- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to
Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 3, 2000
THE CHERRY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-8955 36-2977756
(Commission File Number) (I.R.S. Employer Identification Number)
3600 Sunset Avenue, Waukegan, Illinois 60087
(Address of principal executive offices) (Zip Code)
(847) 662-9200
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
The Cherry Corporation ("Cherry") sold its wholly owned subsidiary, The
Cherry Semiconductor Corporation ("CSC") to Semiconductor Components
Industries, L.L.C. ("SCI") a wholly owned subsidiary of SCG Holding
Corporation ("SCG"), pursuant to a Stock Purchase Agreement dated March
8, 2000, as amended, among Cherry, SCI, and SCG. SCI purchased all of
the outstanding shares of Common Stock of CSC for a cash purchase price
of $250 million subject to certain adjustments. The sale closed on
April 3, 2000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro forma financial information:
The following unaudited pro forma condensed consolidated
statements of income for the fiscal years ended the last day
of February, 1999, 1998 and 1997 and the nine months ended
November 30, 1999 and 1998 give effect to the disposition of
CSC as if the sale and the resulting cash proceeds occurred at
the beginning of each of these fiscal periods. The following
unaudited pro forma condensed consolidated balance sheet as of
November 30, 1999 gives effect to the disposition of CSC as if
the sale and the cash proceeds occurred as of that date.
The unaudited pro forma financial information does not purport
to be indicative of either a) the results of operations which
would have actually been obtained if the disposition had
occurred on the dates indicated, or b) the results of
operations which will be reported in the future.
The unaudited pro forma income statements do not reflect the
anticipated gain on the sale of CSC. Cherry treated CSC as a
discontinued operation and, accordingly, the gain is not part
of the pro forma requirements.
The unaudited pro forma financial information should be read
in conjunction with the historical financial statements and
notes thereto included in the Company's Annual Report on Form
10-K for the year ended February 28, 1999 and other
information filed with the Securities and Exchange Commission.
(c) Exhibits:
(2) Stock Purchase Agreement dated March 8, 2000, as amended,
by and among The Cherry Corporation, Semiconductor Components
Industries, L.L.C and SCG Holding Corporation.
(99.1) Press Release dated March 9, 2000 announcing the
execution of the Stock Purchase Agreement.
(99.2) Press Release dated April 3, 2000 announcing the
closing of the sale of CSC.
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEEET
NOVEMBER 30, 1999
(Dollars in Thousands)
(Unaudited)
<CAPTION>
Pro-Forma Adjustments
--------------------------------
Discontinuance of
Cherry
Cherry Semiconductor Other Pro-Forma
Corporation Corporation (1) Adjustments Consolidated
----------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and equivalents $ 6,957 $ 2,120 $ 168,500 (4) $ 177,577
Receivables, net of allowances 66,786 (16,423) - 50,363
Inventories 56,195 (19,322) - 36,873
Income taxes, net 3,001 - - 3,001
Prepaid expenses and other current assets 9,795 (3,160) 6,635
Net assets of discontinued operation -- 77,674 (77,674) (2) -
---------- ---------- --------- ----------
Total Current Assets 142,734 40,889 90,826 274,449
Land, buildings and equipment, net 170,448 (57,632) -- 112,816
Investment in affiliates and other assets, net 15,677 (992) -- 14,685
---------- ---------- --------- ----------
TOTAL ASSETS $ 328,859 $ (17,735) $ 90,826 $ 401,950
========== ========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Short-term debt, unsecured $ 13,499 $ -- $ (9,500) (4) $ 3,999
Accounts payable 21,853 (7,107) -- 14,746
Payroll related accruals 14,702 (2,421) -- 12,281
Other accruals 15,172 (3,117) -- 12,055
Income taxes, net -- 2,737 69,000 (3) 71,737
Current maturities of long-term debt 1,920 -- -- 1,920
---------- ---------- --------- ----------
Total Current Liabilities 67,146 (9,908) 59,500 116,738
Long-term debt 64,246 -- (59,000) (4) 5,246
Deferred income taxes, net 20,692 (7,827) -- 12,865
Deferred credits 3,673 -- -- 3,673
Stockholders' Equity:
Common stock 12,537 -- -- 12,537
Additional paid-in capital 43,135 -- -- 43,135
Retained earnings 156,030 -- 90,326 (3) 246,356
Accumulated other comprehensive income -- -- -- --
---------- ---------- --------- ----------
211,702 -- 90,326 302,028
Less: cost of common stock in treasury (38,600) -- -- (38,600)
---------- ---------- --------- ----------
Total Stockholders' Equity 173,102 -- 90,326 263,428
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 328,859 $ (17,735) $ 90,826 $ 401,950
========== ========== ========= ==========
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Nine Months Ended November 30, 1999
(Dollars in Thousands except Share Data)
(Unaudited)
<CAPTION>
Cherry Pro-Forma Pro-Forma
Corporation Adjustments (1) Consolidated
----------- --------------- ------------
<S> <C> <C> <C>
Net sales $ 369,217 $ (92,414) $ 276,803
Cost of products sold 266,697 (60,413) 206,284
--------- --------- ---------
Gross profit 102,520 (32,001) 70,519
Engineering, distribution and
administrative expenses 85,800 (25,710) 60,090
--------- --------- ---------
Earnings from operations 16,720 (6,291) 10,429
Other income (expense), net 1,087 -- 1,087
--------- --------- ---------
Earnings before interest and taxes 17,807 (6,291) 11,516
Interest expense, net 3,675 (3,410) (2) 265
--------- --------- ---------
Earnings before income taxes 14,132 (2,881) 11,251
Income tax provision 4,714 (740) 3,974
--------- --------- ---------
Net earnings $ 9,418 $ (2,141) $ 7,277
======== ========= ========
Earnings per share
Basic $ 0.93 $ 0.72
======== ========
Diluted $ 0.92 $ 0.71
======== ========
Average shares outstanding
Basic 10,144,954 10,144,954
=========== ===========
Diluted 10,206,718 10,206,718
=========== ===========
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Nine Months Ended November 30, 1998
(Dollars in Thousands except Share Data)
(Unaudited)
<CAPTION>
Cherry Pro-Forma Pro-Forma
Corporation Adjustments (1) Consolidated
----------- --------------- ------------
<S> <C> <C> <C>
Net sales $ 361,516 $ (87,376) $ 274,140
Cost of products sold 253,296 (57,024) 196,272
--------- --------- ---------
Gross profit 108,220 (30,352) 77,868
Engineering, distribution and
administrative expenses 81,158 (22,648) 58,510
--------- --------- ---------
Earnings from operations 27,062 (7,704) 19,358
Other income (expense), net 14 -- 14
--------- --------- ---------
Earnings before interest and taxes 27,076 (7,704) 19,372
Interest expense, net 2,013 (1,674) (2) 339
--------- --------- ---------
Earnings before income taxes 25,063 (6,030) 19,033
Income tax provision 9,023 (1,985) 7,038
--------- --------- ---------
Net earnings $ 16,040 $ (4,045) $ 11,995
=========== ========= =========
Earnings per share
Basic $ 1.28 $ 0.96
=========== =========
Diluted $ 1.27 $ 0.95
=========== =========
Average shares outstanding
Basic 12,494,223 12,494,223
=========== ===========
Diluted 12,589,733 12,589,733
=========== ===========
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Fiscal Year Ended February 28, 1999
(Dollars in Thousands except Share Data)
(Unaudited)
<CAPTION>
Cherry Pro-Forma Pro-Forma
Corporation Adjustments (1) Consolidated
----------- --------------- ------------
<S> <C> <C> <C>
Net sales $ 474,971 $ (115,090) $ 359,881
Cost of products sold 337,226 (75,270) 261,956
--------- ---------- ---------
Gross profit 137,745 (39,820) 97,925
Engineering, distribution and
administrative expenses 107,383 (30,309) 77,074
--------- ---------- ---------
Earnings from operations 30,362 (9,511) 20,851
Other income (expense), net 982 - 982
--------- ---------- ---------
Earnings before interest and taxes 31,344 (9,511) 21,833
Interest expense, net 2,992 (2,593) (2) 399
--------- ---------- ---------
Earnings before income taxes 28,352 (6,918) 21,434
Income tax provision 9,500 (2,254) 7,246
--------- ---------- ---------
Net earnings $ 18,852 $ (4,664) $ 14,188
========= ========= =========
Earnings per share
Basic $ 1.56 $ 1.17
========= =======
Diluted $ 1.55 $ 1.16
========= =======
Average shares outstanding
Basic 12,105,269 12,105,269
=========== ===========
Diluted 12,196,670 12,196,670
=========== ===========
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Fiscal Year Ended February 28, 1998
(Dollars in Thousands except Share Data)
(Unaudited)
<CAPTION>
Cherry Pro-Forma Pro-Forma
Corporation Adjustments (1) Consolidated
----------- --------------- ------------
<S> <C> <C> <C>
Net sales $ 452,055 $ (111,217) $ 340,838
Cost of products sold 324,782 (72,691) 252,091
--------- ---------- ---------
Gross profit 127,273 (38,526) 88,747
Engineering, distribution and
administrative expenses 98,166 (26,659) 71,507
--------- ---------- ---------
Earnings from operations 29,107 (11,867) 17,240
Other income (expense), net 1,195 -- 1,195
--------- ---------- ---------
Earnings before interest and taxes 30,302 (11,867) 18,435
Interest expense, net 2,915 (2,199) 716
--------- ---------- ---------
Earnings before income taxes 27,387 (9,668) 17,719
Income tax provision 9,984 (3,163) 6,821
--------- ---------- ---------
Net earnings $ 17,403 $ (6,505) $ 10,898
========= ========= =========
Earnings per share
Basic $ 1.40 $ 0.87
========= =======
Diluted $ 1.39 $ 0.87
========= =======
Average shares outstanding
Basic 12,455,927 12,455,927
=========== ===========
Diluted 12,547,910 12,547,910
=========== ===========
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Fiscal Year Ended February 28, 1997
(Dollars in Thousands except Share Data)
(Unaudited)
<CAPTION>
Cherry Pro-Forma Pro-Forma
Corporation Adjustments (1) Consolidated
----------- --------------- ------------
<S> <C> <C> <C>
Net sales $ 439,592 $ (99,800) $ 339,792
Cost of products sold 320,406 (66,335) 254,071
--------- --------- ---------
Gross profit 119,186 (33,465) 85,721
Engineering, distribution and
administrative expenses 93,387 (22,956) 70,431
--------- --------- ---------
Earnings from operations 25,799 (10,509) 15,290
Other income (expense), net 2,796 - 2,796
--------- --------- ---------
Earnings before interest and taxes 28,595 (10,509) 18,086
Interest expense, net 3,787 (2,629) 1,158
--------- --------- ---------
Earnings before income taxes 24,808 (7,880) 16,928
Income tax provision 8,894 (2,705) 6,189
--------- --------- ---------
Net earnings $ 15,914 $ (5,175) $ 10,739
========= ======== =========
Earnings per share
Basic $ 1.29 $ 0.87
=========== ======
Diluted $ 1.28 $ 0.86
=========== ======
Average shares outstanding
Basic 12,366,471 12,366,471
=========== ==========
Diluted 12,425,152 12,425,152
=========== ===========
</TABLE>
<PAGE>
The Cherry Corporation
Notes to
Pro Forma Condensed Consolidated Balance Sheet
For the Period Ended November 30, 1999
and
Pro Forma Condensed Consolidated Statements of Earnings
For the Years Ended February 28, 1999, 1998 and 1997 and the Nine Months
Ended November 30, 1999 and 1998
(Unaudited)
Balance Sheet
The proforma adjustments to the condensed consolidated balance sheet as of
November 30, 1999 reflect the following:
1) Classification of the net assets of CSC as Net assets of discontinued
operation
2) The dispositon of the net assets of CSC.
3) The recognition of the estimated gain from the sale and related income
taxes payable.
4) The use of proceeds to reduce domestic borrowings and reflect the cash
remaining after debt is reduced but before the payment of income taxes.
Statement of Earnings
The proforma adjustments to the condensed consolidated statements of earnings
reflect the following:
1) The elimination of CSC operations from the historical results.
2) The reduction in interest expense for the periods presented resulting from
the repayment of debt with the proceeds of the sale.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
THE CHERRY CORPORATION
By: /s/ Dan A. King
---------------------------------
Dan A. King
Vice President of Finance and
Administration, Treasurer and
Secretary
Dated: April 3, 2000
<PAGE>
Exhibit 2
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
THE CHERRY CORPORATION, SELLER
AND
SEMICONDUCTOR COMPONENTS INDUSTRIES, LLC, PURCHASER
AND
SCG HOLDING CORPORATION, PARENT OF PURCHASER
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I THE TRANSACTION
1
1.1. Sale of Stock................................................1
ARTICLE II CONSIDERATION ...............................................1
2.1. Purchase Price...............................................1
2.2. Payment......................................................1
ARTICLE III CLOSING .....................................................1
3.1. Closing......................................................1
3.2. Deliveries by Purchaser......................................2
3.3. Deliveries by Seller.........................................2
3.4. Closing Actions..............................................3
3.5. Determination of Post-Closing Adjustment.....................3
3.6. Post-Closing Adjustment For Tax Benefits.....................5
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER ....................5
4.1. Organization and Qualification...............................6
4.2. Capitalization...............................................6
4.3. Authority; Non-Contravention; Approvals......................6
4.4. Financial Information........................................8
4.5. Books and Records............................................8
4.6. Absence of Undisclosed Liabilities...........................8
4.7. Absence of Certain Changes or Events.........................8
4.8. Taxes........................................................9
4.9. Interim Change...............................................9
4.10. Real Estate..................................................9
4.11. Real Estate Leases..........................................10
4.12. Employee Plans..............................................10
4.13. Material Contracts..........................................11
4.14. Intellectual Property and Proprietary Information...........12
4.15. Legal Proceedings...........................................13
4.16. Compliance with Law.........................................14
4.17. Licenses and Permits........................................14
4.18. Employees...................................................14
4.19. Environmental Matters.......................................14
4.20. Brokers' Fees...............................................15
4.21. Disclaimer..................................................15
4.22. Affiliate Relationships; Indebtedness.......................16
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER ................16
5.1. Organization and Qualification..............................16
5.2. Authority; Non-Contravention; Approvals.....................16
5.3. Litigation..................................................17
5.4. Availability of Funds.......................................18
5.5. Knowledge of Purchaser......................................18
5.6. Purchaser's Business Investigation..........................18
5.7. Financial Statements........................................18
5.8. Investment Intent...........................................19
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
5.9. Brokers' Fees...............................................19
ARTICLE VI COVENANTS OF SELLER ........................................19
6.1. Interim Conduct of Business.................................19
6.2. Access......................................................20
6.3. Records and Documents.......................................20
6.4. Consummation................................................21
6.5. Hart-Scott-Rodino Consent...................................21
6.6. Notification of Certain Matters.............................21
6.7. Acquisition Proposals.......................................21
6.8. Non-Solicitation............................................22
ARTICLE VII COVENANTS OF PARENT AND PURCHASER ..........................22
7.1. Consummation................................................22
7.2. Hart-Scott-Rodino Consent...................................22
7.3. Confidentiality.............................................22
7.4. Records and Documents.......................................23
7.5. Insurance...................................................23
7.6. Notification of Breach......................................23
7.7. Non-Solicitation............................................23
7.8. Conduct of Business by Parent and Subsidiary
Pending the Closing.............................. ........23
7.9. Control of the Subsidiary's Operations......................24
7.10. Cherry Name.................................................24
7.11. WARN Act Compliance.........................................26
7.12. Notification of Certain Matters.............................26
7.13. Directors' and Officers' Indemnification....................26
7.14. Trademarks Assignments......................................27
ARTICLE VIII TAX MATTERS ................................................27
8.1. Section 338(h)(10) Elections................................27
8.2. Liability for Taxes.........................................27
8.3. Tax Proceedings.............................................29
8.4. Payment of Taxes............................................29
8.5. Tax Returns.................................................29
8.6. Tax Allocation Arrangements.................................30
8.7. Cooperation and Exchange of Information.....................30
8.8. Conflict....................................................30
ARTICLE IX ADDITIONAL AGREEMENTS ......................................31
9.1. Option Plans................................................31
9.2. Seller and Subsidiary Benefit Plans.........................31
9.3. Certain New Plans...........................................31
9.4. Funding of Success Bonus....................................32
9.5. No Limitation...............................................32
ARTICLE X CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT
AND PURCHASER .................................. .........32
10.1. Accuracy of Warranties and Performance of Covenants.........32
10.2. No Pending Action...........................................33
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
10.3. Hart-Scott-Rodino...........................................33
10.4. Cure Period.................................................33
10.5. Parent Required Consents and Approvals......................33
ARTICLE XI CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER ..............33
11.1. Accuracy of Warranties and Performance of Covenants.........33
11.2. No Pending Action...........................................34
11.3. Hart-Scott-Rodino...........................................34
11.4. Cure Period.................................................34
ARTICLE XII SURVIVAL AND INDEMNIFICATION ...............................34
12.1. Survival....................................................34
12.2. Indemnification.............................................34
12.3. General Provisions Relating to Indemnification..............35
12.4. Characterization as Price Adjustment........................38
ARTICLE XIII TERMINATION ................................................38
13.1. Termination or Abandonment..................................38
13.2. Effect of Termination.......................................38
ARTICLE XIV GENERAL PROVISIONS .........................................39
14.1. Amendments and Waiver.......................................39
14.2. Notices.....................................................39
14.3. Expenses....................................................40
14.4. Counterparts................................................40
14.5. Successors and Assigns; Beneficiaries.......................40
14.6. Entire Agreement............................................41
14.7. Announcements...............................................41
14.8. Partial Invalidity..........................................41
14.9. Governing Law; Jurisdiction.................................41
14.10. Other Rules of Construction.................................41
14.11. Authorship..................................................41
14.12. Specific Performance........................................42
14.13. Joint and Several Obligations...............................42
<PAGE>
SCHEDULES
3.5 Net Working Capital Amount
4.2 Stock Owned by Subsidiaries
4.3(b) Consents
4.3(c) Seller Required Statutory Approvals
4.4(a) Audited Financial Statements
4.4(b) Interim Financial Statements
4.6 Absence of Undisclosed Liabilities
4.7 Changes
4.8 Taxes
4.9 Interim Change
4.10 Owned Real Estate
4.11 Real Estate Leases
4.12 Employee Plans
4.13 Material Contracts
4.14(a) Intellectual Property
4.14(b) Infringement of Subsidiary Intellectual Property
4.15 Legal Proceedings
4.16 Compliance with Law
4.18 Employees
4.19 Environmental Matters
4.22 Affiliate Relationship/Indebtedness
5.2 Parent Required Consents and Approvals
5.7 Financial Statements of Purchaser
6.1 Interim Conduct of Business from Agreement Date to Closing
<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT (the "AGREEMENT") is made and entered into this 8th day
of March, 2000, by and between SEMICONDUCTOR COMPONENTS INDUSTRIES, LLC, a
Delaware limited liability company ("PURCHASER"), SCG HOLDING CORPORATION, a
Delaware corporation and the parent of the Purchaser ("PARENT"), and THE CHERRY
CORPORATION, a Delaware corporation ("SELLER").
WHEREAS, Cherry Semiconductor Corporation, a Rhode Island corporation
(including its subsidiaries where applicable, "SUBSIDIARY"), is a wholly-owned
subsidiary of Seller;
WHEREAS, Seller desires to sell to Purchaser and Purchaser desires to
purchase all of the outstanding capital stock of Cherry Semiconductor
Corporation ("SUBSIDIARY COMMON STOCK"), subject to the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements herein contained, the parties agree as follows:
ARTICLE I
THE TRANSACTION
1.1. SALE OF STOCK. Upon the terms and subject to the conditions of
this Agreement, at the Closing (as defined below), Seller shall sell, transfer
and convey to Purchaser and Purchaser shall purchase all of Seller's right,
title and interest in and to the Subsidiary Common Stock free and clear of all
liens, claims and encumbrances or other restrictions of any kind other than
those arising under state and federal securities laws.
ARTICLE II
CONSIDERATION
2.1. PURCHASE PRICE. The aggregate purchase price for the Subsidiary
Common Stock shall be $250 million (the "PURCHASE PRICE").
2.2. PAYMENT. The Purchase Price shall be payable in cash at the
Closing by wire transfer of immediately available funds to an account designated
by Seller.
ARTICLE III
CLOSING
3.1. CLOSING. The transfer of Subsidiary Common Stock contemplated by
this Agreement (the "CLOSING") shall take place at the offices of McDermott,
Will & Emery, 227 West Monroe Street, Chicago, Illinois 60606, on (a) the later
of (i) the third business day
<PAGE>
following the date on which the last of the conditions set forth in Articles X
and XI is fulfilled or waived or (ii) the day Seller's accounting systems are
capable of recording the Closing (which shall be no later than the last day of
the month containing such third business day); or (b) at such other time and
place as Purchaser and the Seller shall agree. The date on which the Closing
occurs is referred to in this Agreement as the "CLOSING DATE." Upon
consummation, the Closing will be deemed to take place as of the close of
business on the Closing Date (the "EFFECTIVE TIME").
3.2. DELIVERIES BY PURCHASER. At the Closing, Purchaser shall deliver
the following:
(a) Two Hundred Fifty Million Dollars ($250,000,000 U.S.) payable by
wire transfer of immediately available funds to an account designated by Seller;
(b) an officer's certificate to the effect that all of Parent and
Purchaser's representations and warranties are true and correct in all material
respects as if made at and as of the Closing and in the case of representations
and warranties made as of a specified date earlier than the Closing Date such
date, and to the effect that Parent and Purchaser each have fulfilled all of
their respective agreements and covenants and have satisfied all Closing
conditions to be performed by them;
(c) secretary certificates of each of Parent and Purchaser as to the
resolutions authorizing the transactions contemplated hereby; and
(d) such other instruments or documents as may be reasonably necessary
or appropriate to carry out the transactions contemplated hereby.
3.3. DELIVERIES BY SELLER. At the Closing, Seller shall deliver the
following:
(a) certificates evidencing all of the Subsidiary Common Stock, with
fully executed stock powers;
(b) a legal opinion opining to the subjects of Sections 4.1, 4.2,
4.3(a), 4.3(b)(i) and 4.3(b)(ii) and 4.3(c) to the extent typically covered in
opinions of Seller's counsel in transactions of this type and subject to typical
exceptions and qualifications;
(c) an officer's certificate to the effect that all of Seller's
representations and warranties are true and correct in all material respects as
if made at and as of the Closing and in the case of representations and
warranties made as of a specified date earlier than the Closing Date, such date
and to the effect that Seller has fulfilled all of its agreements and covenants
and has satisfied all Closing conditions to be performed by it;
(d) secretary certificate of Seller as to the resolutions authorizing
the transactions contemplated hereby;
(e) the minute books and stock records of the Subsidiary; and
<PAGE>
(f) such other instruments or documents as may be reasonably necessary
or appropriate to carry out the transactions contemplated by this Agreement.
3.4. CLOSING ACTIONS. At the Closing, the articles of incorporation of
the Cherry Semiconductor Corporation shall be amended to change the name of the
Subsidiary so that neither the word "Cherry" nor any words similar thereto are
likely to be confused with the Cherry marks that are part of the name of the
Subsidiary.
3.5. DETERMINATION OF POST-CLOSING ADJUSTMENT.
(a) As soon as practicable, but in any event no later than thirty (30)
days after the Closing Date, Seller shall cause the Subsidiary to prepare a
consolidated balance sheet (the "CLOSING DATE BALANCE SHEET") of the Subsidiary
as of the Closing Date. The Closing Date Balance Sheet shall not give effect to
the transactions contemplated by this Agreement and shall be prepared in
accordance with GAAP consistent with the Subsidiary's Audited Financial
Statements (as defined in Section 4.4(a)). After Closing, Purchaser and
Subsidiary shall permit Seller and its representatives to have reasonable access
to Subsidiary's books and records for preparation of the Closing Date Balance
Sheet.
(b) Seller shall cause Arthur Andersen LLC (the "AUDITOR") to audit as
soon as practicable but no later than ninety (90) days after the Closing Date
the Closing Date Balance Sheet as soon as possible after the completion thereof
and Seller shall deliver to the Purchaser upon receipt of the Auditor's opinion
with respect thereto, a copy of the Closing Date Balance Sheet and the Auditor's
opinion. The Auditor's opinion shall state that the Closing Date Balance Sheet
(i) has been audited in accordance with generally accepted auditing standards,
(ii) has been prepared in accordance with GAAP and (iii) fairly presents the
financial condition of the Subsidiary as of the Closing Date. The fees and
expenses of the Auditor shall be paid by the Purchaser.
(c) Concurrently with the delivery of the Auditor's opinion with
respect to the Closing Date Balance Sheet, Seller shall cause the Auditor to
prepare and deliver to the Purchaser a certificate setting forth the
Post-Closing Adjustment (the "AUDITOR'S POST-CLOSING CERTIFICATE"). The
"POST-CLOSING ADJUSTMENT" shall be an amount equal to (i) the Net Working
Capital of the Subsidiary as of the Closing Date, as determined from the Closing
Date Balance Sheet (the "CLOSING DATE NET WORKING CAPITAL AMOUNT"), minus (ii)
$27,500,000 minus (iii) the amount of any Indebtedness other than Intercompany
Amounts (for purposes of this Agreement the Purchaser agrees that all existing
operating leases of Subsidiary, as determined for the Audited Financial
Statements, are not capitalized leases).
(d) Following delivery to the Purchaser of the Auditor's Post-Closing
Certificate and the Closing Date Balance Sheet, the Purchaser, Seller and their
representatives shall have the right to review all such data and materials
(including the Auditor's work papers) as is reasonably necessary to enable the
Purchaser, Seller and their representatives to verify the accuracy of the
Auditor's Post-Closing Certificate and the information contained therein.
<PAGE>
(e) If the Purchaser does not give notice in writing to Seller of its
objections to any item or items in the Closing Date Balance Sheet or the
Auditor's Post-Closing Certificate within forty-five (45) business days after
its receipt of the Auditor's Post-Closing Certificate, then the Post-Closing
Adjustment shall be deemed to be finally determined for purposes of this
Agreement.
(f) If the Purchaser gives notice in writing to Seller of its
objections to any item or items in the Closing Date Balance Sheet or the
Auditor's Post-Closing Certificate within forty-five (45) business days after
its receipt of the Auditor's Post-Closing Certificate, Purchaser and the Seller
shall endeavor to resolve all such objections within forty-five (45) business
days after receipt of such notice. Each notice of objections shall outline in
reasonable detail the basis for each objection and, wherever reasonably
possible, the dollar amount involved. If such notice is timely given and
Purchaser and the Seller are able to resolve the disputed matters, then the
Post-Closing Adjustment as modified in accordance with the parties' agreement
shall be deemed to be finally determined for purposes of this Agreement.
(g) If Purchaser and the Seller are unable to resolve all such
objections within such forty-five (45) business day period, then Purchaser and
the Seller shall select a mutually agreed upon independent accounting firm (the
"DISPUTE AUDITOR") (which shall be one of the "Big Five" accounting firms) to
determine all items in dispute and to deliver a certificate to Purchaser and the
Seller as soon as practicable, which certificate shall include such firm's
determination of the Post-Closing Adjustment computed pursuant to and in
accordance with the provisions of this Agreement, but which otherwise may be in
such form and contain such information as such firm, in its sole discretion,
deems necessary or appropriate. In resolving such disputes and providing such
certificate, the Dispute Auditor shall employ such procedures as it, in its sole
discretion, deems necessary or appropriate in the circumstances.
(h) Upon the receipt by Purchaser and the Seller of the certificate of
the Dispute Auditor pursuant to Section 3.5(g), the Post-Closing Adjustment
shall be deemed to be finally determined for purposes of this Agreement and
shall be binding upon the parties.
(i) The fees and expenses of the Dispute Auditor shall be borne 50% by
Purchaser and 50% by the Seller; provided that if the Dispute Auditor determines
that one party's position is completely correct then such party shall not pay
any of the fees, costs and expenses charged by the Dispute Auditor and the
objecting party shall pay all of such fees, costs and expenses of the
independent accounting firm.
(j) The Purchase Price shall be decreased by the amount by which the
Post-Closing Adjustment is negative or increased by the amount by which the
Post-Closing Adjustment is positive. Buyer (if the Post-Closing Adjustment is
positive) or Seller (if the Post-Closing Adjustment is negative) shall promptly
(and in any event within five (5) business days) after the final determination
thereof make payment to the other party by wire transfer in immediately
available funds of the amount of such difference, together with interest thereon
at a per annum rate of 5% from the Closing Date to the date of payment. The
Post-Closing Adjustment shall be the sole remedy for any matters, facts or
circumstances reflected in the calculation of the Post-
<PAGE>
Closing Adjustment, and such matters, facts or circumstances shall not entitle
either party to indemnification rights or other damages.
For purposes of calculating the Net Working Capital Amount, the term
"NET WORKING CAPITAL" shall mean Current Assets minus Current Liabilities, as
calculated using the methodology set forth on Schedule 3.5. The term "CURRENT
ASSETS" and "CURRENT LIABILITIES" shall mean the line items set forth on
Schedule 3.5, which items shall be calculated on the same basis as reflected as
line items on the Audited Financial Statements; provided that the Intercompany
Amount (see below) shall be excluded, and items classified as current solely as
a result of the transactions contemplated by this Agreement (such as long term
deferred taxes) shall be excluded. All intercompany trade or other intercompany
receivables and payables, and all tax accounts, receivables, payables, or cash
overdrafts, current or deferred, short or long-term (collectively, the
"INTERCOMPANY AMOUNT"), will be forgiven at Closing by the applicable party
without compensation.
3.6. POST-CLOSING ADJUSTMENT FOR TAX BENEFITS. Parent shall pay to
Seller in immediately available funds an amount equal to the amount of any net
reduction in taxes actually realized as a result of (i) Seller's payment of a
success bonus in connection with the transactions contemplated hereby, (ii)
Seller's payment of any excise parachute taxes on behalf of the Subsidiary, and
(iii) the exercise of options on Seller's common stock held by employees of the
Subsidiary on or after the Closing Date (collectively, the "TAX BENEFIT").
Within One Hundred Twenty (120) days after the Closing, Purchaser shall deliver
to the Seller a certificate setting forth the amount of the Tax Benefit.
Purchaser and Subsidiary shall permit Seller and its representatives to have
reasonable access to Subsidiary's books and records to verify the Tax Benefit
certificate. In the event that Seller gives notice in writing to Purchaser of
its objections to the amount of the Tax Benefit, then any dispute arising with
respect to the Tax Benefit shall be resolved using the same procedures set forth
to resolve disputes under Section 3.5 above.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser, as of the date
hereof, and as of the Closing Date, as set forth below. For purposes of this
Agreement, a "MATERIAL ADVERSE EFFECT" shall mean any effect which is materially
adverse to the business, assets, properties, operations or financial condition
of the Subsidiary, when taken as a whole. For purposes of this Agreement, the
phrase "TO THE KNOWLEDGE OF SELLER," or other language of similar effect, shall
mean to the actual knowledge of Peter B. Cherry, Dan A. King or Alfred S.
Budnick. The exceptions, modifications, descriptions and disclosures in any
Schedule attached hereto are made for all purposes of this Agreement and are
exceptions to all representations and warranties set forth in this Agreement
where it is reasonably clear from the face of such exception, modification,
description or disclosure that it specifically relates to such other
representation or warranty. Disclosure of an item in response to one section of
this Agreement shall constitute disclosure in response to every section of this
Agreement notwithstanding the fact that no express cross-reference is made where
it is reasonably clear from the face of such exception, modification,
<PAGE>
description or disclosure that it specifically relates to such other
representation or warranty. Disclosure of any items not otherwise required to be
disclosed shall not create any inference of materiality.
4.1. ORGANIZATION AND QUALIFICATION. Seller is a corporation duly
organized in good standing and validly existing under the laws of Delaware.
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of Rhode Island and has the requisite
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. Subsidiary
is qualified to do business and is in good standing in each jurisdiction in
which the properties owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so qualified and in good standing will not have a Material Adverse
Effect.
4.2. CAPITALIZATION.
(a) The authorized capital stock of the Subsidiary consists of 250,000
shares of Subsidiary Common Stock. As of the date of this Agreement, 160,190
shares of Subsidiary Common Stock were issued and outstanding, all of which were
validly issued and are fully paid, nonassessable and free of preemptive rights,
and are owned by the Seller.
(b) Other than the options (the "OPTIONS") issued and outstanding
pursuant to the Subsidiary's 1999 Stock Option Plan, as amended (the "OPTION
PLAN") (which shall be terminated at the Closing pursuant to Section 9.1), there
are no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights of any kind or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement (together, "RIGHTS"), obligating the Subsidiary or
the Seller to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of the Subsidiary. There are no voting
trusts, proxies or other agreements or understandings of any kind to which
Subsidiary or the Seller is a party or is bound with respect to the voting of
any shares of capital stock of the Subsidiary.
(c) Seller has good title to the Subsidiary Common Stock, free and
clear of all liens, claims and encumbrances.
(d) Except as set forth on Schedule 4.2, the Subsidiary does not own
stock or have any equity investment or other interest in, does not have the
right to acquire any such interest, and does not control, directly or
indirectly, any corporation, partnership or joint venture.
4.3. AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Seller has full corporate power and authority to enter into this
Agreement and, subject to the Seller Required Statutory Approvals (as defined in
Section 4.3(c)), to consummate the transactions contemplated hereby. All
corporate acts required to be taken by Seller to authorize the execution and
delivery
<PAGE>
of this Agreement and all agreements and transactions contemplated hereby have
been duly and properly taken. This Agreement has been duly executed and
delivered by the Seller, and, assuming the due authorization, execution and
delivery hereof by Parent and Purchaser, constitutes a valid and legally binding
agreement of the Seller, enforceable against the Seller in accordance with its
terms, except that such enforcement may be subject to (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (b) general equitable
principles.
(b) The execution and delivery of this Agreement by the Seller do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge, adverse
claim, levy, mortgage, pledge, assessment or encumbrance of any kind upon any of
the properties or assets of the Seller or the Subsidiary under any of the terms,
conditions or provisions of (i) the respective charters or by-laws of the Seller
or the Subsidiary, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or governmental
authority applicable to the Seller or the Subsidiary or any of their respective
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Seller or the
Subsidiary is now a party or by which the Seller or the Subsidiary or any of
their respective properties or assets may be bound or affected. The consummation
by the Seller of the transactions contemplated hereby will not result in any
violation, conflict, breach, termination, acceleration or creation of liens
under any of the terms, conditions or provisions described in clauses (i)
through (iii) of the preceding sentence, subject (x) in the case of the terms,
conditions or provisions described in clause (ii) above, to obtaining (prior to
the Effective Time) the Seller Required Statutory Approvals and (y) in the case
of the terms, conditions or provisions described in clause (iii) above, to
obtaining (prior to the Effective Time) consents required from commercial
lenders, lessors or other third parties as specified on Schedule 4.3(b).
Excluded from the foregoing sentences of this paragraph (b), insofar as they
apply to the terms, conditions or provisions described in clauses (ii) and (iii)
of the first sentence of this paragraph (b), are such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not have a Material Adverse
Effect.
(c) Except for (i) the filing requirements by the Seller and the
termination or expiration of waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), and (ii) any
required filings with or approvals from applicable state authorities or public
service commissions as specified on Schedule 4.3(c) (the filings and approvals
referred to in clauses (i) through (ii) are collectively referred to as the
"Seller Required Statutory Approvals"), no declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any governmental
or regulatory body or authority is necessary for the execution and delivery of
this Agreement by the Seller or the consummation by the Seller of the
transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not made
or obtained, as the case may be, would not, in the aggregate, have a Material
Adverse Effect.
(d) As used in this Agreement, the term "subsidiary" shall mean, when
used with reference to any person or entity, any corporation, partnership, joint
venture or other entity of which such person or entity (either acting alone or
together with its other subsidiaries) owns,
<PAGE>
directly or indirectly, 50% or more of the stock or other voting
interests, the holders of which are entitled to vote for the election of a
majority of the board of directors or any similar governing body of such
corporation, partnership, joint venture or other entity.
4.4. FINANCIAL INFORMATION.
(a) The audited financial statements of the Subsidiary for the two (2)
years ended February 28, 1999 (the "AUDITED FINANCIAL STATEMENTS") attached
hereto as Schedule 4.4(a) are (i) accurate and complete in all material
respects, (ii) in accordance with the books of account and records of Subsidiary
in all material respects, and (iii) prepared in accordance with U.S. generally
accepted accounting principles applied on a consistent basis throughout the
periods covered thereby ("GAAP"). The Audited Financial Statements fairly
present in all material respects the consolidated financial position and results
of operations and shareholders' equity and cash flows of the Subsidiary and its
consolidated subsidiaries, as of the respective dates thereof and for the
respective periods covered thereby.
(b) The interim financial statements (the "INTERIM FINANCIAL
STATEMENTS" and together the Audited Financial Statements, the "FINANCIAL
STATEMENTS") of the Subsidiary for the nine (9) months ended November 30, 1999
(the "FINANCIAL STATEMENT DATE") attached hereto as Schedule 4.4(b) were
prepared from Subsidiary's books of account and records, in accordance with GAAP
and consistent with the same accounting principles as used in the preparation of
the Financial Statements, except that the Interim Financial Statements have not
been audited, are subject to normal year end adjustments and contain no notes
which are typically included as part of financial statements prepared in
accordance with GAAP. The Interim Financial Statements fairly present in all
material respects the consolidated financial position and results of operations
and shareholders' equity and cash flows of the Subsidiary and its consolidated
subsidiaries, as of the date thereof and for the period covered thereby.
4.5. BOOKS AND RECORDS. The Seller has previously delivered to Parent
copies of minutes of (i) all meetings of the stockholder of the Subsidiary
(whether annual or special) and (ii) actions by written consent in lieu of a
Subsidiary stockholder meeting from March 1, 1997, until the date hereof.
4.6. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on
Schedule 4.6 hereto, the Subsidiary had not at November 30, 1999, nor has
incurred since that date, any liabilities or obligations of Subsidiary (whether
absolute, accrued, contingent or otherwise) of any nature, except (a)
liabilities, obligations or contingencies (i) which are accrued or reserved
against in the Financial Statements or Interim Financial Statements or reflected
in the notes thereto or (ii) which were incurred after November 30, 1999, and
were incurred in the ordinary course of business and consistent with past
practices, (b) liabilities, obligations or contingencies which (i) would not, in
the aggregate, have a Material Adverse Effect or (ii) have been discharged or
paid in full prior to the date hereof, and (c) liabilities and obligations which
are of a nature not required to be reflected in the financial statements of the
Subsidiary prepared in accordance with GAAP consistently applied and which were
incurred in the ordinary course of business.
<PAGE>
4.7. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 4.7, since November 30, 1999, there has not been any change in the
business, operations, properties, assets, liabilities, financial condition or
results of operations of the Subsidiary and its subsidiaries, taken as a whole
that would have a Material Adverse Effect, except for changes that affect the
industries in which the Subsidiary operates generally. Since November 30, 1999,
neither Seller nor the Subsidiary have taken any actions that would be
prohibited after the date of this Agreement pursuant to Section 6.1 hereof.
4.8. TAXES.
(a) The Seller and its subsidiaries have (i) duly filed with the
appropriate governmental authorities all Tax Returns required to be filed by
them for all periods ending on or prior to the Effective Time, other than those
Tax Returns the failure of which to file would not have a Material Adverse
Effect, and (ii) duly paid in full or made adequate provision for the payment of
all Taxes for all past and current periods. There are no unresolved issues of
law or fact arising out of a notice of deficiency, proposed deficiency or
assessment from the Internal Revenue Services ("IRS") or any other governmental
taxing authority with respect to Taxes which, if decided adversely would have a
Material Adverse Effect. Except as set forth on Schedule 4.8, neither the Seller
nor the Subsidiary has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency
other than waivers and extensions which are no longer in effect. Seller has not
filed an election under Rev. Proc. 91-11, 1991-1 C.B. 470, as modified by Rev.
Proc. 91-39, 1991-2 C.B. 694, or Rev. Proc. 95-39, 1995-2 C.B. 399.
(b) For purposes of this Agreement, the term "Taxes" shall mean all
taxes, including, without limitation, income, gross receipts, excise, property,
sales, withholding, social security, occupation, use, service, license, payroll,
franchise, transfer and recording taxes, fees and charges, windfall profits,
severance, customs, import, export, employment or similar taxes, charges, fees,
levies or other assessments imposed by the United States, or any state, local or
foreign government or subdivision or agency thereof, whether computed on a
separate, consolidated, unitary, combined or any other basis, and such term
shall include any interest, fines, penalties or additional amounts and any
interest in respect of any additions, fines or penalties attributable or imposed
or with respect to any such taxes, charges, fees, levies or other assessments.
(c) For purposes of this Agreement, the term "Tax Return" shall mean
any return, report or other document or information required to be supplied to a
taxing authority in connection with Taxes.
4.9. INTERIM CHANGE. Except as set forth in Schedule 4.9, since
November 30, 1999, the Subsidiary has been operated in the ordinary course,
consistent with past operations.
4.10. REAL ESTATE.
(a) Schedule 4.10 sets forth an accurate and complete list of each
parcel of real property owned by Subsidiary (the "OWNED REAL ESTATE").
Subsidiary is the sole legal and equitable
<PAGE>
owner of all right, title and interest in and has title in fee simple to, and is
in possession of, all Owned Real Estate which it purports to own, including the
buildings, structures and improvements situated thereon and appurtenances
thereto, in each case free and clear of all tenancies and other possessory
interests, security interests, conditional sale or other title retention
agreements, liens, encumbrances, mortgages, pledges, assessments, easements,
rights of way, covenants, restrictions, reservations, options, rights of first
refusal, defects in title, encroachments and other burdens (together,
"ENCUMBRANCES"), except as set forth on Schedule 4.10 or except in such
instances as could not reasonably be expected to result in a Material Adverse
Effect.
(b) Except for the FAA towers on the Owned Real Estate, no portion of
any Owned Real Estate has been condemned, requisitioned or otherwise taken by
any public authority, and, to the knowledge of Seller, no such condemnation,
requisition or taking is threatened or contemplated.
(c) To Seller's knowledge, the Owned Real Estate is in compliance in
all material respects with all applicable zoning, building, health, fire, water,
use or similar statutes, codes, ordinances, laws, rules or regulations, except
for such instances as could not reasonably be expected to result in a Material
Adverse Effect. To Seller's knowledge, the zoning of each parcel of Owned Real
Estate permits the existing improvements and the continuation following
consummation of the transaction contemplated hereby of the business of the
Subsidiary as presently conducted thereon, except for such instances as could
not reasonably be expected to result in a Material Adverse Effect.
4.11. REAL ESTATE LEASES . Schedule 4.11 sets forth a list of all real
property leased, subleased, licensed and/or occupied by the Subsidiary (the
"LEASED REAL ESTATE"). Schedule 4.11 identifies the lease or sublease and street
address or other description with respect to each parcel of Leased Real Estate
(the "REAL ESTATE Leases"). The Subsidiary is currently in peaceable possession
of the premises covered by each Real Estate Lease. True and correct copies of
each Real Estate Lease have been provided to Parent.
4.12. EMPLOYEE PLANS.
(a) Schedule 4.12 lists all of the existing employee compensation and
benefit plans and all stock option or other equity based, bonus, incentive and
deferred compensation, severance or other termination, employment, consulting
and non-competition plans, programs, arrangements or agreements which are
entered into, sponsored, maintained or contributed to by Seller or the
Subsidiary for the benefit of the employees of the Subsidiary (collectively, the
"SELLER BENEFIT PLANS"). With respect to any Seller Benefit Plans: (a) there are
no actions, suits or claims (other than routine claims for benefits in the
ordinary course) pending or, to the knowledge of Seller, threatened, and Seller
does not have any knowledge of any facts which could give rise to any such
actions, suits or claims (other than routine claims for benefits in the ordinary
course), which could subject Subsidiary or Purchaser to any liability from and
after the Closing Date; (b) to the knowledge of Seller, none of Seller or any
entity that together with the Seller is treated as a single employer under
Section 414(b), (c) or (m) of the Code or any other person has engaged in a
prohibited transaction, as such term is defined in Code Section 4975 or ERISA
Section 406, which would subject Subsidiary or Purchaser to any taxes, penalties
or other liabilities
<PAGE>
resulting from prohibited transactions under Code Section 4975 or under ERISA
Sections 409 or 502(i); (c) no event has occurred and no condition exists that
could, directly or indirectly, subject Subsidiary or Purchaser to any tax or
penalty under Code Sections 511, 4971, 4972, 4977, 4978, 4978A, 4979, 4979A,
4980B or 5000, or to liability under Title I or Title IV of ERISA; and (d)
Seller's Savings and Retirement Plan is intended to qualify under Section 401(a)
of the Code and it has received a favorable determination letter issued by the
Internal Revenue Service and, to the knowledge of Seller, no event or
circumstance exists that has adversely affected or is likely to adversely affect
such qualification.
(b) Except as set forth in Schedule 4.12, neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, either alone or in combination with another event (whether
contingent or otherwise) will (A) entitle any current or former employee,
consultant, officer or director of the Subsidiary to any increased or modified
benefit or payment; (B) increase the amount of compensation due to any such
employee, consultant, officer or director, (C) accelerate the vesting, payment
or funding of any compensation, stock-based benefit, incentive or other benefit
(other than Seller's Savings and Retirement Plan); (D) result in any "parachute
payment" under Section 280G of the Code (whether or not such payment is
considered to be reasonable compensation for services rendered); or (E) cause
any compensation to fail to be deductible under Section 162(m), or any other
provision of the Code.
(c) With respect to those Seller Benefit Plans that are listed on
Schedule 4.12 under the heading "Subsidiary Plans" (the "Subsidiary Plans"), (i)
each such Subsidiary Plan has been operated and administered in material
compliance with all applicable laws, statutes and regulations, except for any
failures to comply that, individually or in the aggregate, would not reasonably
be expected to result in material liability of the Subsidiary or any of its
subsidiaries, (ii) no Subsidiary Plan is intended to qualify under Section
401(a) of the Code or is subject to Section 412 of the Code or Title IV of ERISA
and (iii) all contributions, premiums and expenses due or payable under or in
respect of such Subsidiary Plans have been paid on a timely basis or, to the
extent not yet due, have been adequately accrued on the Subsidiary's financial
statements.
4.13. MATERIAL CONTRACTS. Schedule 4.13 sets forth an accurate list of
all Contracts (as defined below) related to the business of the Subsidiary to
which the Subsidiary is a party or is otherwise bound meeting any of the
descriptions set forth below (the "MATERIAL CONTRACTS"):
(a) all Real Estate Leases requiring annual payments in excess of
$250,000;
(b) all lease agreements and management contracts with an annual
revenue in excess of $250,000;
(c) all management and service contracts and purchase orders and other
contracts for the purchase of materials or services requiring annual payments in
excess of $250,000;
(d) all machinery leases, equipment leases and other personal property
leases requiring annual payments in excess of $250,000;
<PAGE>
(e) all Contracts between or among the Seller and the Subsidiary and
any of their respect subsidiaries, affiliates, employees or directors, including
any intercompany Indebtedness;
(f) all Contracts with any person containing any provision or covenant
prohibiting or materially limiting the ability of the Subsidiary to engage in
any business activity or compete with any person or prohibiting or materially
limiting the ability of any person to compete with the Subsidiary;
(g) all material partnership, joint venture, strategic alliance or
other collaborative Contracts;
(h) all Contracts under which any material Indebtedness of the
Subsidiary has been or may be created, incurred, assumed or guaranteed
(excluding routine checking account overdraft agreements involving petty cash
amounts);
(i) all Contracts that (i) limit or contain restrictions on the ability
of the Subsidiary to pay dividends or any other distributions on or otherwise
issue, redeem or otherwise dispose of its capital stock, to incur indebtedness,
to incur or suffer to exist any encumbrances, to purchase or sell any assets and
properties, to change the lines of business in which it participates or engages
or to engage in any merger or other business combination or (ii) require the
Subsidiary to maintain specified financial ratios or levels of net worth or
other indicia of financial condition; and
(j) all other material Contracts not entered into in the ordinary
course.
For purposes of this Agreement, "CONTRACT" shall mean any binding contract or
agreement, whether written or oral, manifesting an agreement or understanding
between two or more parties. "INDEBTEDNESS" of any person means each and every
obligation of such person which is either (i) an obligation for borrowed money,
(ii) an obligation evidenced by notes, bonds, debentures or similar instruments,
(iii) capitalized lease obligations, (iv) cash overdrafts, or (v) any obligation
in the nature of guarantees of the obligations described in clauses (i) through
(iv) above of any person; provided, however, that Indebtedness shall not mean
trade payables or accruals incurred in the ordinary course of business.
Except as set forth on Schedule 4.13, each Material Contract is valid
and binding and is in full force and effect as to Subsidiary or Seller, as
applicable, assuming the other party thereto is bound which, to Seller's
knowledge, is the case for each Material Contract. No event has occurred which
is or, after the giving of notice or passage of time, or both, would constitute
a material default under or a material breach of any Material Contract by
Subsidiary or Seller, as applicable, or, to the knowledge of Seller, by any
other party thereto which could reasonably be expected to result in a Material
Adverse Effect.
4.14. INTELLECTUAL PROPERTY AND PROPRIETARY INFORMATION.
(a) For purposes of this Agreement, "INTELLECTUAL PROPERTY" shall mean
all proprietary and other rights in and to: (i) trademarks, service marks, brand
names, certification marks, trade
<PAGE>
dress, assumed names, trade names and other indications of origin, including all
applications for registration therefor and all renewals, modifications and
extensions thereof ("TRADEMARKS"); (ii) patents, including design patents and
utility patents, reissues, divisions, continuations-in-part and extensions
thereof, in each case including all applications therefor ("PATENTS"); (iii)
inventors' certificates and invention disclosures; (iv) works of authorship,
whether copyrightable or not, copyrights, copyright registrations and
applications for registration of copyrights and all renewals, modifications and
extensions thereof, mask works, moral rights and design rights ("COPYRIGHTS");
(v) computer systems, including programs, software, object and source code,
databases, algorithms, and documentation therefor, in each case including all
copyrights therefor ("COMPUTER SYSTEMS"); (vi) trade secrets and other
protectible information, including ideas, formulas, compositions, technical
documentation, operating manuals and guides, plans, designs, sketches,
inventions, production molds, product specifications, engineering reports and
drawings, manufacturing and production processes and techniques; drawings,
specifications, research records, invention records and technical data; and all
other know-how, protected by patent, copyright or trade secret law; (vii)
registrations of, and applications to register, any of the foregoing with any
Governmental Authority and any renewals or extensions thereof ("REGISTRATIONS");
(viii) the goodwill associated with each of the foregoing; and (viii) any claims
or causes of action arising out of or related to any infringement or
misappropriation of any of the foregoing; in each case in any jurisdiction.
(b) Immediately after the Closing, Subsidiary shall retain all of its
right, title and interest in or rights under Contract to use all material
Intellectual Property Rights set forth on Schedule 4.14(a) and Attachment A to
Schedule 4.14(a) and used in or necessary to the conduct of its business as
presently conducted, except for the Cherry names and marks identified in
paragraph 7.10(a) hereto and subject to the limited trademark license of
paragraph 7.10(b) (the "SUBSIDIARY INTELLECTUAL PROPERTY"). To Seller's
knowledge, the Subsidiary is not infringing any Intellectual Property of any
other person and, to Seller's knowledge, no claim is pending asserting any such
infringement. Except for the agreements listed under the caption "Royalties
and/or Licenses" on Schedule 4.14(a), the use of the Subsidiary Intellectual
Property or the manufacturing and sale of products by the Subsidiary will not
require the payment of any royalties by Subsidiary to any person after the
acquisition of Subsidiary Common Stock hereunder. Schedule 4.14(a) and
Attachment A to Schedule 4.14(a) list all material Patents, Trademarks,
Copyrights, Computer Systems (other than commercially-available software used
pursuant to a "shrink-wrap" license) and Registrations owned by the Subsidiary
and all material Contracts relating to a license or sublicense or other right to
use any Subsidiary Intellectual Property granted by or to the Subsidiary. To
Seller's knowledge, except as set forth on Schedule 4.14(b), no other person is
presently infringing upon any Subsidiary Intellectual Property.
4.15. LEGAL PROCEEDINGS. Except as set forth in Schedule 4.15, (a)
neither the Subsidiary nor the Seller is engaged in or a party to any action,
suit or other legal proceeding involving the Subsidiary or that will have a
material adverse effect on Seller's ability to consummate the transactions
contemplated hereby, (b) to the knowledge of Seller, neither the Subsidiary nor
the Seller is threatened with any action, suit or other legal proceeding
involving the Subsidiary, (c) Seller has no knowledge of any investigation
threatened by any governmental or regulatory authority with respect to the
Subsidiary or that will have a material adverse effect
<PAGE>
on Seller's ability to consummate the transactions contemplated hereby, and (d)
neither the Seller nor the Subsidiary is subject to any judgment, order, writ,
injunction, stipulation or decree of any court or any governmental agency
directly applicable thereto affecting the Subsidiary or that will have a
material adverse effect on Seller's ability to consummate the transactions
contemplated hereby.
4.16. COMPLIANCE WITH LAW. Except as set forth on Schedule 4.16, the
operation of the business of the Subsidiary complies as of the date hereof in
all material respects with all applicable statutes, codes, laws, ordinances,
rules and regulations, except where non-compliance could not reasonably be
expected to result in a Material Adverse Effect.
4.17. LICENSES AND PERMITS. Subsidiary currently has all of the
licenses and permits from all Federal, state, local and foreign authorities as
are necessary for the conduct of the business of the Subsidiary as currently
conducted as of the date hereof, except where the failure to have any license or
permit could not reasonably be expected to result in a Material Adverse Effect.
4.18. EMPLOYEES.
(a) Subsidiary has paid or properly accrued for all wages, salaries,
commissions, bonuses and other cash compensation (other than accrued vacation,
holiday and sick pay) to which employees and former employees of the Subsidiary
are entitled to as of the Closing. Schedule 4.18 contains a list of the
employees of the Subsidiary as of the date of this Agreement having a base
salary in excess of $105,000.
(b) Except as set forth on Schedule 4.18, with respect to the current
and former employees of the Subsidiary (i) to the knowledge of Seller,
Subsidiary has complied in all material respects with all applicable laws
regarding labor, employment and employment practices, terms and conditions of
employment, occupational safety and health and wages and hours, except in such
instances as could not reasonably be expected to result in a Material Adverse
Effect, (ii) Subsidiary is not a party to or bound by, any collective bargaining
agreement or other written contract concerning employment, or any affirmative
action plan established pursuant to any local, state or federal law or order of
any governmental body or court affecting the Subsidiary, and (iii) there is no
labor strike or labor dispute, slowdown or stoppage actually pending or to
Seller's knowledge, threatened against or affecting the Subsidiary and the
Subsidiary has not experienced any labor strikes or material labor disputes,
slowdowns or stoppages during the past five years.
4.19. ENVIRONMENTAL MATTERS.
(a) Except as set forth on Schedule 4.19, the location, construction,
occupancy, maintenance, operation and use of the Owned Real Estate or the Leased
Real Estate, are each in material compliance with all applicable Environmental
Laws.
(b) Except as set forth on Schedule 4.19, or as permitted in accordance
with any applicable Environmental Laws, there are no Pre-Closing Environmental
Conditions.
<PAGE>
(c) Except as set forth on Schedule 4.19, neither Subsidiary nor Seller
(in respect to the Owned Real Estate, Leased Real Estate or operations or
activities of Subsidiary) has received any notice, request for information,
complaint or administrative or judicial order in the past three years, and there
is no investigation, action, suit or proceeding pending, and no threatened,
alleged or asserted actual or potential liability under any Environmental Law or
arising from or related to a release or threatened release of Hazardous
Materials.
(d) Seller has made available to Parent copies and results of all
material reports, studies, analyses, tests or monitoring results possessed or
initiated by Seller pertaining to Hazardous Materials in, on or under the Owned
Real Estate or the Leased Real Estate or concerning compliance with
Environmental Laws (collectively, the "ENVIRONMENTAL REPORTS"). The
representations and warranties contained in this Section 4.19 are deemed to be
made subject to and modified by the disclosures set forth in Schedule 4.19 and
this Section shall not be deemed to be breached with respect to any matter
disclosed in Schedule 4.19.
"ENVIRONMENTAL LAWS" means all present federal, regional and local
administrative, regulatory and judicial laws, rules, statutes, codes,
ordinances, regulations, licenses, permits, rulings, injunctions, decrees and
judgments, which are in effect on the date hereof relating to the protection of
human health, safety, natural resources or the environment (including ambient
air, surface water, ground water, land surface or subsurface strata).
"HAZARDOUS MATERIALS" shall mean any solid, liquid or gaseous material which is
now defined, listed or identified as "HAZARDOUS" (including "SUBSTANCES" or
"WASTES"), "TOXIC", a "POLLUTANT" or a "CONTAMINANT" pursuant to any
Environmental Law which is applicable to the site in question, including
asbestos, chlorinated solvents, polychlorinated biphenyls, radon, fuel oil,
petroleum (including its derivatives, by-products or other hydrocarbons) and any
other materials, which are dangerous, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic or mutagenic or which are prohibited,
limited, controlled or regulated under any applicable Environmental Law.
"PRE-CLOSING ENVIRONMENTAL CONDITIONS" shall mean any environmental conditions,
environmental liabilities or the presence or release of Hazardous Materials at
or related to the Owned Real Estate or the Leased Real Estate or operations
thereon prior to the Closing Date; provided that Pre-Closing Environmental
Conditions shall not include the presence of tetrachloroethene (PCE) which is
either (i) addressed in the Settlement Agreement and Covenant Not To Sue - Re
property at 1900 South County Trail Case #97-058 (Brownfield Agreement) or (ii)
identified in the Johnson Company reports and studies completed by or on behalf
of Purchaser and Parent (including any PCE contamination related to the PCE
contamination identified in those reports and studies).
4.20. BROKERS' FEES. Neither the Subsidiary nor Seller have any
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement for which
Purchaser or the Subsidiary is or will become liable or obligated.
<PAGE>
4.21. DISCLAIMER. The representations and warranties set forth in this
Article IV are the only representations and warranties made by Seller with
respect to the Subsidiary. Except as specifically set forth herein, Seller is
selling the Subsidiary to Purchaser "AS IS" and "WHERE IS" and with all faults.
EXCEPT AS SPECIFICALLY SET FORTH HEREIN, ALL WARRANTIES, EXPRESS OR IMPLIED, ARE
HEREBY DISCLAIMED AND EXCLUDED, INCLUDING WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. Seller makes no representation or warranty as
to the accuracy or reliability of any forecasts or projections of revenues,
sales, expenses or profits of the Subsidiary. Notwithstanding the foregoing,
Seller shall not be relieved of any liability for, and this Section 4.21 shall
in no way affect, a claim for actual fraud.
4.22. AFFILIATE RELATIONSHIPS; INDEBTEDNESS. At the Closing, except as
set forth on Schedule 4.22, the Subsidiary will be in possession of, and have or
at the Closing will have marketable title to, valid leasehold interests in or
valid rights to use, all real and tangible personal property which is used by
Subsidiary in connection with its business and that historically have been held
by Seller or any of its affiliates. Except as reflected in the Financial
Statements or on Schedule 4.22, there is no Indebtedness between the Subsidiary
and Seller or its affiliates. At the Closing, the Subsidiary will have no
Indebtedness to any person, including Seller or any of its affiliates, except
for trade payables or accruals incurred in the ordinary course of business.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser and Parent jointly and severally hereby represent and warrant
to Seller as of the date hereof, and as of the Closing Date, as set forth below.
For purposes of this Agreement, the phrase "to the knowledge of Purchaser or
Parent" or other language of similar effect, shall mean to the actual knowledge
of Steve Hanson, Dario Sacomani, Samuel Anderson or Ralph Quinsey.
5.1. ORGANIZATION AND QUALIFICATION. Each of Parent and Purchaser is a
corporation or limited liability company duly organized, validly existing and in
good standing under the laws of the state of its organization and has the
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted.
5.2. AUTHORITY; NON-CONTRAVENTION; APPROVALS. Except as set forth on
Schedule 5.2:
(a) Parent and Purchaser each have full corporate power and authority
to enter into this Agreement and, subject to the Parent Required Statutory
Approvals (as defined in Section 5.2(c)), to consummate the transactions
contemplated hereby. All corporate acts required to be taken by Parent and
Purchaser to authorize the execution and delivery of this Agreement and all
transactions contemplated hereby have been duly and properly taken. This
Agreement has been duly executed and delivered by each of Parent and Purchaser,
and, assuming the due authorization, execution and delivery hereof by Seller,
constitutes a valid and legally binding agreement of each of Parent and
Purchaser enforceable against each of them in accordance with
<PAGE>
its terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
(b) The execution and delivery of this Agreement by each of Parent and
Purchaser do not violate, conflict with or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Parent or
Purchaser or any of their respective subsidiaries under any of the terms,
conditions or provisions of (i) the respective charters or by-laws of Parent or
Purchaser or any of their respective subsidiaries, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any court or governmental authority applicable to Parent or
Purchaser or any of their respective subsidiaries or any of their respective
properties or assets or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Parent or Purchaser or
any of their respective subsidiaries is now a party or by which Parent or
Purchaser or any of their respective subsidiaries or any of their respective
properties or assets may be bound or affected. The consummation by Parent and
Purchaser of the transactions contemplated hereby will not result in any
violation, conflict, breach, termination, acceleration or creation of liens
under any of the terms, conditions or provisions described in clauses (i)
through (iii) of the preceding sentence, subject in the case of the terms,
conditions or provisions described in clause (ii) above, to obtaining (prior to
the Effective Time) the Parent Required Statutory Approvals. Excluded from the
foregoing sentences of this paragraph (b), insofar as they apply to the terms,
conditions or provisions described in clauses (ii) and (iii) of the first
sentence of this paragraph (b), are such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security interests,
charges or encumbrances that would not, in the aggregate, have a material
adverse effect on the business, operations, properties, assets, financial
condition or results of operations of Parent and its subsidiaries, taken as a
whole.
(c) Except for the filing requirements by Parent and the expiration or
termination of waiting periods under the HSR Act (the "PARENT REQUIRED STATUTORY
APPROVALS"), no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by
Parent or Purchaser or the consummation by Parent and Purchaser of the
transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not made
or obtained, as the case may be, would not, in the aggregate, have a material
adverse effect on the business, operations, properties, assets, financial
condition or results of operations of Parent and its subsidiaries, taken as a
whole.
5.3. LITIGATION. Neither Parent nor Purchaser is engaged in or a party
to, or, to the knowledge of Parent, threatened with any action or suit or other
legal proceeding that would have a material adverse effect on its ability to
<PAGE>
consummate this Agreement and the transactions contemplated thereby. Parent has
no knowledge of any investigation threatened by any governmental or regulatory
authority that would have a material adverse effect on its ability to consummate
this Agreement and the transactions contemplated thereby. Neither Parent,
Purchaser nor any of their respective subsidiaries is subject to any judgment or
decree of any court or any governmental agency directly applicable thereto that
would have a material adverse effect on its ability to consummate this Agreement
and the transactions contemplated thereby.
5.4. AVAILABILITY OF FUNDS. Prior to the date hereof, Parent has
delivered to Seller true and correct copies of the commitment letter and related
documents (the "Financing Commitments") providing for the financing of the
transactions contemplated hereby (the "Financing"). The Financing Commitments
are binding commitments and have not been amended or modified or withdrawn or
rescinded in any respect. The funds to be made available to Purchaser through
the Financing, together with funds otherwise available to Purchaser, will be
sufficient to enable Parent and Purchaser to consummate the transactions
contemplated hereby on a timely basis. Except for the consents and approvals
described on Schedule 5.2, neither Parent nor Purchaser know of any facts or
circumstances that would affect their ability to complete the Financing.
5.5. KNOWLEDGE OF PURCHASER. Except as disclosed to Seller, neither
Parent nor Purchaser has any actual knowledge of any information which makes, or
if known to Seller would make, any representation, warranty or covenant of
Seller contained herein untrue. Except as disclosed to Seller, neither Parent
nor Purchaser has any knowledge of any facts or circumstances which would
constitute a breach of any representation, warranty or covenant of Seller
contained herein, or which would, with the passage of time or adequate notice or
both, constitute such a breach, or which would entitle either Parent or
Purchaser to make a claim for indemnification under this Agreement. Parent and
Purchaser have reviewed and understand the terms and use restrictions of the
Lemelson License set forth on Schedule 4.14, including an option for Subsidiary
to acquire at its expense, after the Sale of Subsidiary Common Stock, extended
license rights during a limited ninety (90) day period specified in the Lemelson
License. Parent and Purchaser understand and agree that the terms of the
Lemelson License shall be maintained in confidence as provided therein.
5.6. PURCHASER'S BUSINESS INVESTIGATION. Parent and Purchaser have
conducted such investigation of the Subsidiary as they have deemed necessary in
order to make an informed decision concerning the transactions contemplated
hereby. Parent and Purchaser have reviewed all of the documents, records,
reports and other materials identified in the Schedules hereto, and is familiar
with the content thereof. Parent and Purchaser acknowledge that they have been
given access to and has visited and examined the assets and operations of the
Subsidiary and the premises of the Subsidiary and are familiar with the
condition thereof. For the purpose of conducting these investigations, Parent
and Purchaser have employed the services of their own agents, representatives,
experts and consultants. In all matters affecting the condition of the
Subsidiary's assets or the contents of the documents, records, reports or other
materials in connection with the transactions contemplated hereby, Parent and
Purchaser are relying upon the advice and opinion offered by their own agents,
representatives, experts, consultants, employees and officers. All materials and
information requested by Parent and Purchaser have been provided to Parent and
Purchaser to Parent's satisfaction.
<PAGE>
5.7. FINANCIAL STATEMENTS. The audited income statement of the Parent
for the period ended December 31, 1999, and the balance sheet at the end of such
period attached hereto as Schedule 5.7, were prepared in conformity with
generally accepted accounting principles (except as set forth therein) and when
taken as a whole, present fairly, in all material respects, the financial
position of the Parent at the date indicated therein and the results of
operations for the period indicated therein.
5.8. INVESTMENT INTENT. Purchaser and Parent acknowledge that the
Subsidiary Common Stock has not been, and will not be as of the Closing Date,
registered under the Securities Act of 1933, as amended, or the securities laws
of any state or other regulatory body and is being offered and sold in reliance
upon federal and state exemptions. Purchaser and Parent are acquiring the
Subsidiary Common Stock for their own account with the present intention of
holding such securities for investment purposes and not with a view to or for
sale in connection with any public distribution of such securities in violation
of any federal or state securities laws. Purchaser and Parent are sophisticated
investors, familiar with the business so that they are capable of evaluating the
merits and risks of their investment in the Subsidiary Common Stock. Purchaser
and Parent have had the opportunity to investigate on their own the business of
the Subsidiary and the management and financial affairs of the Subsidiary and
have had the opportunity to review the Subsidiary's operations and facilities.
5.9. BROKERS' FEES. Neither Parent nor Purchaser have any liability or
obligation to pay any fees or commissions to any broker, employee, finder or
agent with respect to the transactions contemplated by this Agreement for which
Seller could become liable or obligated.
ARTICLE VI
COVENANTS OF SELLER
6.1. INTERIM CONDUCT OF BUSINESS. Except as set forth on Schedule 6.1
or as otherwise specifically provided herein, from the date hereof until the
Closing, Seller shall operate the Subsidiary consistent with past practice and
in the ordinary course of business in all material respects, and shall use
reasonable efforts to preserve intact the Subsidiary's business organizations
and assets and maintain its rights, franchises and existing relations with
customers, suppliers, employees and business associates. Except as expressly
contemplated by this Agreement, as required by a governmental authority of
competent jurisdiction or as set forth on Schedule 6.1, without the prior
written consent of Purchaser, Seller will not, and will cause Subsidiary not to:
(a) Capital Stock. (i) Issue, sell, pledge, dispose of or encumber, or
authorize or propose the issuance, sale, pledge, disposition or encumbrance of,
any shares of its capital stock or any Rights, (ii) enter into any agreement
with respect to the foregoing, (iii) permit any additional shares of capital
stock to become subject to Options, other Rights or similar stock-based employee
rights or (iv) permit the exercise of any Options.
(b) Dividends, Etc. Make, declare, pay or set aside for payment any
dividend, or declare or make any distribution on any shares of Subsidiary Common
Stock or directly or indirectly
<PAGE>
adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any
shares of Subsidiary Common Stock.
(c) Compensation; Employment Agreements; Etc. Enter into or amend any
employment, consulting, severance or similar agreements or arrangements with any
of the directors, officers or employees or former directors, officers or
employees of the Subsidiary, or grant any salary or wage increase, make any
award or grant under the Option Plan or any similar plan of the Seller or
increase any employee benefit (including incentive or bonus payments) relating
to any employee of Subsidiary, except (i) in the ordinary course of business
consistent with past practices, (ii) for changes required by law, or (iii) to
satisfy contractual obligations existing as of the date hereof.
(d) Benefit Plan. Enter into or amend in any material respect (except
(i) as may be required by applicable law, (ii) to satisfy contractual
obligations existing as of the date hereof or (iii) as expressly provided for
herein) any pension, retirement, stock option, stock purchase, savings, profit
sharing, deferred compensation, bonus, group insurance or other employee
benefit, incentive or welfare plan disproportionately affecting employees of the
Subsidiary.
(e) Acquisitions and Dispositions.
(i) Other than the acquisition of assets used in the operations
of the business of the Subsidiary in the ordinary course, acquire on
behalf of the Subsidiary all of the assets, business or properties of
any other entity.
(ii) Other than in the ordinary course of business consistent
with past practices, sell, transfer, mortgage, encumber or otherwise
dispose of or discontinue any portion of its assets, business or
properties.
(f) Indebtedness and Encumbrances. Other than in the ordinary course of
business consistent with past practices, incur any Indebtedness or voluntarily
incur any Encumbrance on any assets or properties of the Subsidiary.
(g) Capital Expenditures. Commit or authorize to be made after Closing
capital expenditures or commitments on behalf of the Subsidiary for additions to
property, plant or equipment constituting capital assets in an aggregate amount
exceeding $1,000,000.
6.2. ACCESS. From the date hereof through the Closing Date, Seller
shall give Parent and its representatives access during normal business hours
and under reasonable circumstances to all properties and records of the
Subsidiary, to senior employees of Subsidiary (which shall mean Al Budnick and
those employees who report directly to Al Budnick), and all financial and other
information in its possession relating to the Subsidiary as Parent may from time
to time reasonably request. Parent shall not contact any other employee or any
customer, supplier, landlord or tenant of Seller without the prior consent of an
authorized officer of Seller, which will not be unreasonably withheld.
<PAGE>
6.3. RECORDS AND DOCUMENTS. Following the Closing Date, Seller shall
grant to Parent and its representatives, at Parent's reasonable request,
reasonable access to and the right to make copies at its expense of those
records and documents in Seller's possession related to the Subsidiary as may be
reasonably necessary for Purchaser's operation of the Subsidiary after the
Closing. Seller shall deliver to Purchaser copies of Subsidiary's year end
audited financial statements for the year ended February 29, 2000 upon their
completion and shall use its commercially reasonable efforts to deliver such
financial statements before the Closing Date.
6.4. CONSUMMATION. Subject to the terms and conditions provided herein,
Seller agrees to use all 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
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement in accordance with its terms; except
that this covenant shall not require Seller to make any payment or incur any
economic burden not provided for herein.
6.5. HART-SCOTT-RODINO CONSENT. As promptly as possible, but in any
event not later than five (5) business days after the execution hereof, Seller
shall file with the Federal Trade Commission (the "FTC") and the Antitrust
Division of the United States Department of Justice (the "ANTITRUST DIVISION") a
premerger notification in accordance with the HSR Act with respect to the sale
of the Subsidiary pursuant to this Agreement. Seller shall furnish promptly to
the FTC and the Antitrust Division any additional information requested by
either of them pursuant to the HSR Act in connection with such filings and shall
diligently take, or cooperate in the taking of, all steps that are necessary or
desirable and proper to expedite the termination of the waiting period under the
HSR Act.
6.6. NOTIFICATION OF CERTAIN MATTERS. Seller agrees to give prompt
notice to Parent of, and to use its reasonable best efforts to prevent or
promptly remedy, (i) the occurrence or failure to occur of any event which
occurrence or failure to occur would reasonably be likely to cause any of its
representations or warranties in this Agreement to be untrue or inaccurate in
any material respect at the Effective Time and (ii) any material failure on its
part to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 6.6 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
6.7. ACQUISITION PROPOSALS. Seller shall immediately cease and cause to
be terminated any activities, discussions or negotiations conducted prior to the
date of this Agreement with any parties other than Purchaser with respect to any
Acquisition Proposal. Seller shall not, and shall cause its subsidiaries and the
officers, directors, agents and advisors of Seller and its Subsidiaries not to,
initiate, solicit or encourage inquiries or proposals with respect to, or engage
in any negotiations concerning, or provide any confidential information to, or
have any discussions with, any person relating to, any Acquisition Proposal. For
the purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean (a) a merger
or consolidation, or any similar transaction, involving the Subsidiary, (b) a
purchase or other acquisition of substantially all of the business assets of the
Subsidiary, (c) a purchase or other acquisition (including by way of merger,
consolidation, share exchange, tender or exchange offer or otherwise) of
beneficial
<PAGE>
ownership of the Subsidiary Common Stock, (d) any substantially similar
transaction, or (e) any inquiry or indication of interest with respect to any of
the foregoing, in each case other than the transactions contemplated by this
Agreement. Seller shall notify Parent immediately upon receipt of any
Acquisition Proposal (including the material terms thereof except for the
identity of the parties).
6.8. NON-SOLICITATION. For the period beginning on the date hereof and
ending three (3) years from the earlier to occur of the Closing or the date this
Agreement is terminated, none of Seller nor any of its representatives (as
defined in the Confidentiality Agreement dated January 13, 2000) will (a)
solicit for employment or employ any employees of the Subsidiary or cause any
employees of the Subsidiary to leave the employment of the Subsidiary and work
for the Seller or any or its representatives; provided, however, that the
foregoing shall not apply to employees of the Subsidiary hired by the Seller or
any of its representatives as a result of the use of general solicitation (such
as an advertisement) not specifically directed to employees of the Subsidiary,
or (b) intentionally and purposefully interfere with any relationships between
Subsidiary and its existing customers, lessors, lessees or suppliers.
ARTICLE VII
COVENANTS OF PARENT AND PURCHASER
7.1. CONSUMMATION. Subject to the terms and conditions provided herein,
Parent and Purchaser each agree to use all 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 under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement in accordance with its
terms.
7.2. HART-SCOTT-RODINO CONSENT. As promptly as possible, but in any
event not later than five (5) business days after the execution hereof, Parent
and Purchaser shall file with the FTC and the Antitrust Division, including
payment of the required filing fee, a premerger notification in accordance with
the HSR Act with respect to the purchase of the Subsidiary pursuant to this
Agreement. Parent and Purchaser shall furnish promptly to the FTC and the
Antitrust Division any additional information requested by either of them
pursuant to the HSR Act in connection with such filings and shall diligently
take, or cooperate in the taking of, all steps that are necessary or desirable
and proper to expedite the termination of the waiting period under the HSR Act.
7.3. CONFIDENTIALITY. In addition to its obligations under the
Confidentiality Agreement dated January 13, 2000 (the "CONFIDENTIALITY
AGREEMENT"), which Parent and Purchaser agree shall remain in full force and
effect, Parent and Purchaser each agree that they will not disclose, nor will
they permit any of their employees, agents or representatives to disclose, to
any third party any confidential information obtained from Seller or the
Subsidiary in connection with this Agreement, including any information provided
pursuant to Section 6.2, or the fact that discussions regarding this transaction
are taking place, except as required by law or regulation. Upon consummation of
the transactions contemplated hereby, solely with respect to
<PAGE>
confidential information relating to the Subsidiary, obligations under the
Confidentiality Agreement and this Section 7.3 shall terminate. If this
Agreement is terminated without consummation of the transactions contemplated
hereunder, promptly after termination, Parent and Purchaser shall each destroy
or return to Seller all such confidential information, including any copies,
extracts or other reproductions in whole or in part. Such return or destruction
shall be certified in writing to Seller by an authorized officer of Parent. The
provisions of this Section 7.3 shall survive any termination of this Agreement.
7.4. RECORDS AND DOCUMENTS. Following the Closing Date, Parent and
Purchaser shall each grant to Seller and its representatives, at Seller's
reasonable request, reasonable access to and the right to make copies at its
expense of those records and documents covering any period prior to the Closing
related to the Subsidiary as may be reasonably necessary for litigation,
preparation of financial statements, the 338(h)(10) election, tax returns and
audits or other valid business purposes. If either Parent or Purchaser elect to
dispose of such records for six years after the Closing, Parent or Purchaser as
applicable shall first give Seller sixty (60) days' written notice, during which
period Seller shall have the right to take such records without further
consideration; provided, however, that Purchaser may maintain such books,
records and other data in microfiche, magnetic or other readily reproducible
form in lieu of retaining the originals thereof.
7.5. INSURANCE. Purchaser shall procure and maintain insurance with
carriers and in a form and with such limits as may be reasonably appropriate for
the business as conducted by Purchaser. In addition, for a period of six (6)
years following the Closing, Seller and its successors and assigns shall be
named as additional insureds on all such liability insurance policies carried by
Purchaser. Purchaser shall provide Seller with a certificate of insurance
evidencing the foregoing. All premiums, assessments and other charges incurred
in maintaining such insurance in full force and effect, as well as the payment
of any deductibles or self-insured retentions, shall be the sole responsibility
of Parent and Purchaser.
7.6. NOTIFICATION OF BREACH. Purchaser shall promptly notify Seller of
any information which makes, or if known to Seller would make, any
representation, warranty or covenant of Seller contained herein untrue. If a
breach is cured (whether or not subject of a notice) prior to the Closing, such
breach shall be deemed not to have occurred for all purposes of this Agreement.
7.7. NON-SOLICITATION. For the period beginning on the date hereof and
ending three (3) years from the earlier to occur of the Closing or the date this
Agreement is terminated, none of Purchaser nor Parent nor any of their
respective representatives (as defined in the Confidentiality Agreement) will
(a) solicit for employment or employ any employees of the Seller or any of its
subsidiaries or cause any employees of the Seller or any of its subsidiaries to
leave the employment of Seller or any of Seller's subsidiaries and work for the
Subsidiary, Purchaser or Parent or any of their representatives; provided,
however, that the foregoing shall not apply to employees of the Seller hired by
the Subsidiary, Purchaser or Parent or any of their representatives as a result
of the use of general solicitation (such as an advertisement) not specifically
directed to employees of the Seller or the Seller's subsidiaries, or (b)
intentionally or
<PAGE>
purposefully interfere with any relationships between the Seller and its
subsidiaries, existing customers, lessors, lessees or suppliers.
7.8. CONDUCT OF BUSINESS BY PARENT AND SUBSIDIARY PENDING THE CLOSING.
Except as otherwise contemplated by this Agreement, after the date hereof and
prior to the Closing Date or earlier termination of this Agreement, both
Purchaser and Parent shall not, and shall cause its subsidiaries to not, take
any actions which could reasonably be expected to affect its ability to fund the
Purchase.
7.9. CONTROL OF THE SUBSIDIARY'S OPERATIONS. Nothing contained in this
Agreement shall give to either Parent or Purchaser, directly or indirectly,
rights to control or direct the Subsidiary's operations prior to the Effective
Time. Prior to the Effective Time, the Subsidiary shall exercise, consistent
with the terms and conditions of this Agreement, complete control and
supervision of its operations.
7.10. CHERRY NAME.
(a) Purchaser and Parent each hereby acknowledge that, except for the
limited trademark license of paragraph 7.10(b) to Subsidiary for inventory and
products being manufactured, nothing herein, including the sale of the
Subsidiary Common Stock made hereunder, shall provide Purchaser, Parent or
Subsidiary with any right, license, claim or interest in the names and marks
"Cherry", "Cherry Semiconductor Corporation", "Cherry Semiconductor", "CSC",
CHERRY and design and the Three Cherry and Leaf Design (the "Cherry Marks").
Except as provided in paragraph 7.10(b), promptly after the Closing Date and no
later than 90 days after the Closing Date, Parent, Purchaser and Subsidiary
shall remove or otherwise obliterate the Cherry Marks from all signs,
letterhead, business cards, advertising media, promotional materials, manuals,
packaging, labels, documents, products or things held by, sold, offered for sale
or used by or for Subsidiary. On or promptly after the Closing Date, Purchaser
and Subsidiary shall take whatever action is necessary at their expense to amend
all licenses and permits and other deeds and registrations of Subsidiary to
reflect the Subsidiary's name change (or to obtain new ones, if any terminate by
operation of law) and Seller will cooperate with Purchaser and Subsidiary to
effect such transfer. Within ninety (90) days after the Closing, Purchaser shall
provide Seller with appropriate documentation showing that, except as allowed
under paragraph 7.10(b), the name "Cherry Semiconductor Corporation" or any name
similar thereto or similar to any of the Cherry Marks are no longer listed as
the permit, license holder or the registrant for any licenses, permits or other
registrations of the Subsidiary or displayed on any products, documents or other
things held by, sold, offered for sale or used by or for the Subsidiary.
(b) (i) Seller hereby grants to Subsidiary a limited, worldwide,
paid-up, royalty free, nonexclusive license to use, for a transition period of
six (6) months after the Closing, any trademark owned by Seller and used by
Subsidiary as of the Closing Date as a visible trademark on or in association
with Subsidiary's products current as of the Closing Date and on or in
association with materials (including printed materials, advertising materials,
data sheets, application notes, packing slips, packing materials, and electronic
materials) used on or before the Closing Date in connection with the sale,
offering for sale, distribution, or advertising of any such products of
Subsidiary (collectively, the "Cherry Products"). The aforementioned license
<PAGE>
shall apply only to trademarks that are visible to a purchaser of the Cherry
Products ("Licensed Visible Trademarks"). This license is personal to
Subsidiary, shall not be sublicensed and shall not be assigned except as part of
the sale, merger or other disposition of Subsidiary's entire business, and is
granted for the six (6) month transition period to allow Subsidiary to dispose
of any inventory that bears any Licensed Visible Trademark and to change tooling
that places any Licensed Visible Trademark on Cherry Products.
(ii) Notwithstanding Section 7.10(b)(i), for any Cherry Product that
must be re-qualified with a product purchaser when a Licensed Visible Trademark
on the Cherry Product or its packaging is changed or removed, Subsidiary shall
be permitted, for up to one and one half (1 1/2) years after Closing, to use
Licensed Visible Trademarks in order to continue advertising, selling and
distributing Cherry Products during the period of such re-qualification.
(iii) Seller hereby grants to Subsidiary a limited, worldwide, paid-up,
royalty free, nonexclusive license to use any trademark owned by Seller and used
by Subsidiary as of the Closing Date on any Cherry Product, or on "Items" such
as equipment, software, or materials used in connection with the manufacture,
sale, offering for sale, distribution, or advertising of Cherry Products,
provided that the Items are not sold or given to purchasers or persons or
entities outside of Subsidiary's business and the Cherry Products are sold or
given to purchasers or persons or entities outside of Subsidiary's business only
with encapsulated trademarks of Seller which are not visible to purchasers or
such outside persons or entities in the ordinary course of use of such products
("Licensed Nonviewed Trademarks"). Subsidiary and its successors and assigns
agree to remove the Licensed Nonviewed Trademarks when any such Cherry Product
or Items are replaced by redesigned substitute products or Items or are
discontinued. This license shall terminate with the discontinuance or
replacement of the Cherry Products or Items bearing such Licensed Nonviewed
Trademarks. The license of this subparagraph is personal to Subsidiary, shall
not be sublicensed and shall not be assigned, except as part of the sale, merger
or other disposition of Subsidiary's entire business.
(iv) During the period of time that any Licensed Visible Trademark is
used in connection with any Cherry Product, or any Licensed Nonviewed Trademark
is included in encapsulated Cherry Products or Items not provided to purchasers
or persons or entities outside Subsidiary's business, such Cherry Products or
Items manufactured by Subsidiary shall meet the quality control standards
required by Seller and used by Subsidiary prior to the Closing ("Quality
Standards"). So long as any Licensed Visible Trademark is used by Subsidiary, or
any Licensed Nonviewed Trademark is included in encapsulated Cherry Products
provided to purchasers or other persons or entities outside of Subsidiary's
business or used in association with Items not shown to purchasers or other
persons or entities outside of Subsidiary's business, Seller shall have the
right at reasonable times and on reasonable notice to conduct, during regular
business hours, an examination of Cherry Products and Items manufactured and
used by Subsidiary and bearing the Licensed Visible Trademark or Licensed
Nonviewed Trademark (including those in-process, assembled or tested) at
<PAGE>
Subsidiary's facilities to determine the compliance of such Cherry Products and
Items with the Quality Standards. If at any time such Cherry Products and Items
fail to conform to the Quality Standards, Seller shall so notify Subsidiary in
writing. Upon such notification, Subsidiary shall immediately take such steps as
are necessary to promptly restore the Cherry Products and Items to the required
Quality Standards or, if unable to do so within a reasonable time, cease to use
the Licensed Visible Trademark or Licensed Nonviewed Trademark on such Cherry
Products and Items until such Quality Standards can be achieved.
(v) Seller hereby grants to Subsidiary the right to use after the
Closing all part numbers, model numbers and the like, with or without a prefix,
in use by Subsidiary prior to the Closing to identify Cherry Products to
customers after closing. Subsidiary shall further have the right to create and
use additional part or model numbers for any series or numbering scheme in use
by Subsidiary as of the Closing.
(vi) Parent, Purchaser and Subsidiary shall indemnify and hold Seller
harmless against all third party claims arising after Closing for damage or
injury arising from third party use of products manufactured, distributed or
sold by Subsidiary that bear the Licensed Visible Trademarks or Licensed
Nonviewed Trademarks pursuant to the trademark license contained in this Section
7.10 (the "Trademark License"), provided, however, that nothing contained in
this Section 7.10 shall limit or preclude any rights of Parent, Purchaser or
Subsidiary to be indemnified, defended or held harmless under this Agreement,
including, without limitation, under Section 12.2(b).
7.11. WARN ACT COMPLIANCE. Parent and Purchaser shall retain full
responsibility for compliance with the Worker's Adjustment and Retraining
Notification Act of 1988, as amended, and be solely responsible for furnishing
any required notice of any "PLANT CLOSING" or "MASS LAYOFF", as applicable,
which arise as a result of any facility closings, reductions in work force or
termination or other action, that Parent, Purchaser or their affiliates may
cause or initiate on or after the Closing Date with respect to the Subsidiary
and shall jointly and severally indemnify Seller for any liability, expense and
cost related thereto, including reasonable attorneys' fees related thereto.
7.12. NOTIFICATION OF CERTAIN MATTERS. Each of Parent and Purchaser
agrees to give prompt notice to Seller of, and to use its reasonable best
efforts to prevent or promptly remedy, (i) the occurrence or failure to occur of
any event which occurrence or failure to occur would reasonably be likely to
cause any of its representations or warranties in this Agreement to be untrue or
inaccurate in any material respect at the Effective Time and (ii) any material
failure on its part to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 7.12 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice
7.13. DIRECTORS' AND OFFICERS' INDEMNIFICATION. For a period of six
years from the Effective Time, the Subsidiary shall, to the fullest extent
permitted under applicable law, indemnify and hold harmless, each present and
former director, officer, employee and agent of
<PAGE>
the Subsidiary or any of its subsidiaries against any loss, damage, cost or
expense (including attorneys fees), judgments and fines and amounts paid in
settlement in connection with any actual or threatened claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of, relating to or in connection with any action or
omission occurring prior to the Effective Time. The obligations of the
Subsidiary under this Section 7.13 are solely those of the Subsidiary and in no
event shall any claim may be made against Parent or Purchaser with respect
thereto. Neither Parent nor Purchaser shall take any action which would
materially impair the Subsidiary's ability to comply with its obligations under
this Section 7.13.
7.14. TRADEMARKS ASSIGNMENTS. Within ninety (90) days after the
Closing, Purchaser shall cause Subsidiary to amend all of its trademark and
copyright registration, and assignments for issued patents, if any, set forth on
Attachment A hereto and all licenses on Schedule 4.14(a) and all permits held by
the Subsidiary, at Subsidiary's expense post-Closing, to reflect the name change
of the Subsidiary after the acquisition of Subsidiary Common Stock.
ARTICLE VIII
TAX MATTERS
8.1. SECTION 338(H)(10) ELECTIONS. At Purchaser's request, Seller (as
the common parent of the affiliated group that includes Subsidiary (the "Seller
Group")) shall within the time period prescribed by law for the filing thereof,
join with Parent in making a timely, irrevocable and effective election under
Section 338(h)(10) of the Code and similar elections under state and local
income tax law, if applicable (collectively, the "Section 338(h)(10) Elections")
with respect to Purchaser's purchase of the Subsidiary Common Stock. Purchaser
shall prepare an Internal Revenue Service Form 8023 with respect to Purchaser's
purchase of the Subsidiary Common Stock and such form shall be duly executed by
an authorized person for each of Parent and Seller in connection with the
Closing. Purchaser shall prepare the state and local tax forms, if any,
necessary for effectuating the Section 338(h)(10) Elections in the applicable
states (the "State Forms") and any schedules (the "Tax Schedules") required to
be attached to the Internal Revenue Service Form 8023 or the State Forms
(collectively, the "Forms"). Seller shall provide any cooperation the Purchaser
shall reasonably require in preparing the Tax Schedules and State Forms and
shall execute any State Forms presented to it by Purchaser. Purchaser shall duly
and timely file the Forms (together with the applicable Tax Schedules) as
prescribed by Treasury Regulation Section 1.338(h)(10)-1 (as in effect and as it
may hereafter be amended) or the corresponding provisions of state and local
income tax law. Parent, Purchaser and Seller shall prepare all relevant Tax
Returns in a manner consistent with the Tax Schedules.
8.2. LIABILITY FOR TAXES
(a) Except to the extent such Taxes are taken into account as a
liability in the determination of the Closing Date Net Working Capital Amount,
Seller shall be liable for, and shall indemnify and hold Parent, Purchaser and
the Subsidiary harmless from, (i) any Taxes
<PAGE>
caused by or resulting from the sale of the Subsidiary Common Stock (including,
without limitation, all Taxes arising from the Section 338(h)(10) Elections),
(ii) any Taxes imposed on or incurred by the Subsidiary arising out of the
inclusion of the Subsidiary in the Seller Group, any predecessor group or any
combined, consolidated, unitary or similar group (a "Group") prior to the
Closing Date, or with respect to the Taxes of any other person as successor or
transferee, by contract or otherwise, (iii) any Taxes imposed on or incurred by
the Subsidiary (or any Group with respect to the taxable items of the
Subsidiary) for any taxable period ending on or before the Closing Date (or the
portion, determined as described in paragraph (c) of this Section 8.2, of any
such Taxes for any taxable period beginning on or before and ending after the
Closing Date which is allocable to the portion of such period occurring on or
before the Closing Date (the "Pre-Closing Period")) except for Taxes arising
from transactions by the Subsidiary outside the ordinary course of business on
the Closing Date after the Closing, (iv) any sales, use, value added, transfer,
real property transfer or gain, gross receipts, excise, stamp, documentary or
similar Taxes arising from the transactions contemplated in this Agreement, (v)
any Taxes arising out of a breach of the representations contained in Section
4.8 hereof and (vi) any attorneys' fees or other costs incurred by Purchaser or
the Subsidiary in connection with any payment from Seller under this paragraph
(a) of Section 8.2.
(b) Parent and Purchaser shall be liable for, and shall indemnify and
hold Seller harmless from, (i) any Taxes imposed on or incurred by or with
respect to the Subsidiary for which Seller is not liable under paragraph (a) of
this Section 8.2 and (ii) any attorneys' fees or other costs incurred by Seller
in connection with any payment from Parent and Purchaser under this paragraph
(b) of Section 8.2.
(c) Whenever it is necessary for purposes of paragraph (a) or (b) of
this Section 8.2 to determine the portion of any Taxes imposed on or incurred by
the Subsidiary (or any Group) for a taxable period beginning on or before and
ending after the Closing Date which is allocable to the Pre-Closing Period, the
determination shall be made, in the case of property, ad valorem or similar
Taxes (which are not measured by, or based upon, production) or franchise or
capital Taxes (which are not measured by, or based upon, net income), on a per
diem basis, except any consequences of the Section 338(h)(10) Elections shall be
excluded, and, in the case of other Taxes, by assuming that the Pre-Closing
Period constitutes a separate taxable period of the Subsidiary and by taking
into account the actual taxable events occurring during such period (except that
exemptions, allowances and deductions for a taxable period beginning on or
before and ending after the Closing Date that are calculated on an annual or
periodic basis, such as the deduction for depreciation, shall be apportioned to
the Pre-Closing Period ratably on a per diem basis, any deductions resulting
from any payments made by Subsidiary or Seller under Sections 9.1 or 9.4 below
shall be allocated to the Pre-Closing Periods and any consequences of the
Section 338(h)(10) Elections shall be excluded).
(d) Seller and Purchaser will, to the extent permitted by applicable
law, elect with the relevant taxing authorities to close all taxable periods of
the Subsidiary as of the close of business on the Closing Date.
(e) Purchaser agrees to pay to Seller any refund received after the
Closing Date by Parent, Purchaser or Subsidiary, in respect of any Taxes for
which Seller is liable under
<PAGE>
paragraph (a) of this Section 8.2, except to the extent such refund is taken
into account as an asset in the determination of the Post-Closing Adjustment.
Seller agrees to pay to Purchaser any refund received by Seller in respect of
any Taxes for which Parent or Purchaser is liable under paragraph (b) of this
Section 8.2. The parties shall cooperate in order to take all necessary steps to
claim any such refund. Any such refund received by a party for the account of
the other party shall be paid to such other party within thirty (30) days after
such refund is received.
(f) (i) Seller and Purchaser agree that any payment made with
respect to Taxes pursuant to this Section 8.2 or as an indemnity under
Article XII shall be treated by the parties on their Tax Returns as an
adjustment to the Purchase Price for the Subsidiary Common Stock.
(ii) If, contrary to the intent of the parties as expressed
hereof, any payment made pursuant to this Agreement is treated as
taxable income of the recipient, then the payor shall indemnify and
hold harmless the recipient from any liability for Taxes attributable
to the recipient of such payment. For purposes of this Section, the
indemnified party will be considered to be liable for Tax in respect
of any payment treated as taxable income at the highest marginal tax
rate then in effect for corporations in the jurisdiction so
characterizing the payment for the year such payment is considered to
be earned by the indemnified party.
8.3. TAX PROCEEDINGS. In the event Purchaser or the Subsidiary or any
of their affiliates receives notice (the "Proceeding Notice") of any
examination, claim, adjustment or other proceeding with respect to the liability
of the Subsidiary for Taxes for any period for which Seller is or may be liable
under paragraph (a) of Section 8.2, Purchaser shall notify Seller in writing
thereof (the "Purchaser Notice") no later than the earlier of (a) thirty (30)
days after the receipt by Purchaser, the Subsidiary or any of their affiliates
of the Proceeding Notice, or (b) ten (10) days prior to the deadline for
responding to the Proceeding Notice. As to any such Taxes for which Seller
acknowledges in writing that it is solely liable under paragraph (a) of Section
8.2, Seller shall be entitled at its expense to control or settle the contest of
such examination, claim, adjustment or other proceeding, provided Seller
notifies Purchaser in writing that it desires to do so no later than the earlier
of (i) thirty (30) days after receipt of the Purchaser Notice, or (ii) five (5)
days prior to the deadline for responding to the Proceeding Notice. The parties
shall cooperate with each other and with their respective affiliates, and will
consult with each other, in the negotiation and settlement of any proceeding
described in this Section 8.3.
8.4. PAYMENT OF TAXES. All Taxes with respect to the Subsidiary shall
be paid by the party that is legally responsible therefor. Except as otherwise
provided in this Article VIII, any amount to which a party is entitled under
this Article VIII shall be promptly paid to such party by the party obligated to
make such payment following written notice to the party so obligated stating
that the Taxes to which such amount relates are due and providing details
supporting the calculation of such amount.
8.5. TAX RETURNS. (a) All Tax Returns which relate to any income Taxes
of the Subsidiary shall be prepared and filed by the party that is legally
responsible therefor. For all other Tax Returns, Seller shall be responsible for
the timely filing (taking into account any
<PAGE>
extensions received from the relevant tax authorities) of all such Tax Returns
required by law to be filed by the Subsidiary or any of its Subsidiaries, on or
prior to the Closing Date. All taxable items of the Subsidiary for the period
beginning on March 1 of the calendar year in which the Closing occurs and
extending through the Closing (and, to the extent required in the applicable
regulations, through the close of business on the Closing Date, but in no event
including items arising from transactions by the Subsidiary outside the ordinary
course of business after the Closing) will be included in the consolidated
federal income Tax Return of the Seller Group will be correct and complete in
all material respects and will be reported on a basis consistent with previously
filed Tax Returns. All Taxes indicated as due and payable on such Tax Returns
shall be paid by Seller as and when required by law. Purchaser and its
affiliates, including the Subsidiary, shall cooperate with Seller and shall make
available all necessary records and timely take all action necessary to allow
Seller and its affiliates to prepare and file the Tax Returns which they are
responsible for preparing and filing under this Section 8.5.
(b) The Subsidiary (or, where relevant, the combined or consolidated
group of which the Subsidiary is a member) shall be responsible for the timely
filing (taking into account any extensions received from the relevant tax
authorities) of all Tax Returns required by law to be filed by the Subsidiary
after the Closing Date, it being understood that all Taxes indicated as due and
payable or such returns shall be the responsibility of the Purchaser or the
Subsidiary, except for such Taxes which are the responsibility of Seller
pursuant to Section 8.2, which Seller shall pay as and when required by law.
8.6. TAX ALLOCATION ARRANGEMENTS. Effective as of the Closing, all
liabilities and obligations between the Subsidiary, on one hand, and Seller and
any affiliates thereof, on the other hand, under any tax indemnity, sharing,
allocation or similar agreement or arrangement in effect prior to the Closing
shall be extinguished in full, and any liabilities or rights existing under any
such agreement or arrangement shall cease to exist and shall no longer be
enforceable. Seller and its affiliates shall execute any documents necessary to
effectuate the provisions of this Section 8.6.
8.7. COOPERATION AND EXCHANGE OF INFORMATION. Each party will provide,
or cause to be provided, to the other party copies of all correspondence
received from any taxing authority by such party or any of its affiliates in
connection with the liability of the Subsidiary for Taxes for any period for
which such other party is or may be liable under paragraph (a) or (b) of Section
8.2. The parties will provide each other with such cooperation and information
as they may reasonably request of each other in preparing or filing any Tax
Return or claim for refund, in determining a liability or a right of refund or
in conducting any audit or other proceeding in respect of Taxes imposed on the
parties or their respective affiliates. The parties and their affiliates will
preserve and retain all Tax Returns, schedules, work papers and all material
records or other documents relating to any such Tax Returns, claims, audits or
other proceedings until the expiration of the statutory period of limitations
(including extensions) of taxable periods to which such documents relate and
until the final determination of any payments which may be required with respect
to such periods under this Agreement and shall make such documents available to
the other party or any affiliate thereof, and their respective officers,
employees and agents, upon reasonable notice and at reasonable times, it being
understood that
<PAGE>
such representatives shall be entitled to make copies of any such books and
records relating to the Subsidiary as they shall deem necessary. Any information
obtained pursuant to this Section 8.7 shall be kept confidential, except as may
be otherwise necessary in connection with the filing of Tax Returns or claims
for refund or in conducting any audit or other proceeding. Each party shall
provide the cooperation and information required by this Section 8.7 at its own
expense.
8.8. CONFLICT. In the event of a conflict between the provisions of
this Article VIII and any other provisions of this Agreement, the provisions of
this Article VIII shall control.
ARTICLE IX
ADDITIONAL AGREEMENTS
9.1. OPTION PLANS. Simultaneously with the Closing, the Seller shall
take such action as may be necessary to cause each Option to be canceled in
exchange for a cash payment, in full satisfaction thereof, in the amount equal
to that which would have been received in the transactions contemplated hereby
by the option holder had the Option been exercised immediately prior to the
Effective Time, less the aggregate exercise price which such option holder would
have been required to pay upon such exercise (the "OPTION CASH-OUT AMOUNT").
Seller shall pay Subsidiary prior to the Closing, and Subsidiary shall pay to
each holder of an Option simultaneously with the Closing, the Option Cash-Out
Amount. Effective as of the Effective Time and subject to the consummation of
the transactions contemplated hereby, Seller shall, or shall cause the
Subsidiary to, terminate the Option Plan.
9.2. SELLER AND SUBSIDIARY BENEFIT PLANS. From and after the Closing,
Seller shall remain solely responsible for all liabilities and obligations under
(i) the Seller Benefit Plans (other than those Seller Benefit Plans that are
Subsidiary Plans) and (ii) the agreements listed on Schedule 4.12 under the
heading "Agreements Regarding Section 4999 Payments" and shall honor the
obligations thereunder in respect of the employees and former employees of the
Subsidiary or any of its subsidiaries. Notwithstanding the foregoing, (i) with
respect to those Subsidiary Plans that are cash bonus or other incentive
compensation plans, the Seller shall remain responsible for, and shall indemnify
the Subsidiary from and against or pay or reimburse the Subsidiary for, any
Damages in excess of the amounts reserved therefor on the Closing Date Balance
Sheet accrued or payable under such bonus or incentive compensation plans in
respect of any periods preceding the Closing Date and (ii) with respect to the
Option Plan (including, without limitation, Damages relating to claims made by
holders of Options in respect of the Option Cash-Out Amount) and the agreements
listed on Schedule 4.12 under the heading "Success Bonus Agreements", the Seller
shall remain responsible for, and shall indemnify the Subsidiary from and
against or pay or reimburse the Subsidiary for, any liabilities payable by the
Subsidiary in respect of the Option Plan or agreements in excess of the amount
contributed by the Seller to the Subsidiary prior to the Closing to fund the
amounts payable under such Plan (in accordance with Section 9.1 hereof) and
agreements.
<PAGE>
9.3. CERTAIN NEW PLANS.
(a) Prior to the Closing Date, the Seller shall cause the Subsidiary to
establish a defined contribution plan and related trust (the "SUBSIDIARY 401(K)
PLAN") that is qualified under Sections 401(a) and 401(k) of the Code and that
contains terms and conditions that are substantially the same as the terms and
conditions of The Cherry Corporation Savings and Retirement Plan and related
trust, as in effect on the date hereof (the "CHERRY 401(K) PLAN"), except that
the Subsidiary 401(k) Plan shall cover only employees of the Subsidiary. Prior
to the Closing Date and in connection with the establishment of the Subsidiary
401(k) Plan, the Seller shall cause the trustee under the Cherry 401(k) Plan to
transfer to the trust forming part of the Subsidiary 401(k) Plan assets, in cash
and/or pro rata in kind, at fair market value, equal to the aggregate account
balances (both vested and unvested) of the employees of the Subsidiary who are
participants in the Cherry 401(k) Plan immediately prior to such transfer and
otherwise in accordance with the requirements of Section 414(l) of the Code.
(b) Prior to the Closing Date, the Seller shall cause the Subsidiary to
establish a non-qualified deferred compensation program and related grantor
trust (the "SUBSIDIARY DEFERRED COMPENSATION PROGRAM") that contains terms and
conditions that are substantially the same as the terms and conditions of The
Cherry Corporation Deferred Compensation Program and related grantor trust, as
in effect on the date hereof (the "CHERRY DEFERRED COMPENSATION PROGRAM"),
except that the Subsidiary Deferred Compensation Program shall cover only
employees of the Subsidiary who are participants in the Cherry Deferred
Compensation Program on the date hereof (the "DEFERRED COMPENSATION PROGRAM
PARTICIPANTS"). Prior to the Closing Date and in connection with the
establishment of the Subsidiary Deferred Compensation Program, the Seller shall
cause the trustee under the Cherry Deferred Compensation Program to transfer to
the trust forming part of the Subsidiary Deferred Compensation Program assets,
in cash and/or pro rata in kind, at fair market value, equal to the aggregate
account balances of the Deferred Compensation Program Participants, valued as of
the actual date of transfer.
9.4. FUNDING OF SUCCESS BONUS. Seller shall pay Subsidiary prior to the
Closing an amount equal to amounts required to paid under the Success Bonus
Agreements as a result of the transactions contemplated hereby, and Subsidiary
shall pay all such amounts to the employees entitled to receive payments under
the Success Bonus Agreements promptly after the Effective Time.
9.5. NO LIMITATION. Notwithstanding anything to the contrary contained
in this Agreement, there shall be no limitation on the Seller's obligations
under this Article IX or the indemnification relating thereto. Without limiting
the generality of the foregoing, the Seller's obligations under this Article IX
or to indemnify Parent and Purchaser for any breach thereof shall not be limited
in any respect by operation of the provisions of Section 5.5 or Section 12.3 of
this Agreement.
ARTICLE X
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND PURCHASER
<PAGE>
The obligation of Parent and Purchaser to consummate the transactions
contemplated by this Agreement is subject to fulfillment prior to or at the
Closing of the following conditions (unless waived in writing in the sole
discretion of Parent and Purchaser):
10.1. ACCURACY OF WARRANTIES AND PERFORMANCE OF COVENANTS. The
representations and warranties of Seller contained herein shall be accurate in
all Material Respects (except that the representation and warranty contained in
the first sentence of Section 4.7 shall be true and correct in all respects)
when made and as of the Closing Date (except as to matters arising from the date
of this Agreement through Closing in the ordinary course of business). Seller
shall have performed all obligations and complied in all Material Respects with
each and all of the covenants, agreements and conditions required to be
performed or complied with on or prior to the Closing. Seller shall have
delivered an Officer's Certificate confirming the matters in each of the
foregoing sentences; provided, however, that such certificate may disclose any
facts or circumstances arising after the date hereof which would cause any
representations and warranties to be incorrect or agreements or covenants to be
unfulfilled and if Parent and Purchaser nevertheless decide to Close, the breach
or failure shall be deemed cured and may not be relied upon by Parent and
Purchaser to avoid any of its obligations hereunder, impose any liabilities or
obligations upon Seller or otherwise recover from Seller with respect thereto.
10.2. NO PENDING ACTION. No action, suit, proceeding or investigation
before any court, administrative agency or other governmental authority shall be
pending or threatened wherein an unfavorable judgment, decree or order would
prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated hereby or
cause such transactions to be rescinded.
10.3. HART-SCOTT-RODINO. The waiting period under the HSR Act required
to permit the consummation of the transactions provided for herein shall have
expired or early termination shall have been granted.
10.4. CURE PERIOD. If any of the conditions set forth in Section 10.1
are not satisfied in all Material Respects, Seller shall have until the date
specified in Section 13.1(c) to cure such condition (the "CURE Period").
"MATERIAL RESPECT" with respect to Section 10.1 being one which, disregarding
any reference to materiality or Material Adverse Effect contained in the
relevant representation, warranty or covenant, has a material impact on the
value of the Subsidiary or on the ability of the Subsidiary to carry on the
business of the Subsidiary in substantially the same manner as it was carried on
by the Subsidiary immediately prior to the Closing. If Seller does not cure such
condition within the Cure Period and Purchaser and Parent choose not to waive
such condition, then Parent and Purchaser's sole remedy under the Agreement
shall be as set forth in Article XIII.
10.5. PARENT REQUIRED CONSENTS AND APPROVALS. The consents and
approvals described on Schedule 5.2 (the "PARENT REQUIRED CONSENTS AND
APPROVALS") shall have been obtained in form and substance reasonably
satisfactory to Parent and shall be in full force and effect.
<PAGE>
ARTICLE XI
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligation of Seller to consummate the transactions contemplated by
this Agreement is subject to fulfillment prior to or at the Closing of the
following conditions (unless waived in writing in the sole discretion of
Seller):
11.1. ACCURACY OF WARRANTIES AND PERFORMANCE OF COVENANTS. The
representations and warranties of Purchaser and Parent contained herein shall be
accurate in all Material Respects when made and as of the Closing Date.
Purchaser and Parent shall have each performed all obligations and complied in
all Material Respects with each and all of the covenants, agreements and
conditions required to be performed or complied with on or prior to the Closing.
Purchaser and Parent shall each have delivered an Officer's Certificate
confirming the matters set forth in each of the foregoing sentences.
11.2. NO PENDING ACTION. No action, suit, proceeding or investigation
before any court, administrative agency or other governmental authority shall be
pending or threatened wherein an unfavorable judgment, decree or order would
prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated hereby or
cause such transactions to be rescinded.
11.3. HART-SCOTT-RODINO. The waiting period under the HSR Act required
to permit the consummation of the transactions provided for herein shall have
expired or early termination shall have been granted.
11.4. CURE PERIOD. Other than with respect to the deliveries required
by Section 3.2 and Section 5.7, if any of the conditions set forth in Section
11.1 are not satisfied in all Material Respects, Purchaser shall have until the
date specified in Section 13.1(d) to cure such condition. "MATERIAL RESPECT"
with respect to Section 11.1 being one which has a material effect on
Purchaser's ability to consummate this Agreement and the transactions
contemplated herein. If Purchaser does not cure such condition within the cure
period set forth above and Seller chooses not to waive such condition, Seller's
sole remedy under the Agreement shall be as set forth in Article XIII.
ARTICLE XII
SURVIVAL AND INDEMNIFICATION
12.1. SURVIVAL. All covenants and agreements contained in this
Agreement shall survive until fully performed or for as long as provided
therein. All representations and warranties contained in this Agreement or in
any agreement or other document delivered pursuant hereto shall survive the
Closing, and thereafter shall expire and be of no force or effect, through June
30, 2001; provided that (i) the representations and warranties set forth in
Section 4.19 (the "ENVIRONMENTAL REPRESENTATIONS") shall survive until the fifth
anniversary of the
<PAGE>
Closing Date and (ii) the representations and warranties set forth in Section
4.8 (the "Tax Representations") shall survive for ninety (90) days after the
expiration of the applicable statute of limitations. Thereafter, such
representations, warranties, covenants and agreements shall be of no further
force or effect. Any claim for indemnification that is asserted by written
notice as provided in Article XII (which shall survive until the claim is
resolved) within the survival period shall survive until resolved pursuant to a
final non-appealable judicial determination or otherwise.
12.2. INDEMNIFICATION.
(a) Subject to the provisions and limitations contained herein,
Purchaser and Parent shall jointly and severally indemnify, defend and hold
harmless Seller from and against any and all loss, liabilities, damage, cost or
expense (including reasonable attorneys' fees and expenses and fees and expenses
of accountants and other experts or other reasonable expenses of litigation or
other proceedings or of any claim, default or assessment), judgments and fines
(collectively, "DAMAGES") caused by or arising out of any breach of a
representation or warranty or failure to fulfill any covenant or agreement of
either Purchaser or Parent contained herein.
(b) Subject to the provisions and limitations contained herein, Seller
shall indemnify and hold harmless Purchaser from and against any Damages caused
by or arising out of any breach of a representation or warranty or failure to
fulfill any covenant or agreement of Seller contained herein.
12.3. GENERAL PROVISIONS RELATING TO INDEMNIFICATION.
(a) (i) Except as provided in Section 12.3(a)(ii) below with respect to
the Environmental Representations and as set forth in the last sentence of this
Section 12.3(a)(i), Seller shall not be required to make any payments pursuant
to this Article XII, unless and until the aggregate amount of all claims against
Seller pursuant to this Article XII shall exceed an amount equal to $2,500,000
(the "THRESHOLD AMOUNT"), as to which Seller shall be responsible only for the
excess over the Threshold Amount. The maximum aggregate amount recoverable from
Seller with respect to any claims relating to this Agreement or the transactions
contemplated hereby shall not exceed $25,000,000 (which amount is inclusive of
the amounts set forth in Section 12.3(a)(ii) below but exclusive of the amounts
set forth in the subsequent sentence of this Section 12.3(a)(i)). The
limitations set forth in the first two sentences of this Section 12.3(a)(i)
shall not apply to the Post-Closing Adjustment Amount or any claim for
indemnification arising out of or relating to a breach of the representations,
warranties and covenants set forth in Sections 4.1, 4.2 or 4.3, the Tax
Representations, Article VIII and Article IX and the maximum amount recoverable
with respect to Sections 4.1, 4.2 or 4.3, the Tax Representations, Article VIII
and Article IX shall be an amount equal to the Purchase Price.
(ii) Solely with respect to the Environmental Representations, Seller
shall not be required to make any payments pursuant to this Article XII with
respect to the Environmental Representations, unless and until the aggregate
amount of all claims against Seller solely with respect to the Environmental
Representations shall exceed an amount equal to $500,000 (the "ENVIRONMENTAL
THRESHOLD AMOUNT"), as to which Seller shall be responsible only for the
<PAGE>
excess over the Environmental Threshold Amount. Notwithstanding the amounts set
forth in Section 12.3(a)(i), the maximum aggregate amount recoverable from
Seller with respect to any claims relating to breaches of the Environmental
Representations or relating to the environmental conditions of the Real Estate
and the Leased Real Estate shall not exceed $5,000,000. For avoidance of doubt,
the parties hereby confirm that Seller shall not be required to defend,
indemnify or hold harmless Purchaser with respect to any Damages related to the
presence of tetrachloroethene (PCE) which is either (i) addressed in the
Settlement Agreement and Covenant Not To Sue - Re property at 1900 South County
Trail Case #97-058 (Brownfield Agreement) or (ii) identified in the Johnson
Company reports and studies completed by or on behalf of Purchaser and Parent
(including any PCE contamination related to the PCE contamination identified in
those reports and studies).
(iii) Except with respect to the payment of the purchase price
and amounts related to breaches of the obligations under Sections 5.1, 5.2, 7.5,
7.10, 7.11, 7.13 and 13.2, Purchaser shall not be required to make any payments
pursuant to this Article XII, unless and until the aggregate amount of all
claims against Purchaser pursuant to this Article XII shall exceed an amount
equal to the Threshold Amount, as to which Purchaser shall be responsible only
for the excess over the Threshold Amount. The maximum aggregate amount
recoverable from Purchaser with respect to any claims relating to this Agreement
or the transactions contemplated hereby shall not exceed an amount equal to
$25,000,000. The limitations set forth in the first two sentences of this
Section 12.3(a)(iii) shall not apply to any claim for indemnification arising
out of or relating to a breach of the representations, warranties and covenants
set forth in Sections 5.1, 5.2, 7.5, 7.10, 7.11, 7.13 and 13.2 and the maximum
amount recoverable with respect Sections 5.1, 5.2, 7.5, 7.10, 7.11 and 7.13
shall be an amount equal to the Purchase Price.
(b) The party seeking indemnification shall give written notice to the
indemnifying party of the facts and circumstances giving rise to any claim for
indemnification as soon as reasonably possible but in any event within thirty
(30) days after it obtains knowledge of the basis for a claim for
indemnification hereunder. The party entitled to indemnification shall take all
reasonable steps to mitigate all indemnifiable liabilities and damages upon and
after becoming aware of any event which could reasonably be expected to give
rise to any liabilities and damages that are indemnifiable hereunder. No party
shall be entitled to indemnification to the extent of any insurance, actual
reduction in tax paid or other benefits actually received as a result of the
facts and circumstances relating to any indemnifiable claim. If any Damages are
covered by insurance, then Purchaser shall use all reasonable efforts to recover
the amount of such Damages from the insurer of such insurance which recovery
shall reduce the amount of Damages hereunder in which event Damages shall
include the amount of any increase in insurance premiums directly resulting from
the recovery. In the event the Indemnified Party receives amounts from the
insurer after a claim for indemnification has been paid hereunder, then such
amounts shall be paid to the Indemnifying Party.
(c) With respect to each third party claim subject to this Article XII
(a "THIRD PARTY CLAIM"), the party seeking indemnification (the "INDEMNIFIED
PARTY") must give prompt notice to the indemnifying party (the "INDEMNIFYING
PARTY") of the Third Party Claim, provided that
<PAGE>
the failure to so notify shall not relieve the Indemnifying Party of its
obligations hereunder except to the extent the indemnifying party is prejudiced
thereby. The Indemnifying Party may, at its sole cost and expense, upon notice
to the Indemnified Party within thirty (30) days after the Indemnifying Party
receives notice of the Third Party Claim, assume the defense of the Third Party
Claim, with counsel of its choice reasonably acceptable to the Indemnified
Party. The Indemnifying Party shall not consent to a settlement of, or the entry
of any judgment arising from, any Third Party Claim, unless (i) the settlement
or judgment is solely for money damages not requiring an acknowledgment of fault
from the Indemnified Party and the Indemnifying Party admits in writing its
liability to hold the Indemnified Party harmless from Damages arising from the
settlement, or (ii) the Indemnified Party consents thereto, which consent shall
not be unreasonably withheld. The Indemnifying Party shall provide the
Indemnified Party with thirty (30) days prior notice before it consents to a
settlement of, or the entry of a judgment arising from, any Third Party Claim.
The Indemnified Party shall be entitled to participate in the defense of (but
not control) any Third Party Claim, the defense of which is assumed by the
Indemnifying Party, with its own counsel and at its own expense. The parties
shall cooperate in the defense of any Third Party Claim and the relevant records
of each party shall be made available on a timely basis. If the Indemnifying
Party does not assume the defense of any such claim or proceeding resulting
therefrom in accordance with the terms hereof, the Indemnified Party may defend
such claim or proceeding in a reasonable manner, including settling such claim
or proceeding on such terms as the Indemnified Party may deem appropriate after
giving thirty (30) days' notice of the same to the Indemnifying Party and
obtaining the consent of the Indemnifying Party, which consent shall not be
unreasonably withheld.
(d) No party shall have any obligation to indemnify another party or
otherwise have liability hereunder for consequential damages, special damages,
incidental damages, indirect damages, lost profits or similar items.
(e) Seller shall have no liability under this Article XII to the extent
arising from actions taken or not taken by Parent, Purchaser or its affiliates
after the Closing Date.
(f) Neither Parent nor Purchaser shall bring a claim or be entitled to
indemnification with respect to a breach of any representation, warranty,
covenant or agreement of which either Parent or Purchaser had actual knowledge
at the date of this Agreement of the facts and circumstances of the breach
underlying such claim and the extent of such breach.
(g) To the extent that Seller discharges any claim for indemnification
hereunder, Seller shall be subrogated to all rights of both Parent and Purchaser
against third parties.
(h) After the Closing, the indemnification rights provided hereunder
and the provisions of Section 3.5, Section 7.5, Section 7.10, Section 7.11,
Section 7.13, Section 14.12, Article VIII and Article IX shall be the exclusive
remedy of Seller, Parent and Purchaser with respect to any dispute arising out
of or related to this Agreement.
(i) If during the five year period commencing on the Closing Date,
Seller shall experience a Change of Control, then in connection with the closing
of such Change of Control transaction, Seller shall provide Purchaser with
either (i) a letter of credit payable to Purchaser in
<PAGE>
an amount equal to the maximum amount then recoverable by Purchaser for a breach
of the Environmental Representation to ensure payment by Purchaser in the event
of any valid claim for indemnification hereunder or (ii) sufficient evidence
reasonably satisfactory to Purchaser that the purchaser and/or surviving entity
of such Change of Control transaction has a sufficient financial net worth to
satisfy Seller's indemnification obligations hereunder. A "CHANGE OF CONTROL"
shall mean (i) a transaction in which all of the shares of Seller's common stock
are exchanged for cash or other securities of a third party and such transaction
results in the Seller's stockholders holding less than fifty percent (50%) of
the voting power of the surviving entity, (ii) Seller's consolidation with or
merger into any other person pursuant to which Seller shall not be the
continuing or surviving corporation, or (iii) a sale or transfer of all or
substantially all of the Seller's assets.
12.4. CHARACTERIZATION AS PRICE ADJUSTMENT. All amounts paid pursuant
to this Agreement by one party to another party (other than interest payments)
shall be treated by such parties as an adjustment to the Purchase Price.
ARTICLE XIII
TERMINATION
13.1. TERMINATION OR ABANDONMENT. Notwithstanding anything contained in
this Agreement to the contrary, this Agreement may be terminated and abandoned
at any time prior to the Closing:
(a) by the mutual written consent of Seller and Parent;
(b) by Seller or Parent if any court of competent jurisdiction or
governmental body, authority or agency having jurisdiction shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and nonappealable;
(c) by Parent, if one or more of the conditions to the obligation of
Purchaser and Parent to Close has not been fulfilled by May 31, 2000, or if
Subsidiary shall have suffered a Material Adverse Effect that does not generally
affect the industry in which Subsidiary operates and which is not capable of
cure;
(d) by Seller, if one or more of the conditions to the obligation of
Seller to Close has not been fulfilled by May 31, 2000; and
(e) by Seller, if all of the conditions precedent to the obligations of
Parent and Purchaser to Close that are set forth in ARTICLE X of this Agreement
(other than Section 10.5) have been fulfilled and Parent or Purchaser fails to
waive the conditions precedent set forth in Section 10.5 of this Agreement
within 5 business days of receipt of written notice from Seller that all other
conditions precedent set forth in ARTICLE X have been fulfilled.
<PAGE>
13.2. EFFECT OF TERMINATION.
(a) If any party terminates this Agreement pursuant to Section 13.1
above, all obligations of the parties hereunder shall terminate without any
liability of any party to any other party (except for any liability of any party
then in breach and except with respect to Section 13.2(b)); provided, however,
that the provisions of Section 7.3, Section 13.1, this Section 13.2 and Section
14.3 shall survive termination of this Agreement. Nothing in this Section
13.2(a) shall relieve any party from liability for any willful or intentional
breach of this Agreement.
(b) In the event that:
(i) all of the conditions precedent to the obligations of Parent
and Purchaser set forth in ARTICLE X of this Agreement have been
fulfilled, and either Parent or Purchaser fails to consummate the
transactions contemplated by this Agreement and Seller is willing and
able to consummate the transactions contemplated hereby and has
furnished Parent with a written demand to effect the Closing which is
not complied with within 3 business days of delivery of such notice;
or
(ii) Parent terminates this Agreement for failure to satisfy the
conditions in Section 10.5 if all of the other conditions precedent to
the obligations of Parent and Purchaser to Close that are set forth in
ARTICLE X have been fulfilled or Seller terminates this Agreement
pursuant to Section 13.1(e),
then Parent or Purchaser shall pay Seller $2.5 million in immediately available
funds within 3 business days of Seller's delivery of notice (in the case of the
foregoing clause (i)) or Seller's termination (in the case of the foregoing
clause (ii)). The Parties agree that the amount provided for in this Section
13.2(b) is in the nature of liquidated damages and does not constitute a
penalty. The parties agree that such amount is reasonably intended to compensate
the Seller for its expenses incurred in connection with the negotiation of this
Agreement and any lost opportunity resulting from the Buyer's failure to
consummate the transactions contemplated hereby and, upon payment of such amount
by the Purchaser, the Seller and Subsidiary waive any and all rights to any
payments, damages, amounts, costs, fees or other expenses, and agree that they
shall not bring any action, suit or proceeding of any kind to recover any
amounts in connection with any breach by Parent or Purchaser of this Agreement.
ARTICLE XIV
GENERAL PROVISIONS
14.1. AMENDMENTS AND WAIVER. No amendment, waiver or consent with
respect to any provision of this Agreement shall in any event be effective,
unless the same shall be in writing and signed by the parties hereto, and then
such amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
14.2. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be, personally delivered or sent by
facsimile transmission with confirming
<PAGE>
copy sent by overnight courier (such as Express Mail, Federal Express, etc.) and
a delivery receipt obtained and addressed to the intended recipient as follows:
(a) If to Seller:
Mr. Peter B. Cherry
The Cherry Corporation
3600 Sunset Avenue
Waukegan, IL 60087
Facsimile No.: (847) 360-3390
With copies to:
Mr. William J. Quinlan
McDermott, Will & Emery
227 West Monroe Street
Chicago, IL 60606
Facsimile No.: (312) 984-3669
(b) If to Purchaser or Parent:
On Semiconductor
5005 E. McDowell Rd.
M/D: C302
Phoenix, AZ 85008
Attention: Chief Executive Officer
Facsimile No.: (602) 244-4830
With copies to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006
Attention: Paul J. Shim
Facsimile No.:
On Semiconductor
5005 E. McDowell Rd.
M/D: A700
Law Department
Phoenix, AZ 85008
Attention: General Counsel
Facsimile No.: (602) 244-5601
Any party may change its address or add or change parties for receiving notice
by written notice given to the others named above. Notices shall be deemed given
as of the date of receipt.
<PAGE>
14.3. EXPENSES. Except as otherwise expressly provided herein, each
party to this Agreement shall pay its own costs and expenses in connection with
the transactions contemplated hereby.
14.4. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
14.5. SUCCESSORS AND ASSIGNS; BENEFICIARIES. This Agreement shall bind
and inure to the benefit of the parties named herein and their respective
successors and assigns. No party may assign any rights, benefits, duties or
obligations under this Agreement without the prior written consent of the other
party; provided, however, Parent and Purchaser may assign this Agreement to an
existing affiliate of Purchaser as long as (i) the Parent and Purchaser agree to
remain liable for all obligations of Parent and Purchaser hereunder and (ii) the
assignee has funds that are sufficient to enable assignee to consummate the
transactions contemplated hereby on a timely basis. No third party shall be
entitled to enforce any provision hereof; and no third party is intended to
benefit from this Agreement. In the event of a merger, consolidation, sale of
assets, change of control, or similar transaction involving any party to this
Agreement, such party shall cause its successor or transferee (as the case might
be) to assume all its obligations and duties under this Agreement.
14.6. ENTIRE AGREEMENT. This Agreement and the Confidentiality
Agreement and the documents referred to herein contain the entire agreement and
understanding among the parties with respect to the transactions contemplated
hereby and supersede all other agreements, understandings and undertakings among
the parties on the subject matter hereof.
14.7. ANNOUNCEMENTS. No announcement of the specific terms of this
Agreement shall be made by any party without the written approval of the other
party (which approval shall not be unreasonably withheld), except for filings
required under the HSR Act and as otherwise required by applicable law.
14.8. PARTIAL INVALIDITY. In the event that any provision of this
Agreement shall be held invalid or unenforceable by
any court or competent jurisdiction, such holding shall not invalidate or render
unenforceable any other provision hereof.
14.9. GOVERNING LAW; JURISDICTION. This Agreement shall be interpreted
in accordance with the substantive laws of the State of Delaware applicable to
contracts made and to be performed wholly within said State. All disputes, legal
actions, suits and proceedings arising out of or relating to this Agreement
shall be brought in a federal district or state court located in Chicago,
Illinois. Each party hereby consents to the jurisdiction of the federal district
or state court in Chicago, Illinois. Each party hereby irrevocably waives all
claims of immunity from jurisdiction and any right to object on the basis that
any dispute, action, suit or proceeding brought in the federal district or state
court of Chicago, Illinois has been brought in an improper or inconvenient venue
or forum.
<PAGE>
14.10. OTHER RULES OF CONSTRUCTION. References in this Agreement to
sections, schedules, attachments and exhibits are to sections of, and schedules,
attachments and exhibits to, this Agreement unless otherwise indicated. Words in
the singular include the plural and in the plural include the singular. The word
"including" shall mean including, without limitation. The section and other
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
14.11. AUTHORSHIP. The parties hereto agree that the terms and language
of this Agreement were the result of negotiations between the parties and, as a
result, there shall be no presumption that any ambiguities in this Agreement
shall be resolved against either party. Any controversy over construction of
this Agreement shall be decided without regard to events of authorship or
negotiation.
14.12. SPECIFIC PERFORMANCE. Parent, Purchaser and Seller recognize
that any breach of the terms of this Agreement may give rise to irreparable harm
to Parent, Purchaser or Seller for which money damages would not be an adequate
remedy, and accordingly agree that, in addition to other remedies, the
non-breaching party shall be entitled to enforce the terms of this Agreement by
a decree of specific performance without the necessity of proving the inadequacy
of a remedy of money damages.
14.13. JOINT AND SEVERAL OBLIGATIONS. Even if not expressly stated in
the particular instance, each of Parent and Purchaser are jointly and severally
liable for all of the obligations of the other provided for or referred to
herein.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by a duly authorized officer all as of the date first
written above.
PURCHASER: SELLER:
SEMICONDUCTOR COMPONENTS THE CHERRY CORPORATION
INDUSTRIES, LLC
By: /s/ James M. Thorburn By: /s/ Peter Cherry
---------------------------------------- --------------------------
Its: Senior Vice President and Chief Its: Chairman and President
Operating Officer
---------------------------------------
James M. Thorburn
PARENT:
SCG HOLDING CORPORATION
By: /s/ James M. Thorburn
---------------------------------------
Its: Senior Vice President and Chief
Operating Officer
---------------------------------------
James M. Thorburn
Exhibit 99.1
CHERRY CORPORATION TO SELL ITS SEMICONDUCTOR SUBSIDIARY
WAUKEGAN, Ill., March 9 /PRNewswire/ -- The Cherry Corporation (Nasdaq: CHER -
news) today announced that it has signed a definitive agreement to sell its
subsidiary, Cherry Semiconductor Corporation to Semiconductor Components
Industries, LLC, a subsidiary of SCG Holding Corporation, which does business
under the trade name, ON Semiconductor(TM). The total purchase price is
$250,000,000 in cash, subject to adjustment in certain circumstances.
Cherry Semiconductor Corporation ("Cherry Semiconductor") designs and
manufactures analog and mixed signal integrated circuits for the automotive,
computing, and communications markets. Products include power management
regulators, interface sensors, and switching and pulse-width modulated
controllers. Based in East Greenwich, Rhode Island, Cherry Semiconductor employs
970 and has sales of approximately $130 million.
"This transaction is a significant step toward our long term commitment to
enhance shareholder value. Significant resources will be unlocked as a result of
the sale of Cherry Semiconductor, " said Peter Cherry, Chairman and President.
"The net proceeds from the sale will be redeployed into the higher growth
segments of our core markets of automotive switches and modules, computer
keyboards, switches and controls, as well as into related growth markets. We
undertook an extensive review of our strategic plans over the last several
months and have identified a number of areas we would like to exploit. We will
be actively pursuing our growth strategies in the near term future."
The transaction will be structured as a sale of all of the common stock of
Cherry Semiconductor. The transaction is expected to close in the second quarter
of calendar 2000 and is subject to certain terms and conditions, including
Hart-Scott-Rodino filings and consents. The board of directors of The Cherry
Corporation has approved the stock purchase agreement and the related
transaction.
The Cherry Corporation manufactures proprietary and custom electrical switches,
sensors, electronic keyboards and controls, and semiconductors for the worldwide
automotive, computer, and consumer and commercial markets. The company has eight
wholly owned subsidiaries in the United States, Germany, England, France,
Australia, Czech Republic, Mexico and Hong Kong. Cherry also has 50-50 joint
ventures in Japan, Hirose Cherry Precision Company Limited, and in India, TVS
Cherry Limited. Additional information is available on the company's website at
http://www.cherrycorp.com
Certain statements in this press release, including those regarding enhanced
shareholder value and the use of net proceeds are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
involve certain risks and uncertainties that could significantly impact future
results. A discussion of these risks and uncertainties is contained in the
Company's Form 10-K for the year ended February 28, 1999, filed with the
Securities and Exchange Commission.
Exhibit 99.2
CHERRY CORPORATION COMPLETES SALE OF ITS SEMICONDUCTOR SUBSIDIARY
WAUKEGAN, Ill., April 3 /PRNewswire/ -- The Cherry Corporation (Nasdaq: CHER -
news) today announced that it has closed the sale of its subsidiary, Cherry
Semiconductor Corporation, to Semiconductor Components Industries, LLC, a
subsidiary of SCG Holding Corporation, which does business under the trade name,
ON Semiconductor(TM).
The Cherry Corporation manufactures proprietary and custom electrical switches,
sensors, electronic keyboards and controls for the worldwide automotive,
computer, and consumer and commercial markets. The company has seven wholly
owned subsidiaries in the United States, Germany, England, France, Australia,
Czech Republic, Mexico and Hong Kong. Cherry also has 50-50 joint ventures in
Japan, Hirose Cherry Precision Company Limited, and in India, TVS Cherry
Limited. Additional information is available on the company's website at
http://www.cherrycorp.com .
