Exhibit 2.1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TEGAL CORPORATION,
SFI ACQUISITION CORP.,
SPUTTERED FILMS, INC.,
AND
THE SHAREHOLDER AGENT
DATED AS OF AUGUST 13, 2002
TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS............................................................................................ 1
1.1 Defined Terms.................................................................................... 1
1.2 Interpretation Provisions........................................................................ 11
ARTICLE 2 THE MERGER ............................................................................................ 11
2.1 The Merger....................................................................................... 11
2.2 Effective Time................................................................................... 12
2.3 Effect of the Merger............................................................................. 12
2.4 Articles of Incorporation; Bylaws................................................................ 12
2.5 Directors and Officers........................................................................... 12
2.6 Conversion of Securities......................................................................... 12
2.7 Surrender of Certificates........................................................................ 16
2.8 No Further Ownership Rights in Shares of Company Stock........................................... 16
2.9 Lost, Stolen or Destroyed Certificates........................................................... 16
2.10 Tax Consequences................................................................................. 16
2.11 Taking of Necessary Action; Further Action....................................................... 17
2.12 Shareholder Agent; Power of Attorney............................................................. 17
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................................... 17
3.1 Organization of the Company...................................................................... 18
3.2 Capitalization of the Company.................................................................... 18
3.3 Shareholders' Agreements, etc.................................................................... 19
3.4 Authorization.................................................................................... 19
3.5 Officers and Directors........................................................................... 19
3.6 Bank Accounts.................................................................................... 19
3.7 Subsidiaries, Etc................................................................................ 19
3.8 Real Property.................................................................................... 19
3.9 Personal Property................................................................................ 20
3.10 Environmental Matters............................................................................ 21
3.11 Contracts........................................................................................ 22
3.12 No Conflict or Violation; Consents............................................................... 23
3.13 Permits.......................................................................................... 24
3.14 Financial Statements; Books and Records.......................................................... 24
3.15 Absence of Certain Changes or Events............................................................. 25
3.16 Liabilities...................................................................................... 27
3.17 Litigation....................................................................................... 27
3.18 Labor Matters.................................................................................... 27
3.19 Employee Benefit Plans........................................................................... 28
3.20 Transactions with Related Parties................................................................ 29
3.21 Compliance with Law.............................................................................. 29
3.22 Intellectual Property............................................................................ 29
3.23 Tax Matters...................................................................................... 30
3.24 Tax-Free Reorganization.......................................................................... 33
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3.25 Insurance........................................................................................ 34
3.26 Accounts Receivable.............................................................................. 34
3.27 Inventory........................................................................................ 34
3.28 Purchase Commitments and Outstanding Bids........................................................ 35
3.29 Suppliers........................................................................................ 35
3.30 Brokers; Transaction Costs....................................................................... 35
3.31 No Other Agreements to Sell the Company or the Assets............................................ 35
3.32 Foreign Corrupt Practices Act.................................................................... 35
3.33 Financial Projections; Operating Plan............................................................ 35
3.34 Approvals........................................................................................ 36
3.35 Takeover Statutes................................................................................ 36
3.36 Material Misstatements or Omissions.............................................................. 36
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB................................................ 36
4.1 Organization..................................................................................... 36
4.2 Capitalization................................................................................... 36
4.3 Authorization.................................................................................... 37
4.4 Tax-Free Reorganization.......................................................................... 37
4.5 SEC Reports; Financial Statements................................................................ 39
4.6 Information Supplied............................................................................. 39
4.7 Consents and Approvals; No Violations............................................................ 40
4.8 No Prior Activities of Merger Sub................................................................ 40
ARTICLE 5 ACTIONS BY THE COMPANY, PARENT AND MERGER SUB PRIOR TO THE CLOSING..................................... 40
5.1 Conduct of Business.............................................................................. 40
5.2 Access by Parent................................................................................. 42
5.3 Notification of Certain Matters.................................................................. 42
5.4 No Mergers, Consolidations, Sale of Stock, etc................................................... 42
5.5 Company Shareholder Approval..................................................................... 43
5.6 Company's Auditors............................................................................... 43
5.7 Closing Date..................................................................................... 43
5.8 Takeover Statutes................................................................................ 43
5.9 Further Assurances............................................................................... 43
5.10 Termination of 401(k) Plan and Company Stock Option Plans........................................ 44
ARTICLE 6 CONDITIONS TO THE COMPANY'S OBLIGATIONS................................................................ 44
6.1 Representations, Warranties and Covenants........................................................ 44
6.2 Consents......................................................................................... 44
6.3 No Court Orders.................................................................................. 45
6.4 Closing Documents................................................................................ 45
6.5 Material Adverse Change.......................................................................... 45
6.6 Employment Agreements; Grant of Parent Options................................................... 45
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6.7 Consulting Agreement............................................................................. 45
6.8 Registration Rights Agreement.................................................................... 45
ARTICLE 7 CONDITIONS TO PARENT'S AND MERGER SUB'S OBLIGATIONS.................................................... 45
7.1 Representations, Warranties and Covenants........................................................ 45
7.2 Consents......................................................................................... 45
7.3 No Actions or Court Orders....................................................................... 46
7.4 Closing Documents................................................................................ 46
7.5 Exemption under Federal and State Securities Laws................................................ 46
7.6 Shareholder Consent.............................................................................. 46
7.7 Tax Matters...................................................................................... 46
7.8 Material Adverse Change.......................................................................... 46
7.9 Appraisal Rights................................................................................. 46
7.10 Other Agreements................................................................................. 46
ARTICLE 8 CLOSING............................................................................................... 47
8.1 Deliveries by the Company and the Shareholders to Parent......................................... 47
8.2 Deliveries by Parent............................................................................. 47
ARTICLE 9 INDEMNIFICATION........................................................................................ 47
9.1 Survival of Representations, etc................................................................. 47
9.2 No Right of Contribution......................................................................... 50
9.3 Tax Indemnification.............................................................................. 50
ARTICLE 10 POST-CLOSING COVENANTS OF PARENT...................................................................... 50
10.1 Parent Indemnification with Respect to State Loan................................................ 50
10.2 Guaranty of Payments Under Peter Clarke Employment Agreement..................................... 51
10.3 Parent Payment of Company Transaction Expenses................................................... 51
10.4 Parent's Payment of Note to Clarke Trust......................................................... 51
10.5 Credit for Prior Service......................................................................... 51
10.6 Indemnification and Directors' and Officers' Insurance........................................... 51
10.7 Salaries Paid to Company Employees............................................................... 52
ARTICLE 11 MISCELLANEOUS......................................................................................... 53
11.1 Termination...................................................................................... 53
11.2 Assignment....................................................................................... 54
11.3 Representation By Counsel........................................................................ 54
11.4 Entire Agreement; Amendments and Waivers......................................................... 54
11.5 Notices.......................................................................................... 54
11.6 Counterparts..................................................................................... 55
11.7 Invalidity....................................................................................... 55
11.8 Expenses......................................................................................... 55
11.9 Publicity........................................................................................ 55
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11.10 No Third Party Beneficiaries..................................................................... 56
11.11 Governing Law.................................................................................... 56
11.12 Arbitration...................................................................................... 56
ARTICLE 12 TAX MATTERS........................................................................................... 57
12.1 Tax Matters...................................................................................... 57
12.2 Tax-Free Reorganization Treatment................................................................ 57
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated as of August 13, 2002 (the
"AGREEMENT"), by and among TEGAL CORPORATION, a Delaware corporation ("PARENT"),
SFI ACQUISITION CORP., a California corporation and a direct, wholly owned
subsidiary of Parent ("MERGER SUB"), SPUTTERED FILMS, INC., a California
corporation (the "COMPANY"), Carole Clarke in her capacity as the "SHAREHOLDER
AGENT."
RECITALS
A. The Boards of Directors of Parent, Merger Sub and the Company have
determined that it is advisable and in the best interests of their respective
stockholders and shareholders for Parent, Merger Sub and the Company to enter
into a business combination upon the terms and subject to the conditions set
forth herein.
B. In furtherance of such combination, the Boards of Directors of
Parent, Merger Sub and the Company have each approved and declared advisable
this Agreement and the merger of the Company with and into Merger Sub (the
"MERGER"), upon the terms and subject to the conditions set forth herein.
C. Parent, Merger Sub and the Company intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
and that the Merger qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "CODE"), and the
regulations promulgated thereunder.
D. Pursuant to the Merger, each outstanding share of the Company's
common stock, no par value per share, (the "COMPANY STOCK") shall be converted
solely into Parent Stock (as defined herein), upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Merger Sub, the Company and the Shareholder Agent hereby agree
as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. As used herein, the terms below shall have the
following meanings:
"ACTION" means any action, claim, suit, litigation, proceeding, labor
dispute, arbitral action, government audit, inquiry, criminal prosecution,
investigation, unfair labor practice charge, complaint or dispute.
"AFFILIATE" of a Person means any other Person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person. The term "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"ANCILLARY AGREEMENTS" shall mean the Consulting Agreement, the
Employment Agreements, the Escrow Agreement and the Proprietary Information and
Inventions Agreement, the Registration Rights Agreement, substantially in the
forms attached hereto as Exhibits A, B, C, D, and E, respectively.
"ASSETS" means the right, title and interest of the Company in their
properties, assets and rights of any kind, whether tangible or intangible, real
or personal, including, without limitation, the right, title and interest in the
following:
(a) all Contracts and Contract Rights;
(b) all Fixtures and Equipment;
(c) all Books and Records;
(d) all Proprietary Rights;
(e) all Permits;
(f) all return and other rights under or pursuant to all
warranties, representations and guarantees made by suppliers and other third
parties in connection with the Assets or services furnished to such Person;
(g) all cash, accounts receivable, deposits, Inventory and prepaid
expenses;
(h) all goodwill; and
(i) all shares of capital stock or other securities or ownership
interests in any Person.
"AVERAGE SHARE PRICE" means the average of the closing prices of Parent
Stock on the Nasdaq Stock Market as reported in the Wall Street Journal for the
ten (10) Trading Days ending on the Trading Day that is two (2) days prior to
the Closing Date.
"BALANCE SHEET" means the balance sheet of the Company as of the
Balance Sheet Date.
"BALANCE SHEET DATE" means June 30, 2002.
"BENEFIT ARRANGEMENT" means any employment, consulting, severance or
other similar contract, arrangement or policy (written or oral) and each plan,
arrangement, program, agreement or commitment (written or oral) providing for
insurance coverage (including, without limitation, any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life, health or
accident benefits (including, without limitation, any "voluntary employees'
beneficiary association" as defined in Section 501(c)(9) of the Code providing
for the same or other benefits) or for deferred
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compensation, profit-sharing, bonuses, stock options, stock appreciation rights,
stock purchases or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (a) is not a Welfare Plan, Pension
Plan or Multiemployer Plan, (b) is entered into, maintained, contributed to or
required to be contributed to, as the case may be, by the Company or any ERISA
Affiliate or under which the Company or any ERISA Affiliate may incur any
liability, and (c) covers any employee or former employee of the Company or any
ERISA Affiliate (with respect to their relationship with any such entity).
"BOOKS AND RECORDS" means (a) all product, business and marketing
plans, sales and promotional literature and artwork relating to the Assets or
the Business, (b) all books, records, lists, correspondence, ledgers, financial
and other data, files, reports, surveys, product and design manuals, plans,
drawings, formulae, technical manuals and operating records of every kind
relating to the Assets or the Business (including records and lists of
customers, distributors, suppliers and personnel) and (c) all telephone and fax
numbers used in the Business, in each case whether maintained as hard copy or
stored in computer memory and whether owned by the Company or Affiliates.
"BUSINESS" means the business and operations of the Company, consisting
of its business of designing and manufacturing sputtering equipment for the
semiconductor industry.
"CLOSING" has the meaning set forth in Section 2.1(b).
"CLOSING DATE" means the date of the Closing.
"CODE" has the meaning set forth in the Recitals hereto.
"COMPANY MATERIAL ADVERSE EFFECT" or "COMPANY MATERIAL ADVERSE CHANGE"
means a Material Adverse Effect with respect to the Company, the Business or the
Assets.
"COMPANY OPTIONS" means options to purchase shares of Company Stock
issued by the Company pursuant to the Company Stock Option Plans or otherwise to
Company employees.
"COMPANY STOCK" has the meaning set forth in the Recitals hereto.
"COMPANY STOCK OPTION PLANS" mean the Company's 1996 Stock Option Plan
and option agreements entered into with certain Employees.
"CONSENTS" means any and all Permits and any and all consents,
approvals or waivers from third parties that are required for the consummation
of the transactions contemplated by this Agreement.
"CONSULTING AGREEMENT" to be entered into by and between Parent and
Carole Clarke substantially in the form attached as Exhibit A hereto.
"CONTRACT RIGHTS" means all rights and obligations under the Contracts.
"CONTRACTS" means all agreements, contracts, leases (whether for real
or personal property), purchase orders, open tenders, warranties or guarantees
(express or implied)
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undertakings, covenants not to compete, employment agreements, confidentiality
agreements, licenses, entitlements, instruments, obligations and commitments to
which the Company is a party or by which the Company or any of its Assets are
bound or affected, whether written or oral.
"COURT ORDER" means any judgment, decision, consent decree, injunction,
ruling or order of any foreign, federal, state or local court or governmental
agency, department or authority that is binding on any Person or its property
under applicable law.
"DEFAULT" means (a) a breach of or default under any Contract, (b) the
occurrence of an event that with the passage of time or the giving of notice or
both would constitute a breach of or default under any Contract or (c) the
occurrence of an event that with or without the passage of time or the giving of
notice or both would give rise to a right of termination, renegotiation or
acceleration under any Contract.
"EARN-OUT PAYMENT" has the meaning set forth in Section 2.6(i), below.
"EFFECTIVE TIME" has the meaning set forth in Section 2.2.
"ELIGIBLE ORDER" has the meaning ascribed thereto in Section 2.6(i),
below.
"EMPLOYEE PLANS" means all Benefit Arrangements, Multiemployer Plans,
Pension Plans and Welfare Plans.
"EMPLOYEES" means all officers and directors of the Company and all
other Persons employed by the Company on a full or part-time basis (including
those employees on long-term disability leave or other absence) together with
all persons retained as "independent contractors" as of the relevant date.
"EMPLOYMENT AGREEMENTS" shall mean the Employment Agreements to be
entered into by and between Parent and each of Carol Ann Demachkie, Pavel
Laptev, Valery Feltmetsger, Greg Ballou and James Webb substantially in the form
attached as Exhibit B hereto.
"ENCUMBRANCE" means any claim, lien, pledge, option, lease, license,
occupancy agreement, charge, easement, tax assessment, security interest, deed
of trust, mortgage, right-of-way, encroachment, building or use restriction,
title defect, work order, conditional sales agreement, encumbrance or other
right of third parties or other restriction on use, whether voluntarily incurred
or arising by operation of law, and includes any agreement to give any of the
foregoing in the future, and any contingent sale or other title retention
agreement or lease in the nature thereof.
"ENVIRONMENTAL CLAIMS" means all accusations, allegations, notices of
violation, liens, claims, demands, suits, or causes of action for any damage,
including, without limitation, personal injury, property damage (including,
without limitation, any depreciation or diminution of property values), lost use
of property or consequential damages, arising directly or indirectly out of (i)
Environmental Laws or (ii) the presence, use, handling, storage, treatment,
recycling, generation, transportation, release, spilling, leaking, pumping,
pouring, emptying, discharging,
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injecting, escaping, leaching, disposal, dumping or threatened release of
Hazardous Substances at any location, whether or not owned, leased or operated
by the Company.
"ENVIRONMENTAL LAWS" means all applicable federal, state, district,
local and foreign laws, all rules or regulations promulgated thereunder, and all
orders, consent orders, judgments, notices, permits or demand letters issued,
promulgated or entered pursuant thereto, relating to pollution or protection of
the environment (including, without limitation, ambient air, surface water,
ground water, land surface, or subsurface strata).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any entity which is (or at any relevant time
was) a member of a "controlled group of corporations" with, under "common
control" with, or a member of an "affiliated service group" with, or otherwise
required to be aggregated with, the Company as set forth in Section 414(b), (c),
(m) or (o) of the Code.
"ESCROW AGENT" means such bank or other institutional trustee as is
mutually acceptable to Parent and the Company and is named in the Escrow
Agreement executed by the parties thereto.
"ESCROW AGREEMENT" means the Escrow Agreement to be entered into among
Parent, the Company, the Escrow Agent, the Shareholder Agent, and the other
parties named therein, substantially in the form of Exhibit C hereto.
"ESCROW FUND" has the meaning set forth in Section 2.6(h).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE RATIO" means the ratio obtained by dividing 1,500,000 by the
number of outstanding shares of Company Stock as of the Closing Date.
"FACILITIES" means all real property and related facilities owned,
leased or operated by the Company.
"FINANCIAL STATEMENTS" means the unaudited balance sheets of the
Company as of September 30, 2001 and 2000 and the related statements of income,
changes in Shareholders' equity and cash flows, of the Company for the years
ended September 30, 2001 and 2000, and the interim unaudited balance sheet of
the Company as of June 30, 2002, and statement of operations for the nine-month
period ended June 30, 2002.
"FIXTURES AND EQUIPMENT" means all of the furniture, fixtures,
furnishings, machinery, computer hardware, equipment, parts, tools, discs and
other tangible personal property owned by the Company, wherever located.
"GAAP" means generally accepted accounting principles of the United
States applied on a consistent basis.
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"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, city or municipality, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including, without limitation, any governmental
authority, agency, department, board, commission or instrumentality of the
United States, any State of the United States, or any political subdivision
thereof, any government authority, agency, department, board, commission or
instrumentality of the United States or any political subdivision thereof and
any tribunal or arbitrator(s) of competent jurisdiction, and any self-regulatory
organization.
"HAZARDOUS SUBSTANCES" means all pollutants, contaminants, chemicals,
wastes, and any other carcinogenic, ignitable, corrosive, reactive, toxic or
otherwise hazardous substances or materials (whether solids, liquids or gases)
and any other materials or substances subject to regulation, control or
remediation under Environmental Laws.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INDEMNIFIED D&O LIABILITIES" has the meaning ascribed thereto in
Section 10.6(a).
"INDEMNIFIED D&O PERSONS" has the meaning ascribed thereto in Section
10.6(a).
"INFORMATION STATEMENT" means such disclosure statement, offering
materials, financial statements of Parent, and other information that Company,
with the approval of Parent, provides to the Shareholders of Company in
requesting their approval of the transactions contemplated by this Agreement.
"INVENTORY" means all merchandise owned by the Company and intended for
resale.
"IRS" shall mean the United States Internal Revenue Service or any
successor agency.
"LAWS" means all laws, statutes, by-laws, ordinances, rules,
regulations, orders, judgments or decrees of any Governmental Authority.
"LEASES" has the meaning set forth in Section 3.8(c).
"LIABILITY" means any direct or indirect liability, indebtedness,
obligation, commitment, expense, claim, deficiency, guaranty or endorsement of
or by any Person of any type, whether accrued, absolute, contingent, matured,
unmatured, liquidated, unliquidated, known or unknown.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" or a similar
phrase means, with respect to any Person, any material adverse effect on or
change with respect to (i) the business, operations, assets (taken as a whole),
liabilities (taken as a whole), financial condition or results of operations of
such Person and its Subsidiaries, taken as a whole, or (ii) the right or ability
of such Person to consummate any of the transactions contemplated hereby.
"MERGER SHARES" has the meaning set forth in Section 2.6(b).
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"MULTIEMPLOYER PLAN" means any "multiemployer plan," as defined in
Section 4001(a)(3) or 3(37) of ERISA, which (a) the Company or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or, after September 25, 1980, maintained, administered, contributed to or
was required to contribute to, or under which the Company or any ERISA Affiliate
may incur any liability and (b) covers any employee or former employee of the
Company or any ERISA Affiliate (with respect to their relationship with any such
entity).
"NET SELLING PRICE" has the meaning ascribed thereto in Section 2.6(i),
below.
"NON-DISCLOSURE AGREEMENT" means that certain Non-Disclosure Agreement
between Parent and the Company dated as of August 10, 2001 (executed by Parent
on August 29, 2001), relating to the delivery by the Company of confidential
information to Parent and its Representatives.
"NUMBER OF PARENT SHARES" means 1,500,000 shares of Parent Stock.
"OPTION PURCHASE PRICE" means the number of shares of Parent Stock
equal to the difference between the (i) number of shares of Parent Stock into
which each share of Company Stock subject to the Company Option is convertible
under Section 2.6(a) and (ii) the number of shares of Parent Stock with a fair
market value equal to the exercise price of such Company Option, with the fair
market value equal to the Average Share Price.
"PARENT STOCK" means the common stock, par value $0.01 per share, of
Parent.
"PARENT STOCK OPTION PLANS" means the Amended and Restated Equity
Incentive Plan, the 1990 Stock Option Plan, the Directors Stock Option Plan, the
1998 Equity Participation Plan and option agreements entered into with certain
management employees of Parent.
"PENSION PLAN" means any "employee pension benefit plan" as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) which (a) the Company or
any ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or, within the five (5) years prior to the Closing Date,
maintained, administered, contributed to or was required to contribute to, or
under which the Company or any ERISA Affiliate may incur any liability
(including, without limitation, any contingent liability) and (b) covers any
employee or former employee of the Company or any ERISA Affiliate (with respect
to their relationship with any such entity).
"PERMITS" means all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, necessary or desirable for
the past, present or anticipated conduct or operation of the Business or
ownership of the Assets of such Person.
"PERMITTED ENCUMBRANCES" means (a) statutory liens of landlords, liens
of carriers, warehousepersons, mechanics and materialpersons incurred in the
ordinary course of business for sums (i) not yet due and payable, or (ii) being
contested in good faith, if, in either such case, an adequate reserve, shall
have been made therefor in such Person's financial statements, (b) liens
incurred or deposits made in connection with workers' compensation, unemployment
insurance and other similar types of social security programs or to secure the
performance of
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tenders, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, performance and return of money bonds and similar
obligations, in each case in the ordinary course of business, consistent with
past practice, (c) easements, rights-of-way, restrictions and other similar
non-monetary charges or encumbrances, in each case, which do not interfere with
the ordinary conduct of business of the Company and do not materially detract
from the value of the property upon which such encumbrance exists, and (d) liens
securing taxes, assessments and governmental charges not yet delinquent or the
amount or validity of which are being contested in good faith by appropriate
proceedings by the Company, as applicable.
"PERMITTED TRANSFEREE" means (i) any Affiliate or immediate family
member of a holder, or any trust or entity for the benefit of any such Persons,
to whom Registrable Shares are transferred for no consideration, or (ii) any
arms-length bona fide donee or pledgee of Registrable Shares of any of the
foregoing Persons.
"PERSON" means any person or entity, whether an individual, whether in
their capacity as a trustee, executor, administrator or other legal
representative, sole proprietorship, corporation, limited liability company,
general partnership, limited partnership, trust, unincorporated organization,
syndicate, business association, firm, joint venture, governmental agency or
authority or any similar entity.
"PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT" means the Tegal
Corporation Proprietary Information and Inventions Agreement, substantially in
the form of Exhibit D hereto, to be entered into by the Employees and Parent.
"PROPRIETARY RIGHTS" means all intellectual property rights of every
nature and kind, including without limitation, (a) U.S. and foreign patents,
patent applications, patent disclosures and improvements thereto, including
petty patents and utility models and applications therefor, (b) U.S. and foreign
trademarks, service marks, trade dress, logos, commercial symbols, trade names
and corporate names and the goodwill associated therewith and registrations and
applications for registration thereof, (c) U.S. and foreign copyrights and
registrations and applications for registration thereof, (d) U.S. and foreign
mask work rights and registrations and applications for registration thereof,
(e) Trade Secrets, (f) URL registrations, (g) other proprietary rights,
including industrial designs, (h) copies and tangible embodiments thereof (in
whatever form or medium), (i) licenses granting any rights with respect to any
of the foregoing and (j) any renewal applications, divisions, extensions and
reissues, where applicable with respect to any of the foregoing.
"REGISTRABLE SHARES" has the meaning set forth in the Registration
Rights Agreement.
"REGISTRATION RIGHTS AGREEMENT" means a mutually acceptable
registration rights agreement, substantially in the form of Exhibit E hereto, to
be entered into among Parent and the Shareholders, with respect to the Parent
Stock to be delivered to the Shareholders pursuant to this Agreement.
"REGULATIONS" means any laws, statutes, ordinances, regulations, rules,
notice requirements, court decisions, agency guidelines, and orders of any
foreign, federal, state or local government and any other governmental
department or agency, including without limitation
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energy, motor vehicle safety, public utility, zoning, building and health codes,
Environmental Laws, and occupational safety and health and laws respecting
employment practices, employee documentation, human rights code, terms and
conditions of employment and wages and hours.
"RELATED PARTY" means (i) any of the Company's officers, directors and
Shareholders, and any officers, directors, partners, associates or relatives of
such officers, directors and Shareholders, (ii) any Person in which the Company
or any Shareholder or any Affiliate or relative of any such Person has any
direct or indirect controlling interest, and (iii) any direct or indirect
trustee or beneficiary of any Shareholder.
"REPRESENTATIVE" of any Person means any officer, director, principal,
attorney, accountant, agent, employee or other representative of such Person.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHAREHOLDER" means each holder of Company Stock, including Persons
holding Company Options, and "Shareholders" means all holders of the Company
Stock, including Persons holding Company Options, in each case as determined
immediately prior to the Effective Time.
"SHAREHOLDER AGENT" has the meaning set forth in Section 2.12(a).
"SHAREHOLDER CONSENT" has the meaning set forth in Section 7.6.
"SUBSIDIARY" means, with respect to any Person, (a) any corporation of
which at least 50% of the securities or interests having, by their terms,
ordinary voting power to elect members to the board of directors, or other
persons performing similar functions with respect to such corporation, is held,
directly or indirectly, by such Person, (b) any partnership or limited liability
company of which (i) such Person is a general partner or managing member or (ii)
such person possesses a 50% or greater interest in the total capital or total
income of such partnership or limited liability company.
"SURVIVAL PERIOD" has the meaning ascribed thereto in Section 9.1(a),
below.
"TAKEOVER STATUTE" means a "fair price," "moratorium," "control share
acquisition" or other similar anti-takeover statute or regulation enacted under
state or federal laws in the United States.
"TAX RETURNS" means any report, return (including information return),
election, document, estimated tax filing, declaration or other information or
filing required to be supplied to any taxing authority or jurisdiction with
respect to Taxes including any schedule or attachment thereto, and amendments
thereto and any document with respect to or accompanying requests for the
extension of time in which to file any such item.
"TAXES" means any and all taxes, assessments, charges, duties, fees,
levies, imposts or other governmental charges, including, without limitation,
all federal, state, local, municipal,
9
county, foreign and other income, franchise, profits, capital gains, capital
stock, capital structure, transfer, gross receipt, sales, use, service,
occupation, ad valorem, property, excise, severance, windfall profits,
withholding, premium, stamp, license, payroll, employment, social security,
unemployment, health insurance, employment insurance, workers compensation,
disability, environmental (including taxes under Code Section 59A), alternative
minimum, add-on, value-added, goods and services, harmonized sales, customs,
import, export, registration, excise, roduction, frankings, fringe benefits,
occupancy, real property, personal property, business and occupation, education,
mercantile, withholding and other taxes, assessments, charges, duties, fees,
levies, imposts or other governmental charges of any kind whatsoever imposed by
any taxing authority or jurisdiction (whether payable directly or by withholding
and whether or not requiring the filing of a Tax Return), and all estimated
taxes, deficiency assessments, additions to tax, additional amounts imposed by
any governmental authority (domestic or foreign), penalties, fines and interest,
and shall include any liability for such amounts of any other Person as a result
either of being (or having been) a member of a combined, consolidated, unitary
or affiliated group or of a contractual obligation to indemnify any Person, and
shall include any liability for such amounts relating to any other Person if
such liability is imposed by reason of law (including transferee or successor
liability). Any such amount shall also include any interest whether paid or
received, fines, penalties, surtaxes, or additional amounts attributable to, or
imposed upon, or with respect to, any such taxes, assessments, charges, duties,
fees, levies, imposts or other governmental charges.
"TO THE KNOWLEDGE" or "KNOWLEDGE" of a party (or similar phrases) means
to the extent of matters which are actually known by such party and when used in
respect of the Company, the term "to the knowledge" or "knowledge" shall mean
the matters actually known by each of the directors and officers of the Company
and with respect to Parent, shall mean the matters actually known by Parent's
Chief Executive Officer, President and any Senior Vice President.
"TRADE SECRETS" means all trade secrets and confidential business
information (including ideas, formulas, compositions, inventions (whether
patentable or unpatentable and whether or not reduced to practice), know-how,
research and development information, software, drawings, specifications,
circuit, topographies, designs, plans, proposals, technical data, copyrightable
works, concepts, methods, procedures, financial, marketing and business data,
pricing and cost information, business and marketing plans, marketing mailing
and e-mail lists, and customer and supplier mailing and e-mail lists and
information), to the extent eligible for protection as a "trade secret" under
the Uniform Trade Secret Act, as adopted in California.
"TRADING DAY" means any day on which the Nasdaq National Market is open
and available for at least five (5) hours for the trading of securities.
"TRANSACTION COSTS" means all costs and expenses incurred by the
Company in connection with the preparation and execution of this Agreement and
in anticipation of the Merger and the transactions contemplated hereby for
reasonable legal, accounting and transaction costs.
"WELFARE PLAN" means any "employee welfare benefit plan" as defined in
Section 3(1) of ERISA, which (a) the Company or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to, or under which the
Company or any ERISA Affiliate may incur any
10
liability and (b) covers any employee or former employee of the Company or any
ERISA Affiliate (with respect to their relationship with any such entity).
1.2 Interpretation Provisions.
(a) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement, and article, section,
schedule and exhibit references are to this Agreement unless otherwise
specified. The meaning of defined terms shall be equally applicable to the
singular and plural forms of the defined terms. The terms "include" and
"including" are not limiting and mean "including without limitation."
(b) References to agreements and other documents shall be
deemed to include all subsequent amendments and other modifications thereto.
(c) References to statutes shall include all regulations
promulgated thereunder and references to statutes or regulations shall be
construed as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation.
(d) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the construction of this
Agreement.
(e) The parties participated jointly in the negotiation and
drafting of this Agreement and the language used in this Agreement shall be
deemed to be the language chosen by the parties to express their mutual intent.
If an ambiguity or question of intent or interpretation arises, then this
Agreement will accordingly be construed as drafted jointly by the parties to
this Agreement, and no presumption or burden of proof will arise favoring or
disfavoring any party to this Agreement by virtue of the authorship of any of
the provisions of this Agreement.
(f) The schedules and exhibits to this Agreement are a
material part hereof and shall be treated as if fully incorporated into the body
of the Agreement.
ARTICLE 2
THE MERGER
2.1 The Merger.
(a) Effective Time. At the Effective Time (as defined in
Section 2.2 hereof), and upon the terms and subject to the conditions of this
Agreement and the CGCL, the Company shall be merged with and into Merger Sub,
the separate corporate existence of the Company shall cease, and Merger Sub
shall continue as the surviving corporation and a wholly-owned subsidiary of
Parent. Merger Sub, as the surviving corporation after the Merger, is
hereinafter sometimes referred to as the "SURVIVING CORPORATION."
(b) Closing. Unless this Agreement shall have been terminated
pursuant to Section 11.1, and subject to the satisfaction (or to the extent
permitted hereunder, the waiver) of the conditions set forth in Article 6 and
Article 7, the closing of the transactions contemplated by
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this Agreement (the "CLOSING") shall take place (i) at the offices of Latham &
Watkins, 505 Montgomery Street, Suite 1900, San Francisco, CA 94111, as promptly
as practicable (and in any event within five (5) business days) after
satisfaction (or the extent permitted, the waiver) of the conditions set forth
in Article 6 and Article 7 or (ii) at such other time, date or place as Parent
and the Company may mutually agree.
2.2 Effective Time. As promptly as practicable after the satisfaction
(or to the extent permitted, the waiver) of the conditions set forth in Article
6 and Article 7, and provided that this Agreement has not been terminated
pursuant to Section 11.1, the parties hereto shall cause the Merger to be
consummated by executing and filing Agreement of Merger as contemplated by the
California Corporations Code (the "AGREEMENT OF MERGER"), with the Secretary of
State of the State of California as provided in Section 1100, et seq of the
California Corporations Code and the California General Corporation Law
(collectively, the "CGCL"). The Merger shall be effective at the time indicated
in such Agreement of Merger (the "EFFECTIVE TIME").
2.3 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 the CGCL.
2.4 Articles of Incorporation; Bylaws.
(a) Articles of Incorporation. 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 duly amended in accordance with applicable law.
(b) Bylaws. At the Effective Time, the Bylaws of Merger Sub,
as in effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter duly amended in accordance with
applicable law, the Articles of Incorporation of the Surviving Corporation and
such Bylaws.
2.5 Directors and Officers. The directors of Merger Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified in the manner provided in the Articles
of Incorporation and Bylaws of the Surviving Corporation and in accordance with
applicable law. Upon request of Parent, the Company shall cause each or any
director and officer of the Company to tender his or her resignation prior to
the Effective Time, with each such resignation to be effective as of the
Effective Time.
2.6 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any further action on the part of Parent, Merger Sub, the
Company or any Shareholder:
(a) Company Stock. Subject to Section 2.6(f), each share of
Company Stock issued and outstanding immediately prior to the Effective Time
will by virtue of the Merger shall
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be converted into the right to receive, and become exchangeable for, such number
of validly issued, fully paid and nonassessable shares of Parent Stock as equals
the Exchange Ratio.
(b) Options. Each Company Option, whether vested or unvested, to
purchase shares of Company Stock which is outstanding and unexercised
immediately prior to the Effective Time shall cease to represent a right to
acquire shares of Company Stock and shall automatically become the right to
purchase the number of shares of Parent Stock into which the shares of Company
Stock subject to such Company Option would have been converted into at the
Effective Time by operation of Section 2.6(a) (rounded down to the nearest full
number of shares of Parent Stock) for an exercise price equal to the result of
dividing the per share exercise price of such Company Option by the Exchange
Ratio (rounded down to the nearest full cent). Notwithstanding the foregoing,
(i) the number of shares of Parent Stock to be reserved for issuance pursuant to
such Company Options shall not exceed 50,000; and (ii) the number of and the per
share exercise price of each Company Option which is an "incentive stock option"
(as defined in Section 422 of the Code) shall be adjusted in accordance with the
requirements of Section 424 of the Code, as necessary in order for such Company
Option to be an "incentive stock option." Except for the adjustments provided
for in this Section 2.6(b), the Company Options shall continue to be governed
by, and be subject to, the terms of the Company Stock Option Plan and agreements
pursuant to which such Company Options were granted. The shares of Parent Stock
issued in connection with the Merger as a result of the conversion and exchange
provided for in Section 2.6(a) and Section 2.6(b) are sometimes referred to
herein as the "MERGER SHARES."
(c) Number of Shares of Parent Stock Issuable. The number of shares of
Parent Stock to be issued in the Merger in exchange for the acquisition by
Parent of all outstanding shares of Company Stock, all other capital stock of
any class or series, and all outstanding options, warrants, or other securities
to acquire capital stock of the Company (other than the Company Options) shall
not exceed 1,500,000.
(d) Merger Sub Stock. Each share of common stock, no par value, of
Merger Sub issued and outstanding immediately prior to the Effective Time shall,
by virtue of the Merger and without any action on the part of the holder
thereof, automatically be converted into and thereafter represent one (1)
validly issued, fully paid and nonassessable common share, par value $0.01 per
share, of the Surviving Corporation, so that thereafter Parent will be the sole
and exclusive owner of the capital stock of the Surviving Corporation.
(e) Cancellation. Each share of Company Stock held in the treasury of
the Company immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, automatically
cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist.
(f) Fractional Shares. No certificates or scrip representing fractional
shares of Parent Stock shall be issued in connection with the Merger, but in
lieu thereof each Shareholder who would otherwise be entitled to receive a
fraction of a Merger Share shall receive from Parent an amount of cash equal to
the product of (i) the fraction of a share of a Merger Share to which such
holder would otherwise be entitled multiplied by (ii) the Average Share Price.
The fractional share determination shall be made individually for each
Shareholder after giving effect
13
to the delivery of the Escrow Fund (as defined below) to the Escrow Agent, it
being recognized that, as provided in Section 2.8, only whole shares may be
delivered to the Escrow Agent.
(g) Adjustments to Exchange Ratio. The number of shares of Parent Stock
into which a share of Company Stock is convertible or to be exchanged pursuant
to Section 2.6(a) and Section 2.6(b), shall be equitably adjusted to reflect
fully the effect of any stock split, reverse split, stock combination, stock
dividend, reorganization, reclassification, recapitalization or other like
change with respect to Parent Stock or Company Stock after the date hereof and
prior the Effective Time.
(h) Escrow Fund. Notwithstanding the other provisions of this Article
2, Parent shall deliver to the Escrow Agent (i) ten percent (10%) of all
Earn-Out Payments (subject to subparagraphs (i) and (ii) of this Section 2.6(h),
below), as and when payable to the Shareholders, and (ii) that number of shares
of Parent Stock as equals (x) the Number of Parent Shares multiplied by (y)
0.10, and rounded to a whole number of shares on a holder-by-holder basis
(collectively the "ESCROW DEPOSIT").
(A) The Escrow Deposit shall be withheld from the Parent Stock
and Earn-Out Payment otherwise deliverable to the Shareholders and shall
constitute the "ESCROW FUND." The Escrow Fund shall be deposited with the Escrow
Agent and disbursed in accordance with Section 2.6(i) and Section 9.1.
(B) With respect to Earn-Out Payments that become due and
payable under Section 2.6(i):
(1) During the Survival Period, ten percent (10%) of the
amount thereof shall be paid to the Escrow Agent and become a part of the Escrow
Fund, and the remaining ninety percent (90%) of the amount thereof shall be paid
to the Shareholders in accordance with Section 2.6(i), below.
(2) At any time after the Survival Period, and if as of the
due date for such Earn-Out Payment (a) there is then pending any unresolved
Claim, or if any Parent Indemnified Party shall have become entitled to payment
of any Claim and the amount of the Escrow Fund (without regard to the amount of
such Earn-Out Payment) is insufficient to satisfy the amount for which the
Parent Indemnified Party is entitled to receive indemnity from the Escrow Fund,
then ten percent (10%) of the amount thereof shall be paid to the Escrow Agent
and become a part of the Escrow Fund, and the remaining ninety percent (90%) of
the amount thereof shall be paid to the Shareholders in accordance with Section
2.6(i), below, or (b) there are no pending unresolved Claims and if all prior
Claims (if any) for which a Parent Indemnified Party was entitled to indemnity
from the Escrow Fund were satisfied in full therefrom, then the entire amount of
such Earn-Out Payment shall be paid to the Shareholders pursuant to Section
2.6(i), below.
(i) Additional Consideration: Earn-Out Payments. As additional
consideration for the Merger, Parent shall pay to the Shareholders, with respect
to their shares of Company Stock, cash in an amount calculated according to and
payable at the times set forth on this Section 2.6(i) (collectively, the
"EARN-OUT PAYMENT").
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(A) The amount of the Earn-Out Payment shall be equal to the sum of (i)
two percent (2.0%) of the Net Selling Price (as defined below) for all Eligible
Orders (as defined below) received in writing by Parent or the Surviving
Corporation during the period commencing on the Closing Date and ending on the
first annual anniversary thereof and thereafter accepted by Parent or the
Surviving Corporation, plus (ii) one percent (1.0%) of the Net Selling Price for
all Eligible Orders received in writing by Parent or the Surviving Corporation
during the period commencing on the day after the first annual anniversary of
the Closing Date and ending on the second annual anniversary of such Closing
Date and thereafter accepted by Parent or the Surviving Corporation.
(B) Within twenty (20) days after the end of each calendar month in
which Parent collects any of the Net Selling Price with respect to any Eligible
Order and recognizes such Net Selling Price as income under Parent's method of
accounting as then in effect, Parent shall pay to the Shareholders in accordance
with their interests therein, all Earn-Out Payments due hereunder with respect
to such Net Selling Price. Those Earn-Out Payments shall be due and payable to
the Shareholder Agent for distribution to the Shareholders in the proportion
that (x) the number of shares of Company Stock owned by the Shareholder as of
the Closing Date, bears to (y) the aggregate number of shares of Company Stock
issued and outstanding as of the Closing Date. Any payment that is not paid on
or before the due date therefor shall bear interest at a rate equal to ten
percent (10%) per annum (or, if lesser, at the maximum rate permitted by
applicable law) from such due date until the date paid in full.
(C) The Shareholder Agent and its representative from time to time (but
in all events not more frequently than once in each calendar year) upon
reasonable advance written notice and during regular weekday business hours
shall be entitled to inspect the books and records of Parent and the Surviving
Corporation for the purpose of confirming Eligible Orders accepted by either
such entity, the amount of the Net Selling Price of such Eligible Orders
collected by Parent or the Surviving Corporation, and the amount of the Earn-Out
Payments due and payable to the Shareholders. If as a result of such audit and
inspection it is determined by mutual agreement between Parent and the
Shareholder Agent that the amount of the Earn-Out Payment due with respect to
any prior period exceeds the amount actually paid for that period by the greater
of five percent (5.0%) of the total amount due for such period or Five Thousand
Dollars ($5,000), then Parent upon demand shall reimburse the Shareholder Agent
for the reasonable out-of-pocket costs and expenses of such audit and
inspection.
(D) For purposes of this Section 2.6(i), the term:
(1) "ELIGIBLE ORDER" means each order for an Endeavor
sputtering machine that is accepted by Parent or the Surviving Corporation
during the period of two (2) years after the Closing Date; and
(2) "NET SELLING PRICE" shall mean the gross invoice price for
each Eligible Order, reduced by discounts and allowances, as recognized and
received in cash by Parent in accordance with Parent's revenue recognition
policy then in effect.
(j) Withholding Taxes. Each of Parent and the Escrow Agent shall be
entitled to deduct and withhold from the Earn-Out Payment otherwise payable
pursuant to this
15
Agreement to any Shareholder such amounts, if any, as may be required to be
deducted and withheld with respect to the making of such payment under the Code,
or under any provision of state, local or foreign tax law. To the extent that
amounts are so withheld and paid over to the appropriate taxing authority, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of such shares in respect of which such deduction and
withholding was made.
2.7 Surrender of Certificates.
(a) Delivery of Certificates. At the Effective Time, Parent
shall make available, and each Shareholder shall be entitled to receive, upon
surrender to Parent or its designated representative of any Certificates for
cancellation, duly endorsed in blank for transfer, such number of shares of
Parent Stock as equals such holder's pro rata portion of the aggregate Merger
Shares into which such Company Stock shall have been converted in the Merger.
(b) Cancellation of Company Stock. Upon surrender of each
Certificate and delivery by Parent of the Merger Shares to be delivered in
exchange therefor, such Certificate shall forthwith be canceled. Until so
surrendered, each Certificate shall be deemed for all corporate purposes to
evidence only the right to receive upon such surrender the aggregate number of
Merger Shares into which the Company Stock represented thereby shall have been
converted in accordance with the terms and upon the conditions of this Agreement
(including, without limitation, the requirement that a portion of such Merger
Shares be deposited with the Escrow Agent).
2.8 No Further Ownership Rights in Shares of Company Stock. The shares
of Parent Stock delivered upon the surrender for exchange of Company 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 Company Stock, and there
shall be no further registration of transfers of Company Stock which were
outstanding immediately prior to the Effective Time on the records of the
Surviving Corporation. If, after the Effective Time, the Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Article 2.
2.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, Parent 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 Parent Stock as may
be required pursuant to Section 2.8; provided, however, that Parent may, in its
sole 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 Parent with respect to the Certificates alleged to have been lost,
stolen or destroyed.
2.10 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368(a) of
the Code. The parties hereto hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
U.S. Treasury Regulations.
16
2.11 Taking of Necessary Action; Further Action. Each of Parent, Merger
Sub, the Company and each Shareholder will take all such reasonable lawful
action as may be necessary or appropriate in order to effect the Merger in
accordance with this Agreement as promptly as practicable. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest Parent with full right, title and
possession to all the property, rights, privileges, power and franchises of the
Company, the officers and directors of Merger Sub, Parent and Company
immediately prior to the Effective Time are fully authorized in the name of
their respective corporations or otherwise to take, and will take, all such
lawful and necessary action.
2.12 Shareholder Agent; Power of Attorney.
(a) Shareholder Agent. In the event that the Merger is
approved by the Shareholders, effective upon such vote, and without further act
of any Shareholder, Carole Clarke shall be appointed as agent and
attorney-in-fact (the "SHAREHOLDER AGENT") for each Shareholder, to exclusively
take any and all actions required or permitted to be taken by the Shareholders
under this Agreement and the Registration Rights Agreement, including but not
limited to, to give and receive notices and communications, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to such
claims and to take all actions necessary or appropriate in the judgment of the
Shareholder Agent for the accomplishment of the foregoing. The Shareholders
shall have the right, at any time and from time to time, to appoint, by written
notice to Parent signed by a majority in interest of the Shareholders, a
replacement Shareholder Agent, in which event such replacement shall be
considered the Shareholder Agent from and after the date of Parent's receipt of
notice of such appointment. Any vacancy in the position of Shareholder Agent may
be filled by approval of a majority in interest of the Shareholders. No bond
shall be required of the Shareholder Agent, and the Shareholder Agent shall not
receive compensation for her services. Notices or communications to or from the
Shareholder Agent shall constitute notice to or from each of the Shareholders.
(b) Exculpation. The Shareholder Agent shall not be liable for
any act done or omitted hereunder as Shareholder Agent while acting in good
faith and in the exercise of reasonable judgment.
(c) Actions of the Shareholder Agent. A decision, act, consent
or instruction of the Shareholder Agent shall constitute a decision for all of
the Shareholders, and shall be final, binding and conclusive upon each of the
Shareholders, and Parent and Merger Sub may rely exclusively upon any such
decision, act, consent or instruction of the Shareholder Agent as being the
decision, act, consent or instruction of each Shareholder. Parent and Merger Sub
are hereby relieved from any liability to any person for any acts done by them
in accordance with such decision, act, consent or instruction of the Shareholder
Agent.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement of Parent to enter into this Agreement, the Company
hereby makes, as of the date hereof and as of the Closing Date, the following
representations and warranties to
17
Parent, except as otherwise set forth in written disclosure schedules (the
"SCHEDULES"). The Schedules shall be arranged in sections corresponding to the
numbered sections contained in this Article 3 and the disclosure in any section
of the Schedules shall qualify (1) the corresponding section in this Article 3
and (2) the other sections in this Article 3 to the extent that (a) a reasonable
person would determine that the disclosure contained in such section of the
Schedules could qualify such other sections in this Article 3 and (b) the
Company and its representatives have used their respective reasonable best
efforts to include all relevant disclosure in each applicable section of the
Schedules.
3.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, with all requisite corporate power and authority to conduct the
Business as it is presently being conducted and to own or lease, as applicable,
the Assets owned or leased by it. The Company is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction in which
such qualification is necessary under applicable law as a result of the conduct
of the Business or the ownership of its properties and where the failure to be
so qualified could reasonably be expected to have a Company Material Adverse
Effect. Each jurisdiction in which the Company is qualified to do business as a
foreign corporation is set forth in Schedule 3.1.
3.2 Capitalization of the Company.
(a) Authorized Capitalization. Except as set forth on Schedule
3.2(a), as of the date of this Agreement, the authorized capitalization of the
Company consists of Five Million (5,000,000) shares of common stock, of which
Nine Hundred Sixty-five Thousand (965,000) shares are issued and outstanding and
Eighty-seven Thousand Five Hundred (87,500) shares are reserved for issuance
under the Company's 1996 Stock Option Plan, and One Million (1,000,000) shares
of Preferred Stock, of which no shares are issued and outstanding, and no
additional shares of capital stock of the Company will be issued after the date
hereof except for shares issued in respect of Company Options outstanding on the
date hereof. The Company has no other capital stock authorized, issued or
outstanding. The Shareholders beneficially and of record collectively own, and
will beneficially and of record collectively own immediately prior to the
Effective Time, all of the outstanding Company Stock and Company Options.
(b) Options. As of the date of this Agreement, Eighty-seven
Thousand Five Hundred (87,500) shares of Company Stock are reserved for issuance
upon the exercise of outstanding Company Options and options to purchase
Fourteen Thousand One Hundred (14,100) shares of Company Stock remain
outstanding pursuant to the Company Options. Attached as Schedule 3.2(b) is a
true and correct copy of the Company Stock Option Plans and the forms of option
agreement used in all cases.
(c) No Other Capital Stock, Options, Warrants. Except for the
Company Options referred to above, there are no outstanding options, warrants,
convertible securities or rights of any kind to purchase or otherwise acquire
any shares of capital stock or other securities of the Company. Except as
described in Section 3.2(a) and Section 3.2(b) above, no shares of capital stock
of the Company are reserved for issuance.
18
(d) Valid Issuances. All outstanding shares of Company Stock
are, and any shares of Company Stock issued upon exercise of any Company Option
will be, validly issued, fully paid and non-assessable and not subject to any
preemptive rights created by statute, the Company's Articles of Incorporation or
Bylaws, or any Contract. The Company Options have been, and the shares of
Company Stock have been or will be, issued in compliance with all federal and
state corporate and securities laws.
3.3 Shareholders' Agreements, etc. Except as disclosed on Schedule 3.3,
to the knowledge of the Company, there are no Shareholder agreements, voting
trusts, proxies or other agreements or understandings with respect to or
concerning the purchase, sale or voting of the capital stock of the Company.
3.4 Authorization. The Company has all necessary corporate or other
power and authority to enter into this Agreement and has taken all corporate or
other action necessary to consummate the transactions contemplated hereby and
thereby and to perform its obligations hereunder and thereunder. This Agreement
has been duly executed and delivered by the Company, and this Agreement is a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except that enforceability may be limited by the
effect of (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors or (b) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
3.5 Officers and Directors. Schedule 3.5 contains a true, correct and
complete list of all the officers and directors of the Company.
3.6 Bank Accounts. Schedule 3.6 contains a list of all of the Company's
bank accounts, safe deposit boxes and persons authorized to draw thereon or have
access thereto.
3.7 Subsidiaries, Etc. The Company has no Subsidiaries and does not
have any ownership interest of any kind in any other corporation, partnership,
limited liability company or other entity.
3.8 Real Property.
(a) General. The real property set forth on Schedule 3.8(a)
constitutes all real property necessary for the conduct of the business of the
Company as presently conducted and, except as set forth on Schedule 3.8(a), to
the knowledge of the Company all of such real property, and the improvements
thereon, are (i) in good condition, repair and proper working order having
regard for their use and age, have been properly maintained, and are fit for the
current uses thereof by the Company; (ii) serviced by adequate electric, gas,
water, sewer, telephone and other utilities; (iii) legally entitled to access,
both vehicular and pedestrian, to a public street; (iv) not in violation of any
material zoning requirement, permit or other governmental or private restriction
or entitlement relating to the real property or the conduct of the business
thereon as currently conducted; and (v) not the subject of any pending or
contemplated condemnation.
(b) Owned Real Property. The Company does not own any Facility
or other real property.
19
(c) Leased Real Property. Schedule 3.8(c) sets forth all leases,
subleases or other occupancy agreements pursuant to which Facilities are leased
by the Company (as lessee) (the "LEASES"), true and complete copies of which
(including all amendments, extensions, renewals, guarantees and other related
agreements) have been delivered to Parent. Such Leases constitute all leases,
subleases or other occupancy agreements pursuant to which the Company occupies
or uses Facilities. Except as set forth on Schedule 3.8(c), Company has good and
valid leasehold title to, and enjoys peaceful and undisturbed possession of, all
leased property described in such Leases (the "LEASED PROPERTY"), free and clear
of any and all Encumbrances other than any Permitted Encumbrances which would
not permit the termination of the Lease therefor by the lessor. With respect to
each such parcel of Leased Property, to the knowledge of the Company, (i) there
are no pending or threatened condemnation proceedings relating to, or any
pending or threatened Actions relating to, the Company's leasehold interests in
such Leased Property or any portion thereof, (ii) neither the Company nor any
third party has entered into any sublease, license, option, right, concession or
other agreement or arrangement, written or oral, granting to any person the
right to use or occupy such Leased Property or any portion thereof or interest
therein, and (iii) there is no (A) other matter adversely affecting the current
use or occupancy of such parcel of Leased Property in any material respect, (B)
to the knowledge of the Company, pending or threatened special assessment
relating to such Leased Property or (C) payment which is required to be made
which is past due or other default by the Company of any material obligations
under such Lease.
With respect to each Lease listed on Schedule 3.7(c), (i) there is no
material default under any such Lease by the Company or, to the knowledge of the
Company, by any other party, (ii) the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby and
thereby will not cause a material default under any such Lease, (iii) such Lease
is a valid and binding obligation of the lessor, is in full force and effect
with respect to and is enforceable against the lessor in accordance with its
terms, except as the enforceability thereof may be limited by (1) applicable
bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or
similar laws in effect which affect the enforcement of creditors' rights
generally or (2) general principles of equity, whether considered in a
proceeding at law or in equity, (iv) no action has been taken by the Company,
and to the knowledge of the Company, no event has occurred and is continuing
which, with notice or lapse of time or both, would permit termination,
modification or acceleration by a party thereto other than the Company without
the consent of the Company under any such Lease that is material to the Company,
(v) no party has repudiated in writing to the Company or any material term
thereof or threatened in writing to the Company or its Subsidiaries to
terminate, cancel or not renew any such Lease that is material to the Company
and (vi) the Company has not assigned, transferred, conveyed, mortgaged or
encumbered any interest in any such Lease or in any Leased Property subject
thereto (or any portion thereof), except in connection with a Permitted
Encumbrance. Except for those leasehold improvements leased pursuant to the
Leases, the Company has marketable fee simple title to all leasehold
improvements located on properties leased pursuant to the Leases.
3.9 Personal Property.
(a) General. The Company owns or leases all personal property
Assets necessary for the conduct of its business as presently conducted, and the
personal property
20
Assets (taken as a whole) are in such operating condition and repair (subject to
normal wear and tear) as is necessary for the conduct of its business as
presently conducted.
(b) Owned Personal Property. Except as set forth on Schedule
3.9(b), the Company has good title to all such personal property owned by it,
free and clear of any and all Encumbrances other than Permitted Encumbrances.
With respect to each such item of personal property (i) there are no leases,
subleases, licenses, options, rights, concessions or other agreements, written
or oral, granting to any party or parties the right of use of any portion of
such item of personal property, (ii) there are no outstanding options or rights
of first refusal in favor of any other party to purchase any such item of
personal property or any portion thereof or interest therein and (iii) there are
no parties (other than the Company) who are in possession of or who are using
any such item of personal property.
(c) Leased Personal Property. Except as set forth on Schedule
3.9(c), the Company has good and valid leasehold title to all of such Fixtures
and Equipment, vehicles and other tangible personal property Assets leased by it
from third parties, free and clear of any and all Encumbrances other than
Permitted Encumbrances which would not permit the termination of the lease
therefor by the lessor. Schedule 3.9(c) sets forth all Leases for personal
property involving annual payments in excess of $5,000, true and complete copies
of which have been delivered to Parent.
With respect to each lease listed on Schedule 3.9(c), except as set
forth on Schedule 3.9(c), (i) there is no material default under such lease by
the Company or, to the knowledge of the Company, by any other party, (ii) the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby and thereby will not cause (with or without
notice and with or without the passage of time) a default under any such lease,
(iii) such lease is a valid and binding obligation of the applicable lessor, is
in full force and effect and is enforceable by the Company in accordance with
its terms, except as the enforceability thereof may be limited by (1) applicable
bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or
similar laws in effect which affect the enforcement of creditors' rights
generally or (2) general principles of equity, whether considered in a
proceeding at law or in equity, (iv) no action has been taken by the Company and
no event has occurred and is continuing which, with notice or lapse of time or
both, would permit termination, modification or acceleration by a party thereto
other than by the Company without the consent of the Company under any such
Lease that is material to the Company, (v) no party has repudiated in writing
any term thereof or threatened in writing to terminate, cancel or not renew any
such Lease that is material to the Company, (vi) the Company has not assigned,
transferred, conveyed, mortgaged or encumbered any interest in any such Lease or
in any leased property subject thereto (or any portion thereof) except in
connection with a Permitted Encumbrance and (vii) all payments required to be
made by the Company have been paid and the Company is not otherwise in default
of any material obligations under any of such Leases.
3.10 Environmental Matters. Except as disclosed on Schedule 3.10, the
Company is currently and has in the past been in material compliance with all
Environmental Laws. There are no existing, and the Company is not aware of any
potential or threatened, Environmental Claims against the Company. To the
Company's knowledge (i) no underground or above-ground tank or other storage
receptacle or pipeline for Hazardous Substances is currently or formerly located
21
on the Company's Facilities; (ii) there have been no releases or threatened
releases of Hazardous Substances on, upon or into the Company's Facilities;
(iii) there are no PCBs or asbestos located at or on the Company's Facilities;
and (iv) there are no consent decrees, consents orders, judgments, judicial or
administrative orders, agreements with (other than permits) or liens by, any
Governmental Authority or quasi-governmental authority relating to any
Environmental Laws which regulate, obligate or bind the Company.
True and correct copies of any environmental reports, audits or
assessments which have been conducted, either by or on behalf of the Company,
regarding any of the Company's current or former Facilities have been made
available to Parent.
3.11 Contracts.
(a) Disclosure. Schedule 3.11(a) sets forth a complete and
accurate list of all of the Contracts of the following categories:
(i) Contracts not made in the ordinary course of
business which are material to the Business or the Assets;
(ii) License agreements or royalty agreements, whether
the Company is the licensor or licensee thereunder (excluding licenses that are
commonly available on standard commercial terms, such as software "shrink-wrap"
licenses);
(iii) Confidentiality and non-disclosure agreements
(whether the Company is the beneficiary or the obligated party thereunder);
(iv) Contracts or commitments involving future
expenditures or Liabilities, actual or potential, in excess of $25,000 after the
date hereof or otherwise material to the Business or the Assets;
(v) Contracts or commitments relating to commission
arrangements with others that are material to the Business;
(vi) Employment contracts, consulting contracts,
severance agreements, "stay-bonus" agreements and similar arrangements,
including Contracts (A) to employ or terminate executive officers or other
personnel and other contracts with present or former officers or directors of
the Company or (B) that will result in the payment by, or the creation of any
Liability of the Company, the Shareholders or Parent to pay any severance,
termination, "golden parachute," or other similar payments to any present or
former personnel following termination of employment or otherwise as a result of
the consummation of the transactions contemplated by this Agreement;
(vii) Indemnification agreements;
(viii) Promissory notes, loans, agreements, indentures,
mortgages, deeds of trust, evidences of indebtedness, letters of credit,
guarantees, or other instruments relating to an obligation to pay money, whether
the Company shall be the borrower, lender or guarant or thereunder;
22
(ix) Contracts containing covenants limiting the freedom
of the Company, or any officer, director, Employee or Affiliate of the Company,
to engage in any line of business or compete with any Person that relates
directly or indirectly to the Business;
(x) Any Contract with the federal, state or local
government or any agency or department thereof;
(xi) Any Contract or other arrangement with a Related
Party;
(xii) Leases of real property or personal property
involving annual payments of more than $5,000; and
(xiii) Any other Contract under which the consequences
of a default or termination could reasonably be expected to have a Company
Material Adverse Effect, individually or in the aggregate.
Complete and accurate copies of all of the Contracts listed on Schedule
3.11(a), including all amendments and supplements thereto, have been delivered
to Parent. The Company has included as part of Schedule 3.11(a) a brief summary
of the material terms of each oral Contract.
(b) Absence of Defaults. Except as set forth on Schedule
3.11(b), all of the Contracts set forth on Schedule 3.11(b) are valid, binding
and enforceable in accordance with their terms, except as such enforceability
may be limited by (1) applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability or (2) general principles
of equity, and there is no existing material Default by the Company under the
Contracts. The Company has fulfilled all of its material obligations under each
of such Contracts accrued to the date of such determination. To the knowledge of
the Company, all parties to such Contracts have complied in all material
respects with the provisions thereof, no party is in material Default thereunder
and no notice of any claim of Default has been given to the Company.
(c) Product Warranty. The Company has not committed any act,
and there has been no omission which may result in, and there has been no
occurrence which may give rise to, product liability or Liability for breach of
warranty (whether covered by insurance or not) on the part of the Company, with
respect to products designed, manufactured, assembled, sold, repaired,
maintained, delivered or installed or services rendered prior to or on the
Closing Date which could reasonably be expected to result in Liability to the
Company exceeding the greater of $25,000 in the aggregate and the amount of any
warranty reserve specifically established with respect thereto and included in
the Financial Statements.
3.12 No Conflict or Violation; Consents. Except as set forth on
Schedule 3.12, none of the execution, delivery or performance of this Agreement
or the consummation of the transactions contemplated hereby, nor compliance by
the Company with any of the provisions hereof, will (a) violate or conflict with
any provision of the governing documents of the Company, (b) violate, conflict
with, or result in a breach of or constitute a default (with or without notice
or the passage of time) under, or result in the termination of, or accelerate
the performance required by, or result in a right to terminate, accelerate,
modify or cancel under, or require a notice under, or result in the creation of
any Encumbrance upon any of its respective
23
assets under, any Contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, security interest or other arrangement to which the Company is a
party or by which the Company is bound or to which any of its respective assets
are subject, (c) violate any applicable Regulation or Court Order, or (d) impose
any Encumbrance on any Assets or the Business. Except as set forth on Schedule
3.12, no notices to, declaration, filing or registration with, approvals or
Consents of, or assignments by, any Persons (including any federal, state or
local governmental or administrative authorities) are necessary to be made or
obtained by the Company in connection with the execution, delivery or
performance of this Agreement to which it is a party or the consummation of the
transactions contemplated hereby or thereby.
3.13 Permits. Schedule 3.13 sets forth a complete list of all material
Permits of the Company, all of which are as of the date hereof, and will be as
of the Closing Date, in full force and effect. The Company has, and at all times
has had, all Permits required under any applicable Regulation in their operation
of the Business or in their ownership of the Assets, and own or possess such
Permits free and clear of all Encumbrances, except for Permitted Encumbrances.
The Company is not in default, nor, to the knowledge of the Company, has the
Company received any notice of any claim of default, with respect to any such
Permit. Except as otherwise governed by law or as otherwise set forth on
Schedule 3.13, to the Company's knowledge, all such Permits are renewable by
their terms or in the ordinary course of business without the need to comply
with any special qualification procedures or to pay any amounts other than
routine filing fees and, except as set forth on Schedule 3.13, will not be
adversely affected by the completion of the transactions contemplated by this
Agreement.
3.14 Financial Statements; Books and Records.
(a) General. Except as contemplated by Schedule 3.14(a), the
Financial Statements are complete, are in accordance with the Company's Books
and Records and fairly present in all material respects the financial condition,
results of operations and cash flows of the Company as of the dates and for the
periods indicated thereby, in accordance with GAAP consistently applied
throughout the periods covered thereby (except as otherwise expressly indicated
in the notes to the Financial Statements.
(b) Books and Records. The Books and Records accurately and
fairly reflect in all material respects the activities of the Company and the
Business and have been made available at the Company's offices for Parent's
inspection.
(c) All Accounts Recorded. The Company has not engaged in any
transaction, maintained any bank account or used any corporate funds except for
transactions, bank accounts or funds which have been and are reflected in the
normally maintained Books and Records.
(d) Corporate Records. The stock records and minute books of
the Company that have been made available to Parent fully reflect all minutes of
meetings, resolutions and other material actions and proceedings of its
Shareholders, trustees and board of directors and all committees thereof, all
issuances, transfers and redemptions of capital stock of which the
24
Company is aware and contain true, correct and complete copies of their
respective organizational documents and bylaws and all amendments thereto
through the date hereof.
3.15 Absence of Certain Changes or Events. Except as set forth on
Schedule 3.15, since the Balance Sheet Date there has not been any:
(a) Company Material Adverse Change;
(b) failure to operate the Business in the ordinary course so
as to use all commercially reasonable efforts to preserve the Business and to
preserve the continued services of the employees of the Company and the goodwill
of suppliers, customers and others having business relations with the Company or
its Representatives;
(c) resignation or termination of any officer, director or
manager listed on Schedule 3.18(d), or any increase in the rate of compensation
payable or to become payable to any officer, director or manager or
Representative of the Company (other than increases in the rate of compensation
as a result of general, regularly scheduled reviews), including the making of
any loan to any such Person (other than normal advances or expense allowances),
or the payment, grant or accrual of any bonus, incentive compensation, service
award or other similar benefit to any such Person (other than pursuant to
existing arrangements heretofore disclosed to Parent), or material modification,
addition or contribution (other than regularly scheduled contributions) to any
Employee Plan;
(d) any payment, loan or advance of any amount to or in
respect of, or the sale, transfer or lease of any properties or the Assets to,
or entering into of any Contract with, any Related Party except for regular
compensation and normal advances or expense allowances to Employees;
(e) sale, assignment, license, transfer or Encumbrance of any
of the Assets, tangible or intangible, singly or in the aggregate, other than in
the ordinary course of business and consistent with past practice;
(f) new Contracts, or extensions, modifications, terminations
or renewals thereof, except for Contracts entered into, modified or terminated
in the ordinary course of business and consistent with past practice;
(g) actual or, to the knowledge of the Company, threatened,
termination of any material customer account or group of accounts or actual or,
to the knowledge of the Company, threatened material reduction in purchases or
royalties payable by any such customer or, to the knowledge of the Company,
occurrence of any event that is likely to result in any such termination or
reduction;
(h) disposition or lapsing of any material Proprietary Rights
of the Company, in whole or in part, or any disclosure of any trade secret,
process or know-how to any Person not an Employee or adviser to the Company;
(i) change in accounting methods or practices by the Company;
25
(j) revaluation by the Company of any of the Assets, including
writing off or establishing reserves with respect to Inventory, notes or
accounts receivable (other than for which adequate reserves have been previously
established);
(k) damage, destruction or loss (whether or not covered by
insurance) of any property of the Company materially adversely affecting the
Assets or the Business;
(l) declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of the Company or any redemption,
purchase or other acquisition of any equity securities of the Company;
(m) issuance or reservation for issuance by the Company of, or
commitment of it to issue or reserve for issuance, any shares of capital stock
or other equity securities or obligations or securities convertible into or
exchangeable for shares of capital stock or other equity securities;
(n) increase, decrease or reclassification of the capital
stock of the Company;
(o) amendment of the organizational documents or bylaws of the
Company;
(p) capital expenditure or execution of any lease or any
incurring of liability therefor by the Company, involving payments or
obligations in excess of $5,000 in the aggregate, except that the Company may
make a capital expenditure of no more than $9,000 to modify the sprinkler system
at its facilities;
(q) failure to pay any material obligation of the Company when
due;
(r) cancellation of any indebtedness or waiver of any rights
of substantial value to the Company, except in the ordinary course of business
and consistent with past practice;
(s) indebtedness incurred by the Company for borrowed money or
any commitment to borrow money entered into by the Company except indebtedness
under any loans made or agreed to be made by the Company;
(t) liability incurred by the Company except in the ordinary
course of business and consistent with past practice, or any increase or change
in any assumptions underlying or methods of calculating any bad debt,
contingency or other reserves;
(u) payment, discharge or satisfaction of any Liabilities of
the Company, other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of Liabilities reflected or
reserved against in the Financial Statements or incurred in the ordinary course
of business and consistent with past practice since the Balance Sheet Date;
(v) acquisition of any equity interest in any other Person; or
(w) agreement by the Company, directly or indirectly, to do
any of the foregoing.
26
3.16 Liabilities. Except as set forth on Schedule 3.16, there is no
Action, pending or, to the knowledge of the Company, threatened or reasonably
anticipated (i) against, relating to or affecting the Company, any of the Assets
or any of their respective officers and directors as such, (ii) which seeks to
enjoin or obtain damages in respect of the transactions contemplated hereby or
(iii) with respect to which there is a reasonable likelihood of a determination
which would prevent the Company from consummating the transactions contemplated
hereby. None of the Actions disclosed in Schedule 3.16, if adversely determined
against the Company, their respective directors or officers, or any other Person
could reasonably be expected to result in a loss to the Company, individually or
in the aggregate, in excess of $25,000. There are presently no outstanding
judgments, decrees or orders of any court or any governmental or administrative
agency against or affecting the Company, the Business or any of the Assets.
Schedule 3.16 contains a complete and accurate description of all Actions since
December 31, 2001 to which the Company has been a party or which relate to any
of the Assets or the officers or directors of the Company as such, or any such
Actions which were settled prior to the institution of formal proceedings, other
than Actions brought by the Company for collection of monies owed in the
ordinary course of business.
3.17 Litigation. Except as set forth on Schedule 3.17, there is no
Action, pending or, to the knowledge of the Company, threatened or reasonably
anticipated (i) against, relating to or affecting the Company, any of the Assets
or any of their respective officers and directors as such, (ii) which seeks to
enjoin or obtain damages in respect of the transactions contemplated hereby or
(iii) with respect to which there is a reasonable likelihood of a determination
which would prevent the Company from consummating the transactions contemplated
hereby. There are presently no outstanding judgments, decrees or orders of any
court or any governmental or administrative agency against or affecting the
Company, the Business or any of the Assets.
3.18 Labor Matters.
(a) General. The Company is not a party to any labor agreement
with respect to its Employees with any labor organization, group or association
and has not experienced any attempt by organized labor or its representatives to
make the Company conform to demands of organized labor relating to its Employees
or to enter into a binding agreement with organized labor that would cover the
Employees of the Company. There are no controversies pending or, to the
knowledge of the Company, threatened between the Company and its Employees, and
the Company is not aware of any facts which could reasonably result in any such
controversy.
(b) Compliance. The Company is in compliance with all
applicable Regulations respecting employment practices, terms and conditions of
employment, wages and hours, equal employment opportunity, and the payment of
social security and similar taxes and is not engaged in any unfair labor
practice. The Company is not liable for any claims for past due wages or any
penalties for failure to comply with any of the foregoing.
(c) Severance Obligations. Except for Company Options granted
under the Company Stock Option Plans prior to the date hereof that will vest on
the consummation of the Merger, the Company has not entered into any severance,
"stay-bonus" or similar arrangement in respect of any present or former Employee
that will result in any obligation (absolute or contingent) of Parent or the
Company to make any payment to any present or former Employee
27
following termination of employment or upon consummation of the transactions
contemplated by this Agreement (whether or not employment is continued for any
specified period after the Effective Time). Except as specifically provided for
in this Agreement, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby or thereby will result in
the acceleration or vesting of any other rights of any Person to benefits under
any Employee Plans.
(d) Highly Compensated Employees. Attached hereto as Schedule
3.18(d) is a list of the names of all present Employees with total compensation
expected to exceed $100,000 in 2002 and their current compensation payable by
the Company. Notwithstanding any provision of this Agreement or any Schedule to
the contrary, the Company represents that from and after the Effective Time no
benefit or other compensation is payable to any Person identified on Schedule
3.18(d) upon the voluntary resignation of such Person from employment with
Parent or the Company as a result of the occurrence of the Effective Time.
3.19 Employee Benefit Plans.
(a) Schedule 3.19 hereto contains a true and complete list of
each Employee Plan. The Company has delivered to Parent true and complete copies
of all documents embodying or relating to the Employee Plans, including, without
limitation, with respect to each Employee Plan, all amendments to the Employee
Plans, and any trust or other funding arrangement.
(b) None of the Pension Plans is subject to the requirements
of Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code. Each
Pension Plan that is intended to be "qualified" within the meaning of Section
401(a) of the Code has received a determination letter from the IRS that it is
so qualified, and no fact or event has occurred since the date of such
determination letter that could adversely affect the qualified status of any
such Pension Plan.
(c) Neither the Company nor any ERISA Affiliate has incurred
any liability for any penalty or tax under Sections 4971, 4972, 4975, 4976,
4979, or 4980 of the Code or Section 502 of ERISA.
(d) Each of the Employee Plans has been maintained and
operated in compliance with ERISA, the Code and its terms in all material
respects.
(e) No Employee Plan is a Multiemployer Plan.
(f) No amount that could be received (whether in cash or
property or the vesting of property) as a result of the consummation of the
transactions contemplated by this Agreement by any employee, officer or director
of the Company who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any Benefit Arrangement
could be characterized as an "excess parachute payment" (as defined in Section
280G(b)(1) of the Code).
(g) Each of the Employee Plans which is a "welfare plan" (as
defined in Section 3(1) of ERISA) (the "Welfare Plans") has at all times been in
compliance with the provisions of Section 4980B of the Code and Parts 6 and 7 of
Title I of ERISA and any similar
28
applicable state laws. None of the Welfare Plans provides or promises
post-retirement health or life benefits to current employees or retirees of
Company, except to the extent required under any applicable state law or under
Section 601 of ERISA. Each Welfare Plan contains a procedure for amendment and
termination of such plan.
(h) No Employee Plan is funded by a trust described in Section
501(c)(9) of the Code or subject to the provisions of Section 505 of the Code.
(i) Full payment of all amounts has been made to each Employee
Plan which are required to be made as contributions thereto, under applicable
Law or under any Employee Plan or any agreement relating to a Employee Plan as
of the last day of the most recent fiscal year of such Employee Plan ended prior
to the date hereof. Company has made adequate provision for reserves to meet
contributions that have not been made because they are not yet due under the
terms of any Employee Plan or related agreements. Benefits under all Employee
Plans are as represented and have not been increased subsequent to the date as
of which documents have been provided.
3.20 Transactions with Related Parties. Except for employment
agreements and other compensation arrangements and loans disclosed on Schedule
3.20, no Related Party has (a) borrowed or loaned money or other property to the
Company which has not been repaid or returned, (b) any contractual relationship
with or other claims, express or implied, of any kind whatsoever against the
Company or (c) any interest in any property used by the Company.
3.21 Compliance with Law. To the Company's knowledge, the Company has
conducted the Business in compliance with all applicable Regulations and Court
Orders, except as could not reasonably be expected to cause a Company Material
Adverse Effect. The Company has not received any notice to the effect that, or
has otherwise been advised that, the Company is not in compliance with any such
Regulations or Court Orders, and the Company has no reason to anticipate that
any existing circumstances are likely to result in any material violation of any
of the foregoing.
3.22 Intellectual Property.
(a) General. Schedule 3.22(a) sets forth with respect to
Proprietary Rights of the Company: (i) for each trademark, tradename or service
mark, whether or not registered, the date first used, the application serial
number or registration number, as appropriate, the class of goods covered, the
nature of the goods or services on or in connection with which such name or mark
has been used, the countries in which the name or mark is used and the
expiration date for each country in which a trademark has been registered, (ii)
for each copyright for which registration has been sought whether or not
registered, the date of creation and first publication of the work, the
registration number and date of registration for each country in which a
copyright application has been registered, (iii) for each mask work (if any),
whether or not registered, the date of first commercial exploitation and, if
registered, the registration number and date of registration, (iv) a description
of all Trade Secrets that are material to the Business and (v) all such
Proprietary Rights in the form of licenses. True and correct copies of all
Proprietary Rights (including all pending applications, application related
documents and materials and descriptions of Trade Secrets) owned, controlled or
used by or on behalf of the
29
Company or in which the Company has any interest whatsoever have been provided
or made available to Parent.
(b) Adequacy. The Proprietary Rights owned, controlled or used
by the Company are all those necessary for the normal conduct of the Business as
presently conducted and as presently contemplated.
(c) Ownership. The Company owns or has a valid right to use
its Proprietary Rights, and such Proprietary Rights will not cease to be valid
rights of the Company by reason of the execution, delivery and performance of
this Agreement or the consummation of the transactions contemplated hereby or
thereby.
(d) Royalties and Licenses. Except as set forth on Schedule
3.22(d), the Company has no obligation to compensate any Person for the use of
any Proprietary Rights nor has the Company granted to any Person any license,
option or other rights to use in any manner any of its respective Proprietary
Rights, whether requiring the payment of royalties or not.
(e) Absence of Claims. Except as set forth in Schedule 3.17,
the Company (A) has not received any notice alleging, or otherwise has no
knowledge of facts that could reasonably be expected to give rise to, invalidity
with respect to any of the Proprietary Rights of the Company or (B) has not
received any notice of alleged infringement of any rights of others due to any
activity by the Company. The use by the Company of its Proprietary Rights in its
past, current and planned products and services do not and would not infringe
upon or otherwise violate the valid rights of any third party in the current or
planned markets for such products. No other Person (i) has notified the Company
that it is claiming any ownership of or right to use any of the Proprietary
Rights of the Company or (ii) to the knowledge of the Company, is infringing
upon any such Proprietary Rights in any way.
(f) Protection of Proprietary Rights. To the Company's
knowledge, all of the pending applications for Proprietary Rights of the Company
have been properly filed and all other actions to protect such Proprietary
Rights have been taken. The Company has taken reasonable steps necessary or
appropriate (including, entering into appropriate confidentiality and
nondisclosure agreements with officers, directors, subcontractors, Employees,
licensees and customers in connection with the Assets or the Business) to
safeguard and maintain the secrecy and confidentiality of, and the proprietary
rights in, the Proprietary Rights that are material to the Business. The Company
has no knowledge of any breach of any such confidentiality or nondisclosure
agreement by any party thereto.
3.23 Tax Matters.
(a) Filing of Tax Returns. The Company has timely filed with
the appropriate taxing authorities all Tax Returns required to be filed. The Tax
Returns filed are complete, correct and accurate in all respects. All Taxes due
and owing by the Company on or before the date hereof (whether or not shown on
any Tax Return) have been paid, and to the Company's knowledge, each Shareholder
has included in his or her individual Tax Return his or her respective share of
the Company's income, gain, loss, deduction or credit items with respect to such
Tax Returns filed by the Company. Except as set forth on Schedule 3.23(a), the
Company
30
is not the beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a jurisdiction where the
Company does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction.
(b) Payment of Taxes. The unpaid Taxes of the Company (i) did
not, as of the Balance Sheet Date, exceed the reserve for Tax liability
(excluding any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the Balance
Sheet (rather than in any notes thereto), and (ii) will not exceed that reserve
as adjusted for operations and transactions through the Closing Date in
accordance with the past custom and practice of the Company in filing its Tax
Returns. Since the Balance Sheet Date, the Company has not incurred any
liability for Taxes outside the ordinary course of business or otherwise
inconsistent with past custom and practice.
(c) Audits, Investigations or Claims. No deficiencies for
Taxes of the Company have been claimed, proposed or assessed by any taxing or
other governmental authority. Except as set forth on Schedule 3.23(c), there are
no pending or, to the knowledge of the Company, threatened audits, assessments
or other Actions for or relating to any Taxes of the Company and there are no
matters under discussion with any governmental authorities, or known to the
Company, with respect to Taxes that are likely to result in an additional
liability for Taxes with respect to the Company. Audits of federal, state and
local Tax Returns by the relevant taxing authorities have been completed for the
periods set forth on Schedule 3.23(c) and, except as set forth in such Schedule,
the Company has not been notified that any taxing authority intends to audit a
Tax Return for any other period. Except as set forth on Schedule 3.23(c), the
Company has not waived any statute of limitations in respect of Taxes or agreed
to any extension of time with respect to a Tax assessment or deficiency. The
Company has delivered or made available to Parent complete and accurate copies
of all federal, state, local and foreign Tax Returns of the Company for the
fiscal years ended September 30, 1997, 1998, 1999, 2000 and 2001, and complete
and accurate copies of all examination reports and statements of deficiencies
assessed against or agreed to by the Company since September 30, 1997.
(d) Lien. There are no Encumbrances for Taxes (other than for
current Taxes not yet due and payable) on the Company, any of the Assets or any
shares of Company Stock.
(e) Tax Elections. All elections with respect to Taxes
affecting the Company, or the Assets, as of the date hereof are set forth on
Schedule 3.23(e). The Company has not (i) consented at any time under Section
341(f)(1) of the Code to have the provisions of Section 341(f)(2) of the Code
apply to any disposition of any Assets; (ii) agreed, or is required, to make any
adjustment under Section 481(a) of the Code by reason of a change in accounting
method or otherwise; (iii) made an election, or is required, to treat any Asset
as owned by another Person pursuant to the provisions of Section 168(f) of the
Code or as tax-exempt bond financed property or tax-exempt use property within
the meaning of Section 168 of the Code; (iv) acquired and does not own any
assets that directly or indirectly secure any debt the interest on which is tax
exempt under Section 103(a) of the Code; (v) has made or will make a consent
dividend election under Section 565 of the Code; or (vi) made any of the
foregoing elections or is required to apply any of the foregoing rules under any
comparable state or local Tax provision.
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(f) Tax Sharing Agreements. There are no Tax-sharing
agreements or similar arrangements (including indemnity arrangements) with
respect to or involving the Company, the Assets or the Business and, after the
Closing Date, none of the Company, the Assets or the Business shall be bound by
any Tax-sharing agreements or similar arrangements or have any Liability
thereunder for amounts due in respect of periods prior to the Closing Date.
(g) Partnerships, Single Member LLCs, CFCs and PHCs. The
Company (i) has no interest in and is not subject to any joint venture,
partnership, trust, co-tenancy or other arrangement or contract which is treated
as a partnership for federal income tax purposes, (ii) does not own a single
member limited liability company which is treated as a disregarded entity, (iii)
is not a shareholder of a "controlled foreign corporation" as defined in Section
957 of the Code (or any similar provision of state, local or foreign law) and
(iv) is not a "personal holding company" as defined in Section 542 of the Code
(or any similar provision of state, local or foreign law).
(h) Withholding. The Company has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder or other third
party. The Company has properly requested, received and retained all necessary
exemption certificates and other documentation supporting any claimed exemption
or waiver of Taxes on sales or other transactions for which the Company would
have been obligated to collect or withhold Taxes. The transactions contemplated
herein are not subject to the tax withholding provisions of Section 3406 of the
Code, or of Subchapter A of Chapter 3 of the Code or of any other provision of
law.
(i) USRPC. The Company is not and has not been a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in section 897(c)(1)(A)(ii) of the
Code.
(j) Other Entity Liability. None of the Company, any of its
respective predecessors or affiliates of any of them has any Liability for the
Taxes of any other Person (other than Taxes of the Company) under Treasury
Regulation Section 1.1502-6 (or any similar provision of state or local law), as
a transferee or successor, by contract or otherwise.
(k) Permanent Establishment. The Company does not have, and
has not had, a permanent establishment in any foreign country, as defined in any
applicable Tax treaty or convention between the United States of America and
such foreign country.
(l) S Corporation. The Company is, and has been at all times
since its formation, an "S Corporation" (within the meaning of Section 1361(a)
of the Code) for which a valid election under Section 1362 of the Code has been
in effect (and which has also been in effect for state Tax purposes), and the
Company will be a validly electing S corporation up to and including the day
before the Closing Date. Schedule 3.23(l) identifies each subsidiary of the
Company that is a "qualified subchapter S subsidiary" within the meaning of
Section 1361(b)(3)(B) of the Code, and each subsidiary so identified has been a
qualified subchapter S subsidiary at all times since the date shown on such
schedule up to and including the day before the Closing Date. The Company would
not be liable for any Tax under Section 1374 of the Code (or any comparable
provision of state or local Tax law) if its assets (or the assets of any
qualified
32
subchapter S subsidiary) were sold for their fair market value as of the Closing
Date. The Company has not, in the past 10 years, (i) acquired assets from
another corporation in a transaction in which the Company's Tax basis for the
acquired assets was determined, in whole or in part, by reference to the Tax
basis of the acquired assets (or any other property) in the hands of the
transferor or (ii) acquired the stock of any corporation which is a qualified
subchapter S subsidiary.
(m) Spin-Offs. The Company has not distributed the stock of
any corporation in a transaction satisfying the requirements of Section 355 of
the Code since April 16, 1997, and the stock of the Company has not been
distributed in a transaction satisfying the requirements of Section 355 of the
Code since April 16, 1997.
3.24 Tax-Free Reorganization.
(a) Assets. At the Effective Time, the Company will hold at
least 90 percent of the fair market value of its net assets and at least 70
percent of the fair market value of its gross assets held immediately prior to
the Effective Time. For purposes of this representation, amounts paid by the
Company to dissenting Shareholders, amounts used by the Company to pay Merger
expenses, amounts paid by the Company to redeem stock, securities, warrants or
options of the Company as part of any overall plan of which the Merger is part,
and amounts distributed by the Company to Shareholders (except for any regular,
normal dividends) as part of an overall plan of which the Merger is a part, in
each case will be treated as constituting assets of the Company immediately
prior to the Effective Time.
(b) Business. The Company currently conducts a business. Such
business is the Company's "historic business" within the meaning of Treasury
Regulations Section 1.368-1(d), and no assets of the Company have been sold,
transferred, or otherwise disposed of that would prevent Parent from continuing
the "historic business" of the Company or from using a "significant portion" of
the Company's "historic business assets" in a business following the Merger, as
such terms are used in Treasury Regulations Section 1.368-1(d).
(c) Redemptions and Distributions. Neither the Company nor any
person related to the Company within the meaning of Treasury Regulations
Sections 1.368-1(e)(3), (e)(4) and (e)(5) has purchased, redeemed or otherwise
acquired, or made any distributions with respect to, any of the Company's stock
prior to or in contemplation of the Merger, or otherwise as part of a plan of
which the Merger is a part.
(d) Continuity of Interest. As of the Effective Time, the
portion of the Merger Shares not deposited into the Escrow Fund pursuant to
Section 2.6(h) of this Agreement shall have a value of not less than fifty
percent (50%) of the aggregate value as of such time of such Merger Shares and
the maximum amount of the Earn-Out Payment payable to the Shareholders pursuant
to Section 2.6(i) of this Agreement.
(e) Investment Company. The Company is not an investment
company, as defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
(f) Title 11. The Company is not under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code.
33
(g) Intercorporate Indebtedness. At the Effective Time, there
will be no intercorporate indebtedness existing between Parent or Merger Sub and
the Company that was issued or acquired, or will be settled, at a discount.
(h) Liabilities. The liabilities of the Company assumed by
Merger Sub and the liabilities to which the transferred assets are subject were
incurred by the Company in the ordinary course of its business.
(i) Value of Transferred Assets. The fair market value of the
assets of the Company transferred to Merger Sub will equal or exceed the sum of
the liabilities assumed by Merger Sub, plus the amount of liabilities, if any,
to which the transferred assets are subject.
3.25 Insurance. Schedule 3.25 contains a complete and accurate list of
all policies or binders of insurance (showing as to each policy or binder the
carrier, policy number, coverage limits, expiration dates, annual premiums, a
general description of the type of coverage provided and any pending claims
thereunder) of which the Company is the owner, insured or beneficiary. To the
Company's knowledge, all of such policies are sufficient for (i) compliance with
all Regulations applicable to the Company, the Business or the Assets and all of
the Contracts, and (ii) providing replacement cost insurance coverage for all of
the Assets, Fixtures and Equipment and all leasehold improvements. The Company
is not in material default under any such policies or binders, or has not failed
to give any notice or to present any material claim under any such policy or
binder in a due and timely fashion. There are no facts known to the Company upon
which an insurer might be justified in reducing or denying coverage or
increasing premiums on existing policies or binders. There are no outstanding
unpaid claims under any such policies or binders. Such policies and binders are
in full force and effect on the date hereof and shall be kept in full force and
effect by the Company through the Closing Date.
3.26 Accounts Receivable. The accounts and notes receivable reflected
in the Balance Sheet, and all accounts or notes receivable arising since the
Balance Sheet Date, represent bona fide claims against debtors for sales,
services performed or other charges arising on or before the date of recording
thereof, and, to the Company's knowledge, all the goods delivered and services
performed which gave rise to said accounts were delivered or performed in
accordance with the applicable orders, Contracts or customer requirements in all
material respects. Except to the extent of any reserves provided for in the
Books and Records, to the Company's knowledge all such accounts and notes
receivable represent enforceable claims (subject to applicable bankruptcy and
insolvency laws) at the aggregated recorded amounts or that any such accounts
and are not subject to any defense, counterclaim or set-off.
3.27 Inventory. To the knowledge of the Company, the Inventory as of
June 30, 2002 (as prepared by Damitz, Brooks, Nightingale, Turner & Morissette,
Certified Public Accountants) and the specific items acquired or manufactured
subsequent to December 31, 2001, consists only of items of quality and quantity
commercially usable and salable in the ordinary course of business, except for
any items of obsolete material or material below standard quality, all of which
have been written down to net realizable market value, or for which adequate
reserves have been provided (in each instance, on the financial statements dated
as of June 30, 2002, prepared by Damitz, Brooks, Nightingale, Turner &
Morissette, Certified Public
34
Accountants), and the present quantity of all Inventory is reasonable in the
present circumstances of the Business.
3.28 Purchase Commitments and Outstanding Bids. As of the date of this
Agreement, the aggregate of all Contracts for the purchase of Inventory by the
Company and its Subsidiaries, other than in the ordinary course of business,
does not exceed $10,000. No outstanding purchase or outstanding lease commitment
of the Company presently is in excess of the normal, ordinary and usual
requirements of the Business or was made at any price materially in excess of
the now current market price or contains terms and conditions more onerous than
those usual and customary in the Company's business. There are outstanding no
pending obligations to lease real property in addition to those identified on
Schedule 3.8(c).
3.29 Suppliers. Schedule 3.29 sets forth a complete and accurate list
of the names and addresses of the ten (10) suppliers with the greatest dollar
volume of sales to the Company during the current fiscal year, showing the
approximate total purchases in dollars by the Company from each such supplier
during such fiscal year. Since the Balance Sheet Date, there has been no Company
Material Adverse Change in the business relationship of the Company with any
supplier named on Schedule 3.29. The Company has not received any written
communication from any supplier named on Schedule 3.29 of any intention to
return, terminate or materially reduce purchases from or supplies to the
Company.
3.30 Brokers; Transaction Costs. Except as set forth on Schedule 3.30,
the Company has not entered into and will not enter into any contract,
agreement, arrangement or understanding with any Person which will result in the
obligation of Parent or the Company to pay any finder's fee, brokerage
commission, legal, accounting, or similar payment in connection with the
transactions contemplated hereby.
3.31 No Other Agreements to Sell the Company or the Assets. The Company
has no legal obligation, absolute or contingent, to any other Person to sell the
Assets (other than Inventory in the ordinary course of business) or to sell any
capital stock of the Company or to effect any merger, consolidation or other
reorganization of the Company or to enter into any agreement with respect
thereto, except pursuant to or as contemplated in this Agreement.
3.32 Foreign Corrupt Practices Act. To the Company's knowledge, none of
the Company, or any agent, employee or other Person associated with or acting on
behalf of the Company has, directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity, made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds, violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence
payment, kickback or other similar unlawful payment.
3.33 Financial Projections; Operating Plan. The Company has made
available to Parent certain financial projections with respect to the Business
which projections were prepared for internal use only. The Company makes no
representation or warranty regarding the accuracy of such projections or as to
whether such projections will be achieved, except that the Company
35
represents and warrants that such projections were prepared in good faith and
are based on assumptions believed by it to be reasonable as of the date such
projections were made.
3.34 Approvals. Schedule 3.34 contains a list of all material approvals
or consents relating to the business conducted by the Company which are required
to be given to or obtained by the Company from any Person in connection with the
consummation of the transactions contemplated by this Agreement.
3.35 Takeover Statutes. To the Company's knowledge, no Takeover Statute
applicable to the Company is applicable to the Merger or the transactions
contemplated hereby.
3.36 Material Misstatements or Omissions. No representations or
warranties by the Company in this Agreement or in any document, written
information, exhibit, statement, certificate or schedule heretofore or
hereinafter furnished by the Company or any of its Representatives to Parent or
Merger Sub pursuant hereto, or in connection with the transactions contemplated
by this Agreement contains or will contain any untrue statement of a material
fact, or omits or will omit to state any material fact necessary to make the
statements or facts contained therein not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
As an inducement of the Company and each of the Shareholders to enter
into this Agreement, Parent represents and warrants to the Company as follows,
which representations and warranties are, as of the date hereof, and will be, as
of the Closing Date, true and correct:
4.1 Organization. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Parent
has full corporate power and authority to conduct its business as it is
presently being conducted. Parent is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is necessary under applicable law as a result of the conduct of
its business or the ownership of its properties and where the failure to be so
qualified could reasonably be expected to have a Material Adverse Effect on
Parent. Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. Merger Sub has not engaged
in any business (other than in connection with this Agreement and the
transactions contemplated hereby) since the date of its incorporation.
4.2 Capitalization.
(a) Parent has authorized under its Certificate of
Incorporation 35,000,000 shares of Parent Stock and 5,000,000 shares of
preferred stock, par value $0.01 per share, of which, as of June 30, 2002,
14,334,836 shares of Parent Stock and no shares of preferred stock were issued
and outstanding. Parent has no other stock authorized, issued or outstanding.
(b) As of June 30, 2002, there were 2,962,215 outstanding
options granted under the Parent Stock Option Plans (the "Parent Options") and
outstanding warrants to purchase 1,218,552 shares of Parent Stock (the "Parent
Warrants").
36
(c) Except for the Parent Options and Parent Warrants, there
are no outstanding options, warrants, convertible securities or rights of any
kind to purchase or otherwise acquire any shares of capital stock or other
securities of Parent. Except as set forth above, no shares of capital stock of
Parent are reserved for issuance.
(d) The Merger Shares to be issued pursuant to the terms of
this Agreement have been duly authorized and, when issued in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable.
(e) The authorized capital stock of Merger Sub consists of
1,000 shares of common stock, no par value, of which 100 shares are issued and
outstanding. All of such outstanding shares are owned by Parent, and all such
shares are validly issued, fully paid and non-assessable.
4.3 Authorization. Each of Parent and Merger Sub has all necessary
corporate power and authority to enter into this Agreement and has taken all
action necessary to consummate the transactions contemplated hereby and thereby
and to perform its respective obligations hereunder and thereunder. This
Agreement has been duly executed and delivered by each Parent and Merger Sub,
and this Agreement is a valid and binding obligation of each of Parent and
Merger Sub enforceable against each of Parent and Merger Sub in accordance with
its terms, except that enforceability may be limited by the effect of (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors or (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
4.4 Tax-Free Reorganization.
(a) Intention Regarding Parent Stock. Except with respect to
(i) open-market purchases of Parent's stock pursuant to a general stock
repurchase program of Parent that has not been created or modified in connection
with the Merger, (ii) repurchases in the ordinary course of business of unvested
shares, if any, acquired from terminated employees or (iii) payments of cash in
lieu of the issuance of fractional shares, neither Parent nor any person related
to Parent within the meaning of Treas. Reg. Sections 1.368-1(e)(3), (e)(4) and
(e)(5) has any plan or intention to redeem or otherwise acquire any of the stock
of Parent issued to the Shareholders pursuant to this Agreement following the
Merger.
(b) Acquisitions of Company Shares. Neither Parent nor, to the
knowledge of Parent, any person related to Parent (within the meaning of Treas.
Reg. Sections 1.368-1(e)(3), (e)(4) and (e)(5)) has acquired any Company Stock
in contemplation of the Merger or otherwise as part of a plan of which the
Merger is part.
(c) Control. Parent has no plan or intention to cause the
Surviving Corporation, after the Merger, to issue additional shares of Surviving
Corporation Stock that would result in Parent losing control of the Surviving
Corporation within the meaning of Section 368(c) of the Code.
(d) Intention Regarding the Surviving Corporation. Except for
transfers of stock and assets described in Treas. Reg. Section 1.368-2(k) or
transfers of Surviving
37
Corporation Stock to another subsidiary controlled by Parent within the meaning
of Code Section 368(c), Parent has no plan or intention to liquidate the
Surviving Corporation; to merge the Surviving Corporation with or into another
corporation; to sell or otherwise dispose of the stock of the Surviving
Corporation; or, except for dispositions made in the ordinary course of
business, to cause the Surviving Corporation to sell or otherwise dispose of any
of its assets.
(e) Business. Assuming the accuracy of the Company's
representation contained in Section 3.24(b), Parent will cause the Surviving
Corporation to continue the Company's historic business or use a significant
portion of the Company's historic business assets in a business. For purposes of
this representation, Parent will be deemed to satisfy the foregoing
representation if (a) the members of Parent's qualified group (as defined in
Treas. Reg. Section 1.368-1(d)(4)(ii)), in the aggregate, continue the historic
business of the Company or use a significant portion of the Company's historic
business assets in a business, or (b) the foregoing activities are undertaken by
a partnership as contemplated by Treas. Reg. Section 1.368-1(d)(4) (provided,
however, that in the event that Section 3.24(b) is or has been breached, this
Section 4.4(e) shall not be considered to be or have been breached).
(f) Investment Company. Neither Parent nor Merger Sub is an
investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(g) Assets. Assuming the accuracy of the Company's
representation contained in Section 3.24(a), at the Effective Time, the
Surviving Corporation will hold at least 90 percent of the fair market value of
the Company's net assets and at least 70 percent of the fair market value of the
Company's gross assets and at least 90 percent of the fair market value of
Merger Sub's net assets and at least 70 percent of the fair market value of
Merger Sub's gross assets held immediately prior to the Effective Time. For
purposes of this representation, amounts paid by the Company to dissenting the
Shareholders, amounts used by the Company to pay Merger expenses, amounts paid
by the Company to redeem stock, securities, warrants or options of the Company
as part of any overall plan of which the Merger is a part, and amounts
distributed by the Company to Shareholders (except for any regular, normal
dividends) as part of an overall plan of which the Merger is a part, including,
but not limited to, any indebtedness owed by the Shareholders to the Company
that is forgiven as part of an overall plan of which the Merger is a part, in
each case will be treated as constituting assets of the Company immediately
prior to the Effective Time (provided, however, that in the event that Section
3.24(a) is or has been breached, this Section 4.4(g) shall not be considered to
be or have been breached).
(h) Intercorporate Indebtedness. At the Effective Time, there
will be no intercorporate indebtedness existing between Parent or Merger Sub and
the Company that was issued or acquired, or will be settled, at a discount.
(i) Expenses. In the Merger, no liabilities of the
Shareholders of the Company will be assumed by Parent, and Parent will not
assume any liens, encumbrances or any similar liabilities relating to any
Company Stock acquired by Parent in the Merger.
(j) Value of Transferred Assets. The fair market value of the
assets of the Company transferred to Merger Sub will equal or exceed the sum of
the liabilities assumed by Merger Sub, plus the amount of liabilities, if any,
to which the transferred assets are subject.
38
4.5 SEC Reports; Financial Statements.
(a) Parent filed with the Securities and Exchange Commission
(the "SEC") all reports, forms, schedules and statements and other documents
required to be filed by it since Parent's Form 10-K for the fiscal year ended
March 31, 2002 (the "PARENT SEC REPORTS") which complied at the time of filing
in all material respects with all applicable requirements of the Securities Act
of 1933, as amended (the "SECURITIES ACT"), and the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), each law as in effect on the dates such
forms reports and documents were filed. None of such Parent SEC Reports,
including any financial statements or schedules included or incorporated by
reference therein, contained when filed any untrue statement of a material fact
or omitted to state a material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements therein in light
of the circumstances under which they were made not misleading, except to the
extent superseded by a Parent SEC Report filed subsequently and prior to the
date hereof. The audited and any unaudited consolidated financial statements of
Parent included in the Parent SEC Reports fairly present in conformity in all
material respects with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto and except for
the absence of footnotes in the unaudited financial statements), the
consolidated financial position of Parent and its consolidated subsidiaries as
of the dates thereof and their consolidated results of operations and changes in
financial position for the periods then ended (subject, in the case of any
interim financial statements, to normal year-end adjustments).
(b) Parent has delivered to the Company copies of an unaudited
balance sheet of Parent and the related statement of earnings dated as of August
2, 2002 for the quarter ended June 30, 2002, which have been prepared in all
material respects in accordance with United States generally accepted accounting
principles consistently applied, and fairly present the financial condition of
Parent as of June 30, 2002 and the results of its operations for the period
covered thereby (subject to normal year-end adjustments and except that such
financial statements do not contain all required footnotes) (the "PARENT INTERIM
FINANCIAL STATEMENTS").
(c) Except as disclosed in the Parent Interim Financial
Statements, no change in the business, assets, liabilities, condition (financial
or other), or results of operations of Parent has occurred between the date of
filing of the SEC Reports filed prior to the date hereof with the SEC and the
date hereof that would cause such SEC Reports, including the financial and
schedules included or incorporated by reference therein, to contain, as of the
date hereof, any untrue statement of a material fact or to omit to state a
material fact that would be required to be stated or incorporated by reference
therein or that would be necessary in order to make the statements contained
therein, as of the date hereof, not misleading.
4.6 Information Supplied. None of the information with respect to
Parent supplied in writing by Parent or Merger Sub or otherwise approved by
Parent for inclusion in the Information Statement will, at the date mailed or
furnished to Shareholders of the Company in connection with obtaining approval
of the Merger, this Agreement and the Ancillary Agreements contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein in light of
the circumstances under which they are made not misleading.
39
4.7 Consents and Approvals; No Violations. Except for filings, permits,
authorizations, consents, and approvals as may be required under applicable
requirements of state securities or blue sky laws, and the filing and
recordation of the Certificate of Merger as required by the CGCL, no filing with
or notice to, and no permit authorization consent or approval of any
Governmental Entity is necessary for the execution and delivery by Parent or
Merger Sub of this Agreement or any of the other Ancillary Agreements to which
it is a party or the consummation by Parent or Merger Sub of the transactions
contemplated hereby and thereby. Neither the execution, delivery and performance
of this Agreement or any of the other Ancillary Agreements to which it is a
party by Parent or Merger Sub nor the consummation by Parent or Merger Sub of
the transactions contemplated hereby and thereby will (i) conflict with or
result in any breach of any provision of the respective Certificate or Articles
of Incorporation or bylaws (or similar governing documents) of Parent or Merger
Sub or any of Parent's other subsidiaries, (ii) result in a violation or breach
of or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, amendment, cancellation or
acceleration or Lien) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Parent or Merger Sub or any of Parent's other
subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound or (iii) violate any order, writ, injunction,
decree, law, statute, rule or regulation applicable to Parent or Merger Sub or
any of Parent's other subsidiaries or any of their respective properties or
assets.
4.8 No Prior Activities of Merger Sub. Except for obligations incurred
in connection with its incorporation or organization or the negotiation and
consummation of this Agreement and each of the other Ancillary Agreements to
which it is a party, and the transactions contemplated hereby and thereby,
Merger Sub has neither incurred any obligation or liability nor engaged in any
business or activity of any type or kind whatsoever or entered into any
agreement or arrangement with any person.
ARTICLE 5
ACTIONS BY THE COMPANY, PARENT
AND MERGER SUB PRIOR TO THE CLOSING
The Company, Parent and Merger Sub, each as indicated below, covenant
as follows for the period from the date hereof through the Closing Date:
5.1 Conduct of Business. From the date hereof through the Closing, the
Company shall, except as otherwise expressly contemplated by this Agreement, or
as consented to by Parent in writing which consent shall not be unreasonably
withheld or delayed, operate the Business solely in the ordinary course of
business and in accordance with past practice and will not, in any event, take
any action inconsistent with this Agreement or the consummation of the Closing.
Without limiting the generality of the foregoing, the Company shall not, except
as specifically contemplated by this Agreement or as consented to by Parent in
writing:
(a) incur any indebtedness for borrowed money, or assume,
guarantee, endorse (other than endorsements for deposit or collection in the
ordinary course of business), or otherwise become responsible for obligations of
any other Person in excess of $25,000.
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(b) issue (except pursuant to Company Options outstanding on
the date of this Agreement and disclosed on Schedule 3.2(b)) or commit to issue
any shares of its capital stock or any other securities or any securities
convertible into shares of its capital stock or any other securities, including,
without limitation, any options to acquire capital stock;
(c) declare, pay or incur any obligation to pay any dividend
on its capital stock or declare, make or incur any obligation to make any
distribution or redemption with respect to capital stock;
(d) make any change to the Company's Certificate of
Incorporation or Bylaws;
(e) mortgage, pledge or otherwise encumber any Assets or sell,
transfer, license or otherwise dispose of any Assets except for the sale of
Inventory to customers in the ordinary course of business and consistent with
past practice;
(f) cancel, release or assign any indebtedness owed to it or
any claims or rights held by it except in the ordinary course of business and
consistent with past practice;
(g) make any investment or commitment of a capital nature
either by purchase of stock or securities, contributions to capital, property
transfer or otherwise, or by the purchase of any property or assets of any other
Person in excess of $5,000;
(h) terminate any material Contract or make any change in any
material Contract;
(i) (i) enter into or modify any employment Contract, (ii) pay
any compensation to or for any Employee, officer or director other than in the
ordinary course of business and pursuant to existing employment arrangements,
(iii) pay or agree to pay any bonus, incentive compensation, service award,
severance, "stay bonus" or other like benefit not in the ordinary course of
business consistent with past practice, (iv) establish, enter into or modify any
Employee Plan, (v) modify the Company Stock Option Plans, or (vi) accelerate the
vesting of any Company Options;
(j) enter into or modify any Contract or other arrangement
with a Related Party;
(k) make any change in any method of accounting or accounting
practice;
(l) fail to comply with all Regulations applicable to the
Assets (except as could not reasonably be expected to result in a Company
Material Adverse Effect) and the Business consistent with past practices;
(m) fail to use its commercially reasonable efforts to (i)
maintain the Business except for ordinary wear and tear, (ii) retain the
Employees so that such Employees will remain available to the Surviving
Corporation on and after the Closing Date, (iii) maintain existing relationships
with material suppliers and customers and others having business dealings with
41
Parent and (iv) otherwise to preserve the goodwill of the Business so that such
relationships and goodwill will be preserved on and after the Closing Date;
(n) make or change any election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any tax allocation
agreement, tax sharing agreement, tax indemnity agreement or closing agreement,
settle or compromise any claim, notice, audit report 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;
(o) commence any Action or other legal proceeding;
(p) do any other act which would cause any representation or
warranty of the Company or Shareholders in this Agreement to be or become untrue
in any material respect or that is not in the ordinary course of business
consistent with past practice; or
(q) directly or indirectly take, agree to take or otherwise
permit to occur any of the actions described in Section 5.1(a) through Section
5.1(p).
Notwithstanding the foregoing, nothing in this Section 5.1 shall prohibit the
Company from taking any action or omitting to take any action as required or as
contemplated by this Agreement.
5.2 Access by Parent. Subject to the Non-Disclosure Agreement, from the
date hereof through the Closing Date, the Company shall, and shall cause the
Company's officers, Employees and Representatives to, afford the Representatives
of Parent and those of its lenders access upon reasonable notice and at all
reasonable times to its Business for the purpose of inspecting the same, and to
its officers, Employees and Representatives, properties, Books and Records,
Contracts and other Assets, and shall furnish Parent and its Representatives and
those of its lenders, upon reasonable notice and in a timely manner, all
financial, operating and other data and information as Parent or its affiliates,
through their respective Representatives, may reasonably request.
5.3 Notification of Certain Matters. The Company shall give prompt
notice to Parent of (i) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty of
the Company contained in this Agreement to be untrue or inaccurate in any
material respect and (ii) any material failure of the Company to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that such disclosure shall not be deemed to
cure any breach of a representation, warranty, covenant or agreement or to
satisfy any condition. The Company shall promptly notify Parent of any Default,
the threat or commencement of any Action, or any development that occurs before
the Closing that could reasonably be expected to result in a Company Material
Adverse Effect.
5.4 No Mergers, Consolidations, Sale of Stock, etc. The Company shall
not, directly or indirectly, through any Representative or otherwise, (a)
solicit or encourage any inquiries or proposals or enter into or continue any
discussions, negotiations or agreements relating to (i) the sale or exchange of
the Company's capital stock, (ii) the merger of the Company with, or the
42
direct or indirect disposition of a significant amount of the Assets or the
Business to, any Person other than Parent or (iii) other than in the ordinary
course of Business, the licensing of the Company's Proprietary Rights to any
Person or (b) provide any assistance or any information to or otherwise
cooperate with any Person in connection with any such inquiry, proposal or
transaction. The Company hereby represents that the Company is not now engaged
in discussions or negotiations with any party other than Parent with respect to
any transaction of the kind described in clauses (a) (i) through (a) (iii) of
the preceding sentence (a "PROPOSED ACQUISITION TRANSACTION"). The Company
agrees not to release any third party from, or waive any provision of, any
confidentiality or standstill agreement to which it is a party. The Company
shall (w) immediately notify Parent (orally and in writing) if any offer is
made, any discussions or negotiations are sought to be initiated, any inquiry,
proposal or contact is made or any information is requested with respect to any
Proposed Acquisition Transaction, (x) promptly notify Parent of the terms of any
proposal which it may receive in respect of any such Proposed Acquisition
Transaction, including, without limitation, the identity of the prospective
purchaser or soliciting party, (y) promptly provide Parent with a copy of any
such offer, if written, or a written summary (in reasonable detail) of such
offer, if not in writing, and (z) keep Parent informed of the status of such
offer and the offeror's efforts and activities with respect thereto.
5.5 Company Shareholder Approval. The Company agrees that promptly
following execution of this Agreement by the parties hereto, the Company shall
prepare and submit to the Shareholders the Information Statement and a written
consent in lieu of a meeting of such Shareholders (a) approving the execution,
delivery and performance by the Company of this Agreement and the consummation
of the transactions contemplated hereby and (b) expressly waiving any
dissenters' appraisal or similar remedy available under the CGCL or other
applicable law.
5.6 Company's Auditors. The Company will use commercially reasonable
efforts to cause its management and the Company's independent accountants,
Damitz, Brooks, Nightingale, Turner, and Morissette, to facilitate on a timely
basis (i) the preparation of financial statements (including pro forma financial
statements if required) as required by Parent to comply with applicable SEC
regulations and (ii) the review of any Company or predecessor audit work papers,
including, as applicable, the review of selected interim financial statements
and data.
5.7 Closing Date. Each party to this Agreement shall use all reasonable
commercial efforts to cause the Closing to occur on or before August 30, 2002.
5.8 Takeover Statutes. If any Takeover Statute is or may become
applicable to the transactions contemplated hereby, the Board of Directors of
the Company will grant such approvals and take such actions as are necessary so
that the transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate the
effects of any Takeover Statute on any of the transactions contemplated hereby.
5.9 Further Assurances. Upon the terms and subject to the conditions
contained herein, the parties agree, in each case both before and after the
Closing, (i) to use all commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the
43
transactions contemplated by this Agreement, including fulfillment of the
conditions set forth in Article 6 hereof, (ii) to use their respective
commercially reasonable efforts to cause the Merger to qualify, and will not
take any actions which to their knowledge could reasonably be expected to
prevent the Merger from qualifying, as a reorganization under the provisions of
Section 368(a) of the Code, (iii) to execute any documents, instruments or
conveyances of any kind which may be reasonably necessary or advisable to carry
out any of the transactions contemplated hereunder and thereunder and (iv) to
cooperate with each other in connection with the foregoing. Without limiting the
foregoing, the parties agree to use their respective reasonable commercial
efforts (A) to obtain any necessary Consents, (B) to give all notices to, and
make all registrations and filings with third parties, including submissions of
information requested by governmental authorities and (C) to fulfill all other
conditions to this Agreement. Notwithstanding the foregoing, (x) no amendment or
modification shall be made to any Contract to obtain any required Consent
without the prior written consent of Parent and (y) no party hereto or any of
their respective Affiliates shall be required to sell, transfer, divest or
otherwise dispose of any of its respective business, assets or properties in
connection with this Agreement or any of the transactions contemplated hereby.
Each party shall deliver customary closing certificates and representations for
the purpose of facilitating delivery of the opinions of counsel and the outside
independent accountants contemplated by this Agreement.
5.10 Termination of 401(k) Plan and Company Stock Option Plans. Prior
to the Closing, the Company shall take all action necessary to, at the Closing,
(a) terminate the Company's 401(k) Plan and allow employees to receive
distribution of their accounts thereunder to the extent permitted by ERISA and
(b) terminate the Company Stock Option Plans.
ARTICLE 6
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligations of the Company to effect the Merger and complete the
related transactions contemplated by this Agreement are subject, to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions:
6.1 Representations, Warranties and Covenants. All representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects (without regard to any materiality
qualifier contained therein) at and as of the Closing Date as if such
representations and warranties were made at and as of the Closing Date, and
Parent and Merger Sub shall have performed in all material respects all
agreements and covenants required hereby to be performed by it prior to or at
the Closing Date (without regard to any materiality qualifier contained
therein). There shall be delivered to the Company a certificate of Parent,
signed by its President, and Merger Sub, signed by its President, to the
foregoing effect ("Parent Closing Certificate").
6.2 Consents. All Consents, approvals and waivers from governmental
authorities necessary to permit consummation of the Merger as contemplated
hereby shall have been obtained and all approvals required under any Regulations
to permit Parent and Merger Sub to carry out the transactions contemplated by
this Agreement shall have been obtained. All required approvals, if any, under
United States federal and state securities laws and regulations shall have been
obtained.
44
6.3 No Court Orders. There shall not be any Regulation or Court Order
that makes the transactions contemplated hereby illegal or otherwise prohibited.
6.4 Closing Documents. Parent shall have delivered to the Shareholder
Agent the documents and other items described in Section 8.2 and such other
documents and items as the Company may reasonably require.
6.5 Material Adverse Change. There shall not have been any Material
Adverse Change with respect to Parent between the first date as of which this
Agreement has been executed by all parties hereto and the Closing Date.
6.6 Employment Agreements; Grant of Parent Options. Parent shall have
executed and delivered to Carol Ann Demachkie, Pavel Laptev, Valery Feltmetsger,
Greg Ballou and James Webb each an Employment Agreement regarding the terms of
such individual's employment by Parent or one of its Subsidiaries, and Pavel
Laptev, Valery Feltmetsger, Greg Ballou and James Webb shall have executed his
respective Employment Agreement, and each such Employment Agreement shall
provide for a grant of options to purchase shares of Parent Stock under Parent's
1998 Equity Participation Plan pursuant to Parent's standard form of stock
option agreement. The number of options to purchase Parent Stock and shares of
restricted Parent Stock granted to each such individual shall be set forth in
each Employment Agreement.
6.7 Consulting Agreement. Parent shall have executed and delivered the
Consulting Agreement to Carole Clarke.
6.8 Registration Rights Agreement. Parent shall have entered into the
Registration Rights Agreement.
ARTICLE 7
CONDITIONS TO PARENT'S AND MERGER SUB'S OBLIGATIONS
The obligations of Parent and Merger Sub to effect the Merger and
complete the related transactions contemplated by this Agreement are subject to
the satisfaction, on or prior to the Closing Date, of each of the following
conditions:
7.1 Representations, Warranties and Covenants. All representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects (without regard to any materiality qualifier contained
therein) at and as of the Closing Date as if such representations and warranties
were made at and as of the Closing Date, and the Company shall have performed in
all material respects all agreements and covenants required hereby to be
performed prior to or at the Closing Date (without regard to any materiality
qualifier contained therein). There shall be delivered to Parent a certificate
of the Company signed by its President (the "Company Closing Certificate") to
the foregoing effect.
7.2 Consents. All Consents, approvals and waivers from governmental
authorities and other parties necessary to permit consummation of the Merger as
contemplated hereby and for the operation of the Business after the Closing
(including all required third party consents under the Contracts) shall have
been obtained. Parent shall be satisfied that all approvals required under any
Regulations to permit the Company to carry out the transactions contemplated by
this
45
Agreement shall have been obtained. All required approvals, if any, under United
States federal and state securities laws and regulations shall have been
obtained.
7.3 No Actions or Court Orders. No Action by any court, governmental
authority or other Person shall have been instituted or threatened which
questions the validity or legality of the transactions contemplated hereby.
There shall not be any Regulation or Court Order that makes the acquisition of
the Company Stock contemplated hereby illegal or otherwise prohibited or that
otherwise may have a Company Material Adverse Effect.
7.4 Closing Documents. The Company and/or the Shareholders, as the case
may be, shall have delivered to Parent the documents and other items described
in Section 8.1 and such other documents and items as Parent may reasonably
require.
7.5 Exemption under Federal and State Securities Laws. Parent shall be
satisfied in its sole discretion that the issuance of shares of Parent Stock in
the Merger will not violate any United States federal or state securities laws
and the Shareholders shall have executed and delivered to Parent all documents
necessary to allow Parent to make such determination.
7.6 Shareholder Consent. The Merger shall have been approved by
Shareholders owning at least ninety-eight percent (98%) of the outstanding
shares of Company Stock, and the Company shall have taken all other actions
related to the due authorization of the Merger as may be required under the CGCL
the ("SHAREHOLDER CONSENT").
7.7 Tax Matters. The Company shall have provided Parent with (i) all
forms, certificates and/or other instruments required to pay the transfer and
recording taxes and charges arising from the transactions contemplated by this
Agreement, (ii) a clearance certificate or any other document (including,
without limitation, a properly executed statement in a form reasonably
acceptable to Parent that satisfies Parent's obligations under Treasury
Regulation Section 1.1445-2(c)(3)) which may be required by any taxing authority
to relieve Parent of any obligation to withhold any portion of the payments to
the Shareholders pursuant to this Agreement, and (iii) the aggregate tax basis
of the Shareholders in their Company Stock as of the Effective Time.
7.8 Material Adverse Change. There shall not have been any Company
Material Adverse Change between the first date as of which this Agreement has
been executed by all parties hereto and the Closing Date.
7.9 Appraisal Rights. Those Shareholders (if any) who have asserted any
appraisal rights under the CGCL do not hold more than two percent (2.0%) of the
outstanding shares of Company Stock.
7.10 Other Agreements. Each of the Shareholders shall have entered into
the Registration Rights Agreement and each of the Company's employees who are to
be employed with Parent shall have entered into a Proprietary Information and
Inventions Agreement.
46
ARTICLE 8
CLOSING
On the Closing Date:
8.1 Deliveries by the Company and the Shareholders to Parent. The
Company and each Shareholder, as applicable, shall deliver (or cause to be
delivered) to Parent:
(a) any Consents required hereunder to be obtained by the
Company;
(b) the Company Closing Certificate;
(c) the certificates and documents described in Section 7.7
and Section 7.10;
(d) the Shareholder Consent;
(e) the Ancillary Agreements; and
(f) all share certificates representing the shares of Company
Stock to be canceled in connection with the Merger.
8.2 Deliveries by Parent. Parent shall deliver to the Company, the
Shareholders, and the Escrow Agent, as applicable:
(a) any Consents required to be obtained by Parent;
(b) the Parent Closing Certificate;
(c) the Ancillary Agreements;
(d) the Merger Shares to be issued to the Shareholders as
provided for herein; and
(e) all share certificates representing the shares of Company
Stock to be canceled in connection with the Merger.
ARTICLE 9
INDEMNIFICATION
9.1 Survival of Representations, etc.
(a) Indemnification of Parent Indemnified Parties. Subject to
the conditions, limitations, and other provisions of this Article 9, from and
after the Closing, Parent, its Affiliates, and each of their respective
officers, directors, employees, stockholders and agents ("PARENT INDEMNIFIED
PARTIES") may seek indemnification from, and shall have the right to be
indemnified out of, the Escrow Fund for any and all direct damages, loss,
liability and expense (including, without limitation, reasonable expenses of
investigation and reasonable attorneys' fees and expenses in connection with any
action, suit of proceeding), but shall exclude any consequential, punitive,
exemplary or similar non-compensatory damages (such direct damages,
47
losses, liabilities and expenses, collectively "DAMAGES") incurred or sustained
by the Parent Indemnified Parties arising out of any breach of any
representation and warranty or covenant of the Company hereunder for which a
Claim Notice is delivered to the Escrow Agent and the Shareholder Agent prior to
the one year anniversary of the Closing Date; provided, however, that any claim
based on Section 3.23 (Taxes) or Section 9.3 (Tax Indemnification) or relating
to Damages arising out of, in connection with or relating to any breach or
nonperformance of any covenant, agreement or undertaking relating to Tax matters
shall survive until the end of the applicable statute of limitations (including
any extensions thereof) (the "SURVIVAL PERIOD"). The term "Damages" as used in
this Section 9.1 is not limited to matters asserted by third parties against
Parent Indemnified Parties, but includes Damages incurred or sustained by such
persons in the absence of third party claims.
(b) The Parent Indemnified Parties' right of indemnification
pursuant to this Section 9.1 shall not be effective until the aggregate dollar
amount of all Damages for which Claim Notices are delivered pursuant to Section
9.1(d), below, prior to the expiration of the Survival Period, exceeds Fifteen
Thousand Dollars ($15,000) (the "THRESHOLD AMOUNT"), at which point such
obligations shall be effective as to the entire amount of such Damages,
including the Threshold Amount, subject to the limitation in Section 9.1(c); and
(ii) thereafter shall be effective only until the dollar amount paid in respect
of the Damages indemnified against under this Section 9.1 aggregates to an
amount equal to the Escrow Amount.
(c) NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT TO
THE CONTRARY, (i) THE SOLE AND EXCLUSIVE REMEDY FOR ANY PARENT INDEMNIFIED PARTY
BY REASON OF ANY DAMAGES ALLEGED TO HAVE BEEN SUFFERED BY REASON OF ANY ACTUAL
OR ALLEGED BREACH BY THE COMPANY OF ANY REPRESENTATION, WARRANTY, OR COVENANT
HEREUNDER SHALL BE TO ASSERT A CLAIM FOR INDEMNIFICATION AGAINST THE ESCROW FUND
PURSUANT TO THIS ARTICLE 9, (ii) THE SOLE AND EXCLUSIVE SOURCE OF PAYMENT OF
DAMAGES SUFFERED BY REASON OF ANY SUCH BREACHES SHALL BE THE ESCROW FUND, AND
(iii) IN NO EVENT SHALL THE COMPANY OR ANY SHAREHOLDER, OFFICER, DIRECTOR, OR
EMPLOYEE OF THE COMPANY HAVE ANY LIABILITY WHATSOEVER TO ANY PARENT INDEMNIFIED
PARTY HEREUNDER OR IN CONNECTION WITH THE MERGER FOR AN AMOUNT IN EXCESS OF SUCH
PERSON'S SHARE (IF ANY) OF THE ESCROW FUND.
(d) Procedure for Claims. A claim for indemnity (a "CLAIM")
may be asserted under this Section 9.1 only by a Parent Indemnified Party and
only if, prior to the expiration of the Survival Period, such Parent Indemnified
Party delivers to the Shareholder Agent and the Escrow Agent, promptly after the
Parent Indemnified Party becomes aware of any fact, condition or event which may
give rise to Damages for which indemnification may be sought under this Section
9.1, a written notice (a "CLAIM NOTICE") describing in reasonable detail the
facts and circumstances believed to support a claim for indemnity hereunder and
the specific Sections of this Agreement alleged to be violated thereby. All
Claims for which a Claim Notice is not delivered prior to expiration of the
Survival Period shall be conclusively deemed to have been waived. Except with
respect to a Claim Notice delivered after the expiration of the Survival Period,
the failure of any Parent Indemnified Party to give timely notice hereunder
shall not
48
affect rights to indemnification hereunder unless and only to the extent that
the Shareholder Agent demonstrates actual material damage caused by such
failure, and then only to the extent thereof.
(i) In the case of a Claim arising from the assertion
of a claim by a third party (whether pursuant to a lawsuit, other legal action
or otherwise, a "THIRD-PARTY CLAIM"), if the Shareholder Agent shall acknowledge
in writing to the Parent Indemnified Party that such Parent Indemnified Party is
entitled to receive indemnification from the Escrow Fund in connection with such
Third-Party Claim, then (A) the Shareholder Agent shall be entitled and, if it
so elects, shall be obligated at its own cost, risk and expense, (1) to take
control of the defense and investigation of such Third-Party Claim and (2) to
pursue the defense thereof in good faith by appropriate actions or proceedings
promptly taken or instituted and diligently pursued, including, without
limitation, to employ and engage attorneys of its own choice reasonably
acceptable to the Indemnified Party to handle and defend the same, and (B) the
Shareholder Agent shall be entitled (but not obligated), if it so elects, to
compromise or settle such claim, which compromise or settlement shall be made
only with the written consent of the Parent Indemnified Party, such consent not
to be unreasonably withheld. In the event the Shareholder Agent elects to assume
control of the defense and investigation of such lawsuit or other legal action
in accordance with this Section 9.1(d), the Parent Indemnified Party may, at its
own cost and expense, participate in the investigation, trial and defense of
such Third-Party Claim; provided that, if the named persons to a lawsuit or
other legal action include both the Shareholder Agent and the Parent Indemnified
Party and the Parent Indemnified Party has been advised in writing by counsel
that there may be one or more legal defenses available to such Parent
Indemnified Party that are different from or additional to those available to
the Shareholder Agent, the Parent Indemnified Party shall be entitled, at the
Indemnifying Party's cost, risk and expense (subject to the limits on indemnity
set forth in Section 9.1(c), above), to retain one firm of separate counsel of
its own choosing.
(ii) If the Shareholder Agent fails to assume the
defense of such Third-Party Claim in accordance with this Section 9.1 within
fifteen (15) calendar days after receipt of the Claim Notice, then the Parent
Indemnified Party against which such Third-Party Claim has been asserted shall
(upon delivering notice to such effect to the Shareholder Agent) have the right
to undertake, at the cost, risk and expense of the Shareholders (subject to the
limits on indemnification set forth in Section 9.1(c), above), the defense,
compromise and settlement of such Third-Party Claim on behalf of and for the
account of the Shareholders; provided that such Third-Party Claim shall not be
compromised or settled without the written consent of the Shareholder Agent,
which consent shall not be unreasonably withheld.
(iii) In the event the Shareholder Agent assumes the
defense of the claim, the Shareholder Agent shall keep the Parent Indemnified
Party reasonably informed of the progress of any such defense, compromise or
settlement, and in the event the Parent Indemnified Party assumes the defense of
the claim, the Parent Indemnified Party shall keep the Shareholder Agent
reasonably informed of the progress of any such defense, compromise or
settlement. The Parent Indemnified Party shall be entitled to indemnity from the
Escrow Fund for the amount of any settlement of any Third-Party Claim effected
pursuant to and in accordance with this Section 9.1 and for any final judgment
(subject to any right of appeal) (subject, in each instance, to the limits on
indemnification hereunder, including those set forth in Section 9.1(c), above).
49
9.2 No Right of Contribution. After the Closing, no Shareholder shall
have any right of contribution against the Surviving Corporation for any breach
of any representation, warranty, covenant or agreement of the Company herein.
Parent shall be entitled to specific performance and injunctive relief, without
posting bond or other security, for the purpose of asserting its rights under
this Article 9.
9.3 Tax Indemnification. Subsequent to the Closing, the Shareholders
shall, jointly and severally, indemnify, defend, save and hold Parent, Merger
Sub, and the Company (and each of their respective Affiliates, successors and
assigns) harmless from and against (i) any and all Taxes of the Company with
respect to any Tax year or portion thereof ending on or before the Closing Date
(or for any Tax year beginning before and ending after the Closing Date to the
extent allocable (as determined in the following sentence) to the portion of
such period beginning before and ending on the Closing Date), except to the
extent that such Taxes are reflected in the reserve for Tax Liability (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the face of the Balance Sheet, as such
reserve is adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company in filing its Tax
Returns, (ii) the unpaid Taxes of any Person (other than the Company) under
Treasury Regulations Section 1.1502-6 (or any similar provision of state, local
or foreign law), as a transferee or successor, by contract, or otherwise, and
(iii) any and all Damages incurred in connection with, arising out of, resulting
from, or incident to any of the Taxes described in the foregoing clauses (i) and
(ii); provided, however, that the Escrow Fund shall be the sole source of funds
for indemnification for any of the Taxes described in this Section 9.3;
provided, further, that indemnification for any of the Taxes described in this
Section 9.3 shall not be subject to the Threshold Amount. For purposes of the
preceding sentence, in the case of any Taxes that are imposed on a periodic
basis and are payable for a Tax period that includes (but does not end on) the
Closing Date, the portion of such Tax that relates to the portion of such Tax
period ending on the Closing Date shall (i) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire Tax period multiplied by a fraction the numerator of
which is the number of days in the Tax period ending on the Closing Date and the
denominator of which is the number of days in the entire Tax period, and (ii) in
the case of any Tax based upon or related to income or receipts, be deemed equal
to the amount which would be payable if the relevant Tax period ended on the
Closing Date.
ARTICLE 10
POST-CLOSING COVENANTS OF PARENT
10.1 Parent Indemnification with Respect to State Loan. Parent shall
pay as and when due, and shall indemnify, defend, and hold the Company, its
Shareholders, the Estate and other successors of Peter Clarke, and each of their
respective affiliates, successors, assigns, and agents free and harmless from
and against all claims, costs, damages, and expenses (including but not limited
to attorneys' fees and other litigation or arbitration costs) arising from or
relating to, all amounts due under and with respect to the Company's obligations
pursuant to that certain Loan Agreement dated January 1, 1996, between the
California Trade and Commerce Agency and the Company, as amended September 17,
1999, which loan was personally guaranteed by Peter Clarke (the "STATE LOAN").
Parent hereby acknowledges that the Company has advised Parent
50
that, by reason of the Merger, the holder of such State Loan may be entitled to
accelerate payment of all amounts due thereunder.
10.2 Guaranty of Payments Under Peter Clarke Employment Agreement.
Parent hereby (a) acknowledges that (i) the Company employed Peter Clarke
pursuant to that certain Employment Agreement by and between the Company and
Peter Clarke dated as of April 30, 1999, (ii) Peter Clarke passed away on May 1,
2002, and (iii) under the terms of that Employment Agreement, the Company is
obligated to pay to Carole Clarke, as successor to Peter Clarke, for the
remainder of the twelve-month period commencing as of April 25, 2002, the salary
payments, car payments, and health insurance premium payments due under that
Employment Agreement, and (b) hereby personally guarantees to Carole Clarke, who
is an intended third-party beneficiary of the provisions of this Section 10.2,
the full, prompt, and punctual payment of all such amounts for the remainder of
that twelve-month term.
10.3 Parent Payment of Company Transaction Expenses. Upon consummation
of the Merger, Parent and Merger Sub shall assume, pay, and promptly discharge
the Company's reasonable accounting, legal and investment banking fees incurred
in connection with the negotiation and documentation of this Agreement up to an
aggregate amount of $250,000. Parent acknowledges that (a) Company's investment
bankers, Block & Bowman, have estimated their fees in the Merger to be Two
Hundred Thousand Dollars ($200,000), (b) the Company's counsel, Reicker, Pfau,
Pyle, McRoy & Herman LLP, have estimated their fees in the Merger to be Forty
Thousand Dollars ($40,000), and (c) the Company's certified public accountants,
Damitz, Brooks, Nightingale, Turner & Morissette, have estimated their fees in
the Merger to be Six Thousand Five Hundred Dollars ($6,500), and (d) the fees of
such counsel and accountants in connection with the Merger are in addition to
the costs and fees incurred by the Company to those parties in the ordinary
course of business.
10.4 Parent's Payment of Note to Clarke Trust. Upon Parent's or the
Surviving Corporation's receiving from any customers any deposits in excess of
$75,000 toward the purchase price of an Endeavor sputtering machine, Parent
shall pay to Carole Clarke (to the extent of such deposits) the entire unpaid
principal of and all accrued and unpaid interest on that certain Unsecured
Promissory Note dated March 15, 2002, from the Company (as borrower) in favor of
Peter Clarke and Carole Clarke, Trustees of the Clarke Family Trust dated April
30, 1986, as amended, in the original principal amount of $77,500, bearing
interest at ten percent (10%) per annum.
10.5 Credit for Prior Service. Parent and the Surviving Corporation
shall recognize the prior service with the Company of all Company employees for
all periods prior to the Closing Date as service with the Surviving Corporation
for all purposes, including eligibility, vesting and benefit levels, as
applicable in Parent's employee welfare benefit plans or policies, but only to
the extent that such service was recognized by the Company under the applicable
Benefit Arrangement.
10.6 Indemnification and Directors' and Officers' Insurance. From and
after the Closing Date, Parent shall cause the Surviving Corporation to
indemnify, defend, and hold harmless (and shall also cause the Surviving
Corporation to advance expenses as incurred to the fullest extent permitted
under applicable law), to the extent not covered and paid by insurance,
51
each person who is now or has been prior to the date hereof or who becomes prior
to the Closing Date an officer or director of the Company (the "INDEMNIFIED D&O
PERSONS") against (i) all losses, claims, damages, costs, expenses (including
counsel fees and expenses), settlement, payments or liabilities arising out of
or in connection with any claim, demand, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part out of
the fact that such person is or was an officer or director of the Company or any
of its subsidiaries, whether or not pertaining to any matter existing or
occurring at or prior to the Effective Time and whether or not asserted or
claimed prior to or at or after the Effective Time ("INDEMNIFIED D&O
LIABILITIES"); (ii) all Indemnified D&O Liabilities based in whole or in part on
or arising in whole or in part out of or pertaining to this Agreement or the
transactions contemplated hereby, in each case to the fullest extent required or
permitted under applicable law and (iii) all costs and expenses, including
attorneys' fees and legal expenses incurred by any Indemnified D&O Person in
enforcing his or her rights under this Section 10.6. Nothing contained herein
shall make Parent, Merger Sub, the Company or the Surviving Corporation, an
insurer, a co-insurer or an excess insurer in respect of any insurance policies
which may provide coverage for Indemnified D&O Liabilities, nor shall this
Section 10.6 relieve the obligations of any insurer in respect thereto. Each
Indemnified D&O Person is intended to be a third party beneficiary of this
Section 10.6 and may specifically enforce its terms. This Section 10.6 shall not
limit or otherwise adversely affect any rights any Indemnified D&O Person may
have under any agreement with the Company or under the Company's Articles of
Incorporation or bylaws as presently in effect or under any provision of
applicable law.
(a) Parent shall use commercially reasonable efforts to add
the officers and directors of the Company as additional insureds under Parent's
directors and officers insurance policies at the sole expense of Parent,
provided that such coverage is available at a commercially reasonable cost.
10.7 Salaries Paid to Company Employees. The parties acknowledge that
in March 2002, the Company reduced the salary of each employee to an amount
equal to eighty percent (80%) of the annualized salary paid to the employee as
of March 1, 2002 (the March 1, 2002, annualized salary of each employee, as
adjusted for any salary increase granted prior to the effective date of this
Agreement, is referred to herein as such employee's "BASE RATE"). Parent hereby
covenants and agrees:
(a) To pay during the period of twelve (12) months after the
Closing Date, for each Company employee who accepts an offer of employment with
Parent or Merger Sub with respect to such period, the premium cost of health
insurance coverage for such employee and the employee's dependents; and
(b) To pay to each Company employee who accepts employment
with Parent or Merger Sub from and after the Closing Date:
(i) beginning on the Closing Date, an annualized
salary in an amount equal to 80% of such employee's Base Rate;
(ii) beginning on the first day of the first payroll
period beginning after the date on which Parent or Merger Sub (after the Closing
Date) first accepts an order for an
52
Endeavor sputtering machine, an annualized salary in an amount equal to 85% of
such employee's Base Rate;
(iii) beginning on the first day of the first payroll
period beginning after the date on which Parent or Merger Sub next accepts an
order for an Endeavor sputtering machine, an annualized salary in an amount
equal to 95% of such employee's Base Rate; and
(iv) on the first day of the first payroll period
beginning after the date on which Parent or Merger Sub next accepts an order for
an Endeavor sputtering machine, an annualized salary in an amount equal to 100%
of such employee's Base Rate.
ARTICLE 11
MISCELLANEOUS
11.1 Termination.
(a) This Agreement may be terminated at any time prior to
Closing:
(i) By the written agreement of Parent and the
Company;
(ii) By Parent or the Company if the Closing shall
not have occurred on or before September 15, 2002, other than due to a breach of
this Agreement by the party seeking to terminate;
(iii) By Parent if there is a material breach of any
representation or warranty set forth in Article 3 or any covenant or agreement
to be complied with or performed by the Company or any Shareholder pursuant to
the terms of this Agreement and such breach persists for fourteen (14) days or
more after notice is given, so long as any such breach is not caused by the
action or inaction of Parent or Merger Sub;
(iv) By the Company if there is a material breach of
any representation or warranty set forth in Article 4 hereof or of any covenant
or agreement to be complied with or performed by Parent or Merger Sub pursuant
to the terms of this Agreement and such breach persists for fourteen (14) days
or more after notice is given, so long as any such breach is not caused by the
action or inaction of the Company or any of the Shareholders; or
(v) By Parent if there is a breach of Section 5.4
hereof.
(b) Parent, the Company and the Shareholders agree that if
this Agreement is terminated pursuant to Section 11.1(a)(v) hereof and the
Company either enters into a definitive agreement relating to or consummates
such Proposed Acquisition Transaction within 12 months of such termination, the
Company shall pay Parent within two business days after such termination a
termination fee of $100,000.
(c) In the event of termination of this Agreement:
(i) The provisions of the Non-Disclosure Agreement
shall continue in full force and effect; and
53
(ii) Subject to Section 11.1(b), no party hereto
shall have any liability to any other party to this Agreement, except for any
willful breach of, or knowing misrepresentation made in, this Agreement
occurring prior to the formal termination of this Agreement.
11.2 Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by the Company without the prior written
consent of Parent, or by Parent or Merger Sub without the prior written consent
of the Company.
11.3 Representation By Counsel. Each party hereto represents and agrees
with each other that it has been represented by or had the opportunity to be
represented by, independent counsel of its own choosing, and that it has had the
full right and opportunity to consult with its respective attorney(s), that to
the extent, if any, that it desired, it availed itself of this right and
opportunity, that it or its authorized officers (as the case may be) have
carefully read and fully understand this Agreement in its entirety and have had
it fully explained to them by such party's respective counsel, that each is
fully aware of the contents thereof and its meaning, intent and legal effect,
and that it or its authorized officer (as the case may be) is competent to
execute this Agreement and has executed this Agreement free from coercion,
duress or undue influence.
11.4 Entire Agreement; Amendments and Waivers. This Agreement, together
with all exhibits and schedules hereto, and the Non-Disclosure Agreement,
constitute the entire agreement among the parties pertaining to the subject
matter hereof and supersede all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties. No supplement,
modification or waiver of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
11.5 Notices. All notices, elections, requests, demands, and other
communications required or permitted under this Agreement shall be in writing,
and shall be deemed to have been delivered and received (a) when personally
delivered, (b) on the third (3rd) business day after the day on which sent by
registered or certified mail, postage prepaid, return receipt requested, (c) on
the date on which transmitted by facsimile or other electronic means generating
a receipt evidencing a successful transmission, or (d) on the next business day
after the business day on which deposited with a regulated public carrier (e.g.,
Federal Express) for overnight delivery, freight prepaid, addressed to the party
for whom intended at the address or facsimile number set forth on the signature
page hereof, or such other address or facsimile number, notice of which is given
in a manner permitted by this Section 11.5.
If prior to the Closing, to the Company: If to Parent or Merger Sub or, if after the Closing, to the
Surviving Corporation:
Sputtered Films, Inc.
320 Nopal Street Tegal Corporation
Santa Barbara, California 93103 2201 South McDowell Boulevard
Attention: Mrs. Carole Clarke Petaluma, California 94954
Fax: (805) 957-2186 Attention: Chief Executive Officer
Fax: (707) 763-4015
54
With a copy to: With a copy to:
Reicker, Pfau, Pyle, McRoy & Herman LLP Latham & Watkins
Attention: Michael E. Pfau, Esq. 505 Montgomery Street
1421 State Street, Suite B San Francisco, California 94111
Santa Barbara, California 93101 Attention: Taitt Sato, Esq.
Fax: (805) 966-3320 Fax: (415) 395-8095
If to the Shareholder Agent:
Carole Clarke
304 Junipero Plaza
Santa Barbara, California 93105
Fax: (805) 682-0250
With a copy to:
Reicker, Pfau, Pyle, McRoy & Herman LLP
Attention: Michael E. Pfau, Esq.
1421 State Street, Suite B
Santa Barbara, California 93101
Fax: (805) 966-3320
11.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.7 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
11.8 Expenses. Except as otherwise specifically provided in this
Agreement, in the event this Agreement is terminated in accordance with its
terms, each party will pay its own expenses incident to this Agreement and the
transactions contemplated hereby, including accounting, legal and investment
banking fees and disbursements.
11.9 Publicity. Except as required by law or on advice of counsel,
neither party shall issue any press release or make any public statement
regarding the transactions contemplated hereby without the prior approval of the
other parties, and the parties hereto shall issue a mutually acceptable press
release as soon as practicable after the date hereof and after the Closing Date.
Notwithstanding the foregoing, Parent shall be permitted to make any public
statement without obtaining the consent of any other party hereto if (i) the
disclosure is required
55
by law or the requirements of the Nasdaq National Market and (ii) Parent has
first used its reasonable efforts to consult with (but not to obtain the consent
of) the other parties about the form and substance of such disclosure.
11.10 No Third Party Beneficiaries. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and except as
otherwise expressly stated herein (including with respect to the provisions of
Article 9 and Article 10 hereof), nothing in this Agreement is intended to or
shall confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement, including, without limitation,
by way of subrogation.
11.11 Governing Law. This Agreement and the transactions contemplated
hereby shall be construed in accordance with, and governed by, the laws of the
State of California (without reference to choice of law provisions of California
law).
11.12 Arbitration. Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled by the following
procedures:
(a) Any party may send another party written notice
identifying the matter in dispute and invoking the procedures of this Section
11.12. Within fourteen (14) days after such written notice is given, one or more
principals of each party involved in the dispute shall meet at a mutually
agreeable location in Santa Barbara, California, for the purpose of determining
whether they can resolve the dispute themselves by written agreement and, if
not, whether they can agree upon a third-party impartial arbitrator (the
"ARBITRATOR") to whom to submit the matter in dispute for final and binding
arbitration.
(b) If such parties fail to resolve the dispute by written
agreement or agree on the Arbitrator within said fourteen (14) day period, any
such party may make written application to Judicial Arbitration & Mediation
Services, Inc. ("JAMS") for the appointment of a single Arbitrator to resolve
the dispute by arbitration. At the request of JAMS, the parties involved in the
dispute shall meet with JAMS at its nearest offices to Santa Barbara,
California, within ten (10) calendar days of such request to discuss the dispute
and the qualifications and experience which each party respectively believes the
Arbitrator should have; provided, however, that the selection of the Arbitrator
shall be the exclusive decision of JAMS and shall be made within thirty (30)
days of the written application to JAMS.
(c) Within thirty (30) days of the selection of the
Arbitrator, the parties involved in the dispute shall meet in Santa Barbara,
California with such Arbitrator at a place and time designated by the Arbitrator
after consultation with such parties and present their respective positions on
the dispute. Each party shall have no longer than one day to present its
position, the entire proceedings before the Arbitrator shall be on no more than
three consecutive days, and the award shall be made in writing no more than
thirty days following the end of the proceeding. Such award shall be a final and
binding determination of the dispute and shall be fully enforceable as an
arbitration award in any court having jurisdiction and venue over such parties.
The prevailing party (as determined by the Arbitrator) shall in addition be
awarded by the Arbitrator such party's own attorneys' fees and expenses in
connection with such proceeding.
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The non-prevailing party (as determined by the Arbitrator) shall pay the
Arbitrator's fees and expenses.
ARTICLE 12
TAX MATTERS
12.1 Tax Matters.
(a) Tax Periods Ending on or Before the Closing Date. The
Company shall at Parent's direction prepare or cause to be prepared and file or
cause to be filed all Tax Returns of the Company for Tax periods ending on or
prior to the Closing Date which are filed after the Closing Date. The Company
shall permit the Shareholder Agent, upon request, to review any such Tax Return
prior to filing. Each Shareholder agrees to include in his or her individual Tax
Return his or her respective share of the Company's income, gain, loss,
deduction or credit items for Tax periods ending on or before the Closing Date
as and to the extent required by law. The Shareholders shall pay any Tax imposed
on the Company under Section 1374 of the Code (or any comparable provision of
state or local Tax law).
(b) Tax Periods Beginning Before and Ending After the Closing
Date. The Company shall at Parent's direction prepare or cause to be prepared
and file or cause to be filed all Tax Returns of the Company for all Tax periods
which begin before the Closing Date and end after the Closing Date.
(c) Cooperation on Tax Matters. Parent and the Shareholders
shall cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the filing of Tax Returns pursuant to this Section and
any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any such
audit, litigation or other proceeding. Parent and the Shareholders agree (A) to
retain all books and records with respect to Tax matters pertinent to the
Company relating to any Tax period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by Parent,
any extensions thereof) of the respective Tax periods, and to abide by all
record retention agreements entered into with any Taxing authority, and (B) to
give the other parties reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the other parties so
request, Parent or a Shareholder, as the case may be, shall allow the other
parties to take possession of such books and records.
(d) Transfer Taxes. Parent shall pay and be responsible for
all transfer and recording taxes and charges, if any, arising from the
transactions contemplated by this Agreement. Parent and the Shareholders shall
timely cooperate in filing all Tax Returns as may be required to comply with the
provisions of such Tax laws. Parent and the Shareholders shall use their best
efforts to obtain any certificate or other document or take any other reasonable
action to reduce or eliminate any such taxes or charges that may be imposed.
12.2 Tax-Free Reorganization Treatment.
(a) The parties intend the Merger to qualify as a
reorganization under Section 368(a) of the Code. However, neither Parent nor the
Company makes any representation
57
or warranty to the other or to any Shareholder regarding the tax treatment of
the Merger or whether the Merger will qualify as a reorganization under the
Code. Each of the Company and Parent acknowledges that it is relying on its own
advisors in connection with the Tax treatment of the Merger and the other
transactions contemplated by this Agreement. The Company, Merger Sub and Parent
each agree to use their respective best efforts to cause the Merger to qualify,
and will not take any actions, fail to take any actions, or cause any actions to
be taken or omitted which would reasonably be expected to prevent the Merger
from qualifying, as a reorganization under Section 368(a) of the Code.
(b) Each of the Company, Merger Sub and Parent shall report
the Merger as a reorganization within the meaning of Section 368(a) of the Code,
unless otherwise required pursuant to a "determination" within the meaning of
Section 1313(a) of the Code.
* * * * * *
58
IN WITNESS WHEREOF, each party hereto has executed this Agreement and
Plan of Merger or caused this Agreement and Plan of Merger to be duly executed
on its behalf by its officer thereunto duly authorized, as of the day and year
first above written.
TEGAL CORPORATION,
a Delaware corporation
By: /s/ Michael L. Parodi
----------------------------------
Name: Michael L. Parodi
Title: Chairman, President & CEO
SFI ACQUISITION CORP.,
a California corporation
By: /s/ Michael L. Parodi
----------------------------------
Name: Michael L. Parodi
Title: President
SPUTTERED FILMS, INC.,
a California corporation
By: /s/ Carole L. Clarke
----------------------------------
Name: Carole L. Clarke
Title: President, Chairman
SHAREHOLDER AGENT
/s/ Carole L. Clarke
-------------------------------------
Carole Clarke, solely in her capacity
as Shareholder Agent
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