the Target Balance Sheet Date in the ordinary course of business), or in
the case of leased properties and assets, valid leasehold interests in, free and
clear of all mortgages, liens, pledges, charges or encumbrances of any kind or
character, except (i) the lien of current taxes not yet due and payable, (ii)
such imperfections of title, liens and easements as do not and will not
materially detract from or interfere with the use of the properties subject
thereto or affected thereby, or otherwise materially impair business operations
involving such properties, (iii) liens securing debt which are reflected on the
Target Balance Sheet, and (iv) liens that in the aggregate would not have a
Material Adverse Effect on Target. The plants, property and equipment of Target
that is used in the operations of its business is in good operating condition
and repair. All properties used in the operation of Target are reflected in the
Target Balance Sheet to the extent generally accepted accounting principles
require the same to be reflected. Section 2.20 of the Target Disclosure Schedule
identifies each parcel of real property owned or leased by Target.
-20-
<PAGE> 27
2.21 ENVIRONMENTAL MATTERS.
(a) During the period that Target has owned or leased its
properties and facilities, (i) there have been no disposals, releases or
threatened releases of Hazardous Materials (as defined below) on, from or under
such properties or facilities, (ii) neither Target nor, to Target's knowledge,
any third party, has used, generated, manufactured or stored on, under or about
such properties or facilities or transported to or from such properties or
facilities any Hazardous Materials. Target has no knowledge of any presence,
disposals, releases or threatened releases of Hazardous Materials on, from or
under any such properties or facilities, which may have occurred prior to Target
having taken possession of any such properties or facilities.
(b) For purposes of this Agreement, the terms "disposal,"
"release," and "threatened release" shall have the definitions assigned thereto
by the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA").
(c) For the purposes of this Section, "Hazardous Materials"
shall mean any hazardous or toxic substance, material or waste which is
regulated under, or defined as a "hazardous substance," "toxic substance,"
"pollutant," "contaminant," "toxic chemical," "hazardous materials" or
"hazardous chemical" under (1) CERCLA; (2) the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. Section 1101 et seq.; (3) the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq.; (4) the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq.; (5) the Occupational Safety and
Health Act of 1970, 29 U.S.C. Section 651 et seq.; (6) regulations promulgated
under any of the above statutes; or (7) any applicable state or local statute,
ordinance, rule or regulation that has a scope or purpose similar to those
statutes identified above.
2.22 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Except as disclosed on
SECTION 2.22 of the Target Disclosure Schedule neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due to
any director or employee of Target, (ii) materially increase any benefits
otherwise payable by Target or (iii) result in the acceleration of the time of
payment or vesting of any such benefits.
2.23 EMPLOYEE MATTERS. Target is in compliance in all material respects
with all currently applicable laws and regulations respecting employment,
discrimination in employment, terms and conditions of employment, wages, hours
and occupational safety and health and employment practices, and is not engaged
in any unfair labor practice, except where the failure to be in compliance or
the engagement in such unfair labor practices would not have a Material Adverse
Effect on Target. Target has in all material respects withheld all amounts
required by law or by agreement to be withheld from the wages, salaries, and
other payments to employees; and is not liable for any material arrears of wages
or any material taxes or any material penalty for failure to comply with any of
the foregoing. Target is not liable for any material payment to any trust or
other fund or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for employees (other than routine payments to be made in the normal
course of business and consistent with past practice). There are no pending
claims against Target for any material amounts under any workers compensation
plan or policy or for long term disability. Target does not have any obligations
under COBRA with respect to any former employees or qualifying beneficiaries
-21-
<PAGE> 28
thereunder, except for obligations that are not material in amount. There are no
controversies pending or, to the knowledge of Target, threatened, between Target
and any of its employees, which controversies have or would reasonably be
expected to result in an action, suit, proceeding, claim, arbitration or
investigation before any agency, court or tribunal, foreign or domestic. Target
is not a party to any collective bargaining agreement or other labor union
contract and Target is not aware of any activities or proceedings of any labor
union to organize any such employees. To Target's knowledge, no employees of
Target are in violation of any term of any employment contract, patent
disclosure agreement, noncompetition agreement, or any restrictive covenant to a
former employer relating to the right of any such employee to be employed by
Target because of the nature of the business conducted or presently proposed to
be conducted by Target or to the use of trade secrets or proprietary information
of others. No employees of Target have given notice to Target, nor is Target
otherwise aware, that any such employee intends to terminate his or her
employment with Target.
2.24 INTERESTED PARTY TRANSACTIONS. Except as disclosed in the Target
SEC Documents, Target is not indebted to any director or officer of Target
(except for amounts due as normal salaries and bonuses and in reimbursement of
ordinary expenses), and no such person is indebted to Target and there are no
other transactions of the type required to be disclosed pursuant to Items 402
and 404 of Regulation S-K under the Securities Act and the Exchange Act.
2.25 INSURANCE. Section 2.25 of the Target Disclosure Schedule contains
a complete list of all insurance policies and bonds to which Target is a party.
There is no material claim pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and Target is otherwise in compliance in all material
respects with the terms of such policies and bonds. Target has no knowledge of
any threatened termination of, or material premium increase with respect to, any
of such policies.
2.26 MINUTE BOOKS. The minute books of Target made available to Acquiror
contain a complete and accurate summary of all meetings of directors and
shareholders or actions by written consent since the time of incorporation of
Target through the date of this Agreement, and reflect all transactions referred
to in such minutes accurately in all material respects.
2.27 COMPLETE COPIES OF MATERIALS. Target has delivered or made
available true and complete copies of each document that has been requested by
Acquiror or its counsel in connection with their legal and accounting review of
Target.
2.28 BOARD APPROVAL. The Board of Directors of Target has approved this
Agreement and the Merger, and agrees to submit this Agreement to the
shareholders of Target for approval, but will not make any recommendation to the
shareholders of Target to approve this Agreement or to consummate the Merger.
-22-
<PAGE> 29
2.29 STATE ANTI-TAKEOVER STATUTES. To Target's knowledge, no state
takeover statute is applicable to the Merger, this Agreement or the transactions
contemplated hereby.
2.30 INVENTORY. The inventories of Target disclosed in the Target SEC
Documents as of the Target Balance Sheet Date and in any subsequently filed
Target SEC Documents are stated consistently with the audited financial
statements of Target and consist of items of a quantity usable or salable in the
ordinary course of business. Since the Target Balance Sheet Date, Target has
continued to replenish inventories in a normal and customary manner consistent
with past practices. Target has not received written or oral notice that it will
experience in the foreseeable future any difficulty in obtaining, in the desired
quantity and quality and at a reasonable price and upon reasonable terms and
conditions, the raw materials, supplies or component products required for the
manufacture, assembly or production of its products. The values at which
inventories are carried reflect the inventory valuation policy of Target, which
is consistent with its past practice and in accordance with generally accepted
accounting principles applied on a consistent basis. Since the Target Balance
Sheet Date, due provision was made on the books of Target in the ordinary course
of business consistent with past practices to provide for all slow-moving,
obsolete, or unusable inventories to their estimated useful or scrap values and
such inventory reserves are adequate to provide for such slow-moving, obsolete
or unusable inventory and inventory shrinkage.
2.31 ACCOUNTS RECEIVABLE. The accounts receivable disclosed in the
Target SEC Documents as of Target Balance Sheet Date, and, with respect to
accounts receivable created since such date, disclosed in any subsequently filed
Target SEC Documents, or as accrued on the books of Target in the ordinary
course of business consistent with past practices in accordance with generally
accepted accounting principles since the last filed Target SEC Documents,
represent and will represent bona fide claims against debtors for sales and
other charges, are not subject to discount except for normal cash and immaterial
trade discount. The amount carried for doubtful accounts and allowances
disclosed in each of such Target SEC Document or accrued on such books is
sufficient to provide for any losses that may be sustained on realization of the
receivables.
-23-
<PAGE> 30
2.32 CUSTOMERS AND SUPPLIERS. None of Target's customers which
individually accounted for more than 5% of Target's gross revenues during the
12-month period preceding the date hereof has terminated any agreement with
Target. As of the date hereof, no material supplier of Target has indicated that
it will stop, or decrease the rate of, supplying materials, products or services
to Target. Target has not knowingly breached, so as to provide a benefit to
Target that was not intended by the parties, any agreement with, or engaged in
any fraudulent conduct with respect to, any customer or supplier of Target.
2.33 YEAR 2000. Target's current products are "Year 2000 Compliant,"
where "Year 2000 Compliant" means that such products have been designed and
tested so that, when used in accordance with their associated documentation,
they are capable upon installation of accurately processing, providing and/or
receiving (i) date-related data from, into and between the Twentieth (20th) and
Twenty-First (21st) centuries, or (ii) date-related data in connection with any
valid date in the Twentieth (20th) and Twenty-First (21st) centuries; provided
that all other products used in combination in any way with Target's current
products properly exchange date-related data with them. Target has commenced
efforts to ensure that the information technology systems and non-information
technology systems used by Target in its internal operations will function
properly beyond 1999. Target has made inquiries to its key third-party vendors
and providers as to the status of their Year 2000 efforts, and has not uncovered
any problems that could reasonably be expected to have a material adverse effect
on the operation of the products or that could disrupt or harm the day-to-day
functioning of the business or operations of Target.
2.34 SERIES B PREFERRED STOCK PURCHASE AGREEMENT. On or prior to the
date of this Agreement, Target has approved with all necessary corporate action
and has filed a certificate of determination with the California Secretary of
State (in proper form and substance for acceptance) setting forth the
preferences of the Series B Preferred Stock to include the right of each share
of Series B Preferred Stock to carry the voting power of 1,000 shares of Target
Common Stock. At or prior to the date of this Agreement, Target and Acquiror
shall have entered into an agreement under which Acquiror shall have the right
to purchase 50 shares of Series B Preferred Stock for every 50,000 shares of
Target Common Stock that issues pursuant to Target Option exercises.
2.35 EXERCISE OF STOCK OPTIONS. At or prior to the date of this
Agreement, Walt Williams, Daniel Durrie and Randall Fowler, each a Target
director shall have each exercised all of their outstanding and vested Assumed
Options. R. Joseph Allen, the remaining non-employee Target director, at or
prior to the Closing Date shall have entered into an agreement with Acquiror to
exercise all of his outstanding and vested Assumed Options by the later of (i)
twenty days after the Closing Date and (ii) the date immediately following the
effectiveness of a registration statement filed by Acquiror on Form S-8 or other
applicable form with the SEC covering the shares of Acquiror Common Stock
issuable pursuant to the Assumed Options.
-24-
<PAGE> 31
2.36 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by Target herein or in any Schedule hereto, including the Target Disclosure
Schedule, or certificate furnished by Target pursuant to this Agreement, or the
Target SEC Documents, when all such documents are read together in their
entirety, contains or will contain at the Effective Time any untrue statement of
a material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR AND MERGER SUB
No representation or warranty is made by Acquiror in its capacity as a
shareholder of Target, or to its contracts and other relationships with Target.
Except as disclosed in that section of the document of even date herewith
delivered by Acquiror to Target prior to the execution and delivery of this
Agreement (the "Acquiror Disclosure Schedule") corresponding to the Section of
this Agreement to which any of the following representations and warranties
specifically relate or as disclosed in another section of the Acquiror
Disclosure Schedule if it is reasonably apparent on the face of the disclosure
that it is applicable to another Section of this Agreement, Acquiror represents
and warrants to Target as follows:
3.1 ORGANIZATION AND QUALIFICATION. Each of Acquiror and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its state or jurisdiction of incorporation and is in good standing as a
foreign corporation in each other jurisdiction where the properties owned,
leased or operated, or the business conducted, by it require such qualification
and where failure to be in good standing or to so qualify would have a Material
Adverse Effect on Acquiror. Acquiror 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 have such power, or authority and governmental approvals
would not, individually or in the aggregate, have a Material Adverse Effect.
Each of Acquiror and Merger Sub has heretofore made available to Target a
complete and correct copy of its and articles of incorporation (including all
certificates of determination) and bylaws, each as amended to the date hereof.
Such articles of incorporation, bylaws and equivalent organizational documents
are in full force and effect. Neither Acquiror nor Merger Sub is in violation of
any provision of its articles of incorporation, bylaws, or equivalent
organizational documents.
-25-
<PAGE> 32
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) Acquiror and Merger Sub have full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Boards of Directors of Acquiror and Merger Sub and no
other corporate proceedings on the part of Acquiror or Merger Sub is necessary
to authorize this Agreement or to consummate the transactions so contemplated.
This Agreement has been duly and validly executed and delivered by Acquiror and
Merger Sub and, assuming this Agreement constitutes a valid and binding
obligation of Target, this Agreement constitutes a valid and binding agreement
of Acquiror and Merger Sub, enforceable against Acquiror and Merger Sub in
accordance with its terms (except in all cases as such enforceability may be
limited to applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the enforcement of creditor's rights generally and except
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of any court before which any
proceeding may be brought).
(b) Other than in connection with, or in compliance with, the
provisions of California Law with respect to the transactions contemplated
hereby, the federal securities laws, the securities laws of the various states,
the rules of The Nasdaq Stock Market, Inc., and other than notices to or filings
with the Internal Revenue Service, or under the HSR Act, no authorization,
consent or approval of, or filing with, any Governmental Entity is necessary for
the consummation by Acquiror or Merger Sub of the transactions contemplated by
this Agreement other than authorizations, consents and approvals the failure to
obtain, or filings the failure to make, which would not, in the aggregate, have
a Material Adverse Effect on Acquiror.
3.3 NO VIOLATION. Neither the execution or delivery of this Agreement by
Acquiror or Merger Sub nor the consummation by Acquiror and Merger Sub of the
transactions contemplated hereby will (i) constitute a breach or violation of
any provision of the articles of incorporation or bylaws of Acquiror or Merger
Sub, (ii) constitute a breach, violation or default (or any event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in the
creation of any lien or encumbrance upon any of the material property or asset
of Acquiror or any of its subsidiaries (other than Target) under, any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument to which Acquiror or any of its subsidiaries (other than Target) is a
party or by which they or any of their respective properties or assets are
bound, or (iii) subject to the receipt of the requisite consents, approvals, or
authorizations of, or filings with Governmental Entities under federal
securities laws, applicable corporate and securities laws, the rules of the
Nasdaq Stock Market, Inc., and laws relating to employee benefit plans, conflict
with or violate any order, judgment or decree, or to the knowledge of Acquiror,
any statute, ordinance, rule or regulation applicable to Acquiror, or by which
it or any of its properties or assets may be bound or affected, other than, in
the case of the foregoing clauses (ii) or (iii), conflicts, breaches,
violations, defaults, terminations, accelerations or creation of liens and
encumbrances which, individually or in the aggregate, would not have a Material
Adverse Effect on Acquiror.
-26-
<PAGE> 33
3.4 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The information
supplied by Acquiror and Merger Sub for inclusion in the Registration Statement
shall not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The information supplied by Acquiror for
inclusion in the Proxy Statement shall not, on the date the Proxy Statement is
first mailed to Target's shareholders, at the time of the Target Shareholders
Meeting and at the Effective Time, contain any statement which, at such time, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which it is made, not false or misleading; or omit to state
any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Target
Shareholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event or information should be discovered by Acquiror
or Merger Sub which should be set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement, Acquiror or Merger Sub will
promptly inform Target. Notwithstanding the foregoing, Acquiror and Merger Sub
make no representation, warranty or covenant with respect to any information
supplied by Target which is contained in any of the foregoing documents.
3.5 SEC REPORTS AND FINANCIAL STATEMENTS. Except as disclosed at Section
3.5 of the Acquiror Disclosure Schedule, Acquiror has filed and has made
available to Target all forms, reports and documents ("Acquiror SEC Documents")
required to be filed by it with the SEC since April 1, 1996. None of such
Acquiror SEC Documents (as of their respective filing dates) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading (except
any statement or omission therein which as been corrected or otherwise disclosed
or updated in a subsequent Acquiror SEC Documents). The audited and unaudited
consolidated financial statements of Acquiror included in any Acquiror SEC
Document on Form 10-Q or Form 10-K have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as otherwise stated in such financial statements, including the related notes
or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC
rules), comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto and fairly present the financial position of Acquiror as of the dates
thereof and the results of its operations and changes in financial position for
the periods then ended, subject, in the case of the unaudited financial
statements, to year-end audit adjustments, and except for the absence of certain
-27-
<PAGE> 34
footnote information in the unaudited statements. Acquiror does not have any
liabilities or obligations of any nature (whether absolute, accrued, contingent,
unmatured, unaccrued, unliquidated, unasserted, conditional or otherwise),
except for liabilities or obligations (i) reflected or reserved against on the
balance sheet as at June 30, 1999 (including the notes thereto and the other
disclosure made in Acquiror's Form 10-Q for the quarter ended June 30, 1999)
included in the Acquiror SEC Documents, or (ii) incurred in the ordinary course
of business consistent with past practice since such date, in each case of
clauses (i) and (ii) which, individually or in the aggregate, would not have a
Material Adverse Effect on Acquiror.
3.6 ABSENCE OF CERTAIN CHANGES. Since June 30, 1999 (the "Acquiror
Balance Sheet Date"), Acquiror has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect to
Acquiror; (ii) any acquisition, sale or transfer of any material asset of
Acquiror or any of its subsidiaries (other than Target) other than in the
ordinary course of business and consistent with past practice; (iii) any change
in accounting methods or practices (including any change in depreciation or
amortization policies or rates) by Acquiror or any revaluation by Acquiror of
any of its or any of its subsidiaries' (other than Target's) assets; (iv) any
declaration, setting aside, or payment of a dividend or other distribution with
respect to the shares of Acquiror, or any direct or indirect redemption,
purchase or other acquisition by Acquiror of any of its shares of capital stock,
other than in the ordinary course of business and consistent with past practice;
(v) any material contract entered into by Acquiror or any of its subsidiaries
(other than Target), other than in the ordinary course of business and as
provided to Target, or any material amendment or termination of, or default
under, any material contract to which Acquiror or any of its subsidiaries (other
than Target) is a party or by which it is bound; (vi) any amendment or change to
the articles of incorporation or bylaws, except in connection with authorizing
additional shares that may be required to be issued in connection with this
Agreement or the transactions contemplated hereby, including, but not limited
to, the assumption of the Target's Stock Option Plans; or (vii) any increase in
or modification of the compensation or benefits payable or to become payable by
Acquiror to any of its directors or employees. Acquiror has not agreed since the
Acquiror Balance Sheet Date to do any of the things described in the preceding
clauses (i) through (vii) and is not currently involved in any negotiations to
do any of the things described in the preceding clauses (i) through (vii) (other
than negotiations with Target and its representatives regarding the transactions
contemplated by this Agreement).
-28-
<PAGE> 35
3.7 LITIGATION. Except as set forth in the Acquiror SEC Documents, there
is no private or governmental action, suit, proceeding, claim, arbitration or
investigation pending before any agency, court or tribunal, foreign or domestic,
or, to the knowledge of Acquiror or any of its subsidiaries (other than Target),
threatened against Acquiror or any of its subsidiaries (other than Target) or
any of their respective properties or any of their respective officers or
directors (in their capacities as such) that, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect on Acquiror.
There is no judgment, decree or order against Acquiror or any of its
subsidiaries (other than Target) or, to the knowledge of Acquiror or any of its
subsidiaries (other than Target), any of their respective directors or officers
(in their capacities as such) that would prevent, enjoin, alter or materially
delay any of the transactions contemplated by this Agreement, or that would
reasonably be expected to have a Material Adverse Effect on the ability of
Acquiror to consummate the transactions contemplated by this Agreement.
3.8 GOVERNMENTAL AUTHORIZATION. Acquiror and each of its subsidiaries
(other than Target) have obtained each federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization of a
Governmental Entity (i) pursuant to which Acquiror or any of its subsidiaries
(other than Target) currently operates or holds any interest in any of its
properties or (ii) that is required for the operation of Acquiror's or any of
its subsidiaries'(other than Target) business or the holding of any such
interest ((i) and (ii) herein collectively called "Acquiror Authorizations"),
and all of such Acquiror Authorizations are in full force and effect, except
where the failure to obtain or have any of such Acquiror Authorizations would
not reasonably be expected to have a Material Adverse Effect on Acquiror.
3.9 COMPLIANCE WITH LAWS. Except as disclosed at SECTION 3.9 of the
Acquiror Disclosure Schedule, each of Acquiror and its subsidiaries (other than
Target) has complied with, are not in violation of, and have not received any
notices of violation with respect to, any federal, state, local or foreign
statute, law or regulation with respect to the conduct of its business, or the
ownership or operation of its business, except for such violations or failures
to comply as would not be reasonably expected to have a Material Adverse Effect
on Acquiror. Without limiting the generality of the foregoing, all of the
products presently marketed by Acquiror have been approved or cleared to market
pursuant to valid and subsisting Premarket Approvals or Section 510(k)
Clearances issued by the FDA. No written notification has been furnished to
Acquiror of any medical complications arising in connection with or resulting
from clinical trials conducted by Acquiror either directly or under it
direction, or from the use of its products following FDA approval or clearance.
Acquiror has not received any written complaint made with respect to such
procedures and no Medical Device Reports have been filed by Acquiror or have
been required to be filed. The design, manufacture and distribution of all of
Acquiror's products, to the extent required, has been conducted, and shall
continue through the Effective Time to be conducted, substantially in accordance
with "good manufacturing practices" as required by the FDA.
-29-
<PAGE> 36
3.10 BROKER'S AND FINDERS' FEES. Except for payment obligations to
Josephthal & Co., whose fees will be paid by Acquiror, Acquiror has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or investment bankers' fees or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
3.11 BOARD APPROVAL. The Boards of Directors of Acquiror and Merger Sub
have (i) approved this Agreement and the Merger, (ii) determined that the Merger
is in the best interests of their respective shareholders and is on terms that
are fair to such shareholders and (iii) recommended that the shareholders of
Merger Sub approve this Agreement and the consummation of the Merger.
3.12 YEAR 2000. Except as disclosed in the Acquiror SEC Documents (a)
Acquiror's current products are "Year 2000 Compliant"; (b) Acquiror has
commenced efforts to ensure that the information technology systems and
non-information technology systems used by Acquiror in its internal operations
will function properly beyond 1999; and (c) Acquiror has made inquiries to its
key third-party vendors and providers as to the status of their Year 2000
efforts, and has not uncovered any problems that could reasonably be expected to
have a Material Adverse Effect on the operation of the products or that could
disrupt or harm the day-to-day functioning of the business or operations of
Acquiror.
3.13 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by Acquiror or Merger Sub herein or in any Schedule hereto, including the
Acquiror Disclosure Schedule, or certificate furnished by Acquiror or Merger Sub
pursuant to this Agreement, or the Acquiror SEC Documents, when all such
documents are read together in their entirety, contains or will contain at the
Effective Time any untrue statement of a material fact, or omits or will omit at
the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
3.14 CAPITAL STRUCTURE. The authorized capital stock of Acquiror
consists of 35,600,000 shares of Class A Common Stock, no par value, 2,200,000
shares of Class E-1 Common Stock, no par value and 2,200,000 shares of Class E-2
common stock, no par value, of which there were issued and outstanding as of the
close of business on August 3, 1999, 14,961,436 shares of Class A Common Stock
shares of Common Stock, 1,257,461 shares of Class E-1 Common Stock, and
1,257,461 shares of Class E-2 Common Stock. The authorized capital stock of
Merger Sub consists of 1,000 shares of Common Stock, no par value, all of which
are issued and outstanding and are held by Acquiror. All outstanding shares of
Acquiror and Merger Sub have been duly authorized, validly issued, fully paid
and are nonassessable and free of any liens or encumbrances other than any liens
or encumbrances created by or imposed upon the holders thereof. The shares of
Acquiror Common Stock to be issued pursuant to the Merger will be duly
authorized, validly issued, fully paid, and non-assessable.
-30-
<PAGE> 37
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF TARGET AND ACQUIROR. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, each of Target and Acquiror agrees
(except to the extent expressly contemplated by this Agreement or as consented
to in writing by the other), to carry on its business in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted, to pay
debts and Taxes when due subject to good faith disputes over such debts or
taxes, to pay or perform other obligations when due, and to use all reasonable
efforts consistent with past practice and policies to preserve intact its
present business organization, use its reasonable best efforts consistent with
past practice to keep available the services of its present officers and key
employees and use its reasonable best efforts consistent with past practice to
preserve its relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it or its subsidiaries, to
the end that its goodwill and ongoing business shall be unimpaired at the
Effective Time. Each of Target and Acquiror agrees to promptly notify the other
of any event or occurrence not in the ordinary course of its business, and of
any event which would have a Material Adverse Effect.
4.2 CONDUCT OF BUSINESS OF TARGET.
(a) During the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time, except as expressly contemplated by this Agreement, Target shall
not do, cause or permit any of the following, without the prior written consent
of Acquiror, which consent shall not be unreasonably withheld:
(i) CHARTER DOCUMENTS. Cause or permit any amendments to
its Articles of Incorporation, Bylaws or the Target Rights Agreement;
(ii) DIVIDENDS; CHANGES IN CAPITAL STOCK. Declare or pay
any dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it;
-31-
<PAGE> 38
(iii) STOCK OPTION PLANS, ETC. Take any action to
accelerate, amend or change the period of exercisability or vesting of options
or other rights granted under the Target Stock Option Plans or authorize cash
payments in exchange for any options or other rights granted under any of such
plans;
(iv) MATERIAL CONTRACTS. Enter into any contract or
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its contracts, other than in the ordinary course of business consistent
with past practice and in no event shall such contract, commitment, amendment,
modification or waiver (other than those relating to sales of products or
purchases of inventory and supplies in the ordinary course) be in excess of
$50,000, individually, or $200,000 in the aggregate;
(v) ISSUANCE OF SECURITIES. Issue, deliver or sell
(except for the Series B Preferred Stock referenced at Section 2.34) or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement; provided, however, that Target
may, in the ordinary course of business consistent with past hiring practices,
grant options for the purchase of Target Common Stock under the Target Stock
Option Plans (not to exceed an aggregate of 100,000 options to purchase shares
of Target Common Stock).
(vi) INTELLECTUAL PROPERTY. Transfer to any person or
entity any rights to its Intellectual Property other than in the ordinary course
of business consistent with past practice (other than any transfer between
Target and Acquiror).
(vii) EXCLUSIVE RIGHTS. Enter into or amend any
agreements pursuant to which any other party is granted exclusive marketing or
other exclusive rights of any type or scope with respect to any of its products
or technology;
(viii) DISPOSITIONS. Sell, lease, license or otherwise
dispose of or encumber any of its properties or assets which are material,
individually or in the aggregate, to its business, except in the ordinary course
of business consistent with past practice;
(ix) INDEBTEDNESS. Incur any indebtedness for borrowed
money, other than in accordance with the terms of Target's existing agreement
with Imperial Bank, or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others;
-32-
<PAGE> 39
(x) LEASES. Enter into any operating lease in excess of
$50,000;
(xi) PAYMENT OF OBLIGATIONS. Pay, discharge or satisfy
in an amount in excess of $25,000 in any one case, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise)
arising other than in the ordinary course of business, other than (a) the
payment, discharge or satisfaction of liabilities reflected or reserved against
in the Target Financial Statements, and (b) the payment of fees and expenses of
third parties in connection with the transactions contemplated hereby;
(xii) CAPITAL EXPENDITURES. Make any capital
expenditures, capital additions or capital improvements except in the ordinary
course of business and in no event shall such expenditures, additions and
improvements in the aggregate be in excess of $100,000;
(xiii) INSURANCE. Materially reduce the amount of any
material insurance coverage provided by existing insurance policies;
(xiv) Termination or Waiver. Terminate or waive any
right of substantial value, other than in the ordinary course of business;
(xv) EMPLOYEE BENEFIT PLANS; NEW HIRES; PAY INCREASES.
Adopt or amend any employee benefit or stock purchase or option plan, hire any
new director level or officer level employee except solely to replace director
level or officer level employees that either leave or are terminated after the
date of this Agreement, hire more than five non-director or non-officer
employees except solely to replace employees that either leave or are terminated
after the date of this Agreement, pay any special bonus or special remuneration
to any employee or director except for payments previously committed to in
writing, which payments are disclosed on Section 2.14 of the Target Disclosure
Schedule or increase the salaries or wage rates of its employees;
(xvi) SEVERANCE ARRANGEMENTS. Grant any severance or
termination pay (i) to any director or officer or (ii) to any other employee
except (A) payments made pursuant to written agreements outstanding on the date
hereof and (B) grants consistent with past practices;
(xvii) LAWSUITS. Commence a lawsuit other than (i) for
the routine collection of bills, (ii) in such cases where it in good faith
determines that failure to commence suit would result in the material impairment
of a valuable aspect of its business, provided that it consults with Acquiror
prior to the filing of such a suit, or (iii) for a breach of this Agreement;
-33-
<PAGE> 40
(xviii) ACQUISITIONS. Acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to its business, or acquire or agree to acquire any equity
securities of any corporation, partnership, association or business
organization;
(xix) TAXES. Other than in the ordinary course of
business, make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, file any material Tax Return
or any amendment to a material Tax Return, enter into any closing agreement,
settle any claim or assessment in respect of Taxes, or consent to any extension
or waiver of the limitation period applicable to any claim or assessment in
respect of Taxes;
(xx) NOTICES. Target shall give all notices and other
information required by applicable law to be given to the employees of Target,
any collective bargaining unit representing any group of employees of Target,
and any applicable government authority under the WARN Act, the National Labor
Relations Act, the Internal Revenue Code, the Consolidated Omnibus Budget
Reconciliation Act, and other applicable law in connection with the transactions
provided for in this Agreement;
(xxi) REVALUATION. Revalue any of its assets, including
without limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business; or
(xxii) OTHER. Take or agree in writing or otherwise to
take, any of the actions described in Sections 4.2(a)(i) through (xxi) above, or
any action which would make any of its representations or warranties contained
in this Agreement untrue or incorrect or prevent it from performing or cause it
not to perform its covenants hereunder.
(b) If Target notifies Acquiror in writing that Acquiror is in
material breach of the Manufacturing Agreement, dated as of March 7, 1999,
between Acquiror and Target, as amended (the "Manufacturing Agreement"),
Acquiror has failed to cure such breach within the cure period specified in the
Manufacturing Agreement, and Target is not in material breach of the
Manufacturing Agreement, Acquiror may not withhold its consent from Target's
request to (i) hire non-director or non-officer employees in excess of the
amount authorized in Section 4.2(a)(xv), (ii) make capital expenditures in
excess of the amount authorized in Section 4.2(a)(xii), or (iii) enter into
manufacturing or lease agreements in excess of the amounts authorized in
Sections 4.2(a)(iv) and (x), provided that such actions are required as a result
of Acquiror's breach.
-34-
<PAGE> 41
4.3 CONDUCT OF BUSINESS OF ACQUIROR. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, except as expressly contemplated by this
Agreement, Acquiror shall not do, cause or permit any of the following, or
allow, cause or permit any of its subsidiaries (other than Target) to do, cause
or permit any of the following, without the prior written consent of Target,
which will not be unreasonably withheld, unless such conduct is required or
contemplated by this Agreement or is done with respect to Acquiror's Class B
Warrants: declare, set aside, or pay any dividends on or make any other
distributions in respect of its capital stock, or split, combine or reclassify
any of its capital stock; amend its articles of incorporation, for a reason
other than authorizing additional shares of capital stock of Acquiror;
repurchase or otherwise acquire, directly or indirectly, any shares of its
capital stock except from former employees, directors and consultants in
accordance with agreements providing for the repurchase of shares in connection
with any termination of service to it or its subsidiaries (other than Target);
issue any capital stock for less than current market value other than in
connection with the conversion of Acquiror's 6% secured convertible debentures
due 2002, and the exercise of certain warrants issued as part of the related
financing transaction, in with connection a financing transaction or
transactions resulting in aggregate proceeds of up to $5,000,000 or in
connection with the issuance and conversion of certain convertible debt
instruments issued to certain suppliers of Acquiror from time to time; revalue
any of its assets, including without limitation writing down the value of
inventory or writing off notes or accounts receivable other than in the ordinary
course of business in an aggregate amount not to exceed $1,000,000; or take or
agree in writing or otherwise to take, any of the actions described above, or
any action which would make any of its representations or warranties contained
in this Agreement untrue or incorrect or prevent it from performing or cause it
not to perform its covenants hereunder.
4.4 NO SOLICITATION. Target and the officers, directors, employees or
other agents of Target will not, directly or indirectly, (i) take any action to
solicit, initiate or encourage an offer or proposal for a merger or other
business combination involving Target or the acquisition of 20% or more of the
material portions of the assets of Target, other than the Merger (a "Takeover
Proposal") (ii) subject to the terms of the immediately following sentence,
engage in negotiations with, or disclose any nonpublic information relating to
Target to, or afford access to the properties, books or records of Target to,
any person that has advised Target that it may be considering making, or that
has made, a Takeover Proposal; provided, nothing herein shall prohibit Target's
Board of Directors from taking and disclosing to Target's shareholders a
position with respect to a tender offer pursuant to Rules 14d-9 and 14e-2
promulgated under the Exchange Act. Notwithstanding the immediately preceding
sentence, if an unsolicited written Takeover Proposal shall be received by the
Board of Directors of Target, then, to the extent the Board of Directors of
Target believes in good faith (after written advice from its financial advisor)
that such Takeover Proposal would, if consummated, result in a transaction more
favorable to Target's shareholders from a financial point of view than the
-35-
<PAGE> 42
transaction contemplated by this Agreement (any such more favorable Takeover
Proposal being referred to in this Agreement as a "Superior Proposal") and the
Board of Directors of Target determines in good faith after advice from outside
legal counsel that it is necessary for the Board of Directors of Target to
comply with its fiduciary duties to shareholders under applicable law, Target
and its officers, directors, employees, investment bankers, financial advisors,
attorneys, accountants and other representatives retained by it may furnish in
connection therewith information to the party making such Superior Proposal and
engage in negotiations with such party, and such actions shall not be considered
a breach of this Section 4.4 or any other provisions of this Agreement; provided
that in each such event Target notifies Acquiror of such determination by the
Target Board of Directors and provides Acquiror with a true and complete copy of
the Superior Proposal received from such third party, and provides (or has
provided) Acquiror with all documents containing or referring to non-public
information of Target that are supplied to such third party; provided, further,
that Target provides such non-public information pursuant to a non-disclosure
agreement at least as restrictive on such third party as the Confidentiality
Agreements are on Acquiror (as defined in Section 5.4); provided, further,
however, that Target shall not, and shall not permit any of its officers,
directors, employees or other representatives to agree to or endorse any
Takeover Proposal or withdraw its recommendation of the Merger unless Target has
provided Acquiror at least five (5) days prior notice thereof, has terminated
this Agreement pursuant to Section 7.1(f), and upon execution of an agreement
with respect to a Superior Proposal, and has paid Acquiror all amounts payable
pursuant to Section 7.3(b). Target will promptly notify Acquiror after receipt
of any Takeover Proposal or any notice that any person is considering making a
Takeover Proposal or any request for non-public information relating to Target
or for access to the properties, books or records of Target by any person that
has advised Target that it may be considering making, or that has made, a
Takeover Proposal and will keep Acquiror fully informed of the status and
details of any such Takeover Proposal notice, and shall provide Acquiror with a
true and complete copy of such Takeover Proposal notice or any amendment
thereto, if it is in writing, or a complete written summary thereof, if it is
not in writing.
4.5 CONDUCT OF ACQUIROR. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, except as expressly contemplated by this Agreement,
Acquiror shall not do, cause or permit any of the following, or allow, cause or
permit any of its subsidiaries (other than Target) to do, cause or permit any of
the following, without the prior written consent of Target:
(a) ALTER TARGET MANAGEMENT. Take any action to change the
existing management or Board of Directors of Target.
-36-
<PAGE> 43
4.6 PERFORMANCE OF MANUFACTURING AGREEMENT. Acquiror will continue to
perform its obligations in all material respects under the Manufacturing
Agreement so long as Target is not in material breach thereof.
4.7 TARGET INDEBTEDNESS TO ACQUIROR.
(a) Target and Acquiror acknowledge that as of August 31, 1999,
Target owes $1,595,877.41 to Acquiror, subject to a potential reduction by a
$500,000 "break-up" fee which Target asserts is owed by Acquiror to Target in
connection with the termination of the Stock Purchase Agreement between Acquiror
and Target, dated as of February 25, 1998 (the "Deferred Amount"). Target and
Acquiror agree that no payments shall be required to be made in respect of the
Deferred Amount during the term of this Agreement.
(b) Target and Acquiror agree that Target shall pay to Knobbe,
Martens, Olson & Bear LLP obligations of Target with respect to legal fees in
the approximate amount of $29,500 with respect to services rendered in
connection with patent prosecution work, subject to receipt by Target of
executed copies of a Patent Agreement and a Patent Collateral Agreement from
Acquiror.
(c) Target and Acquiror agree that, in addition to the amount
specified in Subsection 4.7(a) above, Target owes Acquiror $24,354.43 as of
September 30, 1999 (the "Current Amount"). Target and Acquiror agree that
intercompany accounts (excluding the Deferred Amount) shall be settled on a
monthly basis, commencing October 31, 1999. The Current Amount shall be offset
against any amounts due Target from Acquiror for the month of October. Payment
of the intercompany account shall be made on or before the 15th of each month
for the prior month. Target and Acquiror agree to promptly determine the
intercompany account at the end of each month and to negotiate in good faith
with respect to any differences over the amounts due each other. If the parties,
following good faith negotiations, are unable to resolve disputes over amounts
due, such disputes shall be submitted to arbitration, and the failure to make
payment of disputed amounts shall not be considered a breach of this Agreement
which would give rise to any party having a right to terminate this Agreement.
(d) Any dispute over the intercompany account, including the
Deferred Amount, which cannot be settled by negotiation between the parties
shall be submitted to and resolved conclusively and finally by binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, as modified by any agreements that the parties hereto
may execute in connection with the arbitration. The arbitration shall be
conducted by a single neutral arbitrator chosen by mutual agreement between the
parties; provided, however, that if the parties are unable to agree upon a
single arbitrator, then the arbitration shall be conducted by a panel of three
arbitrators. Each party shall choose one arbitrator and the third arbitrator
shall be selected by the two arbitrators so chosen. The fees of the American
Arbitration Association and of the arbitrators shall be borne equally by the
parties. Each party shall bear its own legal fees in connection with any
arbitration.
-37-
<PAGE> 44
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. As promptly as
practicable after the execution of this Agreement, Target and Acquiror shall
prepare, and Target shall file with the SEC, preliminary proxy materials
relating to the approval of the Merger and the transactions contemplated hereby
by the shareholders of Target. As promptly as practicable following receipt of
SEC comments thereon, Target shall file with the SEC definitive proxy materials
and Acquiror shall file with the SEC a Registration Statement on Form S-4 (or
such other or successor form as shall be appropriate), in each case which
complies in form with applicable SEC requirements and shall use all reasonable
efforts to cause the Registration Statement to become effective as soon
thereafter as practicable. Target and Acquiror will notify each other promptly
of the receipt of any comments from the SEC or its staff and of any request by
the SEC or its staff or any other government officials for amendments or
supplements to the Proxy Statement or any other filing or for additional
information and will supply each other with copies of all correspondence between
such party or any of its representatives, on the one hand, and the SEC, or its
staff or any other government officials, on the other hand, with respect to the
Proxy Statement or other filing. Whenever any event occurs that is required to
be set forth in an amendment or supplement to the Proxy Statement or any other
filing, Target shall promptly inform Acquiror of such occurrence and cooperate
in filing with the SEC or its staff or any other government officials, and/or
mailing to shareholders of Target, such amendment or supplement.
5.2 MEETING OF SHAREHOLDERS. Target shall promptly after the date hereof
take all action necessary in accordance with California Law and its Articles of
Incorporation and Bylaws to convene the Target Shareholders Meeting within 45
days of the Registration Statement being declared effective by the SEC. Target
shall consult with Acquiror regarding the date of the Target Shareholders
Meeting and use all reasonable efforts and shall not postpone or adjourn (other
than for the absence of a quorum) the Target Shareholders Meeting without the
consent of Acquiror. Subject to Sections 2.28, 4.4 and 5.1, Target shall use its
reasonable best efforts to solicit from shareholders of Target proxies in favor
of the Merger and shall take all other action necessary or advisable to secure
the vote or consent of shareholders required to effect the Merger.
-38-
<PAGE> 45
5.3 ACCESS TO INFORMATION.
(a) Each party shall afford the other party and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time to (i) all of such party's
and its subsidiaries' properties, books, contracts, commitments and records, and
(ii) all other information concerning the business, properties and personnel of
such party and its subsidiaries as the other party may reasonably requested.
Each party agrees to provide to the other party and its accountants, counsel and
other representatives copies of internal financial statements promptly upon
request.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Acquiror and Target shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.4 CONFIDENTIALITY. The parties acknowledge that each of Acquiror and
Target have previously executed confidentiality agreements dated, February 12,
1998, February 20, 1998 and February 20, 1998 (collectively the "Confidentiality
Agreements"), which Confidentiality Agreements shall continue in full force and
effect in accordance with their respective terms.
5.5 PUBLIC DISCLOSURE. Unless otherwise permitted by this Agreement,
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
the NASD.
-39-
<PAGE> 46
5.6 CONSENTS; COOPERATION.
(a) Each of Acquiror and Target shall promptly apply for or
otherwise seek, and use its reasonable best efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Merger,
including those required under HSR, and shall use its reasonable best efforts to
obtain all necessary consents, waivers and approvals under any of its material
contracts in connection with the Merger for the assignment thereof or otherwise.
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 on behalf of any party hereto in connection with
proceedings under or relating to HSR or any other federal or state antitrust or
fair trade law.
(b) Each of Acquiror and Target shall use its reasonable best
efforts to resolve such objections, if any, as may be asserted by any
Governmental Entity with respect to the transactions contemplated by this
Agreement under HSR, the Sherman Act, as amended, the Clayton Act, as amended,
the Federal Trade Commission Act, as amended, and any other federal, state or
foreign statutes, rules, regulations, orders or decrees that are designed to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade (collectively, "Antitrust Laws"). In
connection therewith, if any administrative or judicial action or proceeding is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Antitrust Law, each of
Acquiror and Target shall cooperate and use its reasonable best efforts
vigorously to contest and resist any such action or proceeding and to have
vacated, lifted, reversed, or overturned any decree, judgment, injunction or
other order, whether temporary, preliminary or permanent (each an "Order"), that
is in effect and that prohibits, prevents, or restricts consummation of the
Merger or any such other transactions, unless by mutual agreement Acquiror and
Target decide that litigation is not in their respective best interests.
Notwithstanding the provisions of the immediately preceding sentence, it is
expressly understood and agreed that Acquiror shall have no obligation to
litigate or contest any administrative or judicial action or proceeding or any
Order beyond January 31, 2000. Each of Acquiror and Target shall use its
reasonable best efforts to take such action as may be required to cause the
expiration of the notice periods under the HSR or other Antitrust Laws with
respect to such transactions as promptly as possible after the execution of this
Agreement. The Acquiror and Target also agree to take any and all of the
following actions to the extent necessary to obtain the approval of any
Governmental Entity with jurisdiction over the enforcement of any applicable
laws regarding the transactions contemplated hereby: entering into negotiations;
providing information required by law or governmental regulation; and
substantially complying with any second request for information pursuant to the
Antitrust Laws. Notwithstanding anything to the contrary in this Section 5.6,
neither the Acquiror nor Target shall be required to take any action that would
reasonably be expected to substantially impair the overall benefits expected, as
of the date hereof, to be realized from the consummation of the transactions
contemplated hereby.
-40-
<PAGE> 47
(c) Notwithstanding anything to the contrary in Section 5.6(a)
or (b), (i) neither Acquiror nor any of it subsidiaries shall be required to
divest any of their respective businesses, product lines or assets, or to take
or agree to take any other action or agree to any limitation that would
reasonably be expected to have a Material Adverse Effect on Acquiror or of
Acquiror combined with the Surviving Corporation after the Effective Time or
(ii) neither Target nor its subsidiaries shall be required to divest any of
their respective businesses, product lines or assets, or to take or agree to
take any other action or agree to any limitation that would reasonably be
expected to have a Material Adverse Effect on Target.
5.7 MERGER FILINGS. On the Closing Date, Merger Sub and Target shall
cause their duly authorized officers to prepare, execute and acknowledge the
Agreement of Merger and the Officer's Certificates, as applicable, and cause
such documents to be duly filed with the Secretary of State of California on the
Closing Date or a soon as practicable thereafter.
5.8 LEGAL REQUIREMENTS. Each of Acquiror, Merger Sub and Target will,
and will cause their respective subsidiaries to, take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed on
them with respect to the consummation of the transactions contemplated by this
Agreement and will promptly cooperate with and furnish information to any party
hereto necessary in connection with any such requirements imposed upon such
other party in connection with the consummation of the transactions contemplated
by this Agreement and will take all reasonable actions necessary to obtain (and
will cooperate with the other parties hereto in obtaining) any consent,
approval, order or authorization of, or any registration, declaration or filing
with, any Governmental Entity or other person, required to be obtained or made
in connection with the taking of any action contemplated by this Agreement.
5.9 BLUE SKY LAWS. Acquiror shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Acquiror Common Stock in connection with the
Merger. Target shall use its reasonable best efforts to assist Acquiror as may
be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of Acquiror
Common Stock in connection with the Merger.
-41-
<PAGE> 48
5.10 ASSUMED OPTIONS. As set forth in Section 1.6(d) of this Agreement,
at the Effective Time, all Target Options issued pursuant to (a) those certain
stock option agreements as set forth on SECTION 1.6(d) of the Target Disclosure
Schedule and (b) the Target's 1997 Nonstatutory Stock Option Plan shall be
assumed by Acquiror. All Target Options that are not Assumed Options shall
terminate at the Effective Time, in accordance with the terms of the stock
option plans pursuant to which such options were issued. Target has the
obligation to and will use its best efforts to provide each holder of Target
Options that are not Assumed Options, with a written notice of termination of
the applicable stock option plan, which includes a description of the
accelerated vesting schedule and the exercise rights, within the time and in the
manner set forth in such stock option plans. Target shall provide Acquiror a
copy of all such notices. Within 20 business days after the Effective Time,
Acquiror will issue to each person who, immediately prior to the Effective Time
was a holder of an outstanding option under the Target Stock Option Plans a
document in form and substance reasonably satisfactory to Target evidencing the
foregoing assumption of such option by Acquiror. Target represents and warrants
to Acquiror that SECTION 5.10 of the Target Disclosure Schedule sets forth a
true and complete list as of the date hereof of all holders of outstanding
options pursuant to (i) those certain stock option agreements as set forth on
SECTION 1.6(d) of the Target Disclosure Schedule and (ii) the Target Stock
Option Plans, including the number of shares of Target Common Stock subject to
each such option, the exercise or vesting schedule, the exercise price per share
and the term of each such option. At the Effective Time, Target shall deliver to
Acquiror an updated SECTION 5.10 of the Target Disclosure Schedule current as of
such date.
5.11 LETTER OF ACQUIROR'S AND TARGET'S ACCOUNTANTS.
(a) Acquiror shall use its reasonable best efforts to cause to
be delivered to Target a Procedures Letter of Acquiror's independent auditors,
dated a date within two business days before the date on which the Registration
Statement shall become effective and addressed to Acquiror and Target, in form
reasonably satisfactory to Target and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
(b) Target shall use its reasonable best efforts to cause to be
delivered to Acquiror a Procedures Letter of Target's independent auditors,
dated a date within two business days before the date on which the Registration
Statement shall become effective and addressed to Acquiror and Target, in form
reasonably satisfactory to Acquiror and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
5.12 FORM S-8. If the shares of Acquiror Common Stock underlying the
Assumed Options have not already been registered in connection with the filing
of Form S-4 by Acquiror, Acquiror shall use its best efforts to file on or
before twenty (20) business days after the Closing Date, a registration
statement on Form S-8 covering the shares of Acquiror Common Stock issuable
pursuant to Assumed Options. Target shall cooperate with and assist Acquiror in
the preparation of such registration statement.
-42-
<PAGE> 49
5.13 LISTING OF ADDITIONAL SHARES. Prior to the Effective Time, Acquiror
shall file with the Nasdaq National Market a Notification Form for Listing of
Additional Shares with respect to the shares referred to in Section 6.1(f).
5.14 FAIRNESS OPINION. Target shall use its reasonable best efforts to
cause to be delivered to Target's shareholders with the notice to Target's
shareholders of the Target Shareholders Meeting, a written opinion by its
financial advisor, HCFP Brenner Securities, LLC, that in such advisor's opinion,
as of the date of such notice, the Exchange Ratio to be received by the
shareholders of Target (other than Acquiror and its Affiliates) is fair, from a
financial point of view, to such shareholders.
5.15 DETERMINATION LETTER. Immediately prior to the Closing Date, Target
shall terminate the Pension Specialists, Inc. Regional Prototype
Non-Standardized 401(k) Profit Sharing Plan and Trust (the "401(k) Plan").
Target shall furnish to Acquiror a copy of a completed IRS Form 5310
(Application for Determination for Terminating Plan).
5.16 TARGET RIGHTS AGREEMENT. Target hereby agrees that it has taken and
will continue to take all necessary action to ensure that none of the
transactions contemplated by this Agreement will cause (i) Acquiror or any of
its affiliates or associates to become an Acquiring Person (as defined in the
Target Rights Agreement) for purposes of the Target Rights Agreement, or (ii)
otherwise affect in any way the Rights under the Target Rights Agreement,
including by causing such Rights to separate from the underlying shares or by
giving such holders the right to acquire securities of any party hereto or by
triggering provisions of the Target Rights Agreement that may give rise to a
Distribution Date (or such term as defined in the Target Rights Agreement).
5.17 INDEMNIFICATION.
(a) After the Effective Time, Acquiror will, and will cause the
Surviving Corporation to, indemnify and hold harmless the present and former
officers, directors, employees and agents of Target (the "Indemnified Parties")
in respect of acts or omissions occurring on or prior to the Effective Time to
the extent provided under Target's Articles of Incorporation and Bylaws or any
indemnification agreement with Target officers and directors to which Target is
a party, in each case in effect on the date hereof; provided that such
indemnification shall be subject to any limitation imposed from time to time
under applicable law. Without limitation of the foregoing and in accordance
therewith, in the event any such Indemnified Party is or becomes involved in any
capacity in any action, proceeding or investigation in connection with any
matter relating to this Agreement or the transactions contemplated hereby
occurring on or prior to the Effective Time, Acquiror shall, or shall cause the
Surviving Corporation to, pay as incurred such Indemnified Party's reasonable
legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith.
-43-
<PAGE> 50
(b) For four years after the Effective Time, Acquiror will
continue to use its commercially reasonable efforts to provide officers' and
directors' liability insurance in respect of acts or omissions occurring on or
prior to the Effective Time covering each officer and director of Target
currently covered by Acquiror's officers' and directors' liability insurance
policy on terms substantially similar to those of such policy in effect on the
date hereof. Acquiror confirms that all premiums due on its officers' and
directors' liability insurance policy have been paid to date and that officers
and directors of Target are covered thereunder.
(c) To the extent there is any claim, action, suit, proceeding
or investigation (whether arising before or after the Effective Time) against an
Indemnified Party that arises out of or pertains to any action or omission in
his or her capacity as director, officer, employee, fiduciary or agent of Target
occurring prior to the Effective Time, or arises out of or pertains to the
transactions contemplated by this Agreement for a period of four years after the
Effective Time (whether arising before or after the Effective Time), in each
case for which such Indemnified Party is indemnified under this Section 5.17,
such Indemnified Party shall be entitled to be represented by counsel, which
counsel shall be counsel of the Acquiror (provided that if use of counsel of the
Acquiror would be expected under applicable standards of professional conduct to
give rise to a conflict between the position of the Indemnified Person and of
the Acquiror, the Indemnified Party shall be entitled instead to be represented
by counsel selected by the Indemnified Party and reasonably acceptable to
Acquiror) and following the Effective Time the Surviving Corporation and
Acquiror shall pay the reasonable fees and expenses of such counsel, promptly
after statements therefor are received and the Surviving Corporation and
Acquiror will cooperate in the defense of any such matter; provided, however,
that neither the Surviving Corporation nor Acquiror shall be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld); and provided, further, that, in the event that any claim
or claims for indemnification are asserted or made within such four year period,
all rights to indemnification in respect to any such claim or claims shall
continue until the disposition of any and all such claims. The Indemnified
Parties as a group may retain only one law firm (in addition to local counsel)
to represent them with respect to any single action unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the position of any two or more Indemnified Parties.
(d) The provisions of this Section 5.17 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and representatives.
-44-
<PAGE> 51
5.18 BEST EFFORTS AND FURTHER ASSURANCES. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated hereby.
5.19 EMPLOYMENT BY ACQUIROR. Target shall permit Acquiror to interview
and offer employment contracts, which will commence as of the Effective Time, to
members of Target's sales force.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger shall
have been approved and adopted by the requisite vote of the shareholders of
Target under California Law and as may be required by Target's Articles of
Incorporation and Bylaws.
(b) REGISTRATION STATEMENT EFFECTIVE. The accountant's opinion
for Acquiror included in the Registration Statement shall not contain any
qualifications. The SEC shall have declared the Registration Statement
effective. No stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceeding for that
purpose, and no similar proceeding in respect of the Proxy Statement, shall have
been initiated or threatened by the SEC; and all requests for additional
information on the part of the SEC shall have been complied with to the
reasonable satisfaction of the parties hereto.
(c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable best efforts to have such injunction or other order lifted.
-45-
<PAGE> 52
(d) GOVERNMENTAL APPROVAL. Acquiror, Target and Merger Sub and
their respective subsidiaries shall have timely obtained from each Governmental
Entity all approvals, waivers and consents, if any, necessary for consummation
of or in connection with the Merger and the several transactions contemplated
hereby, including such approvals, waivers and consents as may be required under
the Securities Act, under state Blue Sky laws, and under HSR.
(e) TAX OPINION. Acquiror and Target shall have received written
opinions of Paul, Hastings, Janofsky & Walker LLP in form and substance
reasonably satisfactory to them, and dated on or about the date of and referred
to in the Proxy Statement as first mailed to shareholders of Target and shall be
to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, and such opinions shall not have been
withdrawn. In rendering such opinion, counsel shall be entitled to rely upon,
among other things, reasonable assumptions as well as representations of
Acquiror, Merger Sub and Target and certain shareholders of Target.
(f) LISTING OF ADDITIONAL SHARES. The filing with the Nasdaq
National Market of a Notification Form for Listing of Additional Shares with
respect to the shares of Acquiror Common Stock issuable upon conversion of the
Target Common Stock in the Merger and upon exercise of the Assumed Options shall
have been made.
(g) The opinion of Target's financial adviser shall remain in
effect.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF TARGET. The obligations of
Target to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing, by
Target:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) The
representations and warranties of Acquiror and Merger Sub in this Agreement
shall be true and correct in all material respects (except for such
representations and warranties that are qualified by their terms by a reference
to materiality which representations and warranties as so qualified shall be
true in all respects) on and as of the Effective Time as though such
representations and warranties were made on and as of such time and (ii)
Acquiror and Merger Sub shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them as of the Effective Time.
-46-
<PAGE> 53
(b) CERTIFICATE OF ACQUIROR. Target shall have been provided
with a certificate executed on behalf of Acquiror by its President and its Chief
Financial Officer certifying that the condition set forth in Section 6.2(a)
shall have been fulfilled.
(c) NO MATERIAL ADVERSE CHANGES. There shall not have occurred
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Acquiror and its subsidiaries.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF ACQUIROR AND MERGER SUB.
The obligations of Acquiror and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Acquiror:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) The
representations and warranties of Target in this Agreement shall be true and
correct in all material respects (except for such representations and warranties
that are qualified by their terms by a reference to materiality, which
representations and warranties as so qualified shall be true in all respects) on
and as of the Effective Time as though such representations and warranties were
made on and as of such time and (ii) Target shall have performed and complied in
all material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the Effective
Time.
(b) CERTIFICATE OF TARGET. Acquiror shall have been provided
with a certificate executed on behalf of Target by its President and Chief
Financial Officer certifying that the condition set forth in Section 6.3(a)
shall have been fulfilled.
(c) THIRD PARTY CONSENTS. Acquiror shall have been furnished
with evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger under
any material contract of Target or otherwise, except where failure to obtain
such consent would not have a Material Adverse Effect on Target.
(d) INJUNCTIONS OR RESTRAINTS ON CONDUCT OF BUSINESS. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Acquiror's conduct or operation of
the business of Target, following the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be pending.
(e) DISSENTING SHARES. Not more than 5% of Target Common Stock
outstanding will constitute Dissenting Shares as defined and in accordance with
the Dissenters Law.
-47-
<PAGE> 54
(f) NO MATERIAL ADVERSE CHANGES. There shall not have occurred
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Target.
(g) DISCOVERY OF UNDISCLOSED MATERIAL ADVERSE FACT. Acquiror
shall not have discovered any material adverse fact, event or condition with
respect to Target which could result in a Material Adverse Effect on Target.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. At any time prior to the Effective Time, whether before
or after approval of the matters presented in connection with the Merger by the
shareholders of Target, this Agreement may be terminated:
(a) by mutual consent of Acquiror and Target;
(b) by either Acquiror or Target, if, without fault of the
terminating party, the Closing shall not have occurred on or before January 31,
2000 (provided a later date may be agreed upon in writing by the parties hereto;
and provided further that the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party whose action or failure to
act has been the cause of or resulted in the failure of the Merger to occur on
or before such date and such action or failure to act constitutes a breach of
this Agreement);
(c) by Acquiror, if (i) Target shall breach any of its
representations, warranties, covenants or obligations hereunder and such breach
shall not have been cured within ten (10) business days of receipt by Target of
written notice of such breach (and Acquiror shall not have willfully breached
any of its covenants hereunder, which breach is not cured), or (ii) for any
reason Target fails to call and hold the Target Shareholders Meeting by January
31, 2000, unless the reason therefor is that the Form S-4 has not been declared
effective by the SEC;
(d) by Target, if Acquiror shall breach any of its
representations, warranties, covenants or other obligations hereunder and such
breach shall not have been cured within ten (10) business days following receipt
by Acquiror of written notice of such breach (and Target shall not have
willfully breached any of its covenants hereunder, which breach is not cured);
-48-
<PAGE> 55
(e) by Acquiror if a Takeover Proposal shall have occurred and
the Board of Directors of Target in connection therewith, does not within ten
(10) business days of such occurrence reject such Takeover Proposal;
(f) by Target if a Superior Proposal shall have occurred, Target
shall have provided Acquiror at least five (5) business days prior notice of the
terms of the Superior Proposal; or
(g) by either Acquiror or Target if (i) any permanent injunction
or other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable, (ii) any
required approval of the shareholders of Target shall not have been obtained by
reason of the failure to obtain the required vote upon a vote held at a duly
held meeting of shareholders or at any adjournment thereof, or (iii) any closing
condition is not satisfied or waived within ten (10) business days following
notice that such closing condition has not been met.
7.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Acquiror, Merger Sub or
Target or their respective officers, directors, shareholders or affiliates,
except to the extent that such termination results from the breach by a party
hereto of any of its representations, warranties or covenants set forth in this
Agreement; provided that, the provisions of Section 4.7 (Target Indebtedness to
Acquiror), Section 5.4 (Confidentiality), Section 7.3 (Expenses and Termination
Fees) and this Section 7.2 shall remain in full force and effect and survive any
termination of this Agreement.
7.3 EXPENSES AND TERMINATION FEES; DEFINITIONS.
(a) Subject to subsection (b) of this Section 7.3, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisers, accountants and legal
counsel) shall be paid by the party incurring such expense. The expenses
incurred in connection with printing the Proxy Materials and the Registration
Statement, registration and filing fees incurred in connection with the
Registration Statement, the Proxy Materials and the listing of additional shares
pursuant to Section 6.1(f) and fees, costs and expenses associated with
compliance with applicable state securities laws in connection with the Merger
shall be borne by Acquiror.
(b) In the event that Acquiror shall enter into an agreement
with respect to a Superior Proposal, Target shall promptly pay to Acquiror the
sum of $500,000.
-49-
<PAGE> 56
7.4 AMENDMENT. The boards of directors of the parties hereto may cause
this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to adoption of the Agreement by the shareholders of
Target or Merger Sub shall not (i) alter or change the amount or kind of
consideration to be received on conversion of the Target Common Stock, (ii)
alter or change any term of the articles of incorporation of the Surviving
Corporation to be effected by the Merger, or (iii) alter or change any of the
terms and conditions of the Agreement if such alteration or change would
materially adversely affect the holders of Target Common Stock or Merger Sub
Common Stock.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NON-SURVIVAL AT EFFECTIVE TIME. The representations, warranties and
agreements set forth in this Agreement shall terminate at the Effective Time,
except that the agreements set forth in Article I, Section 5.4
(Confidentiality), 5.10 (Assumed Options), 5.12 (Form S-8), 5.13 (Listing of
Additional Shares), 5.17 (Indemnification), 5.18 (Best Efforts and Further
Assurances), 7.3 (Expenses and Termination Fees), 7.4 (Amendment), and this
Article VIII shall survive the Effective Time.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
-50-
<PAGE> 57
(a) if to Acquiror or Merger Sub, to:
Premier Laser Systems, Inc.
3 Morgan
Irvine, CA 92618
Attention: President and Chief Executive Officer
Facsimile No.: (949) 859-5241
Telephone No.: (949) 859-0656
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive, 17th Floor
Costa Mesa, CA 92626
Attention: William J. Simpson, Esq.
Facsimile No.: (714) 979-1921
Telephone No.: (714) 668-6200
(b) if to Target, to:
Ophthalmic Imaging Systems
221 Lathrop Way, Suite I
Sacramento, CA 95815
Attention: President
Facsimile No.: (916) 646-0207
Telephone No.: (916) 646-2020
with a copy to:
Gibson, Dunn & Crutcher LLP
1530 Page Mill Road
Palo Alto, CA 94304
Attn: Lawrence Calof, Esq.
Facsimile No.: (650) 849-5333
Telephone No.: (650) 849-5300
-51-
<PAGE> 58
8.3 INTERPRETATION. When a reference is made in this Agreement to
Exhibits or Schedules, such reference shall be to an Exhibit or Schedule to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. The phrases "the
date of this Agreement", "the date hereof", and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to October 21, 1999.
The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.5 ENTIRE AGREEMENT; NONASSIGNABILITY; PARTIES IN INTEREST. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Target Disclosure Schedule and the Acquiror Disclosure
Schedule (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms; (b) are not intended to confer upon any
other person any rights or remedies hereunder, except as set forth in Sections
1.6(a)-(d) and (f), 1.7-1.9, 5.10, 5.12, 5.13 and 5.17; and (c) shall not be
assigned by operation of law or otherwise except as otherwise specifically
provided.
8.6 SEVERABILITY. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 REMEDIES CUMULATIVE. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
-52-
<PAGE> 59
8.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws that might otherwise govern under applicable principles
of conflicts of law. Each of the parties hereto irrevocably consents to the
exclusive jurisdiction of any court located within the State of California in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
8.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
[Signature Page Follows]
-53-
<PAGE> 60
[SIGNATURE PAGE TO AGREEMENT AND
PLAN OF REORGANIZATION]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective duly authorized officers as of the
date first written above.
PREMIER LASER SYSTEMS, INC.
By: /s/ COLETTE COZEAN, PH.D.
-------------------------------------
Name: Colette Cozean, Ph.D.
Title: President and Chief Executive
Officer
OPHTHALMIC ACQUISITION CORPORATION
By: /s/ COLETTE COZEAN, PH.D.
-------------------------------------
Name: Colette Cozean, Ph.D.
Title: President
OPHTHALMIC IMAGING SYSTEMS
By: /s/ STEVEN VERDOONER
-------------------------------------
Name: Steven Verdooner
Title: President
-54-
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF DETERMINATION OF
PREFERENCES OF
SERIES B PREFERRED STOCK
OF
OPHTHALMIC IMAGING SYSTEMS
(Pursuant to Section 401 of the California General Corporation Law)
The undersigned, Steven R. Verdooner and Steven C. Lagorio, do hereby
certify that (1) they are the duly elected and acting Chief Executive Officer
and Secretary, respectively, of Ophthalmic Imaging Systems, a corporation
organized and existing under the General Corporation Law of the State of
California (hereinafter called the "Corporation"), (2) the Corporation has
authorized that 2,000 shares of the Company's preferred stock be designated as
Series B Preferred Stock, (3) none of the Series B Preferred Stock has been
issued as of the date hereof, and (4) under authority given by the Corporation's
Articles of Incorporation, the Corporation's Board of Directors has duly adopted
the following recitals and resolutions:
"WHEREAS, the Articles of Incorporation, as amended, provides
for a class of shares known as the Preferred Stock, issuable from time
to time in one or more series;
WHEREAS, the Board of Directors of the Corporation is
authorized, within the limitations and restrictions stated in the
Articles of Incorporation, to designate or alter the rights,
preferences, privileges, and restrictions granted to or imposed upon
each wholly unissued series of Preferred Stock, to fix the number of
shares constituting each such series, and to determine the designation
thereof; and
WHEREAS, the Board of Directors of the Corporation desires,
pursuant to its authority, to designate a series of the Preferred Stock
as "Series B Preferred Stock" and to designate the number of shares
constituting such series and to fix the rights, preferences, privileges
and restrictions of such series;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of
the Corporation hereby designates such new series of the Preferred Stock
and the number of shares constituting such series and fixes the rights,
preferences, privileges and restrictions relating to such series as
follows:
SECTION 1. DESIGNATION AND AMOUNT. The Corporation shall have a
series of Preferred Stock designated as "Series B Preferred Stock,"
$0.01 par value (the "Series B Preferred" or the "Series B Preferred
Stock") and the number of shares constituting the Series B Preferred
Stock shall be 2,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no
decrease shall reduce the number of shares of Series B Preferred Stock
to a number less than the number of shares of Series B Preferred Stock
then-outstanding plus the number of such shares reserved for issuance
upon the exercise of outstanding options, rights or warrants or upon
<PAGE> 2
the conversion of any outstanding securities issued by the Corporation
into Series B Preferred Stock.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS. In the event any
dividend or other distribution payable in cash or other property is
declared on the Common Stock of the Corporation (excluding any dividend
or other distribution for which adjustment to the Conversion Price as
provided by Section 6 hereof), each holder of shares of Series B
Preferred Stock on the record date for such dividend or distribution
shall be entitled to receive on the date of payment or distribution of
such dividend or other distribution the same cash or other property
which such holder would have received if on such record date such holder
was the holder of record of one share of Common Stock for every share of
Series B Preferred Stock then held by such holder. The right to such
dividends on the Series B Preferred shall not be cumulative. No
dividends shall be paid on any share of Common Stock or Series A
Preferred Stock unless and until all declared dividends to which holders
of Series B Preferred Stock are entitled under this Section 2 have been
paid in full.
SECTION 3. VOTING RIGHTS. Except as otherwise required by law or
as set forth herein, the holder of each share of Common Stock issued and
outstanding shall have one vote for each share of Common Stock held by
such holder, and the holder of each share of Series B Preferred Stock
shall be entitled to 1,000 votes for each share of Series B Preferred
Stock held by such holder, such votes to be counted together with all
other shares of stock of the Corporation having general voting power and
not counted separately as a class, except as specifically set forth in
this Certificate of Determination. Holders of Common Stock and Series B
Preferred Stock shall be entitled to notice of any stockholders' meeting
in accordance with the Bylaws of the Corporation. If, at any time after
the effective date of this Certificate of Determination, Premier Laser
Systems, Inc., a California corporation ("Premier"), sells or otherwise
disposes of any Common Stock of the Corporation owned by Premier on the
effective date of this Certificate of Determination, then for any and
all votes taken thereafter, the Series B Preferred Stock shall be
entitled to one vote per share.
SECTION 4. LIQUIDATION PREFERENCE. In the event of any
liquidation, dissolution or winding up of the Corporation, either
voluntary or involuntary, distributions to the stockholders of the
Corporation shall be made in the following manner:
(A) The holders of the Series B Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any
of the assets or surplus funds of the Corporation to the holders of the
Common Stock and prior to and in preference to any distribution of any
assets or surplus funds of the Corporation to the holders of the Series
A Preferred Stock of the Corporation, by reason of their ownership of
such stock, the amount equal to twenty-five dollars ($25.00), plus an
amount equal to all declared and unpaid dividends on the Series B
Preferred Stock (collectively, the "Liquidation Preference"). If upon
the occurrence of a liquidation, dissolution or winding up of the
Corporation the assets and funds thus distributed among the holders of
the Series B
2
<PAGE> 3
Preferred Stock shall be insufficient to permit the payment to such
holders of the full preferential amount, then the entire assets and
funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Series B Preferred Stock in
proportion to the preferential amount each such holder is otherwise
entitled to receive.
(B) After setting apart or paying in full the preferential
amounts due pursuant to Section 4(A), above, the remaining assets of the
Corporation available for distribution to stockholders, if any, shall be
distributed to the holders of Series A Preferred Stock and the Common
Stock as provided by the Corporation's Articles of Incorporation.
(C) A consolidation or merger of this Corporation with or
into any other corporation or corporations, or a sale, conveyance or
disposition of all or substantially all of the assets of this
Corporation, or the effectuation by the Corporation of a transaction or
series of related transactions in which more than 50% of the voting
power of the Corporation is disposed of, shall not be deemed to be a
liquidation, dissolution or winding up within the meaning of this
Section 4.
(D) In the event the Corporation proposes to distribute
assets other than cash in connection with any liquidation, dissolution
or winding up of the Corporation, the value of the assets to be
distributed to the holders of shares of Series B Preferred Stock and
Common Stock shall be determined in good faith by the Board of Directors
(the "Board"). Any securities not subject to investment letter or
similar restrictions on free marketability shall be valued as follows:
(i) If traded on a securities exchange, the value
shall be deemed to be the average of the security's closing prices on
such exchange over the thirty (30) day period ending one (1) day prior
to the distribution;
(ii) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid prices over the
thirty (30) day period ending three (3) days prior to the distribution;
and
(iii) If there is no active public market, the value
shall be the fair market value thereof as determined in good faith by
the Board.
The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be adjusted to
make an appropriate discount from the market value determined as above
in clauses (i), (ii) or (iii) to reflect the fair market value thereof
as determined in good faith by the Board. The holders of at least a
majority of the outstanding Series B Preferred Stock shall have the
right to challenge any determination by the Board of fair market value
pursuant to this Section 4(D), in which case the determination of fair
market value shall be made by an independent appraiser selected jointly
by the Board and the challenging parties, the cost of such appraisal to
be borne equally by the Corporation and the challenging parties.
3
<PAGE> 4
SECTION 5. CONVERSION. The holders of the Series B Preferred
Stock have conversion rights as follows (the "Conversion Rights"):
(A) Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the
date of issuance of such share at the office of the Corporation or any
transfer agent for the Series B Preferred, into such number of fully
paid and non-assessable shares of Common Stock as is determined by
dividing $25.00 by the Series B Conversion Price, determined as
hereinafter provided, in effect at the time of the conversion. The price
at which shares of Common Stock shall be deliverable upon conversion of
the Series B Preferred Stock (the "Series B Conversion Price") shall
initially be $25.00 per share of Common Stock. The Series B Conversion
Price shall be subject to adjustment as hereinafter provided.
(B) Each share of Series B Preferred shall automatically be
converted into shares of Common Stock at the then effective Series B
Conversion Price upon the sale or other transfer by Premier of one or
more shares of Series B Preferred Stock to any person other than
Premier.
(C) No fractional shares of Common Stock shall be issued
upon conversion of the Series B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective respective Conversion Price. Before any holder of Series B
Preferred Stock shall be entitled to convert the same into full shares
of Common Stock and to receive certificates therefor, he shall surrender
the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Series B Preferred
Stock and shall give written notice to the Corporation at such office
that he elects to convert the same. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder
of Series B Preferred Stock a certificate or certificates for the number
of shares of Common Stock to which he shall be entitled as aforesaid and
a check payable to the holder in the amount of any cash amounts payable
as the result of a conversion into fractional shares of Common Stock.
Such conversion shall be deemed to have been made immediately prior to
the close of business on the date of such surrender of the shares of
Series B Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
(D) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock
solely for the purpose of effecting the conversion of the shares of the
Series B Preferred Stock such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series B Preferred Stock, and if at any time
the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of
the Series B Preferred Stock, in addition to such other remedies as
shall be available to the holder of such Series B Preferred Stock,
4
<PAGE> 5
the Corporation will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient
for such purposes.
SECTION 6. ANTI-DILUTION PROTECTIONS.
(A) In the event the outstanding shares of Common Stock
shall be subdivided (by stock dividend, stock split or otherwise), into
a greater number of shares of Common Stock, the Series B Conversion
Price then in effect shall, concurrently with the effectiveness of such
subdivision, be proportionately decreased. In the event the outstanding
shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common
Stock, the Series B Conversion Price then in effect shall, concurrently
with the effectiveness of such combination or consolidation, be
proportionately increased.
(B) If the Common Stock issuable upon conversion of the
Series B Preferred Stock shall be changed into the same or a different
number of shares of any other class or classes of stock, whether by
capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares provided for above), then and in
each such event the holder of each share of Series B Preferred Stock
shall have the right thereafter to convert such share into the kind and
amount of shares of stock and other securities and property receivable
upon such reorganization or reclassification or other change by holders
of the number of shares of Common Stock that would have been subject to
receipt by the holders upon conversion of the Series B Preferred Stock
immediately before that change, all subject to further adjustment as
provided herein.
SECTION 7. REDEMPTION.
(A) Subject to the provisions regarding partial redemption
in subsection (B) of this Section 7 below, the Corporation may, at the
option of the Board and at any time after or from time to time after
October 14, 2001, redeem the Series B Preferred Stock in whole or in
part, subject to the legal availability of funds therefor. The
redemption price for each share of Series B Preferred Stock shall be the
Series B Preferred Stock Liquidation Preference.
(B) No redemption shall be made under this Section 7 of only
part of the then outstanding Series B Preferred Stock, unless the
Corporation shall effect such redemption pro rata among all holders of
then outstanding Series B Preferred Stock according to the number of
shares held by each holder on the applicable Redemption Date.
(C) At least twenty (20) but no more than sixty (60) days
prior to the date fixed for any redemption of Series B Preferred Stock
(the "Redemption Date"), written notice shall be mailed by the Company,
postage prepaid, to each holder of record of the Series B Preferred
Stock to be redeemed, at the address last shown on the record of the
Company for such holder or given by the holder to the Company for the
purpose of notice or, if no such address appears or is given, at the
place where the principal executive office
5
<PAGE> 6
of the Corporation is located, notifying such holder of the redemption
to be effected, specifying the subsection hereof under which such
redemption is being effected, the Redemption Date, the applicable
redemption price, the number of such holder's shares of Series B
Preferred Stock to be redeemed and the place at which payment may be
obtained, and calling upon such holder to surrender to the Corporation,
in the manner and at the place designated, the certificate or
certificates representing the shares to be redeemed (the "Redemption
Notice").
(D) On or before each designated Redemption Date, each
holder of Series B Preferred Stock to be redeemed shall surrender the
certificate or certificates representing such shares of Series B
Preferred Stock to be redeemed to the Company, in the manner and at the
place designated in the Redemption Notice, if applicable, and thereupon
the redemption price for such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the
owner thereof, and each such certificate shall be canceled and retired.
If less than all of the shares represented by such certificate are
redeemed, then the Company shall promptly issue a new certificate
representing the unredeemed shares.
(E) If the Redemption Notice shall have been duly given, and
if the redemption price is either paid or made available for payment
through the deposit arrangements specified in subsection (F) of this
Section 7 below, then notwithstanding that the certificate or
certificates evidencing any of the shares of Series B Preferred Stock so
called for redemption shall not have been surrendered, all dividends
with respect to such shares shall cease to accrue after the Redemption
Date, such shares shall not thereafter be transferred on the
Corporation's books and all of the rights of such shares with respect to
such shares shall terminate after the Redemption Date, except only the
right of the holders to receive the redemption price, without interest,
upon surrender of their certificate or certificates therefor.
(F) On or prior to the Redemption Date, the Corporation may,
at its option, deposit with a bank or trust company having a capital and
surplus of at least $100,000,000, as a trust fund, a sum equal to the
aggregate redemption price for all shares of Series B Preferred Stock
called for redemption and not yet redeemed, with irrevocable
instructions and authority to the bank or trust company to pay, on or
after the Redemption Date, the redemption price to the respective
holders upon the surrender of their share certificates. From and after
the Redemption Date, the shares so called for redemption shall be
redeemed. The deposit shall constitute full payment of the redemption
price of the shares, the shares shall be deemed to be no longer
outstanding, all dividends with respect to such shares shall cease to
accrue and the holders thereof shall cease to be shareholders with
respect to such shares and shall have no rights with respect thereto
except the right to receive from the bank or trust company payment of
the redemption price of the shares, without interest, upon surrender of
their certificates therefor. Any funds so deposited and unclaimed at the
end of one (1) year from the Redemption Date shall be released or repaid
to the Company, after which time the holders of shares called
6
<PAGE> 7
for redemption who have not yet claimed such funds shall be entitled to
receive payment of the redemption price only from the Company.
SECTION 8. PROTECTIVE PROVISIONS. So long as a majority of the
aggregate issuances of shares of Series B Preferred Stock remain
outstanding, the Corporation shall not, without first obtaining the
approval of the holders of more than fifty percent (50%) of the
then-outstanding shares of Series B Preferred, take any action that:
(A) adversely alters or changes the rights, preferences or
privileges of the Series B Preferred Stock; or
(B) increases the authorized number of shares of the Series
B Preferred Stock."
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in the foregoing Certificate of
Determination are true and correct of our knowledge.
Executed at Sacramento, California on October 18, 1999.
By: /s/ STEVEN R. VERDOONER
-------------------------------------
Name: Steven R. Verdooner
Title: Chief Executive Officer
By: /s/ STEVEN C. LAGORIO
-------------------------------------
Name: Steven C. Lagorio
Title: Secretary
7
<PAGE> 1
EXHIBIT 4.1
SECOND AMENDMENT TO RIGHTS AGREEMENT
This Second Amendment to Rights Agreement (this "Amendment"), is entered
into by and between Ophthalmic Imaging Systems, a California Corporation (the
"Company") and American Securities Transfer, Inc. (the "Rights Agent"), as
transfer agent, and shall be deemed effective as of October 20, 1999 (the
"Effective Date").
RECITALS
WHEREAS, the Company and Rights Agent entered into a Rights Agreement
dated December 31, 1997 (the "Rights Agreement"), as amended from time to time,
to provide for the distribution of preferred share purchase rights for each
share of Company common stock outstanding as of January 2, 1998, which rights
represent the right to purchase one one-hundredth of a preferred share of the
Company upon a Distribution Date, as defined therein, and subject to the terms
and conditions set forth in the Rights Agreement;
WHEREAS, the Company, Premier Laser Systems, Inc. ("Premier") and
Ophthalmic Acquisition Corporation, a California corporation and a subsidiary of
Premier ("Premier Sub") have entered into an Agreement and Plan of
Reorganization (the "Merger Agreement"), whereby, upon requisite shareholder
approval, OIS will be merged with and into Premier Sub (the "Merger"), with OIS
becoming the surviving corporation and each share of OIS common stock converting
into shares of Premier Class A common stock at the exchange ratio set forth in
the Merger Agreement;
WHEREAS, Premier has held approximately 51% of the outstanding common
stock of OIS and therefore a majority vote since February 1998;
WHEREAS, approximately thirty-five persons, including approximately
thirty current employees of OIS, presently hold approximately 1,600,000 options
to purchase OIS common stock at an exercise price ranging from $0.63 to $4.50
per share (the "Employee Options"), many of which are already vested;
WHEREAS, the Company desires to sell to Premier, and Premier wishes to
purchase from Company, shares of the Company's Series B Preferred Stock (the
"Series B Stock") necessary to preserve Premier's majority vote despite the
exercise of Company stock options by one or more persons, and without triggering
the preferred share purchase rights under the Rights Agreement;
WHEREAS, the Company's Board of Directors (the "Board") believes it is
in the best interest of the Company to amend the Rights Agreement to allow
Premier to acquire Series B Stock without triggering the preferred share
purchase rights under the Rights Agreement;
WHEREAS, the Board believes it is in the best interest to amend the
Rights Agreement to allow Premier to acquire all of the Company's outstanding
common stock, but not less than all, without triggering the preferred share
purchase rights under the Rights Agreement, provided
<PAGE> 2
Premier acquires the Company, under the terms of the Merger Agreement, on or
before January 31, 2000;
WHEREAS, the Company and the Rights Agent desire to amend the Rights
Agreement in accordance with Section 27 of the Rights Agreement to permit the
transactions contemplated by the Merger Agreement as well as the purchase of
Series B Stock without causing a Distribution Date under the terms of the Rights
Agreement; and
WHEREAS, the Board has given its unanimous written consent in favor of
this Amendment pursuant to Section 307(b) of the California General Corporation
Law.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, covenants and conditions hereinafter set forth, the parties
hereto agree as follows:
ARTICLE 1
AMENDMENTS
1.1 Amendments to Rights Agreement. The Rights Agreement is hereby
amended as follows:
(a) Section 1(a) of the Rights Agreement is hereby deleted in
its entirety and replaced by the following:
"(a) `ACQUIRING PERSON' shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates
and Associates (as such terms are hereinafter defined) of such
Person, shall be the Beneficial Owner (as such term is
hereinafter defined) of 20% or more of the Common Shares of the
Company then-outstanding, but shall not include the Company, any
Subsidiary (as such term is hereinafter defined) of the Company,
any employee benefit plan of the Company or any Subsidiary of
the Company, or any entity holding Common Shares for or pursuant
to such plan. Notwithstanding the foregoing, Premier Laser
Systems, Inc., a California corporation ("Premier") shall not be
deemed an "Acquiring Person" under this Agreement; PROVIDED,
HOWEVER, that if Premier does not acquire, on or before January
31, 2000, all of the Common Shares of the Company
then-outstanding under the terms and conditions set forth in the
Agreement and Plan of Reorganization By and Among Premier Laser
Systems, Inc., Ophthalmic Acquisition Corporation and Ophthalmic
Imaging Systems, Inc. dated October 21, 1999 (the "Merger
Agreement") or if the Merger Agreement is otherwise terminated
by any party thereto prior to the Closing Date, as defined
therein, then the term `ACQUIRING PERSON' shall have the meaning
given to it in the February 25, 1998 amendment of this
Agreement. Notwithstanding the foregoing, no Person shall become
an "ACQUIRING PERSON" as a result of an acquisition of Common
Shares of the Company
2
<PAGE> 3
which, by reducing the number of shares outstanding, increases
the proportionate number of shares Beneficially Owned by such
Person to 20% or more of the Common Shares of the Company
then-outstanding; PROVIDED, HOWEVER, that if a Person, other
than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or
any entity holding Common Shares for or pursuant to such plan,
or Premier, should become the Beneficial Ownership of 20% or
more of the Common Shares of the Company then-outstanding by
reason of share purchases by the Company and shall, after such
share purchases by the Company, become the Beneficial Owner of
any additional Common Shares of the Company, then such Person
shall be deemed to be an "ACQUIRING PERSON" for any purpose of
this Agreement."
(b) Section 1(f) of the Rights Agreement is hereby deleted in
its entirety and replaced by the following:
"(f) `COMMON SHARES' when used with reference to the Company
shall mean the shares of common stock, no par value per share,
of the Company, and shall not mean the Company's Series B
Preferred Stock. `COMMON SHARES' when used with reference to any
Person other than the Company shall mean the capital stock (or
equity interest) with the greatest voting power of such other
Person or, if such other Person is a Subsidiary of another
person, the Person or Persons which ultimately control such
first-mentioned Person."
1.2 Reference to and Effect on Rights Agreement. On and after the
Effective Date, each reference in the Rights Agreement to the term "Agreement,"
"hereof" or "herein" shall be deemed to refer to the Rights Agreement as amended
hereby. This Amendment and the amendments to the Rights Agreement effected
hereby shall be effective as of the Effective Date and, except as set forth
herein, the Rights Agreement shall remain in full force and effect and shall
otherwise be unaffected hereby.
ARTICLE 2
MISCELLANEOUS
2.1 Headings. The headings in this Amendment are intended solely for
convenience and shall not be construed as limiting or expanding the terms of
this Amendment.
2.2 Counterparts. This Amendment may be signed in any number of
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument. All counterparts shall be deemed an original of this
Agreement.
[SIGNATURE PAGE FOLLOWS]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties executed this Agreement to be effective
as of the date first written above.
OPHTHALMIC IMAGING SYSTEMS
Attest: /s/ STEVEN C. LAGORIO By: /s/ STEVEN R. VERDOONER
------------------------------ -------------------------------------
Steven C. Lagorio, Steven R. Verdooner,
Chief Financial Officer and Chief Executive Officer and President
Secretary
AMERICAN SECURITIES TRANSFER, INC.
Attest: /s/ KELLIE GWINN By: /s/ LAURA SISNEROS
------------------------------ -------------------------------------
Kellie Gwinn, Laura Sisneros,
Senior Vice President Vice President
<PAGE> 1
EXHIBIT 4.2
SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
This Series B Preferred Stock Purchase Agreement (this "Agreement") is
entered into as of October 21, 1999 (the "Effective Date") by and among
Ophthalmic Imaging Systems, a California corporation (the "Company" or "OIS"),
and Premier Laser Systems, Inc., a California corporation ("Premier").
RECITALS
WHEREAS, the Company, Premier and Ophthalmic Acquisition Corporation, a
California corporation and a subsidiary of Premier ("Premier Sub"), and their
respective boards of directors, are negotiating an Agreement and Plan of
Reorganization (the "Merger Agreement"), whereby, upon requisite shareholder and
board approval, OIS will be merged with and into Premier Sub (the "Merger"),
with OIS becoming the surviving corporation and each share of OIS common stock
converting into shares of Premier Class A common stock at the exchange ratio set
forth in the Merger Agreement;
WHEREAS, Premier has held more than 51% of the outstanding common stock
of OIS and therefore a majority vote;
WHEREAS, OIS owes certain amounts to Premier including, but not
necessarily limited to, interest owed, expenses for services provided and a note
in the amount of $500,000 (all such debt collectively referred to herein as the
Company's "Debt Owed");
WHEREAS, approximately thirty-five persons, including approximately
thirty current employees of OIS, presently hold approximately 1,600,000 options
to purchase OIS common stock at an exercise price ranging from $0.63 to $4.50
per share (the "Employee Options"), many of which are already vested; and
WHEREAS, the Company desires to sell to Premier, and Premier wishes to
purchase from Company, in exchange for canceling part of the Company's Debt Owed
and pursuant to the terms and conditions hereof, that amount of the Company's
Series B Preferred Stock (the "Series B Preferred") necessary to preserve
Premier's majority vote despite the exercise of Employee Options by one or more
persons, and without triggering the preferred share purchase rights under the
Rights Agreement dated December 31, 1997, as amended, between OIS and American
Securities Transfer, Inc. (the "Rights Agreement");
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, covenants and conditions hereinafter set forth, the parties
hereto agree as follows:
<PAGE> 2
ARTICLE 1
REPRESENTATIONS OF THE COMPANY
The Company represents, warrants and agrees as follows:
1.1 Power and Capacity; Authorization. OIS is a corporation duly
organized, validly existing and in good standing under the laws of those
jurisdictions where failure to be in good standing or to so qualify would have a
material adverse effect on OIS. OIS has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Company's Board of Directors and no other corporate
proceedings by OIS are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by OIS and, assuming this Agreement constitutes a valid
and binding obligation of Premier, constitutes a valid and binding agreement of
OIS, enforceable against OIS in accordance with its terms (subject, as to the
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting creditors' rights, and, with respect to
the remedy of specific performance, equitable doctrines applicable thereto).
1.2 No Conflicts. The execution, delivery and performance of this
Agreement by OIS will not (a) constitute a breach or violation of any provisions
of the Company's Articles of Incorporation or Bylaws, (b) result in a violation
of any law, rule, ordinance, regulation, order, judgment or decree by which OIS
is bound, or (c) conflict with or result in a material breach of or default
under any mortgage, lien, lease, license, permit, agreement, contract or
instrument to which OIS is a party or by which OIS is bound, which conflict,
breach or default would have a material adverse effect on the ability of OIS to
perform its obligations under this Agreement.
1.3 Preferred Stock. The Company has a total of 20,000,000
authorized shares of Preferred Stock, $0.01 par value per share, 2,000 of which
are designated Series B Preferred Stock and none of which are issued and
outstanding. The Company has reserved 2,000 shares of Common Stock for possible
issuance upon the conversion of the shares of Series B Preferred to be issued
hereunder (the "Conversion Shares"). The Series B Preferred, when issued, sold
and delivered in accordance with the terms of this Agreement, will be duly and
validly issued, fully paid and non-assessable. The Conversion Shares have been
duly and validly reserved for issuance and, upon issuance in accordance with the
terms of the Certificate of Determination, will be duly and validly issued,
fully paid and non-assessable.
1.4 Certificate of Determination. The Company has duly adopted a
Certificate of Determination of Preferences of Series B Preferred Stock of
Ophthalmic Imaging Systems in such form as is attached hereto as Exhibit A (the
"Certificate of Determination") and has obtained all necessary approvals from
its Board of Directors and shareholders, if necessary, and has duly filed the
Certificate of Determination with the California Secretary of State.
2
<PAGE> 3
1.5 Rights Agreement. The Company has taken and will continue to
take all necessary action to ensure that none of the transactions contemplated
by this Agreement will cause (i) Premier or any of its affiliates to become an
Acquiring Person (as defined in the Rights Agreement) for purposes of the Rights
Agreement, or (ii) otherwise affect in any way the Rights under the Rights
Agreement, including by causing such Rights to separate from the underlying
shares or by giving such holders the right to acquire securities of any party
hereto or by triggering provisions of the Rights Agreement that may give rise to
a Distribution Date (as such term is defined in the Rights Agreement).
ARTICLE 2
REPRESENTATIONS OF PREMIER
Premier represents, warrants and agrees as follows:
2.1 Power and Capacity; Authorization. Premier is a corporation duly
organized, validly existing and in good standing under the laws those
jurisdictions where failure to be in good standing or to so qualify would have a
material adverse effect on Premier. Premier has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by Premier's Board of Directors and no other corporate
proceedings by Premier are necessary to authorize this Agreement or to
consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by Premier and, assuming this Agreement
constitutes a valid and binding obligation of OIS, constitutes a valid and
binding agreement of Premier, enforceable against Premier in accordance with its
terms (subject, as to the enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting creditors'
rights, and, with respect to the remedy of specific performance, equitable
doctrines applicable thereto).
2.2 No Conflicts. The execution, delivery and performance of this
Agreement by Premier will not (a) constitute a breach or violation of any
provisions of Premier's Articles of Incorporation or Bylaws, (b) result in a
violation of any law, rule, ordinance, regulation, order, judgment or decree by
which Premier is bound, or (c) conflict with or result in a material breach of
or default under any mortgage, lien, lease, license, permit, agreement, contract
or instrument to which Premier is a party or by which Premier is bound, which
conflict, breach or default would have a material adverse effect on the ability
of Premier to perform its obligations under this Agreement.
2.3 Investigation and Economic Risk. Premier acknowledges that it
has had an opportunity to discuss the business, affairs and current prospects of
the Company with the Company's officers. Premier acknowledges that it is able to
fend for itself in the transactions contemplated by this Agreement and has the
ability to bear the economic risks of its investment pursuant to this Agreement.
3
<PAGE> 4
2.4 Purchase for Own Account. The Series B Preferred and the
Conversion Shares are being acquired by Premier for its own account, not as a
nominee or agent, and not with a view to or in connection with the sale or
distribution of any part thereof.
2.5 Exempt from Registration and Restricted Securities. Premier
understands that the Series B Preferred and the Conversion Shares will not be
registered under the 1933 Act, on the ground that the sale provided for in this
Agreement is exempt from registration under the Act, and that the reliance of
the Company on such exemption is predicated in part on Premier's representations
set forth in this Agreement. Premier understands that the Series B Preferred and
the Conversion Shares being purchased hereunder are restricted securities within
the meaning of Rule 144 under the 1933 Act and that the Series B Preferred and
the Conversion Shares are not registered and must be held indefinitely unless
they are subsequently registered or an exemption from such registration is
available. It is further understood that each certificate representing (a) the
Series B Preferred, (b) the Conversion Shares, and (c) any other securities
issued in respect of the any of the foregoing upon any stock split, stock
dividend, recapitalization, merger, or similar event shall be stamped or
otherwise imprinted with an appropriate restrictive legend.
ARTICLE 3
AGREEMENT TO PURCHASE AND SELL STOCK
3.1. Authorization. As of the first Closing (as defined below), the
Company will have authorized the issuance, pursuant to the terms and conditions
of this Agreement, of up to 2,000 shares of the Company's Series B Preferred, no
par value, having the rights, preferences, privileges, and restrictions set
forth in the Certificate of Determination of the Company attached to this
Agreement as Exhibit A.
3.2. Purchase of Stock. Subject to the terms and conditions set forth
in this Agreement, the Company agrees to sell, assign, transfer and deliver to
Premier, and Premier agrees to purchase from the Company, fifty (50) validly
issued, fully paid and nonassessable shares of the Company's Series B Preferred
Stock (the "Purchased Stock"), whenever one or more persons (other than Walt
Williams, Daniel Durrie or Randall Fowler) exercise Employee Options to
purchase, in the aggregate, 50,000 shares of Company Common Stock. Premier shall
be entitled to purchase shares of Series B Preferred Stock because of the
exercise of stock options held by Walt Williams, Daniel Durrie and Randall
Fowler (the "Outside Directors") pursuant to that certain Agreement dated
October 21, 1999, between OIS, Premier and the Outside Directors. Any and all
purchases by Premier of Series B Preferred Stock shall be automatic and shall
not require any further action by the parties hereto. Each such purchase shall
be a separate "Closing" for purposes of this Agreement.
3.3 Price and Consideration. In full consideration for the purchase
by Premier of the Purchased Stock, Premier shall cancel on each Closing that
amount of the Debt Owed then held by Premier in the amount of twenty-five
dollars ($25.00) per share of Series B Preferred Stock purchased by Premier as
Purchased Stock (the "Purchase Price"). Premier shall deliver to OIS written
evidence, in a form acceptable to OIS, showing the cancellation of the
aforementioned indebtedness under the terms of this Agreement.
4
<PAGE> 5
3.4 Stock Certificates. As soon as practicable after each Closing,
OIS will deliver to Premier a certificate representing the Series B Preferred
purchased by Premier, which certificate shall bear appropriate restrictive
legends.
3.5 Best Efforts and Further Assurances. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplates
hereby and to fulfill and cause to be fulfilled the terms and conditions set
forth under this Agreement. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
ARTICLE 4
CONDITIONS TO THE OBLIGATIONS
UNDER THIS AGREEMENT
4.1 Conditions to the Obligations of the Company and Premier. The
obligations of OIS to sell and Premier to purchase the Purchase Stock pursuant
to this Agreement is conditioned upon: (a) the exercise of Employee Options
resulting in the purchase of at least 50,000 shares of Company Common Stock; and
(b) the representations and warranties made by the Company and Premier herein
shall be true and correct when made, and shall be true and correct as of the
date of each Closing with the same force and effect as if they had been made on
and as of such date, subject to changes contemplated by this Agreement.
ARTICLE 5
MISCELLANEOUS
5.1 Expenses. Each party to this Agreement shall pay its own costs
and expenses (including all legal fees) relating to this Agreement, the
negotiations leading up to this Agreement and the transactions contemplated by
this Agreement.
5.2 Amendment. This Agreement shall not be amended except by a
writing duly executed by each party to this Agreement.
5.3 Entire Agreement. This Agreement, including the exhibits and
other documents delivered pursuant to this Agreement, contain all of the terms
and conditions agreed upon by the parties relating to the subject matter of this
Agreement and supersede all prior and contemporaneous agreements, negotiations,
correspondence, undertakings and communications of the parties, oral or written,
respecting the subject matter hereof.
5.4 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
5
<PAGE> 6
5.5 Headings. The headings contained in this Agreement are intended
solely for convenience and shall not affect the rights of the parties to this
Agreement.
5.6 Mutual Contribution. The parties to this Agreement and their
counsel have mutually contributed to its drafting. Consequently, no provision of
this Agreement shall be construed against any party on the ground that that
party drafted the provision or caused it to be drafted.
5.7 Notices. All notices, requests, demands and other communications
made in connection with this Agreement shall be in writing and shall be deemed
to have been duly given on the date of delivery, if delivered to the persons
identified below, including delivery by facsimile, provided sender receives
telephonic or electronic confirmation of delivery, or three days after mailing
if mailed by certified or registered mail, postage prepaid, return receipt
requested, addressed as follows:
If to the Company:
Ophthalmic Imaging Systems
221 Lathrop Way, Suite I
Sacramento, CA 95815
Attention: President
Facsimile No.: (916) 646-0207
Telephone No.: (916) 646-2020
With a copy to:
Gibson, Dunn & Crutcher LLP
1530 Page Mill Road
Palo Alto, California 94304
Attention: Lawrence Calof, Esq.
Facsimile No.: (650) 849-5348
Telephone No.: (650) 849-5300
If to Premier:
Premier Laser Systems, Inc.
3 Morgan
Irvine, CA 92618
Attention: President and Chief Executive Officer
Facsimile No.: (949) 859-5241
Telephone No.: (949) 859-0656
6
<PAGE> 7
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive, 17th Floor
Costa Mesa, CA 92626
Attention: William J. Simpson, Esq.
Facsimile No.: (714) 979-1921
Telephone No.: (714) 668-6200
Such persons and addresses may be changed, from time to time, by means of a
notice given in the manner provided in this Section.
5.8 Survival of Representations and Warranties. The respective
representations and warranties of OIS and Premier contained in this Agreement
shall survive the execution, delivery and performance of this Agreement for a
period of one year from the Closing.
5.9 Waiver. Waiver of any term or condition of this Agreement by any
party shall not be construed as a waiver of any subsequent breach or failure of
the same term or condition, or a waiver of any other term or condition of this
Agreement.
5.10 Binding Effect; Assignment. The parties agree that this
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns. No party to this Agreement may assign
or delegate, by operation of law or otherwise, all or any portion of its rights,
obligations or liabilities under this Agreement without the prior written
consent of all other parties to this Agreement, which they may withhold in their
absolute discretion.
5.11 Finder's Fees. Each party (a) represents and warrants to the
other party hereto that it has retained no finder or broker in connection with
the transactions contemplated by this Agreement, and (b) hereby agrees to
indemnify and to hold harmless the other parties hereto from and against any
liability for any commission or compensation in the nature of a finder's fee of
any broker or other person or firm (and the costs and expenses of defending
against such liability or asserted liability) for which the indemnifying party
or any of its employees or representatives are responsible.
5.12 No Third Party Beneficiaries. Nothing in this Agreement shall
confer any rights upon any person or entity which is not a party or an assignee
of a party to this Agreement.
5.13 Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument. All counterparts shall be deemed an original of this
Agreement.
[The signature pages follow.]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
OPHTHALMIC IMAGING SYSTEMS:
By /s/ STEVEN VERDOONER
-------------------------------------
Steven Verdooner, President
PREMIER LASER SYSTEMS, INC.:
By /s/ COLETTE COZEAN
-------------------------------------
Colette Cozean, Ph.D.,
President and CEO
[Stock Purchase Agreement Signature Page]
8
<PAGE> 9
APPENDIX A: CERTIFICATE OF DETERMINATION
<PAGE> 1
EXHIBIT 4.3
AGREEMENT
This Agreement (this "Agreement") is made as of October 21, 1999
(the "Effective Date"), by and among Ophthalmic Imaging Systems, a California
corporation ("OIS" or the "Company"), Premier Laser Systems, Inc., a California
corporation ("Premier"), and Walt Williams, Daniel Durrie and Randall Fowler
(the "Outside Directors").
RECITALS
WHEREAS, the Company, Premier and Ophthalmic Acquisition Corporation, a
California corporation and a subsidiary of Premier ("Premier Sub"), and their
respective boards of directors, are negotiating an Agreement and Plan of
Reorganization (the "Merger Agreement"), whereby, upon requisite shareholder and
board approval, OIS will be merged with and into Premier Sub (the "Merger"),
with OIS becoming the surviving corporation and each share of OIS common stock
converting into shares of Premier Class A common stock at the exchange ratio set
forth in the Merger Agreement;
WHEREAS, to provide the Company with needed working capital in excess of
$55,000, each of the Outside Directors recently exercised options to purchase
50,000 shares of OIS common stock with an exercise price of $0.375 per share
(the "Stock Options");
WHEREAS, Premier has held more than 51% of the outstanding common stock
of OIS and therefore a majority vote;
WHEREAS, OIS owes certain amounts to Premier including, but not
necessarily limited to, interest owed, expenses for services provided and a note
in the amount of $500,000 (all such debt collectively referred to herein as the
Company's "Debt Owed"); and
WHEREAS, the Company desires to sell to Premier and Premier wishes to
purchase from Company, in exchange for canceling part of the Company's Debt
Owed, that amount of Company's Series B Preferred Stock necessary to preserve
Premier's majority vote taking into account the exercise by the Outside
Directors of their Stock Options, and without triggering the preferred share
purchase rights under the Rights Agreement dated December 31, 1997, as amended,
between OIS and American Securities Transfer, Inc. (the "Rights Agreement");
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, covenants and conditions hereinafter set forth, the parties
hereto agree as follows:
<PAGE> 2
ARTICLE 1
REPRESENTATIONS OF THE COMPANY
The Company represents, warrants and agrees as follows:
1.1 Power and Capacity; Authorization. OIS is a corporation duly
organized, validly existing and in good standing under the laws of those
jurisdictions where failure to be in good standing or to so qualify would have a
material adverse effect on OIS. OIS has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Company's Board of Directors and no other corporate
proceedings by OIS are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by OIS and, assuming this Agreement constitutes a valid
and binding obligation of Premier, constitutes a valid and binding agreement of
OIS, enforceable against OIS in accordance with its terms (subject, as to the
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting creditors' rights, and, with respect to
the remedy of specific performance, equitable doctrines applicable thereto).
1.2 No Conflicts. The execution, delivery and performance of this
Agreement by OIS will not (a) constitute a breach or violation of any provisions
of the Company's Articles of Incorporation or Bylaws, (b) result in a violation
of any law, rule, ordinance, regulation, order, judgment or decree by which OIS
is bound, or (c) conflict with or result in a material breach of or default
under any mortgage, lien, lease, license, permit, agreement, contract or
instrument to which OIS is a party or by which OIS is bound, which conflict,
breach or default would have a material adverse effect on the ability of OIS to
perform its obligations under this Agreement.
1.3 Preferred Stock. The Company has a total of 20,000,000
authorized shares of Preferred Stock, $0.01 par value per share, 2,000 of which
are designated Series B Preferred Stock and none of which are issued and
outstanding. The Company has reserved 2,000 shares of Common Stock for possible
issuance upon the conversion of the shares of Series B Preferred to be issued
hereunder (the "Conversion Shares"). The Series B Preferred, when issued, sold
and delivered in accordance with the terms of this Agreement, will be duly and
validly issued, fully paid and non-assessable. The Conversion Shares have been
duly and validly reserved for issuance and, upon issuance in accordance with the
terms of the Certificate of Determination, will be duly and validly issued,
fully paid and non-assessable.
1.4 Certificate of Determination. The Company has duly adopted a
Certificate of Determination of Preferences of Series B Preferred Stock of
Ophthalmic Imaging Systems in such form as is attached hereto as Exhibit A (the
"Certificate of Determination") and has obtained all necessary approvals from
its Board of Directors and shareholders, if necessary, and has duly filed the
Certificate of Determination with the California Secretary of State.
2
<PAGE> 3
1.5 Rights Agreement. The Company has taken and will continue to
take all necessary action to ensure that none of the transactions contemplated
by this Agreement will cause (i) Premier or any of its affiliates to become an
Acquiring Person (as defined in the Rights Agreement) for purposes of the Rights
Agreement, or (ii) otherwise affect in any way the Rights under the Rights
Agreement, including by causing such Rights to separate from the underlying
shares or by giving such holders the right to acquire securities of any party
hereto or by triggering provisions of the Rights Agreement that may give rise to
a Distribution Date (as such term is defined in the Rights Agreement).
ARTICLE 2
REPRESENTATIONS OF PREMIER
Premier represents, warrants and agrees as follows:
2.1 Power and Capacity; Authorization. Premier is a corporation duly
organized, validly existing and in good standing under the laws those
jurisdictions where failure to be in good standing or to so qualify would have a
material adverse effect on Premier. Premier has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by Premier's Board of Directors and no other corporate
proceedings by Premier are necessary to authorize this Agreement or to
consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by Premier and, assuming this Agreement
constitutes a valid and binding obligation of OIS, constitutes a valid and
binding agreement of Premier, enforceable against Premier in accordance with its
terms (subject, as to the enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting creditors'
rights, and, with respect to the remedy of specific performance, equitable
doctrines applicable thereto).
2.2 No Conflicts. The execution, delivery and performance of this
Agreement by Premier will not (a) constitute a breach or violation of any
provisions of Premier's Articles of Incorporation or Bylaws, (b) result in a
violation of any law, rule, ordinance, regulation, order, judgment or decree by
which Premier is bound, or (c) conflict with or result in a material breach of
or default under any mortgage, lien, lease, license, permit, agreement, contract
or instrument to which Premier is a party or by which Premier is bound, which
conflict, breach or default would have a material adverse effect on the ability
of Premier to perform its obligations under this Agreement.
2.3 Investigation and Economic Risk. Premier acknowledges that it
has had an opportunity to discuss the business, affairs and current prospects of
the Company with the Company's officers. Premier acknowledges that it is able to
fend for itself in the transactions contemplated by this Agreement and has the
ability to bear the economic risks of its investment pursuant to this Agreement.
3
<PAGE> 4
2.4 Purchase for Own Account. The Series B Preferred and the
Conversion Shares are being acquired by Premier for its own account, not as a
nominee or agent, and not with a view to or in connection with the sale or
distribution of any part thereof.
2.5 Exempt from Registration and Restricted Securities. Premier
understands that the Series B Preferred and the Conversion Shares will not be
registered under the 1933 Act, on the ground that the sale provided for in this
Agreement is exempt from registration under the Act, and that the reliance of
the Company on such exemption is predicated in part on Premier's representations
set forth in this Agreement. Premier understands that the Series B Preferred and
the Conversion Shares being purchased hereunder are restricted securities within
the meaning of Rule 144 under the 1933 Act and that the Series B Preferred and
the Conversion Shares are not registered and must be held indefinitely unless
they are subsequently registered or an exemption from such registration is
available. It is further understood that each certificate representing (a) the
Series B Preferred, (b) the Conversion Shares, and (c) any other securities
issued in respect of the any of the foregoing upon any stock split, stock
dividend, recapitalization, merger, or similar event shall be stamped or
otherwise imprinted with an appropriate restrictive legend.
ARTICLE 3
REPRESENTATIONS OF THE OUTSIDE DIRECTORS
3.1 Power and Capacity; Authorization. Each of the Outside Directors
has the necessary power and authority to execute and deliver this Agreement, to
perform his obligations hereunder and to consummate the transactions
contemplated hereby. This Agreement has been executed and delivered by each of
the Outside Directors and constitutes a legal and binding agreement enforceable
against each of them in accordance with its terms (subject, as to the
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting creditors' rights, and, with respect to
the remedy of specific performance, equitable doctrines applicable thereto).
3.2 No Conflicts. The execution, delivery and performance of this
Agreement by the Outside Directors will not (a) result in a violation of any
law, rule, ordinance, regulation, order, judgment or decree by which any Outside
Director is bound or (b) conflict with or result in a material breach of or
default under any mortgage, lien, lease, license, permit, agreement, contract or
instrument to which any Outside Director is a party or by which any Outside
Director is bound, which conflict, breach or default would have a material
adverse effect on any Outside Director's ability to perform his obligations
under this Agreement.
4
<PAGE> 5
ARTICLE 4
EXERCISE OF STOCK OPTIONS
4.1 Acceleration of Vesting. The Company further represents that the
Board of Directors of OIS has amended Section 5.3 of the 1997 Plan to allow for
vesting of the Stock Options within less than one year from the options' Grant
Date, as that term is defined in the 1997 Plan. In addition, the Board of
Directors of OIS and/or the Compensation Committee of OIS, as appropriate, has
amended the vesting schedules contained in those certain OIS Nonqualified Stock
Option Agreements covering the Stock Options held by the Outside Directors to
allow for the exercise by the Outside Directors of the Stock Options held by
each of them.
4.2 Exercise and Payment. Each of the Outside Directors further
represents that each has exercised, in whole, his rights under the 1997 Plan to
purchase 50,000 shares of Company common stock for $0.375 per share (the
"Exercise Price"), by delivering to the Company a duly exercised "Request To
Exercise Form," as required by the 1997 Plan, as well as full payment, in cash
or check, in the amount of at least eighteen thousand, seven hundred and fifty
dollars and no cents ($18,750.00).
4.3 Stock Issuance. As soon as practicable after the Effective Date,
OIS shall issue to each exercising Outside Director a stock certificate
representing 50,000 shares of Company common stock ("Exercised Stock"). All
Exercised Stock shall be subject to repurchase, as set forth in Section 6.1 of
this Agreement, and shall bear appropriate restrictive legends.
ARTICLE 5
PURCHASE OF STOCK
5.1 Purchase of Stock. Subject to the terms and conditions set forth
in this Agreement, the Company agrees to sell, assign, transfer and deliver to
Premier, and Premier agrees to purchase from the Company one-hundred and fifty
(150) validly issued, fully paid and nonassessable shares of the Company's
Series B Preferred Stock (the "Purchased Stock"), and such purchase shall be
deemed effective upon the exercise of the Stock Options by the Outside Directors
subject to the filing of the Certificate of Determination. The Purchased Stock
shall be subject to repurchase, as set forth in Section 6.2 of this Agreement,
and shall bear appropriate restrictive legends.
5.2 Price and Consideration. In full consideration for the purchase
by Premier of the Purchased Stock, Premier shall cancel that amount of the Debt
Owed then held by Premier in the amount of twenty-five dollars ($25.00) per
share of Series B Preferred Stock purchased by Premier as Purchased Stock (the
"Purchase Price"). Premier shall deliver to OIS written evidence, in a form
acceptable to OIS, showing the cancellation of the aforementioned indebtedness
under the terms of this Agreement.
5
<PAGE> 6
5.3 Stock Certificates. As soon as practicable after the Effective
Date, OIS will deliver to Premier a certificate representing the Series B
Preferred Stock purchased by Premier, which certificate shall bear appropriate
restrictive legends.
5.4 Best Efforts and Further Assurances. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplates
hereby and to fulfill and cause to be fulfilled the terms and conditions set
forth under this Agreement. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
ARTICLE 6
REPURCHASE RIGHTS
6.1 Repurchase of Exercised Stock. If at any time after the
Effective Date, but before May 9, 2000, an Outside Director ceases to be a
director of OIS, then OIS shall have the option to repurchase, in whole or in
part, that Outside Director's Exercised Stock then outstanding, if any, at the
original option Exercise Price; provided, however, that this right to repurchase
Exercised Stock shall lapse over the same period of time as the options
exercised by the Outside Directors would have vested prior to acceleration of
vesting pursuant to this Agreement. The Company's right to repurchase the
Exercised Stock, in whole or in part, shall terminate on the effective date of
the Merger. In the event the Company wishes to exercise its repurchase rights
under this Section 6.1, it shall give to that Outside Director at least 30 days
prior written notice of its intention to repurchase Exercised Stock, describing
the amount of Exercised Stock being repurchased. After that 30 day notice
period, Company shall pay the Outside Director an amount, in cash, equal to the
number of shares of Exercised Stock being repurchased multiplied by the original
option Exercise Price. The payment provided in this Section 6.1 shall be deemed
to have been paid in full satisfaction of all rights pertaining to the
repurchased Exercised Stock, and no dividends or other distributions with
respect to the repurchased Exercised Stock will be paid to the holder of any
unsurrendered stock certificates representing the repurchased Exercised Stock
for any distribution with a record date after the Outside Director received the
repurchase price in full as provided by this Section 6.1. Promptly upon receipt
of payment in full for the repurchased Exercised Stock, that Outside Director
shall surrender to the Company for cancellation the stock certificate or
certificates formerly representing the repurchased Exercised Stock then held by
him. As soon as practicable after the Company receives the stock certificate or
certificates representing the repurchased Exercised Stock, OIS will deliver to
that Outside Director a certificate representing those shares of common stock
not repurchased and still held by that Outside Director, if any.
6.2 Repurchase of Purchased Stock. If OIS repurchases any Exercised
Stock pursuant to Section 6.1 hereof, OIS shall have the option to repurchase
the Purchased Stock issued in respect of the Exercised Stock, in whole or in
part, at a price per share equal to the original Purchase Price. In the event
the Company wishes to exercise its repurchase rights under this Section 6.2, it
shall give to Premier at least 30 days prior written notice of its intention to
6
<PAGE> 7
repurchase Purchased Stock, describing the amount of Purchased Stock being
repurchased. After that 30 day notice period, Company shall pay Premier an
amount, in cash or debt, at Company's sole discretion, equal to the number of
shares of Purchased Stock being repurchased multiplied by the original Purchase
Price. The payment provided in this Section 6.2 shall be deemed to have been
paid in full satisfaction of all rights pertaining to the repurchased Purchased
Stock, and no dividends or other distributions with respect to the repurchased
Purchased Stock will be paid to the holder of any unsurrendered stock
certificates representing the repurchased Purchased Stock for any distribution
with a record date after Premier received the repurchase price in full as
provided by this Section 6.2. Promptly upon receipt of payment in full for the
repurchased Purchased Stock, Premier shall surrender to the Company for
cancellation the stock certificate or certificates formerly representing the
repurchased Purchased Stock then held by it. As soon as practicable after the
Company receives the stock certificate or certificates representing the
repurchased Purchased Stock, OIS will deliver to Premier a certificate
representing those shares of Series B Preferred Stock not repurchased and still
held by Premier, if any.
ARTICLE 7
MISCELLANEOUS
7.1 Expenses. Each party to this Agreement shall pay his or its own
costs and expenses (including all legal fees) relating to this Agreement, the
negotiations leading up to this Agreement and the transactions contemplated by
this Agreement.
7.2 Amendment. This Agreement shall not be amended except by a
writing duly executed by each party to this Agreement.
7.3 Entire Agreement. This Agreement, including the exhibits and
other documents delivered pursuant to this Agreement, contain all of the terms
and conditions agreed upon by the parties relating to the subject matter of this
Agreement and supersede all prior and contemporaneous agreements, negotiations,
correspondence, undertakings and communications of the parties, oral or written,
respecting the subject matter hereof.
7.4 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
7.5 Headings. The headings contained in this Agreement are intended
solely for convenience and shall not affect the rights of the parties to this
Agreement.
7.6 Mutual Contribution. The parties to this Agreement and their
counsel have mutually contributed to its drafting. Consequently, no provision of
this Agreement shall be construed against any party on the ground that that
party drafted the provision or caused it to be drafted.
7.7 Notices. All notices, requests, demands and other communications
made in connection with this Agreement shall be in writing and shall be deemed
to have been duly given on the date of delivery, if delivered to the persons
identified below, including delivery by
7
<PAGE> 8
facsimile, provided sender receives telephonic or electronic confirmation of
delivery, or three days after mailing if mailed by certified or registered mail,
postage prepaid, return receipt requested, addressed as follows:
If to the Company:
Ophthalmic Imaging Systems
221 Lathrop Way, Suite I
Sacramento, CA 95815
Attention: President
Facsimile No.: (916) 646-0207
Telephone No.: (916) 646-2020
With a copy to:
Gibson, Dunn & Crutcher LLP
1530 Page Mill Road
Palo Alto, California 94304
Attention: Lawrence Calof, Esq.
Facsimile No.: (650) 849-5348
Telephone No.: (650) 849-5300
If to Premier:
Premier Laser Systems, Inc.
3 Morgan
Irvine, CA 92618
Attention: President and Chief Executive Officer
Facsimile No.: (949) 859-5241
Telephone No.: (949) 859-0656
8
<PAGE> 9
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive, 17th Floor
Costa Mesa, CA 92626
Attention: William J. Simpson, Esq.
Facsimile No.: (714) 979-1921
Telephone No.: (714) 668-6200
If to any Outside Director:
(c/o) Ophthalmic Imaging Systems
221 Lathrop Way, Suite I
Sacramento, CA 95815
Attention: President
Facsimile No.: (916) 646-0207
Telephone No.: (916) 646-2020
Such persons and addresses may be changed, from time to time, by means of a
notice given in the manner provided in this Section.
7.8 Survival of Representations and Warranties. The respective
representations and warranties of OIS, Premier and the Outside Directors
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement for a period of one year from the Closing.
7.9 Waiver. Waiver of any term or condition of this Agreement by any
party shall not be construed as a waiver of any subsequent breach or failure of
the same term or condition, or a waiver of any other term or condition of this
Agreement.
7.10 Binding Effect; Assignment. The parties agree that this
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns. No party to this Agreement may assign
or delegate, by operation of law or otherwise, all or any portion of its rights,
obligations or liabilities under this Agreement without the prior written
consent of all other parties to this Agreement, which they may withhold in their
absolute discretion.
7.11 Finder's Fees. Each party (a) represents and warrants to the
other party hereto that it has retained no finder or broker in connection with
the transactions contemplated by this Agreement, and (b) hereby agrees to
indemnify and to hold harmless the other parties hereto from and against any
liability for any commission or compensation in the nature of a finder's fee of
any broker or other person or firm (and the costs and expenses of defending
against such liability or asserted liability) for which the indemnifying party
or any of its employees or representatives are responsible.
9
<PAGE> 10
7.12 No Third Party Beneficiaries. Nothing in this Agreement shall
confer any rights upon any person or entity which is not a party or an assignee
of a party to this Agreement.
7.13 Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument. All counterparts shall be deemed an original of this
Agreement.
[The signature pages follow.]
10
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
OPHTHALMIC IMAGING SYSTEMS:
By /s/ STEVEN VERDOONER
-------------------------------------
Steven Verdooner, President
PREMIER LASER SYSTEMS, INC.:
By /s/ COLETTE COZEAN
-------------------------------------
Colette Cozean, Ph.D.,
President and CEO
OUTSIDE DIRECTORS:
By /s/ WALT WILLIAMS
-------------------------------------
Walt Williams
By /s/ DANIEL DURRIE
-------------------------------------
Daniel Durrie
By /s/ RANDALL B. FOWLER
-------------------------------------
Randall B. Fowler
[Stock Purchase Agreement Signature Page]
11
