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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO
SECTION 14(D) (4) OF
THE SECURITIES EXCHANGE ACT OF 1934
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VOICE CONTROL SYSTEMS, INC.
(NAME OF SUBJECT COMPANY)
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VOICE CONTROL SYSTEMS, INC.
(NAME OF PERSON FILING STATEMENT)
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COMMON STOCK, $0.01 PAR VALUE PER SHARE
(TITLE OF CLASS OF SECURITIES)
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92861B100
(CUSIP NUMBER OF CLASS OF SECURITIES)
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KIM S. TERRY
VOICE CONTROL SYSTEMS, INC.
14140 MIDWAY ROAD, SUITE 100
DALLAS, TEXAS 75244
(972) 726-1200
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND
COMMUNICATIONS ON BEHALF OF THE PERSON FILING STATEMENT)
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WITH A COPY TO:
BRUCE H. HALLETT
CROUCH & HALLETT, LLP
177 N. HARWOOD, SUITE 1400
DALLAS, TEXAS 75201
214-922-4100
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ITEM 1. SECURITY AND SUBJECT COMPANY
Voice Control Systems, Inc., a Delaware corporation (the "Company"), is the
subject company. The principal executive offices of the Company are located at
14140 Midway Road, Suite 100, Dallas, Texas 75244. The title of the class of
equity securities to which this Statement relates is the common stock, $0.01 par
value per share (the "Common Stock"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER
The Offer. This Statement relates to a tender offer by Vulcan Merger Sub,
Inc., a Delaware corporation (the "Offeror"), which is a wholly owned subsidiary
of Philips Electronics North America Corporation, a Delaware corporation
("Parent"), and an indirect wholly owned subsidiary of Koninklijke Philips
Electronics N.V. (Royal Philips Electronics), a company incorporated under the
laws of The Netherlands ("Royal Philips"), to purchase all of the outstanding
shares of Common Stock of the Company (the "Shares") at a price of $4.00 per
Share, net to the seller in cash (the "Offer Price"), upon the terms and
conditions set forth in the Offer to Purchase, dated May 14, 1999 (the "Offer to
Purchase"), and the related Letter of Transmittal (which together with the Offer
to Purchase and any amendments thereto constitute the "Offer"). The Offer is
disclosed in the Tender Offer Statement on Schedule 14D-1, dated May 14, 1999
(the "Schedule 14D-1"), as filed by Royal Philips, Philips Holding USA Inc.,
Parent and the Offeror with the Securities and Exchange Commission (the "SEC").
As stated in the Schedule 14D-1, the principal executive offices of Parent and
the Offeror are located at 1251 Avenue of the Americas, New York, New York 10020
and the principal executive offices of Royal Philips are located at Rembrandt
Tower, Amstelplein 1, Amsterdam, The Netherlands.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of May 9, 1999, among the Offeror, Parent and the Company (the "Merger
Agreement"). A copy of the Merger Agreement is filed as Exhibit 2 to this
Solicitation/Recommendation Statement on Schedule 14D-9 (this "Schedule 14D-9")
and is incorporated herein by reference in its entirety. Pursuant to the Merger
Agreement, following the completion of the Offer, upon the satisfaction or
waiver of certain terms and conditions of the Merger Agreement, and in
accordance with Delaware General Corporation Law (the "DGCL"), Offeror will be
merged with and into the Company or, at the option of Parent, the Company will
be merged with and into the Offeror (either such merger, the "Merger"). At the
effective time of the Merger, the holders of Shares (except those exercising
appraisal rights pursuant to Section 262 of the DGCL (the "Dissenting
Stockholders")) shall receive an amount equal to the Offer Price in cash for
each Share. Any Shares held by the Offeror, the Parent, or any other subsidiary
of the Parent, and any Shares held in the Company's treasury shall be canceled.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this Schedule 14D-9, are stated in Item 1 above, which is incorporated
herein by reference.
(b) (i) The Company has no material contracts, agreements, arrangements or
understandings between itself and its executive officers, directors or
affiliates, except as follows: On February 24, 1999, the Company entered into an
agreement regarding severance with its former chief executive officer, Mr. Peter
J. Foster, providing for severance payments and benefits upon termination of
employment. A copy of such agreement (as amended to date) is attached hereto as
Exhibit 3 and incorporated herein by reference. On June 18, 1993, the Company
executed an employment agreement with Dr. Thomas B. Schalk, its Chief Technical
Officer, which (as amended) provided for, among other things, the payment of
severance amounts and benefits upon certain terminations of employment in
connection with a change in control of the Company. These agreements were
disclosed in the Company's Form 10-KSB/A filed with the SEC on April 30, 1999,
the pertinent portions of which are attached as Exhibit 4 to this Schedule 14D-9
and incorporated herein by reference. This agreement will be terminated by
operation of the employment agreement among Dr. Schalk, the Company and Parent
described more fully below. In addition, the Board of Directors has authorized
the Company to enter into an agreement with Ronald
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H. Larkin, its current Chief Executive Officer, which would (A) provide Mr.
Larkin with a cash payment equal to his current annual base salary and bonus in
the event that his employment with the Company terminates other than for cause
and (B) allow 200,000 stock options held by Mr. Larkin to vest upon a change in
control of the Company.
There are no actual or potential conflicts of interest between the Company
and any of the Company's executive officers, directors, or affiliates, except as
described herein.
(ii) Except as described below, the Company has no material contracts,
agreements, arrangement, or understandings or any potential or actual conflicts
of interest between it and the Offeror, its executive officers, directors, or
affiliates:
THE MERGER AGREEMENT
The Merger Agreement provides that the closing of the Merger will take
place on the first business day on which the last to be satisfied or waived of
the conditions set forth in the Merger Agreement shall be satisfied or waived,
or at such other place and time and/or on such other date as the Company and
Parent may agree. Upon consummation of the Merger, each Share issued and
outstanding immediately prior to the Effective Time (other than Shares owned by
the Parent Companies or Shares held by Dissenting Stockholders) shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into the right to receive, without interest, an amount in cash equal
to the price paid for each Share pursuant to the Offer.
The description of the Merger and the Merger Agreement included herein is
qualified by reference to the Merger Agreement which is filed as Exhibit 2
hereto.
The DGCL requires, among other things, that the adoption of any plan of
merger or consolidation of the Company must be approved by the Board of
Directors of the Company and, if the "short form" merger procedure described
under Item 2 is not available, by the holders of a majority of the Company's
outstanding Shares. The Board of Directors of the Company has approved the
Offer, the Merger and the Merger Agreement; consequently, the only additional
action of the Company that may be necessary to effect the Merger is adoption of
the Merger Agreement by such stockholders if the "short form" merger procedure
described above is not available. Under the DGCL, the affirmative vote of
holders of a majority of the outstanding Shares (including any Shares owned by
the Parent Companies) is generally required to adopt the Merger Agreement. If
the Offeror acquires, through the Offer or otherwise, voting power with respect
to at least a majority of the outstanding Shares, it would have sufficient
voting power to effect the Merger without the vote of any other stockholder of
the Company.
THE MERGER AGREEMENT PROVIDES THAT IF ANY TAKEOVER STATUTE IS OR SHALL
BECOME APPLICABLE TO THE TRANSACTIONS CONTEMPLATED THEREBY, THE COMPANY AND THE
BOARD OF DIRECTORS OF THE COMPANY MUST GRANT SUCH APPROVALS AND TAKE SUCH
ACTIONS AS ARE NECESSARY SO THAT THE TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT MAY BE CONSUMMATED AS PROMPTLY AS PRACTICABLE ON THE TERMS
CONTEMPLATED THEREBY AND OTHERWISE ACT TO ELIMINATE THE EFFECTS OF SUCH STATUTE
OR REGULATION ON THE TRANSACTIONS CONTEMPLATED THEREBY.
Conditions to the Merger
The obligations of the Company, the Offeror and Parent to effect the Merger
are subject to the satisfaction or waiver of conditions set forth in the Merger
Agreement (the "Offer Conditions"), including (i) the purchase by the Offeror,
Parent or their affiliates of Shares pursuant to the Offer, (ii) the receipt of
stockholder approval, if required, (iii) no statute, rule or regulation shall
have been enacted or promulgated by any federal, state, local or foreign court,
arbitral tribunal, administrative agency or commission or other governmental or
regulatory authority or administrative agency which prohibits the consummation
of the Merger, and there shall be no order or injunction of a court of competent
jurisdiction in effect precluding consummation of the Merger; and (iv) clearance
from the appropriate agencies pursuant to the Hart-Scott-Rodino Act shall have
been obtained or the waiting period thereby shall have expired or
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been terminated. In addition, Parent and the Offeror's obligations to effect the
Merger are subject to the further conditions that (i) the representations and
warranties contained in the Merger Agreement are true in all material respects
as of the time of the Merger, except with respect to changes permitted by the
Merger Agreement, (ii) the Company shall have fulfilled its obligations under
the Merger Agreement with respect to employee benefits and benefit plans and
(iii) holders of not more than five percent of the outstanding Shares shall have
exercised appraisal rights under Section 262 of the DGCL.
Acquisition Proposals
The Merger Agreement provides that neither the Company nor any of its
subsidiaries nor any of the respective officers and directors of the Company or
its subsidiaries shall, and the Company shall direct and use its best efforts to
cause its employees, agents and representatives not to, directly or indirectly
initiate, solicit, encourage or otherwise facilitate, any inquiries or the
making of any proposal or offer with respect to a merger, reorganization, share
exchange, consolidation or similar transaction involving the Company, or any
purchase of more than 15% (on a fair market value basis) of the assets of the
Company and its subsidiaries on a consolidated basis, or any purchase of, or
tender offer for, more than 15% of any equity securities of the Company (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal"), except that the Company shall have the right, if, and only to the
extent that, the Company's Board of Directors concludes in good faith after
consultation with outside legal counsel that such actions are required to comply
with the fiduciary duties of the Company's Board of Directors under applicable
law in response to a bona fide, written Acquisition Proposal not solicited on or
after the date of the Merger Agreement, to engage in negotiations concerning,
provide confidential information or data to, or have discussions with, any
person relating to an Acquisition Proposal. The Company has agreed to notify
Parent immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with the Company or any of its subsidiaries.
Termination of the Merger Agreement
The Merger Agreement may be terminated and the transactions contemplated
thereby abandoned at any time prior to the Merger, before or after approval by
holders of Shares: (a) by the mutual consent of Parent (also acting on behalf of
the Offeror) and the Company, by action of their respective Boards of Directors;
or (b) by action of the Board of Directors of either Parent or the Company if
(i) the Offeror shall not have accepted for payment any Shares pursuant to the
Offer prior to September 15, 1999; provided, however, that such right to
terminate the Merger Agreement shall not be available to any party whose failure
to perform any of its obligations under the Merger Agreement results in the
failure of any Offer Condition or (ii) any governmental entity shall have issued
an Order which shall have become final and non-appealable.
In addition, the Merger Agreement may be terminated by action of the Board
of Directors of Parent, if (x) (i) the Company shall have failed to comply in
any material respect with any of the covenants or agreements under the Merger
Agreement or (ii) a representation or warranty of the Company set forth in the
Merger Agreement shall have been inaccurate when made or shall thereafter become
inaccurate, except for such inaccuracies which, when taken together (in each
case without regard to any qualification as to materiality or a Material Adverse
Effect (as defined in the Merger Agreement), contained in the applicable
representations and warranties) would not reasonably be likely to have a
Material Adverse Effect and, with respect to any such breach, failure to perform
or inaccuracy that can be remedied, the breach, failure or inaccuracy is not
remedied within 15 business days after the giving of written notice of such
breach, failure or inaccuracy to the Company; (y) the Board of Directors of the
Company shall have withdrawn or modified in a manner adverse to Parent or the
Offeror its approval or recommendation of the Offer, the Merger Agreement or the
Merger or shall have adopted or recommended any Acquisition Proposal, or the
Board of Directors of the Company, upon request by Parent, shall fail to
reaffirm such approval or recommendation within 10 business days after such
request if an Acquisition Proposal is pending, or shall have resolved to do any
of the foregoing; or (z) if the Company or any of the other
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persons or entities shall have initiated, solicited or otherwise facilitated
another Acquisition Proposal for the Company other than solely to fulfill
fiduciary obligations under applicable law as advised in writing by counsel.
The Merger Agreement may also be terminated by action of the Board of
Directors of the Company, (x) if Parent or the Offeror (or another Parent
Company) (i) shall have breached in any material respect any of the
representations, warranties, covenants or agreements contained in the Merger
Agreement (other than any immaterial covenants or agreements) and, with respect
to any such breach that can be remedied within 15 business days after the
Company has provided Parent with written notice of such breach, or (ii) shall
have failed to commence the Offer within the time agreed upon in the Merger
Agreement or (y) if (i) the Board of Directors of the Company receives a written
offer not solicited on or after the date hereof, with respect to a merger,
reorganization, share exchange, consolidation or sale of all or substantially
all of the Company's assets or a tender or exchange offer not solicited on or
after the date of the Merger Agreement for more than 50% of the outstanding
Shares is commenced, and with respect to which the Board of Directors of the
Company concludes in good faith, after consultation with an independent
financial advisor and its outside counsel, that approval, acceptance or
recommendation of such transaction is required by the fiduciary duties of the
Company's Board of Directors under applicable law (any such transaction, a
"Superior Proposal") and (ii) the Company has given Parent three business days'
prior written notice of its intention to terminate the Merger Agreement to
accept the Superior Proposal, which notice shall indicate the name of the person
making such Superior Proposal and the material terms of such Superior Proposal,
and Parent shall have failed to offer to amend the Offer so that it is at least
as favorable to the stockholders of the Company as the Superior Proposal.
Termination Payments
The Merger Agreement provides that if (x)(i)(A) the Offer shall have
remained open for a minimum of at least 20 business days, (B) after the date of
the Merger Agreement, any corporation, partnership, person, other entity or
group other than Parent or the Offeror or any of their respective subsidiaries
or affiliates shall have become the beneficial owner of 15% or more of the
outstanding Shares or made any Acquisition Proposal, and (C)(1) the Minimum
Condition shall not have been satisfied or (2) the Offer is terminated by Parent
due to a breach of the Company's obligations with respect to initiating or
soliciting other Acquisition Proposals or because September 15, 1999 has passed
without the purchase of any Shares pursuant to the Offer; or (ii) Parent shall
have terminated the Merger Agreement as a result of the board of directors of
the Company having withdrawn or modified in a manner adverse to Parent or the
Offeror its approval or recommendation of the Offer, the Merger Agreement or the
Merger or having adopted or recommended another Acquisition Proposal or having
failed to reaffirm its approval or recommendation within 10 business days after
a request if an Acquisition Proposal is pending; or (iii) the Company shall have
terminated the Merger Agreement after having received a Superior Proposal and
having given Parent three days notice of its intent to terminate and Parent
shall have failed to amend the Offer to match the Superior Proposal; and (y)
within 18 months of such termination (or the Expiration Date of the Offer in the
case of (C)(1) above), the Company consummates an Acquisition Proposal, then,
upon consummation of such Acquisition Proposal, the Company shall promptly, but
in no event later than five business days after the date of a request by Parent
for payment of such fee, pay Parent a fee of $2,000,000, plus all documented
fees and expenses incurred by Parent or the Offeror in connection with the
Merger Agreement, the Offer and the Merger up to a maximum amount of $1,000,000.
Treatment of Stock Options
The Merger Agreement provides that prior to the Merger, the Company shall
take all actions as may be necessary such that at the effective time of the
Merger, each stock option outstanding pursuant to the Company's stock option
plans ("Option"), whether or not then exercisable, shall be canceled and only
entitle the holder thereof, upon surrender thereof, to receive an amount in cash
equal to the excess, if any, of the per Share consideration paid in the Merger
over the exercise price per Share of such Option multiplied by the number of
Shares previously subject to such Option, less all applicable
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withholding taxes. Such payment shall be made by the Company as soon as
administratively feasible after the Merger.
Treatment of Warrants
In the Merger, each outstanding warrant to purchase Shares which has not
been exercised at the time of the Merger will be treated in accordance with the
terms of each individual warrant.
Treatment of Other Employee Benefits
The Merger Agreement provides that, for a period of one year following the
Merger, the Parent will cause the Company to continue to provide employees with
benefits under employee benefit plans (other than stock option or other plans
involving the potential issuance of securities of the Company) which in the
aggregate are substantially comparable to the benefits provided by the Company
to such employees immediately prior to the Merger, provided that employees
covered by collective bargaining agreements need not be provided such benefits.
Composition of the Board of Directors
If requested by Parent, the Company will, subject to compliance with
applicable law, immediately following the acceptance for payment of, and payment
by the Offeror for, more than 50% of the outstanding Shares (on a fully diluted
basis) pursuant to the Offer, take all actions necessary to cause persons
designated by Parent to become directors of the Company so that the total number
of such persons (after all such actions have been taken) equals at least that
number of directors, rounded up to the next whole number, which represents the
product of (x) the total number of directors on the Board of Directors
multiplied by (y) the percentage that the number of Shares so accepted for
payment and paid for plus any Shares beneficially owned by Parent or its
affiliates on the date of the Merger Agreement bears to the number of Shares
outstanding at the time of such payment. In furtherance thereof, if requested by
Parent, the Company will increase the size of the Board, or use its best efforts
to secure the resignation of directors, or both, as is necessary to permit
Parent's designees to be elected to the Company's Board of Directors; provided,
however, that prior to the Merger, the Company's Board of Directors shall always
have at least one member who is not an officer, a designee, stockholder or
affiliate of Parent or Parent's affiliates.
Conduct of Business of the Company
Pursuant to the Merger Agreement, the Company has agreed that, prior to the
Merger, unless consented to in writing by Parent, it and each of its
subsidiaries will conduct its business only in the ordinary and usual course and
will use its best efforts to preserve its business organization intact and
maintain its existing relations with customers, suppliers, employees and
business associates.
Prohibited Actions by the Company
Under the Merger Agreement, the Company has agreed that, prior to the
Merger, unless consented to in writing by Parent, neither it nor any of its
subsidiaries will:
(a)(i) sell or pledge or agree to sell or pledge any stock owned by it
in any of its subsidiaries; (ii) amend its certificate or by-laws; (iii)
split, combine or reclassify the outstanding Shares; or (iv) declare, set
aside or pay any dividend payable in cash, stock or property with respect
to the Shares;
(b)(i) issue, sell, pledge, dispose of or encumber any additional
shares of, or securities convertible or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares
of its capital stock of any class of the Company or its subsidiaries or any
other property or assets other than, in the case of the Company, Shares
issuable pursuant to options outstanding on the date hereof under the
Company stock option plans, Shares issuable upon
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exercise of warrants to purchase Shares or Shares issuable pursuant to the
terms of the Company's Stock Purchase Plan; (ii) transfer, lease, license,
guarantee, sell, mortgage, pledge, dispose of or encumber any assets or
incur or modify any indebtedness or other liability other than in the
ordinary and usual course of business; (iii) acquire directly or indirectly
by redemption or otherwise any shares of the capital stock of the Company;
or (iv) authorize capital expenditures individually or in the aggregate in
excess of $200,000 or make any acquisition of, or investment in, assets or
stock of any other person or entity;
(c) other than (i) the employment agreements entered into in
connection with the Merger Agreement, (ii) as required by law, (iii) as
required under a plan existing as of the date of the Merger Agreement, (iv)
as specifically provided in the Merger Agreement, (A) grant any severance
or termination pay to, or enter into any employment or severance agreement
with any director, officer or other employee of the Company or such
subsidiaries; or (B) establish, adopt, enter into, make any new grants or
awards (or accelerate the vesting or increase the value of any benefit)
under or amend, any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, employee
stock ownership, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any directors, officers or employees;
(d) settle or compromise any material claims or litigation or, except
in the ordinary and usual course of business, modify, amend or terminate
any of its material contracts or waive, release or assign any material
rights or claims;
(e) make any tax election or permit any insurance policy naming it as
a beneficiary or a loss payable payee to be canceled or terminated without
notice to Parent, except in the ordinary and usual course of business;
(f) (i) terminate the employment of any employee who is covered by a
change in control, employment, termination or similar agreement, except for
Cause (as defined in such agreements) or (ii) permit circumstances to exist
that would provide such employee with Good Reason (as defined in such
agreements) to terminate employment;
(g) hire any new employees except in the ordinary and usual course of
business;
(h) permit any person not participating in the Company's Stock
Purchase Plan as of the date of the Merger Agreement to participate in such
plan or permit any present participant in the Company's Stock Purchase Plan
to increase his or her percentage contribution under such plan; or
(i) authorize or enter into an agreement to do any of the foregoing.
Indemnification of Officers and Directors
The Merger Agreement provides that from and after the Merger, Parent agrees
that it will indemnify and hold harmless each present and former director and
officer of the Company, determined as of the effective time of the Merger (the
"Indemnified Parties"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
incurred in such person's capacity as a director or officer of the Company in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of matters
existing or occurring at or prior to the Merger, whether asserted or claimed
prior to, at or after the Merger, to the fullest extent that the Company would
have been permitted under Delaware law and its Certificate of Incorporation or
By-Laws in effect on the date of the Merger Agreement to indemnify such person.
The Merger Agreement also provides that the surviving corporation in the Merger
shall maintain the Company's existing officers' and directors' liability
insurance ("D&O Insurance") for a period of two years after the Effective Time
so long as the annual premium therefor is not in excess of the last annual
premium paid prior to the date hereof (the "Current Premium"); provided,
however, if the existing D&O Insurance expires, is terminated or canceled during
such two year period, the surviving corporation in the Merger will use its best
efforts to obtain as much D&O Insurance as can be obtained for the
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remainder of such period for a premium not in excess (on an annualized basis) of
the Current Premium. The Company represents to Parent that the Current Premium
is $75,000. Notwithstanding the foregoing, the surviving corporation in the
Merger may replace the D&O Insurance with coverage provided by Parent's D&O
insurer with respect to events occurring on or prior to the Merger so long as
the coverage provided by Parent's D&O policy with respect to such events are, in
the aggregate, substantially the same as, or more favorable than, the D&O
Insurance with respect to such events.
Appraisal Rights
Holders of Shares do not have appraisal rights as a result of the Offer.
However, if the Merger is consummated, each holder of Shares who has neither
voted in favor of the Merger nor consented thereto in writing will be entitled
to an appraisal by the Delaware Court of Chancery of the fair value of such
holder's Shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid. In determining such fair value, the Court may
consider all relevant factors. The value so determined could be more or less
than the consideration to be paid in the Offer and the Merger. Any judicial
determination of the fair value could be based upon considerations other than or
in addition to the market value of the Shares, including, among other things,
asset values and earning capacity.
If any holder of Shares who demands appraisal under Section 262 of the DGCL
fails to perfect, or effectively withdraws or loses such holder's right to
appraisal as provided in the DGCL, each Share of such stockholder will be
converted into the right to receive the per Share amount paid by Offeror
pursuant to the Offer in accordance with the Merger Agreement. A stockholder may
withdraw his demand for appraisal by delivery to Parent of a written withdrawal
of such holder's demand for appraisal and acceptance of the Merger.
EMPLOYMENT AGREEMENT WITH CERTAIN EXECUTIVE OFFICERS
Upon the successful purchase of Shares pursuant to the Offer (the
"Effective Date"), any prior agreements between the Company and Mr. Foster and
Dr. Thomas Schalk, Chief Technical Officer of the Company, respectively, will be
superseded by new employment agreements entered into with Parent in connection
with the Merger (except with respect to any amounts that remain due and owing
under such agreements based on events occurring prior to the Effective Date). In
connection with the Merger, Ms. Kim S. Terry, Vice President-Finance of the
Company, also entered into an employment agreement with the Parent with similar
terms. The defined term "Parent" as used in this description of employment
agreements includes the subsidiary of Parent with which the executive is
employed during the employment term. The new employment agreements have two-year
terms (the "Term") commencing on the Effective Date. Copies of the new
employment agreements are filed as Exhibits 5, 6 and 7 of this Schedule 14D-9
and are incorporated herein by reference and the following summary is qualified
in its entirety by reference to such agreements.
Pursuant to the new employment agreements, Mr. Foster will serve as Senior
Vice President of the surviving company in the Merger, Dr. Schalk will serve as
Senior Vice President and Chief Technical Officer of the surviving company in
the Merger and Ms. Terry will serve as the Vice President-Operations and Finance
of the surviving company in the Merger, with base salaries of $230,000, $180,000
and $160,000, respectively. Each of them will be entitled to an annual bonus
upon achievement of certain targets with a target bonus opportunity of $90,000
for Mr. Foster and 30% of the base salary for Dr. Schalk and Ms. Terry. The
actual bonus paid may be higher or lower than the target bonus (subject to a
minimum of $20,000 for Dr. Schalk in the first year of the term) depending upon
performance. Mr. Foster will also receive a discretionary expense account of up
to $30,000 for each 12-month period during the Term for expenses relating to his
position.
Each of these three executive officers will be eligible to participate in a
long-term incentive plan (the "LTIP") during the Term of his employment. Under
the LTIP, each executive will receive a guaranteed payment equal to 50% of
$260,000 for Mr. Foster and 50% of the applicable base salary as of
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June 1999 for Dr. Schalk and Ms. Terry, payable in three substantially equal
installments if the officer is actively employed by Parent on the date which is
(A) six months following the Effective Date, (B) 12 months following the
Effective Date and (C) 18 months following the Effective Date, respectively, one
such installment to be paid following each of the dates described in clauses
(A), (B) and (C) above if the employment condition has been satisfied on such
date. Under the LTIP, each officer will have the opportunity to earn an
additional long-term incentive payment ("Earned Payment") equal of to 25% of
$260,000 for Mr. Foster and 25% of the applicable base salary as of June 1999
for Dr. Schalk and Ms. Terry if certain business synergies and objectives are
achieved during the 18-month period following the Effective Date and the
executive remains actively employed by Parent 18 months following the Effective
Date.
Under the employment agreements, if an executives' employment is terminated
by Parent without cause or if the executive terminates his or her employment
upon a material breach (as those terms are defined in employment agreements),
Parent will pay to the executive (A) his or her base salary accrued through the
date of termination and (B) a payment equal to his or her base salary payable
for the greater of (i) the remainder of the Term, or (ii) 12 months (18 months,
in the case of Dr. Schalk) (the "Coverage Period"), and (C) a payment equal to
the sum, pro-rated through the date of termination, of (i) the Target Bonus for
the calendar year in which the termination occurs, and (ii) the guaranteed
payment under the LTIP. Mr. Foster will continue to receive his discretionary
expense account during the Coverage Period.
In consideration of these payments, the executive officers have agreed,
among other things, not to engage in competition with the Company for a period
of 12 months (24 months in the case of Dr. Schalk) following the termination of
such executive's employment.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation of the Board of Directors.
The Board of Directors of the Company has unanimously approved the Merger
Agreement and declared its advisability, has approved the Offer and the Merger
and has determined that the Offer and the Merger are in the best interests of
the Company and its stockholders. The Board of Directors recommends that all
holders of Shares accept the Offer and tender their Shares pursuant to the
Offer. A letter to stockholders of the Company communicating the recommendation
of the Board of Directors is attached hereto as Exhibit 1 and is incorporated
herein by reference. The Company expects that all directors will tender the
Shares they own to the Offeror.
(b) Reasons for the Board of Directors' Recommendations
(i) Background
In September 1998, Peter Wisgerhof, Treasurer of Philips Business
Electronics, a product division of Royal Philips, and others on his behalf,
contacted Peter J. Foster, the Chief Executive Officer of the Company at the
time, about the possible benefits and principal objectives of a business
combination in which Royal Philips (or one of its affiliates) would acquire the
Company. After an introductory meeting on October 16, 1998, the Company and
Royal Philips entered into a nondisclosure agreement to govern the exchange of
nonpublic information between them.
In November and December of 1998, Mr. Wisgerhof and Corina Kuiper, Strategy
Planning Manager of Philips Business Electronics of Royal Philips, held
additional discussions with Mr. Foster and Ms. Terry to exchange information
regarding potential strategic opportunities between the companies. As a result
of these discussions, in early December 1998, Mr. Foster, Ms. Terry and the then
newly-appointed Chief Executive Officer of the Company, Ronald H. Larkin,
traveled to Aachen, Germany to visit Philips' speech technology research
laboratories and to meet with representatives of Philips Electronics' speech
processing business unit, Philips Speech Processing.
Discussions among the parties continued into 1999. In mid-January 1999, the
parties agreed that Philips would conduct preliminary due diligence of the
Company later that month. On February 10,
9
<PAGE> 10
1999, Mr. Wisgerhof and Peter Besting, New Business Development Manager for the
Philips Speech Processing business unit, met in London with Sir John
Lucas-Tooth, member of the board of directors of the Company, to discuss general
information about the Company, how the Company would fit into the long-term
strategy of Philips Business Electronics, the potential synergies of a
transaction and how next to proceed towards an acquisition transaction.
During March and early April of 1999, representatives of Royal Philips and
Parent continued discussions with Sir John Lucas-Tooth, Neal Robinson, Chairman
of the Board of Directors of the Company, and Mr. John Torkelsen, a member of
the board of directors of the Company, regarding a potential acquisition of the
Company. In a conversation on April 14, 1999, Mr. Robinson indicated that the
Company would be interested in pursuing a transaction with Philips but that any
steps would have to be taken quickly. In that conversation, Mr. Robinson and
Stephen Havering, Deputy Director of Corporate Mergers and Acquisitions for
Royal Philips, agreed that representatives of Royal Philips and Parent would be
invited to Dallas, Texas to conduct a one-week due diligence investigation of
the Company's business. They further agreed that if Royal Philips and Parent
remained interested at the conclusion of the week, Royal Philips and Parent
would present an informal proposal containing material terms of an acquisition
of the Company by Royal Philips.
From April 19 to April 23, 1999, representatives of Royal Philips and
Parent met with Company representatives in Dallas to conduct a due diligence
investigation of the Company. At the conclusion of these meetings on April 23,
Mr. Wisgerhof, Mr. Havering, Eric Coutinho, Director of the Corporate Legal
Department at Royal Philips, and other internal and external legal advisors met
with Mr. Robinson in Williamsburg, Virginia to discuss the terms of a potential
transaction. At this meeting, Mr. Havering proposed that Parent would acquire
the Company in a cash tender offer at a price of $4.00 per Share.
Between April 24 and April 28, 1999, Mr. Robinson and Mr. Havering had
various discussions regarding the terms of the proposal. On April 28, 1999, Mr.
Robinson briefed each of the directors separately regarding the status of
negotiations.
On May 3, 1999, Mr. Havering and other representatives of Royal Philips and
Parent presented the acquisition proposal to the Board of Management of Royal
Philips. During this meeting, the Board of Management approved proceeding with
the acquisition of the Company on the terms proposed, subject to the completion
of additional due diligence and satisfactory terms and conditions of a
definitive agreement to be negotiated. On May 4, 1999, Parent's counsel sent to
the Company and its counsel a proposed merger agreement setting forth the basis
upon which Parent would be prepared to proceed with a transaction to acquire the
Company.
The Board of Directors of the Company met on May 4, 1999. In this meeting,
the Board authorized a committee composed of certain directors and officers of
the Company to continue negotiating a transaction in which Royal Philips or
Parent would acquire the Company at a purchase price of $4.00 per Share, subject
to the further review by the Board of all of the material terms of the
transaction.
Between May 6 and May 8, 1999, Mr. Havering, Mr. Robinson and the legal
advisors of Parent and the Company negotiated the terms of the Merger Agreement.
In addition, during this period, Mr. Havering and representatives of the Royal
Philips Business Electronics division, Philips Speech Processing business unit
and Parent met with Mr. Foster, Ms. Terry, Mr. Larkin and Dr. Schalk, regarding
their employment with the Company after an acquisition by Parent and the
Offeror.
On May 9, 1999, the negotiations of the Merger Agreement were completed and
the Merger Agreement was finalized. In addition, the negotiations regarding the
terms of employment of each of Mr. Foster, Dr. Schalk and Ms. Terry were
completed and final terms were agreed upon. Later on May 9, 1999, the Board of
Directors of the Company unanimously adopted the Merger Agreement and approved
the transactions contemplated therein. A short time later, the Merger Agreement
was executed and delivered.
(ii) Factors considered by the Board of Directors
10
<PAGE> 11
In reaching its determination, the Company's Board of Directors consulted
with the Company's management, as well as its legal advisors, and considered and
weighed a number of reasons and factors, including the following:
(A) An assessment of the Company's strategic alternatives, which
included remaining a publicly owned independent company. In this regard,
the Board of Directors concluded, following extensive analysis and
discussion, including discussions regarding the advantages of merging with
a larger company in the current competitive landscape, that the terms of
the Merger Agreement provide the best means for holders of the Company's
common stock to maximize the value of their holdings;
(B) Information relating to the financial performance, prospects and
business operations of the Company and current market conditions;
(C) The terms and conditions of the Merger Agreement, including the
right of the Company to negotiate and provide information to third parties
and terminate the Merger Agreement in the event of an unsolicited
alternative proposal, if such action is required in the exercise of the
fiduciary duties of the Company's Board of Directors. If such fiduciary
duty termination provision is exercised, the Company would be obligated to
pay the Offeror $2,000,000 and up to $1,000,000 of documented expenses and
fees upon consummation of such an alternative proposal. The Company's Board
of Directors did not view these obligations as unreasonably precluding any
third party from proposing an alternative transaction and concluded that
entering into the Merger Agreement given the available strategic
alternatives was in the best interests of the Company;
(D) The recent trading price of the Company's common stock and that
the Offer Price represents a premium of approximately 25.5% over the
closing sales price of $3.1875 for the Company's common stock on Nasdaq on
May 7, 1999, the day before the Company announced the offer, and a premium
of approximately 23% and 29%, respectively, over the 30 and 90 days'
trading average from such date. In connection with its deliberations as its
meetings, the Company's Board of Directors was aware of the potential
benefits to be received in the Merger by members of the Company's senior
management, who hold a substantial number of options and Shares in the
Company.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Company's Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination, each
of which was viewed as supportive of its conclusion that the terms of the Merger
Agreement are in the best interests of the Company and its stockholders.
11
<PAGE> 12
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
NONE
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
NONE
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
NONE
ITEM 8. ADDITIONAL INFORMATION
NONE
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
(1) Letter to Stockholders of the Company, dated May 14, 1999.*
(2) The Merger Agreement.
(3) Agreement Regarding Severance, dated February 24, 1999, between the
Company and Mr. Peter J. Foster, as amended by the Clarification of
Agreement Regarding Severance, dated May 8, 1999.
(4) Pertinent Portions of the Company's Form 10-KSB/A filed with the SEC on
April 30, 1999.
(5) Employment Agreement between Parent and Mr. Foster.
(6) Employment Agreement among Parent, the Company and Dr. Schalk.
(7) Employment Agreement between Parent and Ms. Terry.
- -------------------------
* Included in materials sent to stockholders.
12
<PAGE> 13
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
--------------------------------------
(Date)
--------------------------------------
Kim S. Terry
--------------------------------------
Vice President Finance
13
<PAGE> 14
ANNEX A
VOICE CONTROL SYSTEMS, INC.
14140 MIDWAY ROAD
DALLAS, TEXAS 75244
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND RULE 14F-1 THEREUNDER
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS IS REQUIRED IN
CONNECTION WITH THIS INFORMATION STATEMENT. NO PROXIES ARE BEING
SOLICITED AND YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
This Information Statement is being mailed on or about May 14, 1999, as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Voice Control Systems, Inc. (the "Company") to the holders
of record of shares of common stock, par value $0.01 per share (the "Shares"),
of the Company. You are receiving this Information Statement in connection with
the possible election of persons designated by the Purchaser (as defined below)
to a majority of the seats on the Board of Directors of the Company (the
"Board"). Capitalized terms used herein and not otherwise defined herein shall
have the meaning set forth in the Schedule 14D-9.
On May 9, 1999, the Company, Philips Electronics North America Corporation,
a Delaware corporation ("Parent"), and Vulcan Merger Sub, Inc., a Delaware
corporation and a wholly owned subsidiary of Parent (the "Purchaser"), entered
into an Agreement and Plan of Merger dated as May 9, 1999 (the "Merger
Agreement"), in accordance with the terms and subject to the conditions of which
Purchaser commenced the Offer. The Offer is scheduled to expire at 12:00
midnight, New York City time, on Friday, June 11, 1999, unless the Offer is
extended.
The Merger Agreement requires the Company to cause the directors designated
by Parent to be elected to the Board under the circumstances described therein
following consummation of the Offer.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. You are
not, however, required to take any action at this time.
The information contained in the Information Statement (including
information incorporated by reference) concerning Parent and the Purchaser and
the Parent Designees (as defined herein) has been furnished to the Company by
Parent and the Purchaser, and the Company assumes no responsibility for the
accuracy or completeness of such information.
GENERAL INFORMATION REGARDING THE COMPANY
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of May 9, 1999, there were 13,742,639
Shares outstanding. The Board currently consists of one class with seven
members. At each annual meeting of shareholders, all the directors are elected
for one-year terms or until their successors are duly elected and qualified. The
officers of the Company serve at the discretion of the Board.
INFORMATION WITH RESPECT TO PARENT DESIGNEES
Pursuant to the Merger Agreement, if requested by Parent, the Company will,
subject to compliance with applicable law, immediately following the acceptance
for payment of, and payment by the Purchaser for, more than 50% of the
outstanding Shares (on a fully diluted basis) pursuant to the Offer, take all
actions necessary to cause persons designated by Parent (the "Parent Designees")
to become directors of the Company so that the total number of such persons
(after all such actions have been
A-1
<PAGE> 15
taken) equals at least that number of directors, rounded up to the next whole
number, which represents the product of (x) the total number of directors on the
Board of Directors multiplied by (y) the percentage that the number of Shares so
accepted for payment and paid for plus any Shares beneficially owned by Parent
or its affiliates on the date of the Merger Agreement bears to the number of
Shares outstanding at the time of such payment. In furtherance thereof, if
requested by Parent, the Company will increase the size of the Board, or use its
best efforts to secure the resignation of directors, or both, as is necessary to
permit Parent's Designees to be elected to the Company's Board of Directors;
provided, however, that prior to the Effective Time, the Company's Board of
Directors shall always have at least one member who is neither an officer nor a
designee, shareholder or affiliate of Parent or Parent's affiliates.
Parent has informed the Company that it will choose the Parent Designees
from the persons listed below. Parent has informed the Company that each of the
Parent Designees has consented to act as a director, if so designated.
Biographical information concerning each of the Parent Designees is presented
below.
Unless otherwise indicated below, each occupation set forth opposite an
individual's name refers to employment with Parent.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- ---- --- ------------------------------------------
<S> <C> <C>
John T. Losier....................... 46 Mr. Losier is Chairman of the Board, President of
Philips Holding USA Inc., a wholly owned subsidiary of
Koninklijke Philips Electronics N.V. He has served as
President and Chief Executive Officer of Parent since
November 1, 1998. Prior to that time, he was Vice
President of Global Accounts at Compaq and Senior Vice
President of Worldwide Sales, Marketing, Services and
Support at Tandem Computers.
William E. Curran.................... 50 Mr. Curran is Senior Vice President, Finance, and
Treasurer of Philips Holding USA Inc. He has served as
Senior Vice President and Chief Financial Officer of
Parent since February, 1996. Prior to that time, he was
Vice President, Chief Operating Officer and Chief
Financial Officer of Philips Medical Systems.
Belinda W. Chew...................... 41 Ms. Chew is Senior Vice President and Secretary of
Philips Holding USA Inc. She has served as Senior Vice
President, General Counsel and Secretary of Parent since
January 1999. Prior to that time, she was General
Counsel of Philips Consumer Communications L.P. Prior to
October 1997, she was Counsel of Parent.
Paul S. Friedlander.................. 58 Mr. Friedlander is Assistant Secretary of Philips
Holding USA Inc. and Vice President, Tax and Customs
Administration, and Assistant Secretary of Parent, and
has been such for the past five years.
William A. Enser..................... 54 Mr. Enser is Senior Vice President, Business Development
and Process Improvement of Parent. Prior to January
1998, he was President of Philips Electronic Instruments
Company, a division of Parent.
</TABLE>
A-2
<PAGE> 16
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- ---- --- ------------------------------------------
<S> <C> <C>
Robert F. Matthews................... 53 Mr. Matthews is Senior Vice President, Human Resources
of Parent. Prior to July 1994, he was Manager, Financial
Leadership Development and Human Resources of General
Electric Company.
Eric P. Coutinho..................... 47 Mr. Coutinho is Vice President and Treasurer of the
Purchaser, and Director of the Corporate Legal
Department at Royal Philips Electronics.
</TABLE>
Each such person is a citizen of the United States except for Mr. Coutinho,
who is a citizen of The Netherlands. Parent has advised the Company that each of
the Parent Designees has consented to act as a director. Parent has also advised
the Company that none of the Parent Designees (i) has during the last five years
been convicted in a criminal proceeding (excluding traffic violations and
similar misdemeanors) or was party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was, or is, subject to a judgement, decree or final order enjoining future
violations of, or prohibiting activities subject to, federal or state securities
laws or finding any violation of such laws, (ii) is currently a director of, or
holds any position with, the Company, (iii) beneficially owns any securities (or
rights to acquire any securities) of the Company, or (iv) has been involved in
any transaction with the Company or any of its directors, executive officers or
affiliates which is required to be disclosed pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"), except as may
be disclosed herein or in the Schedule 14D-9.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
The following sets forth information regarding the persons serving as
Directors of the Company. Some of the current directors may resign upon the
purchase by Purchaser of Shares in the Offer.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- ---- --- ------------------------------------------
<S> <C> <C>
Ronald H. Larkin..................... 56 Mr. Larkin has been a director since November 1998. He
joined the Company as President and CEO effective
November 9, 1998. Prior to joining the Company, he was
employed by Northpoint Software and Services, Inc. as
President and Chief Operating Officer from January 1997
to November 1998. From 1987 to 1996, he was employed by
Digital Equipment Corporation in a variety of positions,
serving last as Worldwide Vice President, Global
Business and Chairman, DEC Canada. Ltd.
Kenneth J. Burkhardt, Jr............. 53 Mr. Burkhardt has been a director of the Company since
July 1998. He is a co-founder of Dialogic Corporation.
He has been a director of Dialogic Corporation since
1983 and has served as its Executive Vice President of
New Business Development since 1992.
</TABLE>
A-3
<PAGE> 17
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- ---- --- ------------------------------------------
<S> <C> <C>
Peter J. Foster...................... 47 Mr. Foster has been a director of the Company since 1994
and served as President and CEO of the Company from
August 11, 1994, the effective date of the merger
between VCS Industries, Inc. ("Industries") and Scott
Instruments Corporation (the "Merger") until November 9,
1998. Mr. Foster served as President and CEO of Voice
Request Corporation ("VRQ"), a wholly owned subsidiary
of the Company from November 9, 1998 to April 12, 1999
and continues with VRQ as a consultant. Mr. Foster
joined Industries in 1985, and served as President from
1986 through the date of the Merger, CEO from 1989
through the date of the Merger and Chairman from 1990
through the date of the Merger. Mr. Foster received his
B.E. in Electrical Engineering from Stevens Institute of
Technology.
Melvyn J. Goodman.................... 56 Mr. Goodman has been a director of the Company since the
Merger and was a director of Industries from 1986 until
the Merger. Since January 1999, Mr. Goodman has been
Chairman and Chief Executive Officer of Anicore
International, a company developing clinics for counter-
pulsation treatment, a therapy intended for
cardiovascular disease. He is also president of Melgood
Investments, Inc. He was president of Islander
Sportswear, Inc. from March 1989 until January 2, 1996;
Islander Sportswear filed for a voluntary petition under
Chapter 11 of the United States Bankruptcy Code on
January 2, 1996. Formerly, Mr. Goodman was chairman of
ALC Communications Corporation, the parent company of
Allnet Communications Services, a national long distance
telephone company. He is licensed to practice law in the
State of Illinois but is not actively practicing. Mr.
Goodman received his J.D. from DePaul University
(Chicago).
Sir John Lucas-Tooth................. 66 Sir Lucas-Tooth has been a director of the Company since
1990. Since September 1993, he has served as a director
of Rupert Loewenstein Limited, a private investment
company. He is chairman and chief executive officer of
Sixera Asia Ventures Ltd. and a supervisor of Japan
Ventures Fund and Japan Asia Ventures Fund. These three
entities concentrate in Southeast Asia investments. He
is also a director of other private companies. Sir John
Lucas-Tooth graduated from Oxford University with a
degree in Physics and a post-graduate degree in
Spectroscopy.
</TABLE>
A-4
<PAGE> 18
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- ---- --- ------------------------------------------
<S> <C> <C>
Neal J. Robinson..................... 54 Mr. Robinson has been a director of the Company since
the Merger and has served as Chairman since May 1997.
Mr. Robinson was a director of Industries from 1986
until the Merger, and has been president of Neal
Robinson Investments, Inc., a private investment
company, since 1984. Mr. Robinson was Chief Executive
Officer of Industries from 1986 through 1989, and was
Chairman of Industries from 1986 through 1990. Mr.
Robinson is a partner in the Williamsburg, Virginia law
firm of Spirn, Tarley, Robinson and Tarley. Mr. Robinson
received a B.B.A. in Accounting from Spencerian College,
an M.B.A. from the University of Dallas and a J.D. from
the Marshall-Wythe School of Law of the College of
William & Mary in 1992. Mr. Robinson is an
attorney-at-law (Virginia) and a Certified Public
Accountant (Texas).
John B. Torkelsen.................... 53 Mr. Torkelsen has been a Director since 1986. He is a
General Partner of the Acorn Technology Fund, L.P., a
venture capital fund that began operations in 1997. He
is also President of PVR Securities, Inc., since 1987, a
private investment-banking firm located in New Jersey.
He was the founder and President of Princeton Venture
Research, Inc., an investment banking and consulting
firm in Princeton, New Jersey from 1984 to March 1999.
Mr. Torkelsen is a Director of Princeton Video Image,
Inc., since 1995, a company that develops and markets
real time video insertion systems for the broadcast
industry. He is a Director of Objective Communications,
Inc., since 1996, a company that develops and markets
video distribution systems for the office environment.
He is a Director of Mikros Systems Corporation, since
1985, which develops specialized radio frequency digital
communication equipment. Mr. Torkelsen received a B.S.
degree in Chemical Engineering from Princeton University
and a M.B.A. from Harvard University.
</TABLE>
The Company's Board of Directors normally meets on a quarterly basis. It
met nine times during the last fiscal year. Non-employee Directors are paid cash
compensation of $5,000 per year. In addition, non-employee Directors receive
$1,000 plus a $1,750 expense allowance for each Board meeting attended in
person. In lieu of the $1,750 expense allowance, Directors who reside in Europe
will receive a roundtrip business class airline ticket and a $1,000 expense
allowance. Board members receive $500 per telephonic Board meeting attended and
$500 per committee meeting attended. At the conclusion of the first year of
service as a Director, each non-employee Director is issued the right to
purchase 10,000 warrants at a price of $.01 per warrant. Each non-employee
Director receives the right to purchase an additional 5,000 warrants for each
subsequent year of service. Each warrant entitles the Director to purchase one
share of Common Stock at the then-current market price.
The Board of Directors of the Company has two standing committees: (i) the
Compensation Committee, whose function is to establish salaries and incentives
for executive officers and to review and approve stock option grants under any
approved stock option plan of the Company and (ii) the Audit Committee, whose
function is to meet with the independent auditor of the Company. The
Compensation Committee consists of three members, John B. Torkelsen, Melvyn J.
Goodman and Kenneth J. Burkhardt, Jr., and held three meetings during fiscal
year 1998. The Audit Committee consists of two
A-5
<PAGE> 19
members, John B. Torkelsen and Kenneth J. Burkhardt, Jr., and held one meeting
during fiscal year 1998.
EXECUTIVE OFFICERS
The following table identifies the executive officers of the Company:
<TABLE>
<CAPTION>
PRESENT OCCUPATION OR EMPLOYMENT AND
NAME AGE FIVE-YEAR EMPLOYMENT HISTORY
- ---- --- ------------------------------------
<S> <C> <C>
Ronald H. Larkin..................... 56 Mr. Larkin is President, CEO and Director of the
Company. He joined the Company as President and CEO
effective November 9, 1998. Prior to joining the
Company, Mr. Larkin was employed by Northpoint Software
and Services, Inc. as President and Chief Operating
Officer from January 1997 to November 1998. From 1987 to
1996, Mr. Larkin was employed by Digital Equipment
Corporation in a variety of positions, serving last as
Worldwide Vice President, Global Business and Chairman,
DEC Canada. Ltd.
Peter J. Foster...................... 47 Mr. Foster is President and CEO of VRQ and Director of
the Company. He joined Industries in 1985 and became
President and CEO of the Company effective August 11,
1994. Mr. Foster became CEO of Voice Request
Corporation, a wholly-owned subsidiary of the Company
effective November 9, 1998.
Thomas B. Schalk..................... 47 Mr. Schalk is Chief Technical Officer of the Company. He
joined Industries in 1983 and became Chief Technical
Officer of the Company effective August 11, 1994. Prior
to joining Industries, Dr. Schalk was employed by Texas
Instruments Incorporated where he conducted speech
research. Dr. Schalk received a Bachelor of Science with
high honors in Electrical Engineering from the George
Washington University and Ph.D. in Biomedical
Engineering from the Johns Hopkins University.
Kim S. Terry......................... 41 Ms. Terry is Vice President, Finance, and Corporate
Secretary of the Company. She joined Industries in 1983
and became Vice President-Finance and Corporate
Secretary of the Company effective August 11, 1994.
Prior to joining Industries Ms. Terry worked in public
accounting in Texas and California. Ms. Terry received a
Bachelor of Business Administration degree from the
University of Texas at Austin.
</TABLE>
Executive officers are elected by the Board at its annual meeting and serve
at the discretion of the Board. Except as provided above, executive officers
hold office until the next annual meeting or until their successors are elected.
The Company is not aware of any "family relationships" (as defined in Item
401 (d) of Regulation S-K promulgated by the Securities and Exchange Commission)
between any of the directors and/or any of the executive officers.
A-6
<PAGE> 20
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the 1934 Act requires the Company's officers and directors
and persons who own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership and changes in ownership on
Forms 3, 4 and 5 with the Commission and NASDAQ. Officers, directors and greater
than ten percent shareholders are also required by SEC regulation to furnish the
Company with copies of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file Form 5s for specified fiscal years, the Company
believes that all its officers, directors, and greater than ten percent
shareholders complied with all filing requirements applicable to them with
respect to transactions during 1998 with the following exceptions: Form 4 for
stock sold by Tom Schalk and Form 4 for a stock option exercise for Peter Foster
were filed late. The failure to report transactions on a timely basis were
inadvertent. The transactions were reported promptly after the failure to report
was discovered.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
the Company's Chief Executive Officer, other executive officers, and two
additional employees who are not executive officers, earning in excess of
$100,000 ("Named Executives") during 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION OTHER AWARDS
------------------- ANNUAL -------------
SALARY BONUS COMPENSATION OPTIONS ALL OTHER
NAME/PRINCIPAL POSITION YEAR ($) ($) ($) (# OF SHARES) COMPENSATION(1)
----------------------- ---- ------ ----- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Ronald Larkin 1996 $ -- $ -- $ -- -- $ --
President and CEO 1997 -- -- -- -- --
1998(2) 28,924 50,000 -- 400,000 --
Peter J. Foster 1996 185,223 57,500 -- -- 781
President & CEO-VRQ 1997 176,189 27,500 -- 50,000 4,583
1998 209,120 309,167 -- 100,000 10,000
Richard Lane(3) 1996 -- -- -- -- --
Chief Operating Officer 1997 69,132 10,000 -- -- --
1998 89,879 672,972 -- 100,000 7,495
Thomas B. Schalk 1996 152,390 15,250 -- -- 2,375
Chief Technical Officer 1997 162,356 14,188 -- 70,000 4,750
1998 165,620 20,125 -- -- 10,000
Carol Mazuy(4) 1996 29,667 -- -- -- --
VP Sales and Marketing 1997 130,000 3,000 -- -- --
1998 134,893 134,500 -- 90,000 10,000
Rene Thibault(5) 1996 -- -- -- -- --
VP Sales & Marketing-VRQ 1997 119,208 87,996 -- -- --
1998 130,546 179,486 -- 90,000 7,660
Ed Gregory 1996 -- -- -- -- --
VP Sales 1997 63,904 20,000 -- 200,00 2,517
1998 112,138 48,875 -- -- 10,000
Kim S. Terry 1996 120,716 20,000 -- -- 2,111
Vice President Finance 1997 120,689 -- -- 61,000 3,621
1998 133,955 56,750 -- 28,000 10,000
</TABLE>
- ---------------
(1) Annual contributions to 401(k) plan.
(2) Mr. Larkin joined the Company November 9, 1998.
(3) Richard Lane joined the Company on April 14, 1998 as a result of the
Company's acquisition of PureSpeech and was elected Chief Operating Officer
by the Board of Directors. Mr. Lane was chief executive officer of
PureSpeech from July 1997 until April 14, 1998. Mr. Lane resigned from the
Company on July 16, 1998. The amounts listed for 1997 were paid by
PureSpeech. The amounts
A-7
<PAGE> 21
listed for 1998 include amounts paid by PureSpeech prior to the acquisition
and paid by the Company after the acquisition. A major portion of the bonus
amount paid in 1998 was an obligation resulting from the PureSpeech
acquisition.
(4) Carol Mazuy joined the Company on April 14, 1998 as a result of the
Company's acquisition of PureSpeech. Ms. Mazuy was VP of Marketing for
PureSpeech from 1996 until April 14, 1998. Ms. Mazuy resigned from the
Company effective December 31, 1998. The amounts listed for 1996 and 1997
were paid by PureSpeech. The amounts listed for 1998 include amounts paid by
PureSpeech prior to the acquisition and paid by the Company after the
acquisition. A major portion of the bonus amount paid in 1998 was an
obligation resulting from the PureSpeech acquisition.
(5) Rene Thibault joined the Company on April 14, 1998 as a result of the
Company's acquisition of PureSpeech. Mr. Thibault was VP of Sales for
PureSpeech from 1997 until April 14, 1998. From 1990 until joining
PureSpeech, Mr. Thibault held a number of positions with Centigram serving
last as VP of Sales, Service Provider, North America. The amounts listed for
1997 were paid by PureSpeech. The amounts listed for 1998 include amounts
paid by PureSpeech prior to the acquisition and paid by the Company after
the acquisition. A major portion of the bonus amount paid in 1998 was an
obligation resulting from the PureSpeech acquisition.
The following table sets forth certain information concerning options and
warrants granted during 1998 to Named Executives:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
% OF TOTAL
OPTIONS OPTIONS GRANTED EXERCISE OR
GRANTED (# OF TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME SHARES) FISCAL YEAR ($/SHARE) DATE
- ---- ------------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Ronald H. Larkin(1)
President and CEO..................... 400,000 24% $ 2.125 11/2008
Peter J. Foster(2)
President and CEO-VRQ................. 100,000 6% $ 5.125 5/2008
Thomas B. Schalk
Chief Technical Officer............... -- -- -- --
Kim S. Terry(3)
Vice President Finance................ 28,000 2% $ 5.125 5/2008
</TABLE>
- ---------------
(1) 200,000 of the options granted, vest at a rate of 20% per year beginning
with the first anniversary date. 200,000 of the options vest upon
achievement of performance targets and other objectives to be set by the
Compensation Committee and approved by the Board of Directors.
(2) Options vested December 31, 1998.
(3) Options vest 50% at December 31, 1998 and 50% at July 31, 1999.
A-8
<PAGE> 22
The following table summarizes options exercised during 1998 and presents
the value of unexercised options held by Named Executives at fiscal year end:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FISCAL OPTIONS OF FISCAL
ACQUIRED YEAR END YEAR-END(1)
ON VALUE (# OF SHARES) ($)
EXERCISE REALIZE EXERCISABLE(E)/ EXERCISABLE(E)/
NAME (#) ($) UNEXERCISABLE(U) UNEXERCISABLE(U)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
--(E) $ 0(E)
Ronald H. Larkin -- $0 400,000(U) $ 0(U)
332,242(E) $42,147(E)
Peter J. Foster 19,750 -- 52,500(U) $ 0(U)
103,377(E) $10,978(E)
Thomas B. Schalk 10,000 $0 56,000(U) $ 0(U)
23,525 (E) $ 0(E)
Kim S. Terry -- $0 62,800(U) $ 0(U)
</TABLE>
- ---------------
(1) Based upon the closing price of the Company's Common Stock on the Nasdaq
National Market System on December 31, 1998 ($1.75), less the exercise
price, multiplied by the number of shares covered by the option; options
with exercise prices equal to or greater than $1.75 were excluded from the
calculation of the value of unexercised options.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement, which expired June
18, 1998, with Peter J. Foster providing that Mr. Foster will serve as President
and Chief Executive Officer. Mr. Foster receives an annual salary of $175,500,
plus an annual bonus of $27,500 and an unaccountable discretionary expense
allowance of $27,600 annually. The agreement contains confidentiality and
invention assignment provisions. The agreement also contains non-solicitation
and non-competition provisions that extend for twenty-four months following the
termination of Mr. Foster's employment; there can be no assurance regarding the
enforceability of such provisions under Texas law. In the event that (i) Mr.
Foster's employment is terminated without cause or he resigns as a result of a
breach of the agreement by the Company, or (ii) Mr. Foster resigns under certain
circumstances following a Change in Control (as defined) of the Company, Mr.
Foster will be entitled to a lump-sum cash payment equal to 100% or 150%,
respectively, of his annual aggregate compensation and any unused vacation time,
and the period in which he can exercise stock options will be extended for one
year. The Company agreed to indemnify Mr. Foster for losses sustained and
expenses incurred as a result of the discharge of his duties, to the full extent
permitted by law. In February 1999, the Company and its wholly-owned subsidiary,
Voice Request Corporation entered an agreement regarding severance with Mr.
Foster which provides for Mr. Foster to receive a cash payment in the amount of
$225,000 plus certain educational and insurance benefits, should Mr. Foster's
employment be terminated. Mr. Foster's employment was terminated April 12, 1999
and payments due pursuant to the agreement have been paid.
The Company has entered into an employment agreement with Dr. Thomas B.
Schalk providing that Dr. Schalk will serve as Chief Technical Officer until
June 18, 1998, which agreement shall be extended for one additional one-year
period unless either the Company or Dr. Schalk notifies the other party of an
intention to terminate the agreement 30 days prior to the end of the present
term. Dr. Schalk receives an annual salary of $155,000, plus a performance bonus
of up to $12,500 per calendar quarter based upon Dr. Schalk's exceptional
achievements during the quarter as determined by the Compensation Committee of
the Board of Directors. The agreement contains confidentiality and invention
assignment provisions. The agreement also contains solicitation and
non-competition provisions that extend
A-9
<PAGE> 23
for twenty-four months following the termination of Dr. Schalk's employment;
there can be no assurance regarding the enforceability of such provisions under
Texas law. In the event that (i) Dr. Schalk's employment is terminated without
cause or he resigns as a result of a breach of the agreement by the Company, or
(ii) Dr. Schalk resigns under certain circumstances following a Change in
Control (as defined) of the Company, Dr. Schalk will be entitled to a lump-sum
cash payment equal to 150% of his annual aggregate compensation and any unused
vacation time, and the period in which he can exercise stock options will be
extended for one year. The Company agreed to indemnify Dr. Schalk for losses
sustained and expenses incurred as a result of the discharge of his duties, to
the full extent permitted by law.
REPRICING OF OPTIONS
On November 12, 1997, the Board of Directors authorized granting new
employee stock options to all employees in exchange for previously issued stock
options with exercise prices greater than $6.00. The new options have an
exercise price of $3.75 vest 20% per year beginning November 12, 1998. Peter
Foster was issued 50,000 new options to exchange for 50,000 options granted in
1996 with an exercise price of $6.00. Tom Schalk was issued 70,000 new options
in exchange for 70,000 options granted in 1996 with exercise prices of
$6.00-$10.94. Kim Terry was issued 61,000 new options in exchange for 61,000
options granted in 1996 with exercise prices of $6.00-$10.94.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 31, 1999, with
respect to (i) each person known by the Company to be the beneficial owner of
more than 5% of outstanding Common Stock; (ii) shares of Common Stock
beneficially owned by Named Executives and the Nominees, and (iii) each current
director and by all current directors and executive officers of the Company as a
group (10 persons at such date):
<TABLE>
<CAPTION>
COMMON STOCK OWNERSHIP
------------------------------------
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ------------------------ ---------------- ----------------
<S> <C> <C>
(i) Certain Beneficial Owners
Creative Technology Ltd................................... 1,020,324 7.45%
67 Ayer Rajah Cresent #03-18
Republic of Singapore 139950
Dialogic Corporation...................................... 1,399,715 10.22%
1515 Route 10
Parsippany, NJ 07054
Wellington Management Co., LLP............................ 1,140,000 8.33%
75 State Street
Boston, MA 07054
</TABLE>
A-10
<PAGE> 24
<TABLE>
<CAPTION>
COMMON STOCK OWNERSHIP
------------------------------------
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ------------------------ ---------------- ----------------
<S> <C> <C>
(ii) Directors and Named Executive Officers:
Kenneth Burkhardt......................................... 50,000(1) **
Peter J. Foster........................................... 602,286(2) 4.25%
Melvyn J. Goodman......................................... 508,720(3) 3.68%
Ronald H. Larkin.......................................... -- **
John Lucas Tooth.......................................... 60,000(4) **
Neal J. Robinson.......................................... 529,997(5) 3.82%
John B. Torkelsen......................................... 352,506(6) 2.56%
Thomas B. Schalk.......................................... 122,890(7) **
Kim S. Terry.............................................. 118,888(8) **
(iii) All Current Directors and executive officers as a
group (9 persons)......................................... 2,345,287(9) 16.08%
</TABLE>
- ---------------
** Represents less than 1%.
(1) Includes 50,000 shares issuable upon exercise of warrants.
(2) Includes 28,007 shares held by Mr. Foster's wife, as to which beneficial
ownership is disclaimed and 11,174 shares held in trust for Mr. Foster's
minor children. Includes 474,120 shares issuable upon exercise of vested
options.
(3) Includes 26,120 shares issuable upon exercise of options and 100,000 shares
issuable upon exercise of warrants. Includes 188,800 shares owned by
Philgood Investments, Inc., which Mr. Goodman shares voting power. Includes
5,000 shares held by Mr. Goodman's wife, as to which Mr. Goodman disclaims
beneficial ownership.
(4) Includes 60,000 shares issuable upon exercise of warrants.
(5) Includes 145,753 issuable upon exercise of options and 175,000 issuable upon
exercise of warrants.
(6) Includes 100,000 shares issuable upon exercise of warrants.
(7) Includes 103,377 issuable upon exercise of vested options.
(8) Includes 93,525 issuable upon exercise of vested options and warrants.
(9) Includes 807,895 shares issuable upon exercise of vested options and 520,000
issuable upon exercise of warrants.
A-11
<PAGE> 25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ISSUANCE OF OPTIONS AND WARRANTS
In November 1997 John Torkelsen, John Lucas-Tooth, Melvyn Goodman, Neal
Robinson were each granted the right to purchase warrants for $.01 per warrant
pursuant to the Director compensation package adopted in February 1996. The
warrants expire after five years and are exercisable at $3.375 per share.
On November 12, 1997, the Board of Directors authorized granting new
employee stock options to all employees in exchange for previously issued stock
options with exercise prices greater than $6.00. The new options have an
exercise price of $3.75 vest 20% per year beginning November 12, 1998. Peter
Foster was issued 50,000 new options to exchange for 50,000 options granted in
1996 with an exercise price of $6.00. Tom Schalk was issued 70,000 new options
in exchange for 70,000 options granted in 1996 with exercise prices of
$6.00-$10.94. Kim Terry was issued 61,000 new options in exchange for 61,000
options granted in 1996 with exercise prices of $6.00-$10.94.
On April 16, 1998, the Company granted Neal Robinson warrants to purchase
75,000 shares of Common Stock for $.01 per warrant at an exercise price of
$6.25. The warrants expire April 16, 2003.
On May 14, 1998, the Company granted Peter Foster and Kim Terry options to
purchase 100,000, and 28,000 shares, respectively, of Common Stock at an
exercise price of $5.125 per share. In addition, the Board of Directors
authorized the exchange of 28,000 of options held by Ms. Terry for warrants.
On September 10,1998 John Torkelsen, John Lucas-Tooth, Melvyn Goodman, Neal
Robinson were each granted the right to purchase warrants for $.01 per warrant
pursuant to the Director compensation package adopted in February 1996. The
warrants expire after five years and are exercisable at $1.75 per share.
In November 1998, the Company granted Ronald Larkin options to purchase
400,000 shares of Common Stock at an exercise price of $2.125. 200,000 of the
options vest ratably over five years. The remaining 200,000 options vest upon
achievement of performance targets and other objectives to be set by the
Compensation Committee and approved by the Board of Directors.
In December 1998, Neal Robinson, Ken Burkhardt, Mel Goodman, John
Lucas-Tooth, and John Torkelsen were each granted the right to purchase 50,000
warrants for $.01 per warrant with an exercise price of $2.56 per share. The
warrants expire December 10, 2003.
OTHER TRANSACTIONS
During 1997, Dialogic purchased products and services from the Company at a
cost of $4,215,937. During 1998, Dialogic purchased products and services from
the Company at a cost of $3,305,000.
In March 1997, the Company extended the terms of Dr. Schalk's employment
agreement through June 18, 1998.
In March 1997, $500,000 of prepaid royalty from Creative Technology was
recognized. An additional $200,000 was recognized in December 1998.
In February 1998, Tom Schalk exercised 10,000 options.
In March and April 1998, Peter Foster exercised a total of 19,750 options.
During 1998, the Company paid Neal Robinson $225,000 for financial
consulting services.
In February 1999, the Company entered an agreement regarding severance with
Mr. Foster.
A-12
<PAGE> 1
Voice Control Systems, Inc. Logo
Dear Fellow Stockholder:
On May 9, 1999, our Company, Voice Control Systems, Inc., entered into an
agreement with Vulcan Merger Sub, Inc. (the "Purchaser"), a wholly owned
subsidiary of Philips Electronics North America Corporation and an indirect
wholly owned subsidiary of Koninklijke Philips Electronics, N.V. (Royal Philips
Electronics), which provides for the acquisition of our company. Under the terms
of the merger agreement, the Purchaser today commenced a tender offer (the
"Offer") to purchase all of the Company's outstanding shares of common stock for
$4.00 per share in cash. This price represents a premium of approximately 25%
over the Company's stock price on Friday, May 7, 1999. The merger agreement
further provides that after consummation of the Offer, the Purchaser will be
merged into the Company (or at the option of Royal Philips, the Company will be
merged into the Purchaser) (the "Merger") and shares not acquired in the Offer
will be converted into the right to receive the same consideration as is paid in
the Offer.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE OFFER AND HAS DETERMINED THAT THE OFFER AND THE MERGER ARE IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. THE BOARD THEREFORE RECOMMENDS
THAT YOU ACCEPT THE OFFER AND TENDER YOUR SHARES TO THE PURCHASER IN THE OFFER.
The Company's Board of Directors carefully considered many factors when it
decided to recommend this offer. These factors are more fully described in the
enclosed Schedule 14D-9.
Accompanying this letter are:
(1) A copy of our Solicitation/Recommendation Statement on Schedule
14D-9; and
(2) The Purchaser's Offer to Purchase and related materials, including a
Letter of Transmittal for use in tendering shares.
We urge you to read the enclosed materials carefully.
Our management and directors thank you for the support you have given to
the Company.
On behalf of the Board of Directors,
Sincerely,
Neal J. Robinson
Chairman of the Board
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
Among
PHILIPS ELECTRONICS NORTH
AMERICA CORPORATION,
VOICE CONTROL SYSTEMS, INC.
and
VULCAN MERGER SUB, INC.
Dated as of May 9, 1999
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
The Tender Offer
1.1. Tender Offer.............................................................1
ARTICLE II
The Merger; Closing; Effective Time
2.1. The Merger...............................................................3
2.2. Closing..................................................................4
2.3. Effective Time...........................................................4
ARTICLE III
Certificate of Incorporation and By-Laws
of the Surviving Corporation
3.1. The Certificate of Incorporation.........................................4
3.2. The By-Laws..............................................................5
ARTICLE IV
Officers and Directors
of the Surviving Corporation
4.1. Officers and Directors...................................................5
4.2. Actions by Directors.....................................................5
4.3. Boards of Directors; Committees..........................................5
ARTICLE V
Conversion or Cancellation of Shares in the Merger
5.1. Conversion or Cancellation of Shares.....................................6
5.2. Payment for Shares.......................................................7
5.3. Appraisal Rights.........................................................8
5.4. Transfer of Shares After the Effective Time..............................9
ARTICLE VI
Representations and Warranties
6.1. Representations and Warranties of the Company............................9
i
<PAGE> 3
6.2. Representations and Warranties of Parent and Merger
Sub .............................................................22
ARTICLE VII
Covenants
7.1. Interim Operations of the Company.......................................24
7.2. Acquisition Proposals...................................................26
7.3. Meetings of the Company's Stockholders..................................27
7.4. Filings; Other Action...................................................28
7.5. Access .................................................................28
7.6. Notification of Certain Matters.........................................29
7.7. Publicity...............................................................29
7.8. Benefits................................................................29
7.9. Indemnification; Directors' and Officers' Insurance ....................30
7.10. Takeover Statutes.......................................................32
ARTICLE VIII
Conditions
8.1. Conditions to Obligations of Parent and Merger Sub......................32
8.2. Conditions to Obligations of the Company................................33
ARTICLE IX
Termination
9.1 Termination by Mutual Consent...........................................34
9.2. Termination by either Parent or the Company.............................34
9.3. Termination by Parent...................................................35
9.4. Termination by the Company..............................................35
9.5. Effect of Termination and Abandonment...................................36
ii
<PAGE> 4
ARTICLE X
Miscellaneous and General
10.1. Payment of Expenses....................................................38
10.2. Survival...............................................................38
10.3. Modification or Amendment..............................................38
10.4. Waiver of Conditions...................................................38
10.5. Counterparts...........................................................39
10.6. Governing Law..........................................................39
10.7. Notices................................................................40
10.8. Entire Agreement, etc..................................................41
10.9. Definitions of "Subsidiary," "knowledge" and
"Material Adverse Effect"............................................41
10.10. Obligation of Parent...................................................42
10.11. Captions...............................................................42
10.12. Severability...........................................................42
iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"),
dated as of May 9, 1999, among Philips Electronics North America Corporation, a
Delaware corporation ("Parent"), Voice Control Systems, Inc., a Delaware
corporation (the "Company"), and Vulcan Merger Sub, Inc., a Delaware corporation
and a wholly-owned subsidiary of Parent ("Merger Sub"), the Company and Merger
Sub sometimes being hereinafter collectively referred to as the "Constituent
Corporations."
RECITALS
WHEREAS, the Boards of Directors of Parent and the Company each have
determined that it is in the best interests of their respective shareholders for
Parent to acquire the Company upon the terms and subject to the conditions set
forth herein; and
WHEREAS, in connection with the transactions contemplated by this
Agreement, Parent has entered into employment agreements with certain executives
of the Company set forth on Schedule 1 hereto; and
WHEREAS, the Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
The Tender Offer
1.1. Tender Offer. (a) Provided that this Agreement shall not have
been terminated in accordance with Article IX hereof and none of the events set
forth in Annex A hereto (the "Offer Conditions") shall have occurred or be
existing, within five business days of the date hereof, Merger Sub will commence
a tender offer (the "Offer") for all of the outstanding shares of common stock,
<PAGE> 6
par value $0.01 per share (the "Shares"), of the Company at a price of $4.00 per
Share in cash, net to the seller. The obligation of Merger Sub to accept for
payment and pay for any Shares tendered pursuant to the Offer shall be subject
only to the satisfaction or waiver of the Offer Conditions. It is understood and
agreed that Merger Sub may from time to time extend the expiration date of the
Offer after all of the Offer Conditions have been satisfied or waived for a
period of up to thirty (30) business days (or a greater period with the consent
of the Company) if it reasonably determines such extension is appropriate in
order to enable it to purchase at least 90% of the outstanding Shares in the
Offer. Subject to the terms and conditions of the Offer, Parent will promptly
pay for all Shares validly tendered and not withdrawn pursuant to the Offer that
it is obligated to purchase thereunder as soon as practicable after the
expiration of the Offer. The Company's Board of Directors shall recommend
acceptance of the Offer to its stockholders in a Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") to be filed with the
Securities and Exchange Commission (the "SEC") upon commencement of the Offer;
provided, however, that the Company's Board of Directors may thereafter amend or
withdraw its recommendation in accordance with Section 7.2.
(b) Parent and Merger Sub agree, as to the Tender Offer Statement on
Schedule 14D-1 (the "Schedule 14D-1"), Offer to Purchase and related Letter of
Transmittal (all of which together constitute the "Offer Documents") and the
Company agrees, as to the Schedule 14D-9, that such documents shall, in all
material respects, comply with the requirements of the Securities Exchange Act
of 1934 (the "Exchange Act") and the rules and regulations thereunder and other
applicable laws. The Company and its counsel, as to the Offer Documents, and
Merger Sub and its counsel, as to the Schedule 14D-9, shall be given an
opportunity to review such documents prior to their being filed with the SEC.
Parent, Merger Sub and the Company each agrees promptly to correct any
information provided by it for use in the Offer Documents or the Schedule 14D-9
that shall have become false or misleading in any material respect. Parent and
Merger Sub further agree to take all steps necessary to cause the Schedule 14D-1
as so corrected to be filed with the SEC and the other Offer Documents as so
corrected to be disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws. The Company further
agrees to take all steps necessary to cause the
-2-
<PAGE> 7
Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws.
(c) In connection with the Offer, the Company will cause its
Transfer Agent to furnish promptly to Merger Sub a list, as of the most recent
practicable date, of the record holders of Shares and their addresses, as well
as mailing labels containing the names and addresses of all record holders of
Shares, any non-objecting beneficial owner lists and lists of security positions
of Shares held in stock depositories. The Company will furnish Merger Sub with
such additional information (including, but not limited to, updated lists of
holders of Shares and their addresses, mailing labels, non-objecting beneficial
owner lists and lists of security positions) and such other assistance as Parent
or Merger Sub or their agents may reasonably request in communicating the Offer
to the record and beneficial holders of Shares.
ARTICLE II
The Merger; Closing; Effective Time
2.1. The Merger. (a) Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 2.3) Merger Sub shall be
merged with and into the Company and the separate corporate existence of Merger
Sub shall thereupon cease (the "Merger"). The Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation") and shall continue to be governed by the laws of the State of
Delaware, and the separate corporate existence of the Company with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger, except as set forth in Section 3.1. The Merger shall have the
effects specified in the Delaware General Corporation Law (the "DGCL").
(b) In its discretion, Parent may, for any reason, by written notice
to the Company and in lieu of the provisions set forth in the first two
sentences of Section 2.1(a), elect to cause the Company to merge with and into
Merger Sub at the Effective Time, in which case, at the Effective Time, the
Company shall be merged with and into Merger Sub and the separate corporate
existence of the
-3-
<PAGE> 8
Company shall thereupon cease; provided, however, that the Company shall not be
deemed to have breached any of its representations, warranties or covenants set
forth in this Agreement solely by reason of such election. In such circumstance,
the merger of the Company into Merger Sub shall be deemed the "Merger" for all
purposes hereunder and Merger Sub shall be deemed the "Surviving Corporation"
for all purposes hereunder.
2.2. Closing. The closing of the Merger (the "Closing") shall take
place (i) at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New
York at 10:00 A.M. on the first business day on which the last to be fulfilled
or waived of the conditions set forth in Article VIII hereof shall be fulfilled
or waived in accordance with this Agreement or (ii) at such other place and
time and/or on such other date as the Company and Parent may agree.
2.3. Effective Time. As soon as practicable following the Closing,
and provided that this Agreement has not been terminated or abandoned pursuant
to Article IX hereof, the Company and the Parent will cause a Certificate of
Merger (the "Certificate of Merger") to be executed and filed with the Secretary
of State of Delaware as provided in Section 251 of the DGCL. The Merger shall
become effective on the date on which the Delaware Certificate of Merger has
been duly filed with the Secretary of State of Delaware, and such time is
hereinafter referred to as the "Effective Time." Unless Parent and the Company
agree otherwise, the Certificate of Merger shall specify that the Merger will
become effective upon its filing with the Secretary of State of the State of
Delaware.
ARTICLE III
Certificate of Incorporation and By-Laws
of the Surviving Corporation
3.1. The Certificate of Incorporation. The Certificate of
Incorporation of the Company (the "Certificate") in effect at the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation, until
duly amended in accordance with the terms thereof, and the DGCL, except that
Article Fourth of the Company's Certificate shall be amended to read in its
entirety as follows:
-4-
<PAGE> 9
"The aggregate number of shares which the Corporation shall have the
authority to issue is 1,000 shares of Common Stock, par value $0.01 per
share."
3.2. The By-Laws. The By-Laws of Merger Sub in effect at the
Effective Time shall be the By-Laws of the Surviving Corporation, until duly
amended in accordance with the terms thereof and the DGCL.
ARTICLE IV
Officers and Directors
of the Surviving Corporation
4.1. Officers and Directors. The directors of Merger Sub and the
officers of the Company at the Effective Time shall, from and after the
Effective Time, be the directors and officers, respectively, of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and By-Laws.
4.2. Actions by Directors. For purposes of Article IX and Sections
10.3 and 10.4, no action taken by the Board of Directors of the Company after
consummation of the Offer and prior to the Merger shall be effective unless such
action is approved by the affirmative vote of at least a majority of the
directors of the Company which are not officers of Parent or designees,
stockholders or affiliates of Parent.
4.3. Boards of Directors; Committees. (a) If requested by Parent,
the Company will, subject to compliance with applicable law, immediately
following the acceptance for payment of, and payment by Merger Sub for, more
than 50% of the outstanding Shares (on a fully-diluted basis) pursuant to the
Offer, take all actions necessary to cause persons designated by Parent to
become directors of the Company so that the total number of such persons (after
all such actions have been taken) equals at least that number of directors,
rounded up to the next whole number, which represents the product of (x) the
total number of directors on the Board of Directors multiplied by (y) the
percentage that the number of Shares so accepted for payment and paid
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for plus any Shares beneficially owned by Parent or its affiliates on the date
hereof bears to the number of Shares outstanding at the time of such payment. In
furtherance thereof, if requested by Parent, the Company will increase the size
of the Board, or use its best efforts to secure the resignation of directors, or
both, as is necessary to permit Parent's designees to be elected to the
Company's Board of Directors; provided, however, that prior to the Effective
Time, the Company's Board of Directors shall always have at least one member who
is neither an officer of Parent nor a designee, shareholder or affiliate of
Parent or Parent's affiliates. At such time, the Company, if so requested, will
use its best efforts to cause persons designated by Parent to constitute the
same percentage of each committee of such board, each board of directors of each
subsidiary of the Company and each committee of each such board (in each case to
the extent of the Company's ability to elect such persons). The Company's
obligations to appoint designees to the Board of Directors shall be subject to
Section 14(f) of the Exchange Act and Rule 14f-1 thereunder. The Company shall
promptly take all actions required pursuant to such Section and Rule in order to
fulfill its obligations under this Section 4.3 and shall provide for inclusion
in the Schedule 14D-9 being mailed to shareholders contemporaneously with the
commencement of the Offer such information with respect to Parent and its
designees as is required under such Section and Rule in order to fulfill its
obligations under this Section 4.3 (provided that Parent shall have provided to
the Company on a timely basis all information required to be included under such
Section and Rule with respect to the designees of Parent).
ARTICLE V
Conversion or Cancellation of Shares in the Merger
5.1. Conversion or Cancellation of Shares. The manner of converting
or canceling shares of the Company and Merger Sub in the Merger shall be as
follows:
(a) At the Effective Time, each Share issued and outstanding
immediately prior to the Effective Time (other than Shares owned by Parent,
Merger Sub or any other subsidiary of Parent (collectively, the "Parent
Companies")) or Shares which are held by stockholders ("Dissenting
Stockholders") exercising appraisal rights pursuant to
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Section 262 of the DGCL) shall, by virtue of the Merger and without any action
on the part of the holder thereof, be converted into the right to receive,
without interest, an amount in cash (the "Merger Consideration") equal to $4.00
or such greater amount which may be paid pursuant to the Offer. All such Shares,
by virtue of the Merger and without any action on the part of the holders
thereof, shall no longer be outstanding and shall be canceled and retired and
shall cease to exist, and each holder of a certificate representing any such
Shares shall thereafter cease to have any rights with respect to such Shares,
except the right to receive the Merger Consideration for such Shares upon the
surrender of such certificate in accordance with Section 5.2 or the right, if
any, to receive payment from the Surviving Corporation of the "fair value" of
such Shares as determined in accordance with Section 262 of the DGCL.
(b) At the Effective Time, each Share issued and outstanding at the
Effective Time and owned by any of the Parent Companies, and each Share issued
and held in the Company's treasury at the Effective Time, shall, by virtue of
the Merger and without any action on the part of the holder thereof, cease to be
outstanding, shall be canceled and retired without payment of any consideration
therefor and shall cease to exist.
(c) At the Effective Time, each share of Common Stock, par value
$0.01 per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of Merger Sub or the holders of such shares, be converted into one hundred (100)
shares of the Surviving Corporation, provided, however that if Parent has made
the election provided for in Section 2.1(b) hereof, each such share of Merger
Sub shall remain outstanding and each certificate therefor shall continue to
evidence one share of Common Stock of the Surviving Corporation.
5.2. Payment for Shares. Parent shall make available or cause to be
made available as and when needed to the paying agent appointed by Parent, which
paying agent shall be reasonably acceptable to the Company (the "Paying Agent"),
amounts sufficient in the aggregate to provide all funds necessary for the
Paying Agent to make payments pursuant to Section 5.1(a) hereof to holders of
Shares issued and outstanding immediately prior to the Effective Time. Promptly
after the Effective Time, the Surviving
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Corporation shall instruct the Paying Agent to mail to each person who was, at
the Effective Time, a holder of record (other than any of the Parent Companies)
of issued and outstanding Shares a form of letter of transmittal and
instructions for use in effecting the surrender of the certificates which,
immediately prior to the Effective Time, represented any of such Shares in
exchange for payment therefor. Upon surrender to the Paying Agent of such a
certificate, together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, the Surviving Corporation
shall promptly cause to be paid to the persons entitled thereto a check in the
amount to which such persons are entitled, after giving effect to any required
tax withholdings. No interest will be paid or will accrue on the amount payable
upon the surrender of any such certificate. If payment is to be made to a person
other than the registered holder of the certificate surrendered, it shall be a
condition of such payment that the certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person requesting
such payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the certificate
surrendered or establish to the satisfaction of the Surviving Corporation or the
Paying Agent that such tax has been paid or is not applicable. 180 days
following the Effective Time, the Surviving Corporation shall be entitled to
cause the Paying Agent to deliver to it any funds (including any interest
received with respect thereto) made available to the Paying Agent which have not
been disbursed to holders of certificates formerly representing Shares
outstanding on the Effective Time, and thereafter such holders shall be entitled
to look to the Surviving Corporation only as general creditors thereof with
respect to the cash payable upon due surrender of their certificates.
Notwithstanding the foregoing, neither the Paying Agent nor any party hereto
shall be liable to any holder of certificates formerly representing Shares for
any amount paid to a public official pursuant to any applicable abandoned
property, escheat or similar law. The Surviving Corporation shall pay all
charges and expenses of the Paying Agent in connection with the exchange of cash
for Shares and Parent shall reimburse the Surviving Corporation for such charges
and expenses.
5.3. Appraisal Rights. If any Dissenting Stockholder shall be
entitled to be paid the "fair value" of
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his or her Shares, as provided in Section 262 of the DGCL, the Company shall
give Parent notice thereof and Parent shall have the right to participate in all
negotiations and proceedings with respect to any such demands. Neither the
Company nor the Surviving Corporation shall, except with the prior written
consent of Parent, voluntarily make any payment with respect to, or settle or
offer to settle, any such demand for payment. If any Dissenting Stockholder
shall fail to perfect or shall have effectively withdrawn or lost the right to
dissent, the Shares held by such Dissenting Stockholder shall thereupon be
treated as though such Shares had been converted into the Merger Consideration
pursuant to Section 5.1.
5.4. Transfer of Shares After the Effective Time. No transfers of
Shares shall be made on the stock transfer books of the Surviving Corporation at
or after the Effective Time.
ARTICLE VI
Representations and Warranties
6.1. Representations and Warranties of the Company. Except as set
forth in the corresponding section of the Disclosure Letter, dated the date
hereof, delivered by the Company to Parent prior to the execution hereof (the
"Disclosure Letter"), the Company hereby represents and warrants to Parent and
Merger Sub that:
(a) Corporate Organization and Qualification. Each of the Company
and its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation and
is in good standing as a foreign corporation in each jurisdiction where the
properties owned, leased or operated, or the business conducted, by it require
such qualification, except for such failure to so qualify or be in such good
standing, which, when taken together with all other such failures, is not
reasonably likely to have a Material Adverse Effect. Each of the Company and its
subsidiaries has the corporate requisite power and authority to carry on its
respective businesses as they are now being conducted. The Company has made
available to Parent a complete and correct copy of the Company's Certificate and
By-Laws and the comparable governing instruments of each of its
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subsidiaries, each as amended to date. The Company's Certificate and By-Laws and
the comparable governing instruments of each of its subsidiaries so delivered
are in full force and effect.
(b) Authorized Capital. As of the date hereof, the authorized
capital stock of the Company consists of 20,000,000 Shares, of which 13,742,639
Shares were outstanding and 300,000 shares of Preferred Stock, par value $1.00
per share, none of which were outstanding. All of the outstanding Shares have
been duly authorized and are validly issued, fully paid and nonassessable. The
Company has no Shares subject to issuance, except that, as of the date hereof,
there were 2,212,473 Shares subject to issuance pursuant to the Company 1997
Non-Qualified Stock Option Plan, the PureSpeech, Inc. 1997 Stock Option Plan,
the Voice Processing Corporation 1996 Stock Plan, the Voice Processing
Corporation 1989 Stock Plan, the VCS Industries, Inc. 1986 Incentive Stock Plan
and the Company 1992 Stock Option Plan (together, the "Company Option Plans")
and 977,075 Shares subject to issuance pursuant to outstanding warrants to
purchase Shares (the "Warrants"). In addition, as of the date hereof, $30,988.58
has been contributed by employees for the purchase of Shares under the Company's
1998 Employee Stock Purchase Plan (the "Company Stock Purchase Plan" and,
together with the Company Option Plans, the "Company Stock Plans"). The Company
has provided Parent with copies of all certificates evidencing Warrants that as
of the date hereof have been issued by the Company or its predecessors (except
as set forth in Section 6.1(b)(iii) of the Disclosure Letter), all agreements
entered into by the Company or its predecessors with respect to any outstanding
Warrant and copies of all forms of certificates evidencing Warrants that the
Company may be required to issue under the terms of any outstanding Warrants.
Section 6.1(b)(i) of the Disclosure Letter sets forth a list of all outstanding
Warrants, together with the names of the holders, exercise prices and expiration
dates of all such outstanding Warrants. Section 6.1(b)(ii) of the Disclosure
Letter sets forth a list of all outstanding options to purchase Shares under the
Company Option Plans, together with the names of the holders, exercise prices
and expiration dates of all such outstanding options. Each of the outstanding
shares of capital stock of each of the Company's subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and owned, either
directly or indirectly, by the Company free and clear of all liens, pledges,
security interests, claims or other
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<PAGE> 15
encumbrances. Except as set forth above, there are no shares of capital stock of
the Company authorized, issued or outstanding and except as set forth above,
there are no preemptive rights or any outstanding subscriptions, options,
warrants, rights, convertible securities of the Company or any of its
subsidiaries or other agreements or commitments of any character relating to the
issued or unissued capital stock or other securities of the Company or any of
its subsidiaries. After the Effective Time the Surviving Corporation will have
no obligation to issue, transfer or sell any Shares or common stock of the
Surviving Corporation pursuant to any Compensation and Benefit Plan (as defined
in Section 6.1(h)(i)).
(c) Corporate Authority. Subject only to approval of this Agreement
by the holders of a majority of the outstanding Shares, the Company has the
requisite corporate power and authority and has taken all corporate action
necessary in order to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement is a valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms. The Board of Directors of the Company has unanimously approved this
Agreement, the Offer and the Merger.
(d) Governmental Filings; No Violations. (i) Other than those
notices, reports, filings, consents, registrations, approvals, permits or
authorizations provided for in Section 2.3, or as required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the
Exchange Act and by the European Commission (collectively, the "Regulatory
Filings"), no notices, reports or other filings are required to be made by the
Company with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by the Company from, any governmental or
regulatory authority, agency, commission or other entity, domestic or foreign
("Governmental Entity"), in connection with the execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, except for those the failure of which to be made or
obtained would not, individually or in the aggregate, be likely to have a
Material Adverse Effect or to prevent the consummation of, or materially impair
the Company's ability to consummate, the transactions contemplated hereby.
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<PAGE> 16
(ii) Except as set forth in the Disclosure Letter, the execution and
delivery of this Agreement by the Company does not, and the consummation by the
Company of the transactions contemplated by this Agreement will not, constitute
or result in (i) a breach or violation of, or a default under, the Certificate
or By-Laws of the Company or the comparable governing instruments of any of its
subsidiaries, (ii) a breach or violation of, a default under or the triggering
of any payment or other material obligations pursuant to, any of the Company's
existing Compensation and Benefit Plans (as defined herein) or any grant or
award made under any of the foregoing, (iii) a breach or violation of, or a
default under, the acceleration of or the creation of a lien, pledge, security
interest or other encumbrance on assets (with or without the giving of notice or
the lapse of time) pursuant to, any provision of any agreement, lease, contract,
note, mortgage, indenture, arrangement or other obligation ("Contracts") of the
Company or any of its subsidiaries or any law, rule, ordinance or regulation or
judgment, decree, order, award or governmental or non-governmental permit or
license to which the Company or any of its subsidiaries is subject or (iv) any
change in the rights or obligations of any party under any of the Contracts,
except, in the case of clause (iii) or (iv) above, for any such breach,
violation, default, triggering, acceleration or change that, individually or in
the aggregate, would not be reasonably likely to have a Material Adverse Effect
or to prevent the consummation of, or materially impair the Company's ability to
consummate, the transactions contemplated hereby. Schedule 6.1(d)(ii) of the
Disclosure Letter sets forth a list of (x) all material consents required under
any Contracts to be obtained prior to consummation of the transactions
contemplated by this Agreement (whether or not subject to the exception set
forth with respect to clauses (iii) and (iv) above) and (y) any Contracts
containing any covenants of the Company or any of its subsidiaries not to
compete in any line of business or with any person. The Company will use its
best efforts to obtain the consents referred to in the Disclosure Letter.
(e) Company Reports; Financial Statements. The Company has delivered
to Parent each registration statement, schedule, report, proxy statement or
information statement prepared by it since December 31, 1998 (the "Audit Date"),
including, without limitation, the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1998 in the
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form (including exhibits and any amendments thereto) filed with the Securities
and Exchange Commission (the "SEC") (the "Company Report"). As of its date, the
Company Report did not contain, and no Company Report filed with the SEC
subsequent to the date hereof will contain, any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances in which they
were made, not misleading. Each of the consolidated balance sheets included in
or incorporated by reference into the Company Report (including the related
notes and schedules) fairly presents the consolidated financial position of the
Company and its subsidiaries as of its date and each of the consolidated
statements of income and of changes in financial position included in or
incorporated by reference into the Company Report (including any related notes
and schedules) fairly presents the results of operations, retained earnings and
changes in financial position, as the case may be, of the Company and its
subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which will not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods
involved, except as may be noted therein. Other than the Company Report, the
Company has not filed any other definitive reports or statements with the SEC
since December 31, 1998.
(f) Absence of Certain Changes. Except as set forth in the
Disclosure Letter, since December 31, 1998, the Company and its subsidiaries
have conducted their respective businesses only in, and have not engaged in any
material transaction other than according to, the ordinary and usual course of
such businesses and there has not been (i) any change or development in the
business of the Company and its subsidiaries that, individually or in the
aggregate, is reasonably likely to have, a Material Adverse Effect; (ii) any
declaration, setting aside or payment of any dividend or other distribution
with respect to the capital stock of the Company; or (iii) any change by the
Company in accounting principles, practices or methods. Section 6.1(f) of the
Disclosure Letter sets forth, since December 31, 1998, all increases in the
compensation payable or which could become payable by the Company and its
subsidiaries to their directors, officers or employees pursuant to any contract,
arrangement or otherwise, all amendments to any
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Compensation and Benefit Plans and all claims for reimbursement or compensation
from the Company made or, to the knowledge of the Company, threatened to be made
by any director, officer or employee of the Company or any other amounts payable
to any director, officer or employee of the Company outside the ordinary course
of business.
(g) Litigation and Liabilities. Except as disclosed in the Company
Report filed with the SEC prior to the date hereof or the Disclosure Letter,
there are no (i) civil, criminal or administrative actions, suits, claims,
hearings, investigations or proceedings pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries or (ii)
obligations or liabilities, whether or not accrued, contingent or otherwise,
including, without limitation, those relating to matters involving any
Environmental Law (as hereinafter defined), in each of cases (i) and (ii), other
than those that, individually or in the aggregate, are not reasonably likely to
have a Material Adverse Effect.
(h) Employee Benefits.
(i) All bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock and stock option plans, all employment, termination,
severance, welfare, fringe benefit, compensation, medical or health contract or
other plan, contract, policy or arrangement which covers employees or former
employees (the "Employees") and current and former directors of the Company or
its subsidiaries or their respective predecessors (the "Compensation and Benefit
Plans"), including, but not limited to, "employee benefit plans" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), are listed in Schedule 6.1(h)(i) of the Disclosure Letter.
True and complete copies of all Compensation and Benefit Plans and such other
benefit plans, contracts or arrangements, including, but not limited to, any
material trust instruments and/or insurance contracts, if any, forming a part of
any such plans and agreements, and all amendments thereto have been made
available to Parent.
(ii) All Compensation and Benefit Plans are in material compliance
with applicable law and all Compensation and Benefit Plans which are employee
benefit plans, other
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than "multiemployer plans" within the meaning of Sections 3(37) of ERISA,
covering Employees (the "Plans"), to the extent subject to ERISA, are in
substantial compliance with ERISA. Each Plan which is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA ("Pension Plan") and
which is intended to be qualified under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), has received a favorable determination
letter from the Internal Revenue Service, and the Company has no knowledge of
any circumstances likely to result in revocation of any such favorable
determination letter. There is no pending or, to the knowledge of the Company,
threatened material litigation relating to the Compensation and Benefit Plans.
Neither the Company nor any of its subsidiaries has engaged in a transaction
with respect to any Plan that, assuming the taxable period of such transaction
expired as of the date hereof, could subject the Company or any of its
subsidiaries to a tax or penalty imposed by either Section 4975 of the Code or
Section 502(i) of ERISA in an amount which would be material.
(iii) No material liability under Subtitle C or D of Title IV of
ERISA has been or is expected to be incurred by the Company or any of its
subsidiaries with respect to any ongoing, frozen or terminated "single-employer
plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any entity which is
considered one employer with the Company under Section 4001 of ERISA or Section
414 of the Code (an "ERISA Affiliate"). None of the Company, its subsidiaries or
any ERISA Affiliate has contributed to a "multiemployer plan", within the
meaning of Section 3(37) of ERISA, at any time on or after September 26, 1980.
No notice of a "reportable event," within the meaning of Section 4043 of ERISA
for which the 30-day reporting requirement has not been waived, has been
required to be filed for any Pension Plan or by any ERISA Affiliate within the
12-month period ending on the date hereof.
(iv) All material contributions required to be made under the terms
of any Plan have been timely made. Neither any Pension Plan nor any
single-employer plan of an ERISA Affiliate has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA. Neither the Company nor
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any of its subsidiaries has provided, or is required to provide, security to any
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to
Section 401(a)(29) of the Code.
(v) There has been no material adverse change in the financial
condition of any single-employer plan since the last day of the most recent Plan
year.
(vi) Neither the Company nor any of its subsidiaries have any
obligations for retiree health and life benefits under any Compensation and
Benefit Plan. There are no restrictions on the rights of the Company or any of
its subsidiaries to amend or terminate any such Plan without incurring any
material liability thereunder.
(vii) All Compensation and Benefit Plans covering foreign employees
comply with applicable local law, except for any non-compliance which would not
be material to the Company. Except as disclosed in the Company Report filed with
the SEC prior to the date hereof, neither the Company nor any of its
subsidiaries has any material unfunded liabilities with respect to any Pension
Plan which covers foreign Employees.
(viii) Except as set forth in Section 6.1(h)(viii) of the Disclosure
Letter, the consummation of the transactions contemplated by this Agreement will
not (x) entitle any employees of the Company or any of its subsidiaries to
severance pay or (y) accelerate the time of payment or vesting or trigger any
payment of compensation or benefits under, increase the amount payable or
trigger any other material obligation pursuant to, any of the Compensation and
Benefit Plans.
(ix) No payment (or acceleration of benefits) required to be made to
any Employee as a result of the transactions contemplated by this Agreement
under any Compensation and Benefit Plan or otherwise will, if made, constitute
an "excess parachute payment" within the meaning of Section 280G of the Code.
Notwithstanding the foregoing, the Company is not a party to any Contract
pursuant to which it could be liable to indemnify any "disqualified individual"
as defined in Section 280G(c) of the Code for any excise tax under Section 4999
of the Code with respect to any "excess parachute payment."
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(i) Brokers and Finders. Neither the Company nor any of its
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders, fees in connection
with the transactions contemplated herein, except as set forth in Section 6.1(i)
of the Disclosure Letter.
(j) Takeover Statutes. No "fair price", "moratorium", "control share
acquisition" or other similar antitakeover statute or regulation (including,
without limitation, the DGCL) (each a "Takeover Statute") is applicable to the
Offer, the Merger or the transactions contemplated thereby or hereby.
(k) Environmental Matters. Except as disclosed in the Company Report
filed with the SEC prior to the date hereof or the Disclosure Letter and except
for such matters that, individually or in the aggregate, would not be reasonably
likely to have a Material Adverse Effect (i) the Company and its subsidiaries
have complied with all applicable Environmental Laws; (ii) the properties
presently or formerly owned or operated by the Company or its subsidiaries
(including, without limitation, soil, groundwater or surface water on, under or
adjacent to the properties, and buildings thereon) (the "Properties") do not
contain, and have not contained, any Hazardous Substance (as hereinafter
defined) other than as permitted under applicable Environmental Law, do not
contain, and have not contained, any underground storage tanks, do not have any
asbestos present and have not been used as a sanitary landfill or hazardous
waste disposal site; (iii) neither the Company nor any of its subsidiaries has
within the last five years received any notice, demand letter or request for
information from any Governmental Entity or any third party that the Company may
be in violation of, or liable under, any Environmental Law and none of the
Company, its subsidiaries or the Properties are subject to any court order,
administrative order or decree arising under any Environmental Law and (iv) no
Hazardous Substance has been disposed of, transferred, released or transported
from any of the Properties during the time such Property was owned or operated
by the Company or one of its subsidiaries, other than as permitted under and as
would not reasonably be expected to result in any liability under any applicable
Environmental Law.
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"Environmental Law" means any applicable Federal, state, foreign or
local law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, common law, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity,
relating to the protection, preservation or restoration of the environment,
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource), or to human health or safety, or the exposure to,
or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as now in effect. "Hazardous Substance"
means any substance presently listed, defined, designated or classified as
hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any
Environmental Law, whether by type or by quantity, including any substance
containing any such substance as a component.
(l) Intellectual Property.
(i) The Company and/or each of its subsidiaries owns, or is licensed
or otherwise possesses legally enforceable rights to use, all material patents,
copyrights, trademarks, trade names, service marks, and any applications
therefor, trade secrets, technology, know-how, computer software programs or
applications, and tangible or intangible proprietary information or materials
that are used in the business of the Company and its subsidiaries as currently
conducted, and all material patents, trade secrets, proprietary information,
copyrights, trademarks, trade names and service marks held by the Company and/or
its subsidiaries are valid and subsisting.
(ii) Except as disclosed in Company Report filed prior to the date
hereof:
(A) neither the Company nor any of its subsidiaries is, nor
will the Company or any of its subsidiaries be as a result of the
execution and delivery of this Agreement or the performance of the
Company's obligations hereunder, in violation of any licenses, sublicenses
or other agreements as to which the Company or any of its subsidiaries is
a party or pursuant to which the Company or any of its
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subsidiaries is authorized to use any third-party patents, trademarks,
tradenames, service marks, copyrights, trade secrets, technology, know-how
or computer software (collectively, "Third-Party Intellectual Property
Rights"), in each case which violation would, individually or in the
aggregate, reasonably be likely to have a Material Adverse Effect;
(B) no litigation or material claims with respect to (I) the
patents, copyrights, trademarks and service marks, trade names, and any
applications therefor, trade secrets, know-how, technology or computer
software owned by the Company or any of its subsidiaries (collectively,
the "Company Intellectual Property Rights"); or (II) Third-Party
Intellectual Property Rights are currently pending or, to the knowledge of
the Company, are threatened by any person;
(C) there is no pending litigation or material claims or
threats alleging that the activities or conduct of business of the Company
or any of its subsidiaries infringes upon, violates, misappropriates or
constitutes unauthorized use of Intellectual Property rights of any third
party; and
(D) to the knowledge of the Company, there is no material
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property Rights by any third party, including any employee of
the Company or any of its subsidiaries.
(iii) Each of the Company and its subsidiaries has taken all steps
that are reasonably required to protect the rights of the Company and its
subsidiaries in its confidential information and trade secrets. Without limiting
the foregoing, the Company and each of its subsidiaries has and enforces a
policy of requiring (A) each of its employees and consultants to execute
agreements providing that each employee or consultant (I) will keep all
proprietary information of the Company and/or the applicable subsidiaries
confidential and (II) thereby assigns to the Company and/or the applicable
subsidiary all rights that such employee or consultant otherwise would have in
Company Intellectual Property Rights developed by such employee or consultant
while in the employ of the Company and/or the applicable subsidiary and (B)
requiring each of its contractors to execute agreements providing that each
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contractor will keep all proprietary information of the Company and/or the
applicable subsidiaries confidential. Complete and current copies of each such
agreement have been made available to Parent. Except as disclosed in Section
6.1(l)(iii) of the Disclosure Letter, all former employees whose employment
terminated within the past two years, consultants and contractors of the Company
and each subsidiary have executed similar confidentiality and assignment
agreements. Except under confidentiality obligations, there has been no material
disclosure of any Company or subsidiary confidential information or trade
secrets.
(iv) Section 6.1(l)(iv) of the Disclosure Letter sets forth a list
of all contract or license agreements granting any right to use or practice any
Intellectual Property Rights, to which the Company or any of its subsidiaries is
a party as either licensee or licensor, involving payments to or by the Company
or its subsidiaries in excess of $50,000.
(m) Tax Matters.
(i) The Company and its predecessors have timely filed or caused to
be filed all federal, state, local and foreign tax returns and tax reports
required to be filed by, or with respect to, the Company and its subsidiaries
and their predecessors on or prior to the date hereof, except to the extent that
any failure to so file would not, individually or in the aggregate, reasonably
be likely to adversely affect the Company in any material manner. Such returns
and reports are complete and accurate in all material respects. The Company and
its subsidiaries and their predecessors have timely paid (A) all taxes shown as
due on such tax returns and (B) all taxes for which no return is required to be
filed, except to the extent that any failure to so pay would not, individually
or in the aggregate, reasonably be likely to adversely affect the Company in any
material manner. No material issues have been raised in writing by the relevant
taxing authority in connection with any examination of the tax returns and
reports referred to in the first sentence of this clause (i).
(ii) The Company will timely file or cause to be filed all federal,
state, local and foreign tax returns and tax reports required to be filed by, or
with respect to, the
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Company and its subsidiaries between the date hereof and the Effective Time,
except to the extent that any failure to so file would not, individually or in
the aggregate, reasonably be likely to adversely affect the Company in any
material manner. Such returns and reports will be complete and accurate in all
material respects.
(iii) No waivers of statutes of limitations have been given or
requested with respect to any material taxes of the Company or its subsidiaries.
(iv) The Company is not, nor was it at any time during the five-year
period ending on the date on which the Effective Time occurs, a "United States
real property holding corporation" within the meaning of Section 897(C) of the
Code.
(n) Insurance. All material fire and casualty, general liability,
business interruption, product liability, and sprinkler and water damage
insurance policies maintained by the Company or any of its subsidiaries are with
reputable insurance carriers, provide adequate coverage for risks incident to
the business of the Company and its subsidiaries and their respective properties
and assets in character and amount generally comparable with those carried by
persons engaged in similar businesses and subject to generally comparable perils
or hazards. All such policies are in full force and effect and no notice of
cancellation, termination or default has been received with respect to any such
policy. All premiums due and payable on such policies covering all periods up to
and including the Closing Date have been paid in full or accrued.
(o) Product Warranties. (i) There are no material warranties,
express or implied, written or oral, with respect to the products of the Company
or any of its subsidiaries ("Company Products"), except as set forth in Section
6.1(o)(i) of the Disclosure Letter; (ii) as of the date hereof there are no
pending or threatened material claims with respect to any such warranty; and
(iii) there are no material pending, or, to the knowledge of the Company as of
the date hereof, threatened, product liability claims against or involving the
Company or any of its subsidiaries or any Company Product and no such claims
have been settled or adjudicated since December 31, 1996.
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(p) Year 2000. The Company has taken all actions necessary and
adequate to ensure that all computer software and data processing devices (i)
used by the Company and/or any of its subsidiaries in its management information
systems, or (ii) utilized in or by any Company Products, including any Company
Products sold and/or installed prior to the date hereof, are present or will in
1999 become "Year 2000 Compliant" and the Company will not incur costs
associated with ensuring such Year 2000 Compliance in an amount that would
reasonably be likely, individually or in the aggregate, to have a Material
Adverse Effect. "Year 2000 Compliant" means that the product or software
accurately processes and stores date/time data (including, but not limited to
calculating, comparing, displaying, recording and sequencing operations
involving date/time data) during, from and into and between the twentieth and
twenty-first centuries, and the years 1999 and 2000, including correct
processing of leap year data.
(q) Government Contracts. Except as set forth in Section 6.1(q) of
the Disclosure Letter, the Company does not have any agreements, contracts or
arrangements with any Governmental Entity.
6.2. Representations and Warranties of Parent and Merger Sub. Parent
and Merger Sub represent and warrant to the Company that:
(a) Corporate Organization and Qualification. Each of Parent and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation and is
in good standing as a foreign corporation in each jurisdiction where the
properties owned, leased or operated, or the business conducted, by it require
such qualification except for such failure to so qualify or to be in such good
standing, which, when taken together with all other such failures, is not
reasonably likely to have a material adverse effect on the financial condition,
properties, business or results of operations of Parent and its subsidiaries,
taken as a whole, or on the ability of Parent on Merger Sub to perform their
obligations under this Agreement.
(b) Corporate Authority. Parent and Merger Sub each has the
requisite corporate power and authority and has taken all corporate action
necessary in order to execute and
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deliver this Agreement and to consummate the transactions contemplated hereby.
This Agreement is a valid and binding agreement of Parent and Merger Sub
enforceable against Parent and Merger Sub in accordance with its terms.
(c) Governmental Filings; No Violations. (i) Other than the
Regulatory Filings, no notices, reports or other filings are required to be made
by Parent and Merger Sub with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by Parent and Merger Sub from,
any Governmental Entity in connection with the execution and delivery of this
Agreement by Parent and Merger Sub and the consummation of the transactions
contemplated hereby by Parent and Merger Sub, except for those the failure of
which to be made or obtained would not, individually or in the aggregate,
reasonably be likely to prevent the consummation of, or materially impair the
ability of Parent or Merger Sub to consummate the transactions contemplated by
this Agreement.
(ii) The execution and delivery of this Agreement by Parent and
Merger Sub do not, and the consummation of the transactions contemplated hereby
by Parent and Merger Sub will not, constitute or result in (i) a breach or
violation of, or a default under, the Certificate of Incorporation or By-Laws of
Parent or Merger Sub or (ii) a breach or violation of, a default under, the
acceleration of or the creation of a lien, pledge, security interest or other
encumbrance on assets (with or without the giving of notice or the lapse of
time) pursuant to, any provision of any Contract of Parent or Merger Sub or any
law, ordinance, rule or regulation or judgment, decree, order, award or
governmental or non-governmental permit or license to which Parent or Merger Sub
is subject, except, in the case of clause (ii) above, for any such breach,
violation, default or acceleration that, individually or in the aggregate, is
not reasonably likely to prevent the consummation of, or materially impair the
ability of Parent or Merger Sub to consummate, the transactions contemplated
hereby.
(d) Funds. Parent has or will have the funds necessary to consummate
the Offer and the Merger.
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ARTICLE VII
Covenants
7.1. Interim Operations of the Company. The Company covenants and
agrees that, prior to the Effective Time (unless Parent shall otherwise agree in
writing and except as otherwise contemplated by this Agreement):
(a) the business of the Company and its subsidiaries shall be
conducted only in the ordinary and usual course and, to the extent
consistent therewith, each of the Company and its subsidiaries shall use
its best efforts to preserve its business organization intact and maintain
its existing relations with customers, suppliers, employees and business
associates;
(b) the Company shall not (i) sell or pledge or agree to sell or
pledge any stock owned by it in any of its subsidiaries; (ii) amend its
Certificate or By-Laws; (iii) split, combine or reclassify the outstanding
Shares; or (iv) declare, set aside or pay any dividend payable in cash,
stock or property with respect to the Shares;
(c) neither the Company nor any of its subsidiaries shall (i)
issue, sell, pledge, dispose of or encumber any additional shares of, or
securities convertible or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of its capital
stock of any class of the Company or its subsidiaries or any other
property or assets other than, in the case of the Company, Shares issuable
pursuant to options outstanding on the date hereof under the Company
Option Plans, shares issuable upon exercise of the Warrants or shares
issuable pursuant to the terms of the Company Stock Purchase Plan; (ii)
transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of or
encumber any assets or incur or modify any indebtedness or other liability
other than in the ordinary and usual course of business; (iii) acquire
directly or indirectly by redemption or otherwise any shares of the
capital stock of the Company; or (iv) authorize capital expenditures
individually or in the aggregate in excess of $200,000 or make any
acquisition of, or investment in, assets or stock of any other person or
entity;
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(d) other than (i) the employment agreements entered into in
connection with this Agreement, (ii) as required by law, (iii) as required
under a plan existing as of the date hereof, (iv) as set forth in Section
7.1(d) of the Disclosure Letter or (v) as otherwise provided herein,
neither the Company nor any of its subsidiaries shall (A) grant any
severance or termination pay to, or enter into any employment or severance
agreement with any director, officer or other employee of the Company or
such subsidiaries; or (B) establish, adopt, enter into, make any new
grants or awards (or accelerate the vesting or increase the value of any
benefit) under or amend, any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
employee stock ownership, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any directors, officers or employees;
(e) neither the Company nor any of its subsidiaries shall settle or
compromise any material claims or litigation or, except in the ordinary
and usual course of business, modify, amend or terminate any of its
material Contracts or waive, release or assign any material rights or
claims;
(f) neither the Company nor any subsidiary shall make any tax
election or permit any insurance policy naming it as a beneficiary or a
loss payable payee to be canceled or terminated without notice to Parent,
except in the ordinary and usual course of business;
(g) neither the Company nor any of its subsidiaries shall (i)
terminate the employment of any Employee who is covered by a change in
control, employment, termination or similar agreement, except for Cause
(as defined in such agreements) or (ii) permit circumstances to exist that
would provide such Employee with Good Reason (as defined in such
agreements) to terminate employment;
(h) neither the Company nor any of its subsidiaries shall hire any
new employees except in the ordinary and usual course of business;
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(i) the Company shall not permit any person not participating in the
Company Stock Purchase Plan as of the date hereof to participate in such
plan or permit any present participant in the Company Stock Purchase Plan
to increase his or her percentage contribution under such plan; and
(j) neither the Company nor any of its subsidiaries will authorize
or enter into an agreement to do any of the foregoing.
7.2. Acquisition Proposals. The Company agrees that neither the
Company nor any of its subsidiaries nor any of the respective officers and
directors of the Company or its subsidiaries shall, and the Company shall direct
and use its best efforts to cause its employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its subsidiaries) not to, directly or
indirectly initiate, solicit, encourage or otherwise facilitate (including by
providing any confidential information or data to or having any negotiations or
discussions with any person (other than Parent or its affiliates) making or
inquiring with respect to making an Acquisition Proposal), any inquiries or the
making of any proposal or offer (including, without limitation, any proposal or
offer to stockholders of the Company) with respect to a merger, reorganization,
share exchange, consolidation or similar transaction involving the Company, or
any purchase of more than 15% (on a fair market value basis) of the assets of
the Company and its subsidiaries on a consolidated basis (including any such
purchase of assets effected indirectly through the purchase of such
subsidiaries), or any purchase of, or tender offer for, more than 15% of any
equity securities of the Company (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal"), except that the Company shall have
the right, if, and only to the extent that, the Company's Board of Directors
concludes in good faith after consultation with outside legal counsel that such
actions are required to comply with the fiduciary duties of the Company's Board
of Directors under applicable law in response to a bona fide, written
Acquisition Proposal not solicited on or after the date hereof, to engage in
negotiations concerning, provide confidential information or data to, or have
discussions with, any person relating to an Acquisition Proposal. The Company
will immediately cease
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and cause to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing. The
Company will take the necessary steps to inform the individuals or entities
referred to in the first sentence hereof of the obligations undertaken in this
Section 7.2. The Company will notify Parent immediately if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with the
Company or any of its subsidiaries. The Company also will promptly request each
person which has heretofore executed a confidentiality agreement in connection
with its consideration of acquiring the Company to return all confidential
information heretofore furnished to such person by or on behalf of the Company.
7.3. Meetings of the Company's Stockholders. If adoption of this
Agreement by the Company's stockholders is required by law following
consummation of the Offer, the Company will take, consistent with applicable law
and its Certificate and By-Laws, all action necessary to convene a meeting of
holders of Shares as promptly as practicable to consider and vote upon the
adoption of this Agreement. Subject to fiduciary requirements of applicable law,
the Board of Directors of the Company shall recommend such adoption and the
Company shall take all lawful action to solicit such adoption. At any such
meeting of the Company, all of the Shares then owned by the Parent Companies
will be voted in favor of adoption of this Agreement. The Company's proxy or
information statement with respect to such meeting of shareholders (the "Proxy
Statement"), at the date thereof and at the date of such meeting, will not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that the foregoing shall not apply to the extent that any such untrue
statement of a material fact or omission to state a material fact was made by
the Company in reliance upon and in conformity with written information
concerning the Parent Companies furnished to the Company by Parent specifically
for use in the Proxy Statement. The Proxy Statement shall not be filed, and no
amendment or supplement to the Proxy Statement will be made by the Company,
without consultation with Parent and its counsel.
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7.4. Filings; Other Action. Subject to the terms and conditions
herein provided, the Company and Parent shall: (a) promptly make their
respective filings and thereafter make any other required submissions under the
HSR Act and other Regulatory Filings with respect to the Offer and the Merger;
and (b) use their respective reasonable best efforts to promptly take, or cause
to be taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement as
soon as practicable; provided, however, that neither Parent nor Merger Sub will
be required to divest or hold separate any of their, the Company's or any of
their respective affiliates' businesses or assets.
7.5. Access. Upon reasonable notice, the Company shall (and shall
cause each of its subsidiaries to) afford Parent's officers, employees, counsel,
accountants and other authorized representatives ("Representatives") access,
during normal business hours throughout the period prior to the Effective Time,
to its properties, books, Contracts and records and, during such period, the
Company shall (and shall cause each of its subsidiaries to) furnish promptly to
Parent all information concerning its business, properties and personnel as
Parent or its Representatives may reasonably request, provided that no
investigation pursuant to this Section 7.5 shall affect or be deemed to modify
any representation or warranty made by the Company and provided, further, that
the foregoing shall not require the Company to permit any inspection, or to
disclose any information, which in the reasonable judgment of the Company would
result in the disclosure of any trade secrets of third parties or violate any
obligation of the Company with respect to confidentiality if the Company shall
have used reasonable efforts to obtain the consent of such third party to such
inspection or disclosure. All information exchanged pursuant to this Section 7.5
shall be subject to the confidentiality agreement, dated October 16, 1998 (the
"Confidentiality Agreement"), between the Company and Philips International BV.
All requests for information made pursuant to this Section shall be directed to
an executive officer of the Company or such person as may be designated by any
such officer. Upon any termination of this Agreement, Parent will collect and
deliver to the Company all documents obtained by it or any of its
Representatives then in their possession and any copies thereof.
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7.6. Notification of Certain Matters. The Company shall give prompt
notice to Parent of: (a) any notice of, or other communication relating to, any
material environmental matter, or any material default or event that, with
notice or lapse of time or both, would become a material default, received by
the Company or any of its subsidiaries subsequent to the date of this Agreement
and prior to the Effective Time, under any Contract to which the Company or any
of its subsidiaries is a party or is subject; and (b) any change or development
that, individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect. Each of the Company and Parent shall give prompt notice to the
other party of any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection with
the transactions contemplated by this Agreement.
7.7. Publicity. The initial press release by the parties hereto with
request to this Agreement shall be a joint press release and thereafter the
Company and Parent shall consult with each other prior to issuing any press
releases or otherwise making public statements with respect to the transactions
contemplated hereby and prior to making any filings with any Governmental Entity
or with any national securities exchange with respect thereto.
7.8. Benefits. (a) Stock Options. Except as set forth in Section
7.8(a) of the Disclosure Letter, prior to the Effective Time, the Company shall
take all such actions as may be necessary such that at the Effective Time each
stock option outstanding pursuant to the Company Option Plans ("Option"),
whether or not then exercisable, shall be canceled and shall thereafter only
entitle the holder thereof, upon surrender thereof, to receive an amount in cash
equal to the excess, if any, of the Merger Consideration over the exercise price
per Share of such Option multiplied by the number of Shares previously subject
to such Option, less any required withholding taxes. Promptly following the
execution of this Agreement, the Company shall mail to each person who is a
holder of outstanding stock options granted pursuant to the Company Option Plans
(regardless of whether such stock options are vested or exercisable at the time)
a letter in a form acceptable to Parent which describes the treatment of and
payment for such options pursuant to this Section 7.8(a) and provides
instructions for use in obtaining payment for such options hereunder. Each such
holder shall sign a release by
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which such holder effectively relinquishes all rights with respect to such
holder's outstanding stock options upon payment therefor in accordance with this
Section 7.8(a) prior to or as soon as practicable following the Closing. The
Company shall take all actions necessary to cause the Company Stock Plans to be
terminated effective as of the Effective Time; provided, however, that the
Company shall be permitted, immediately prior to the Effective Time, to issue
Shares pursuant to the terms of the Company Stock Purchase Plan in respect of
amounts contributed as of such date under such plan.
(b) Employee Benefits. Parent agrees that, for a period of one year
following the Effective Time, it will cause the Company to continue to provide
the Employees with benefits under employee benefit plans (other than stock
option or other plans involving the potential issuance of securities of the
Company or of any of the Parent Companies) which in the aggregate are
substantially comparable to the benefits currently provided by the Company to
such employees immediately prior to the Effective Time, provided that employees
covered by collective bargaining agreements need not be provided such benefits.
Notwithstanding the foregoing, nothing contained herein shall in any way limit
or restrict the ability of Parent or the Surviving Corporation following the
Effective Time to modify, amend or terminate any Compensation and Benefit Plan,
in accordance with the terms of such Compensation and Benefit Plan, or to
terminate the employment of any employee.
7.9. Indemnification; Directors' and Officers' Insurance. (a) From
and after the Effective Time, Parent agrees that it will indemnify and hold
harmless each present and former director and officer of the Company, determined
as of the Effective Time (the "Indemnified Parties"), against any costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities (collectively, "Costs") incurred in such person's
capacity as a director or officer of the Company in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that the Company would have been
permitted under Delaware law and its Certificate of Incorporation or By-Laws in
effect on the date hereof to indemnify such
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person (and Parent shall also advance expenses as incurred to the fullest extent
permitted under applicable law, provided the person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification).
(b) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of Section 7.9, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify Parent thereof. In the event
of any such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) Parent or the Surviving Corporation
shall have the right to assume the defense thereof and Parent shall not be
liable to such Indemnified Parties for any legal expenses of other counsel or
any other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that if Parent or the Surviving
Corporation elects not to assume such defense or counsel for the Indemnified
Parties advises that there are issues which raise conflicts of interest between
Parent or the Surviving Corporation and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them, and Parent or the Surviving
Corporation shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received; provided,
however, that Parent shall be obligated pursuant to this paragraph (b) to pay
for only one firm of counsel for all Indemnified Parties in any jurisdiction
unless the use of one counsel for such Indemnified Parties would present such
counsel with a conflict of interest (ii) the Indemnified Parties will cooperate
in the defense of any such matter and (iii) Parent shall not be liable for any
settlement effected without its prior written consent; and provided further that
Parent shall not have any obligation hereunder to any Indemnified Party when and
if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law.
(c) The Surviving Corporation shall maintain the Company's existing
officers' and directors' liability insurance ("D&O Insurance") for a period of
two years after the Effective Time so long as the annual premium therefor is not
in excess of the last annual premium paid prior to the
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date hereof (the "Current Premium"); provided, however, if the existing D&O
Insurance expires, is terminated or canceled during such two year period, the
Surviving Corporation will use its best efforts to obtain as much D&O Insurance
as can be obtained for the remainder of such period for a premium not in excess
(on an annualized basis) of the Current Premium. The Company represents to
Parent that the Current Premium is $75,000. Notwithstanding the foregoing, the
Surviving Corporation may replace the D&O Insurance with coverage provided by
Parent's D&O insurer with respect to events occurring on or prior to the
Effective Time so long as the coverage provided by Parent's D&O policy with
respect to such events are, in the aggregate, substantially the same as, or more
favorable than, the D&O Insurance with respect to such events.
7.10. Takeover Statutes. If any Takeover Statute is or shall become
applicable to the transactions contemplated hereby, the Company and the Board of
Directors of the Company shall grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and otherwise act to
eliminate the effects of such statute or regulation on the transactions
contemplated hereby.
ARTICLE VIII
Conditions
8.1. Conditions to Obligations of Parent and Merger Sub. The
respective obligations of Parent and Merger Sub to consummate the Merger shall
be subject to the satisfaction or waiver, where permissible, prior to the
Effective Time, of the following conditions:
(a) Stockholder Approval. If adoption of this Agreement by the
holders of Shares is required by applicable law, the Agreement shall have been
duly adopted by the holders of a majority of the Shares, in accordance with
applicable law and the Certificate and By-Laws of the Company;
(b) Purchase of Shares. Merger Sub (or one of the Parent Companies)
shall have purchased Shares pursuant to the Offer;
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(c) Governmental and Regulatory Consents. The waiting period
applicable to the consummation of the Merger under the HSR Act and any
applicable waiting periods relating to the Regulatory Filings shall have expired
or been terminated and, other than the filings provided for in Section 2.3, all
filings required to be made prior to the Effective Time by the Company with, and
all consents, approvals and authorizations required to be obtained prior to the
Effective Time by the Company from, any Governmental Entity in connection with
the execution and delivery of this Agreement by the Company and the consummation
of the transactions contemplated hereby by the Company, Parent and Merger Sub
shall have been made or obtained (as the case may be);
(d) Litigation. No United States or state court or other
Governmental Entity of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, judgment,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and prohibits consummation of the transactions contemplated
by this Agreement or imposes material restrictions on Parent or the Company in
connection with consummation of the Merger or with respect to their business
operations, either prior to or subsequent to the Merger (collectively, an
"Order");
(e) Compliance; Consents. The representations and warranties
contained in Section 6.1 shall be true in all material respects as of the
Effective Time as though made at and as of the Effective Time, except for
changes contemplated by this Agreement and the Company shall have obtained the
necessary consents to the Merger of the parties set forth in the Disclosure
Letter;
(f) Other Obligations. The Company shall have fulfilled its
obligations under Section 7.8; and
(g) Dissenting Stockholders. Holders of not more than five percent
of the outstanding Shares shall have exercised appraisal rights as provided in
Section 262 of the DGCL.
8.2. Conditions to Obligations of the Company. The obligations of
the Company to consummate the Merger shall be subject to the satisfaction or
waiver, where
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permissible, prior to the Effective Time, of the following conditions:
(a) Stockholder Approval. If adoption of this Agreement by the
holders of Shares is required by applicable law, the Agreement shall have been
duly adopted by the holders of a majority of the Shares, in accordance with
applicable law and the Certificate and By-Laws of the Company;
(b) Purchase of Shares. Merger Sub (or one of the Parent Companies)
shall have purchased Shares pursuant to the Offer;
(c) Governmental Consents. The waiting period applicable to the
consummation of the Merger under the HSR Act and any applicable waiting periods
relating to the Regulatory Filings shall have expired or been terminated and,
other than the filings provided for in Section 2.3, all filing required to be
made prior to the Effective Time by Parent and Merger Sub with, and all
consents, approvals, permits and authorizations required to be obtained prior to
the Effective Time by Parent and Merger Sub from, any Governmental Entity in
connection with the execution and delivery of this Agreement by Parent and
Merger Sub and the consummation of the transactions contemplated hereby by
Parent, Merger Sub and the Company shall have been made or obtained (as the case
may be); and
(d) Order. No Order shall be in effect.
ARTICLE IX
Termination
9.1 Termination by Mutual Consent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, before
or after the approval by holders of Shares, by the mutual consent of Parent
(also acting on behalf of Merger Sub) and the Company, by action of their
respective Boards of Directors.
9.2. Termination by either Parent or the Company. This Agreement may
be terminated and the Merger may be abandoned by action of the Board of
Directors of either Parent or the Company if (i) Merger Sub shall not have
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accepted for payment any Shares pursuant to the Offer prior to September 15,
1999; provided, however, that the right to terminate this Agreement pursuant to
this Section 9.2(i) shall not be available to any party whose failure to perform
any of its obligations under this Agreement results in the failure of any Offer
Condition or (ii) any Governmental Entity shall have issued an Order which shall
have become final and non-appealable.
9.3. Termination by Parent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the adoption, if necessary, by holders of Shares, by action of the Board of
Directors of Parent, if (x)(i) the Company shall have failed to comply in any
material respect with any of the covenants or agreements contained in this
Agreement or (ii) a representation or warranty of the Company set forth in this
Agreement shall have been inaccurate when made or shall thereafter become
inaccurate, except for such inaccuracies which, when taken together (in each
case without regard to any qualification as to materiality or a Material Adverse
Effect contained in the applicable representations and warranties) would not
reasonably be likely to have a Material Adverse Effect, and, with respect to any
such breach, failure to perform or inaccuracy that can be remedied, the breach,
failure or inaccuracy is not remedied within 15 business days after the giving
of written notice of such breach, failure or inaccuracy to the Company; (y) the
Board of Directors of the Company shall have withdrawn or modified in a manner
adverse to Parent or Merger Sub its approval or recommendation of the Offer,
this Agreement or the Merger or shall have adopted or recommended any
Acquisition Proposal, or the Board of Directors of the Company, upon request by
Parent, shall fail to reaffirm such approval or recommendation within 10
business days after such request if an Acquisition Proposal is pending, or shall
have resolved to do any of the foregoing; or (z) if the Company or any of the
other persons or entities described in Section 7.2 shall take any actions that
would be proscribed by Section 7.2 but for the exception therein allowing
certain actions to be taken if required by fiduciary obligations under
applicable law as advised in writing by counsel.
9.4. Termination by the Company. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, before
or after the approval by holders of Shares by action of the Board of
-35-
<PAGE> 40
Directors of the Company, (x) if Parent or Merger Sub (or another Parent
Company) (i) shall have breached in any material respect any of the
representations, warranties, covenants or agreements contained in this Agreement
(other than any immaterial covenants or agreements) and, with respect to any
such breach that can be remedied within 15 business days after the Company has
provided Parent with written notice of such breach, or (ii) shall have failed to
commence the Offer within the time required in Section 1.1 or (y) if (i) the
Board of Directors of the Company receives a written offer not solicited on or
after the date hereof, with respect to a merger, reorganization, share exchange,
consolidation or sale of all or substantially all of the Company's assets or a
tender or exchange offer not solicited on or after the date hereof for more than
50% of the outstanding Shares is commenced, and with respect to which the Board
of Directors of the Company concludes in good faith, after consultation with an
independent financial advisor and its outside counsel, that approval, acceptance
or recommendation of such transaction is required by the fiduciary duties of the
Company's Board of Directors under applicable law (any such transaction, a
"Superior Proposal") and (ii) the Company has given Parent three business days'
prior written notice of its intention to terminate this Agreement to accept the
Superior Proposal, which notice shall indicate the name of the person making
such Superior Proposal and the material terms of such Superior Proposal, and
Parent shall have failed to offer to amend the Offer so that it is at least as
favorable to the stockholders of the Company as the Superior Proposal.
9.5. Effect of Termination and Abandonment. (a) In the event of
termination of this Agreement and abandonment of the Merger pursuant to this
Article IX, no party hereto (or any of its directors or officers) shall have any
liability or further obligation to any other party to this Agreement, except as
provided in Section 9.5(b) below and Section 10.2 and except that nothing herein
will relieve any party from liability for any wilful and material breach of its
covenants under this Agreement.
(b) If:
(x) (i) (A) the Offer shall have remained open for a minimum of at
least 20 business days, (B) after the date hereof any
corporation, partnership, person, other entity or
-36-
<PAGE> 41
group (as defined in Section 13(d)(3) of the Exchange
Act) other than Parent or Merger Sub or any of their
respective subsidiaries or affiliates (collectively, a
"Person") shall have become the beneficial owner of 15%
or more of the outstanding Shares or made any
Acquisition Proposal, and
(C) (1) the Minimum Condition (as defined in Annex A) shall
not have been satisfied or (2) the Offer is terminated
pursuant to Section 9.3(x) due to a breach of the
Company's obligations under Section 7.2 or pursuant to
Section 9.2(i) without the purchase of any Shares
thereunder; or
(ii) Parent shall have terminated this Agreement pursuant to
Section 9.3(y); or
(iii) the Company shall have terminated this Agreement pursuant to
Section 9.4(y); and
(y) within eighteen months of such termination (or the expiration date
of the Offer in the case of (C)(1) above), the Company consummates
an Acquisition Proposal
then, upon consummation of such Acquisition Proposal, the Company shall
promptly, but in no event later than five business days after the date of a
request by Parent for payment of such fee, pay Parent a fee of $2,000,000, plus
all documented fees and expenses incurred by Parent or Merger Sub in connection
with this Agreement, the Offer and the Merger up to a maximum amount of
$1,000,000, which amounts shall be payable in same day funds. The Company
acknowledges that the agreements contained in this Section 9.5(b) are an
integral part of the transactions contemplated in this Agreement, and that,
without these agreements, Parent and Merger Sub would not enter into this
Agreement; accordingly, if the Company fails to promptly pay the amount due
pursuant to this Section 9.5(b), and, in order to obtain such payment, Parent or
Merger Sub commences a suit which results in a judgment against the Company for
the fee set forth in this paragraph (b), the Company shall pay to Parent or
Merger Sub its costs and expenses (including attorneys' fees) in connection with
such suit, together with interest
-37-
<PAGE> 42
on the amount of the fee at the prime rate of Citibank N.A. on the date such
payment was required to be made.
ARTICLE X
Miscellaneous and General
10.1. Payment of Expenses. (a) Except as otherwise set forth in
Section 9.5, whether or not the Merger shall be consummated, each party hereto
shall pay its own expenses incident to preparing for, entering into and carrying
out this Agreement and the consummation of the Merger.
(b) Except as otherwise provided in the fifth sentence of Section
5.2 of this Agreement, all state, local, foreign or provincial sales, use, real
property transfer, stock transfer or similar taxes (including any interest,
penalties or additions thereto) attributable to the transactions contemplated by
this Agreement shall be timely paid by Parent or Merger Sub.
10.2. Survival. The agreements of the Company, Parent and Merger Sub
contained in Sections 5.2 (but only to the extent that such Section expressly
relates to actions to be taken after the Effective Time), 5.3, 5.4, 7.8, 7.9,
7.11 and 10.1 shall survive the consummation of the Merger. The agreements of
the Company, Parent and Merger Sub contained in Sections 7.5, 9.5 and 10.1 shall
survive the termination of this Agreement. All other representations,
warranties, agreements and covenants in this Agreement shall not survive the
consummation of the Merger or the termination of this Agreement.
10.3. Modification or Amendment. Subject to the applicable
provisions of the DGCL, at any time prior to the Effective Time, the parties
hereto may modify or amend this Agreement, by written agreement executed and
delivered by duly authorized officers of the respective parties.
10.4. Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.
-38-
<PAGE> 43
10.5. Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
10.6. Governing Law.
(a) GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. THIS AGREEMENT
SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW
YORK WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The parties
hereby irrevocably submit to the jurisdiction of the courts of the State of New
York and the Federal courts of the United States of America located in the State
of New York solely in respect of the interpretation and enforcement of the
provisions of this Agreement and of the documents referred to in this Agreement,
and in respect of the transactions contemplated hereby and thereby, and hereby
waive, and agree not to assert, as a defense in any action, suit or proceeding
for the interpretation or enforcement hereof or of any such document, that it is
not subject thereto or that such action, suit or proceeding may not be brought
or is not maintainable in said courts or that the venue thereof may not be
appropriate or that this Agreement or any such document may not be enforced in
or by such courts, and the parties hereto irrevocably agree that all claims with
respect to such action or proceeding shall be heard and determined in such a New
York State or Federal court. The parties hereby consent to and grant any such
court jurisdiction over the person of such parties and over the subject matter
of such dispute and agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section 10.7 or in
such other manner as may be permitted by law shall be valid and sufficient
service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH
MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES
THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
-39-
<PAGE> 44
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 10.6.
10.7. Notices. Any notice, request, instruction or other document to
be given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
if to Parent or Merger Sub:
Philips Electronics North America Corporation
1251 Avenue of the Americas
20th Floor
New York, NY 10020
Attention: General Counsel
Fax: (212) 536-0505
with a copy to:
Koninklijke Philips Electronics N.V.
Rembrandt Tower
Amstelplein 1
1096 HA Amsterdam
The Netherlands
Attention: General Secretary
Fax: (011) (31 20) 59 77150
Neil T. Anderson, Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Fax: (212) 558-3588
-40-
<PAGE> 45
if to the Company
Voice Control Systems, Inc.,
14140 Midway Road
Dallas, Texas 75244
Attention: Kim S. Terry
Fax: (972) 726-1211
with a copy to:
William G. Milne, Esq.,
13760 Noel Road, Suite 101
Dallas, Texas 75240
Fax: (972) 386-5233
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
10.8. Entire Agreement, etc. This Agreement (including the
Disclosure Letter and any exhibits or Annexes hereto) (a) constitutes the entire
agreement, and supersedes all other prior agreements, understandings,
representations and warranties both written and oral, among the parties, other
than the Confidentiality Agreement, with respect to the subject matter hereof,
and (b) shall not be assignable by operation of law or otherwise and is not
intended to create any obligations to, or (except with respect to the provisions
of Section 7.9) rights in respect of, any persons other than the parties hereto;
provided, however, that Parent may designate, by written notice to the Company,
another wholly owned direct or indirect subsidiary to be a Constituent
Corporation in lieu of Merger Sub, in the event of which, all references herein
to Merger Sub shall be deemed references to such other subsidiary except that
all representations and warranties made herein with respect to Merger Sub as of
the date of this Agreement shall be deemed representations and warranties made
with respect to such other subsidiary as of the date of such designation.
10.9. Definitions of "Subsidiary," "knowledge" and "Material Adverse
Effect". When a reference is made in this Agreement to a subsidiary of a party,
the word "subsidiary" means any corporation or other organization whether
incorporated or unincorporated of which at least a majority of the securities or
interests having by the terms thereof ordinary voting power to elect at least a
majority
-41-
<PAGE> 46
of the board of directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its subsidiaries, or by such
party and one or more of its subsidiaries. When the word "knowledge" is used in
this Agreement with reference to the Company or its management or officers, such
word will be deemed to refer to the actual knowledge of the executive officers
of the Company and such other officer that has primary responsibility for the
subject matter with respect to which "knowledge" is being considered. For
purposes of this Agreement, "Material Adverse Effect" means any material adverse
effect on the financial condition, properties, business or results of operations
of the Company and its subsidiaries taken as a whole (excluding any change or
development resulting from the announcement of this Agreement or the
transactions contemplated hereby).
10.10. Obligation of Parent. Whenever this Agreement requires Merger
Sub to take any action, such requirement shall be deemed to include an
undertaking on the part of Parent to cause Merger Sub to take such action.
10.11. Captions. The Article, Section and paragraph captions herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
10.12. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
-42-
<PAGE> 47
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto on the date
first hereinabove written.
PHILIPS ELECTRONICS NORTH AMERICA
CORPORATION
/s/ William E. Curran
------------------------------------------
By: William E. Curran
Title: Senior Vice President and
Chief Financial Officer
VULCAN MERGER SUB, INC.
/s/ William E. Curran
------------------------------------------
By: William E. Curran
Title: President and Chief
Executive Officer
VOICE CONTROL SYSTEMS, INC.
/s/ Kim S. Terry
------------------------------------------
By: Kim S. Terry
Title: Vice President Finance
-43-
<PAGE> 48
Annex A
Certain Conditions of the Offer. Notwithstanding any other provision
of the Offer, but subject to the terms and conditions of the Merger Agreement
(and provided that Merger Sub shall not be obligated to accept for payment any
Shares until expiration or termination of all applicable waiting periods under
the HSR Act and any applicable waiting periods relating to the Regulatory
Filings, in each case with respect to the Offer and/or the Merger (the
"Regulatory Condition")), Merger Sub (x) shall not be required to accept for
payment or, subject to any applicable rules and regulations of the Commission,
including Rule 14e-1(c) promulgated under the Exchange Act (relating to Merger
Sub's obligation to pay for or return tendered Shares promptly after termination
or withdrawal of the Offer), pay for, and (y) may delay the acceptance for
payment of or (subject to such rules and regulations, including Rule 14e-1(c))
payment for, any tendered Shares, in each case if a majority of the total Shares
outstanding on a fully diluted basis and as will permit Merger Sub to effect the
Merger without the vote of any person other than Merger Sub shall not have been
properly and validly tendered pursuant to the Offer and not withdrawn prior to
the expiration of the Offer (the "Minimum Condition"), or, if on or after the
date of the Merger Agreement, and at or before the time of acceptance for
payment of any of such Shares, any of the following events shall occur:
(a) the Company shall have breached or failed to perform in any
material respect any of its obligations, covenants or agreements under the
Merger Agreement;
(b) (i) any of the representations and warranties of the Company set
forth in this Agreement that are qualified by materiality or by Material
Adverse Effect shall not have been true and correct as of the date of the
Merger Agreement or shall not be true and correct on the expiration date
of the Offer (and any extensions thereof) as though made on and as of such
date or (ii) except for such inaccuracies as, individually or in the
aggregate, have not had and would not be reasonably likely to have a
Material Adverse Effect, the representations and warranties of the Company
set forth in the Merger Agreement that are not qualified by materiality or
by Material Adverse Effect, shall not have been
A-1
<PAGE> 49
true and correct as of the date of the Merger Agreement or shall not be
true and correct as of the expiration date of the Offer (and any
extensions thereof) as though made on and as of such date;
(c) there shall be threatened, instituted or pending any action,
litigation or proceeding (hereinafter, an "Action") by any Governmental
Entity: (i) challenging the acquisition by Parent or Merger Sub of Shares
or seeking to restrain or prohibit the consummation of the Offer or the
Merger; (ii) seeking to prohibit or impose any material limitations on
Parent's, Merger Sub's or any of their respective affiliates' ownership or
operation of all or any material portion of the business or assets of the
Company and its subsidiaries taken as a whole or the business or assets of
any significant subsidiary of Koninklijke Philips Electronics N.V., or to
compel Parent or Merger Sub to dispose of or hold separate all or any
portion of Parent's or Merger Sub's or the Company's business or assets
(including the business or assets of their respective affiliates and
subsidiaries) as a result of the Offer or the Merger; (iii) seeking to
impose material limitations on the ability of Parent or Merger Sub
effectively to acquire or hold, or to exercise full rights of ownership
of, the Shares including, without limitation, the right to vote the Shares
purchased by them on an equal basis with all other Shares on all matters
properly presented to the shareholders of the Company; or (iv) that, in
any event, would, individually or in the aggregate, reasonably be likely
to have a Material Adverse Effect;
(d) any statute, rule, regulation, order or injunction shall be
enacted, promulgated, entered, enforced or deemed to or become applicable
to the Offer or the Merger, or any other action shall have been taken,
proposed or threatened, by any court or other Governmental Entity, that is
reasonably expected to result in any of the effects of, or have any of the
consequences sought to be
A-2
<PAGE> 50
obtained or achieved in, any Action referred to in clauses (i) through
(iv) of paragraph (c) above;
(e) (i) the Company's stockholders' equity as determined on a
consolidated basis in accordance with U.S. generally accepted accounting
principles ("U.S. GAAP") is less than $6,000,000 or (ii) Parent shall not
have received a certificate signed by the Chief Executive Officer and the
Vice President Finance of the Company, dated the expiration date of the
Offer (as such date may be extended by Parent), certifying that the
Company's stockholders' equity determined on consolidated basis in
accordance with U.S. GAAP is greater than or equal to $6,000,000;
(f) any change or development shall have occurred that, individually
or in the aggregate, is reasonably likely to have a Material Adverse
Effect; or
(g) the Merger Agreement shall have been terminated by the Company
or Parent or Merger Sub in accordance with its terms;
which, in the reasonable judgment of Parent and Merger Sub, in any such case,
and regardless of the circumstances (including any action or inaction by Parent
or Merger Sub) giving rise to any such conditions, makes it inadvisable to
proceed with the Offer and/or with such acceptance for payment of or payment
for Shares.
The foregoing conditions may be asserted by Parent or Merger Sub
regardless of the circumstances (including any action or inaction by Parent or
Merger Sub) giving rise to such condition. The conditions set forth in
paragraphs (a) through (g) above are for the sole benefit of Parent and Merger
Sub and may be waived by Parent or Merger Sub, by express and specific action to
that effect, in whole or in part at any time and from time to time in their sole
discretion.
A-3
<PAGE> 51
Schedule 1
Employment Agreements
Peter Foster
Dr. Thomas Schalk
Kim Terry
<PAGE> 1
CLARIFICATION OF
AGREEMENT REGARDING SEVERANCE PACKAGE
This Clarification is made this 8th day of May, 1999 between Voice Control
Systems, Inc. ("VCS") and Peter J. Foster.
Background Information
VCS and Mr. Foster have entered into an Agreement Regarding Severance Package
dated February 24, 1999 (the "Agreement"). As part of the severance package
described in Exhibit A to the Agreement, VCS agreed, "Mr. Foster and his
dependents shall continue to be covered by the health insurance, including
vision and dental coverage, that VCS carries for its employees, or any
substitutes for such plans, and VCS shall pay all of the premiums for the
coverage of Mr. Foster and 75% of the premium for coverage of his dependents"
(the "Health Insurance Benefit"). VCS and Mr. Foster intended that the Health
Insurance Benefit would continue for a period of two years, but omitted to
include this time frame in the Agreement.
The parties wish to clarify the Agreement by stating the time frame during which
the Health Insurance Benefit must be provided.
Accordingly, in consideration of the above and the terms and conditions set
forth below, VCS and Mr. Foster agree as follows:
Substantive Provision
The final paragraph in Exhibit A to the Agreement is amended to read in its
entirety as follows:
For a period of two years from the date of the event giving rise to the
obligation to make the payment described in the first paragraph of this
Exhibit A, Mr. Foster and his dependents shall continue to be covered by
the health insurance, including vision and dental coverage, that VCS
carries for its employees, or any substitutes for such plans, and VCS
shall pay all of the premiums for the coverage of Mr. Foster and 75% of
the premium for coverage of his dependents.
VOICE CONTROL SYSTEMS, INC.
By:
----------------------------- --------------------------------------
Peter J. Foster
Its:
---------------------------
<PAGE> 2
AGREEMENT REGARDING SEVERANCE PACKAGE
This Agreement is made this 24th day of February, 1999, by and between Voice
Control Systems, Inc., for itself and on behalf of its subsidiary, Voice Request
Corporation, ("VCS") and Peter J. Foster.
Background Information
Mr. Foster has been employed at VCS since 1985, served as Chief Executive
Officer until 1998, and has most recently served as Chief Executive Officer of
Voice Request Corporation. VCS and the Company entered an employment agreement
dated June 18, 1993, that terminated in June 1998 (the "Employment Agreement").
The parties anticipate that Mr. Foster's employment with VCS may soon terminate
although that termination will not affect his position on the Board of
Directors. Mr. Foster is currently involved in negotiations on behalf of VCS
with Philips International B.V. ("Philips") and the parties wish to continue Mr.
Foster's cooperation in those negotiations and his cooperation in a smooth
transition upon his termination. They also wish to memorialize the severance
package Mr. Foster will receive upon termination of his employment.
Accordingly, in consideration of the above and the provisions set forth below,
VCS and Mr. Foster agree as follows:
Substantive Provisions
1. Mr. Foster shall continue in his position as Chief Executive Officer of Voice
Request Corporation, at his current pay, until such time as he is terminated. In
conjunction therewith he will assist VCS in its negotiations with Philips and
will assist VCS for three months in its transition to another executive who will
be in charge of Voice Request Corporation. Such employment may be terminated by
Voice Request Corporation or VCS at any time on notice to Mr. Foster.
2. If a transaction with Philips is closed so that Philips acquires VCS, whether
through merger, stock purchase, asset purchase or otherwise, then VCS will pay
Mr. Foster a bonus of $75,000 at closing.
3. If Mr. Foster complies with the provisions of Section 1 through the date
payment is due, he shall receive in addition to his compensation the severance
package set forth in Exhibit A upon signing the Severance Agreement and General
Release set forth in Exhibit B. This will be payable upon the earliest of
termination of his employment, diminution of Mr. Foster's responsibilities
without his consent, or a change in control of VCS.
<PAGE> 3
3. Mr. Foster acknowledges and affirms his confidentiality obligations, his
obligations with respect to competing with the Company, and his other continuing
obligations under Article VII of the Employment Agreement.
4. VCS for itself, its subsidiaries, successors and assigns, does hereby forever
release and discharge Mr. Foster, his heirs, successors and assigns of and from
all debts, claims, demands, damages, causes of action, losses and expenses of
whatsoever kind or character, whether in contract or in tort, whether arising
under common law or by virtue of statute, federal or state, whether known or
unknown, suspected or unsuspected, or whether having arisen or hereafter to
arise, whether for damages already suffered or yet to be suffered, which the
undersigned ever had, now has or claims to have, or hereafter can, shall, or may
for any reason have, against Mr. Foster arising out of any matter, event, action
or omission occurring contemporaneously with or before the execution of this
Agreement ("Claims"), including specifically, but without limitation of the
generality of the foregoing, all Claims arising out of Mr. Foster's employment
with VCS.
VOICE CONTROL SYSTEMS, INC.
By /s/ Neal J. Robinson /s/ Peter J. Foster
---------------------------- -----------------------------------
PETER J. FOSTER
Its Chairman of the Board
---------------------------
<PAGE> 4
EXHIBIT A
SEVERANCE PACKAGE
VCS shall pay Mr. Foster $225,000.00, less applicable withholding, FICA and
Medicare taxes.
VCS shall pay Mr. Foster the program fee to attend one session of the Harvard
Business School Advanced Management Program in 1999.
The agreements described in Attachment A-1 whereby VCS issued Mr. Foster options
to purchase common stock of VCS are hereby amended as follows:
All options are hereby exercisable;
All options shall terminate on the third anniversary of the termination of
Mr. Foster's employment with VCS and its subsidiaries; and
Mr. Foster acknowledges that this amendment may have the effect that some
of the options that become exercisable in the year in which his employment
terminates are not eligible for tax treatment as incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended.
Mr. Foster and his dependents shall continue to be covered by the health
insurance, including vision and dental coverage, that VCS carries for its
employees, or any substitutes for such plans, and VCS shall pay the premiums for
the coverage of Mr. Foster and 75% of the premium for coverage of his
dependents.
<PAGE> 5
ATTACHMENT A-1
<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT
TO OPTIONS
(AS ADJUSTED FOR EVENTS
ORIGINAL GRANTOR GRANT DATE SUBSEQUENT TO GRANT)
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
VCS Industries, Inc. 5/7/92 35,916
- --------------------------------------------------------------------------------
VCS Industries, Inc. 5/7/92 24,488
- --------------------------------------------------------------------------------
VCS Industries, Inc. 5/7/92 24,488
- --------------------------------------------------------------------------------
VCS Industries, Inc. 5/7/92 10,775
- --------------------------------------------------------------------------------
VCS Industries, Inc. 5/1/93 22,856
- --------------------------------------------------------------------------------
VCS Industries, Inc. 10/1/93 46,788
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Voice Control Systems, Inc. 10/7/94 39,181
- --------------------------------------------------------------------------------
Voice Control Systems, Inc. 10/4/95 50,000
- --------------------------------------------------------------------------------
Voice Control Systems, Inc. 11/13/97 50,000
- --------------------------------------------------------------------------------
Voice Control Systems, Inc. 5/14/98 100,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL 404,492
- ----- -------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
EXHIBIT B
SEVERANCE AGREEMENT AND GENERAL RELEASE
In consideration of the receipt by the undersigned of the severance
package described in Exhibit A attached hereto and incorporated herein by
reference from Voice Control Systems, Inc. ("VCS") in conjunction with a change
in the basis of his employment with VCS effective 4-12-99, the receipt and
sufficiency of which is hereby acknowledged, the undersigned, Peter J. Foster,
for himself, his heirs, executors, administrators, successors and assigns, does
hereby forever release and discharge VCS, its affiliates, directors, officers,
employees, agents and attorneys and their heirs, successors and assigns ("VCS,
et al.") of and from all debts, claims, demands, damages, causes of action,
losses and expenses of whatsoever kind or character, whether in contract or in
tort, whether arising under common law or by virtue of statute, federal or
state, whether known or unknown, suspected or unsuspected, or whether having
arisen or hereafter to arise, whether for damages already suffered or yet to be
suffered, which the undersigned ever had, now has or claims to have, or
hereafter can, shall, or may for any reason have, against VCS, et al. or any of
them arising out of any matter, event, action or omission occurring
contemporaneously with or before the execution of this Release ("Claims"),
including specifically, but without limitation of the generality of the
foregoing, all Claims arising out of the undersigned's employment with VCS or
the termination of that employment.
The undersigned assigns all Claims to VCS.
Specifically included in this Agreement and Release are, among other things, any
and all claims of alleged employment discrimination under the Age Discrimination
in Employment Act, Title VII of the Civil Rights Act of 1964, the Employee
Retirement Income Security Act of 1974 or the Americans with Disabilities Act of
1990, any claims under the Family and Medical Leave Act of 1993, the
Occupational Safety and Health Act or any other federal, state or local statute,
rule or regulation, as well as any claims for alleged wrongful discharge,
negligent or intentional infliction of emotional distress, invasion of privacy,
breach of contract, fraud, or any other unlawful behavior. The undersigned also
agrees not to institute administrative proceedings or a lawsuit against VCS in
regard to any claims, demands, causes of action, damages, losses and expenses,
and he represents and warrants that he has not assigned any claims or any
interest therein to any third party and that no other person or entity has
initiated or will initiate such administrative proceedings or lawsuit on his
behalf. This Agreement and Release shall remain effective in accordance with its
terms even if facts which any with party now believes are true are later found
to be different.
The undersigned shall cooperate with VCS in regard to any claims made or
litigation brought against VCS, as well as in regard to investigations by any
governmental agency.
<PAGE> 7
This Agreement and Release shall not be construed as an admission by VCS of any
liability or acts of wrongdoing or discrimination, nor shall it be considered or
utilized as evidence of such liability, wrongdoing or discrimination, or for any
purpose other than to secure enforcement of the terms of this Agreement and
Release.
In the event that the Company performs its obligations under this Agreement and
Release and any of VCS, et al. is required to defend a lawsuit or charge of
discrimination filed by the undersigned or on his behalf that is in breach of
this Agreement and Release, the undersigned shall be liable for all reasonable
expenses (including reasonable discovery and other court costs and reasonable
attorneys' fees) incurred by such releasee in defending the same, regardless of
the outcome.
The undersigned acknowledges that signing this Agreement and Release is a
voluntary act on his part and that he has been advised by VCS to consult with an
attorney, and the undersigned shall have seven (7) days from the date of the
execution of this Agreement and Release to change his mind and revoke the
Agreement and Release, in which event the payments set forth in Exhibit "A" will
not be made.
The undersigned affirms that the only consideration for his signing this
Agreement and Release is that stated above and that no other promise or
agreement of any kind has been made to or with him by any person or entity to
cause him to execute this document.
The nature and terms of this Agreement and Release are strictly confidential and
shall not be disclosed by the undersigned at any time to any person outside his
immediate family and legal advisors without the prior written consent of VCS,
except as necessary in any legal proceedings based upon the provisions and terms
of this Agreement and Release, to prepare and file income tax forms, or pursuant
to court order after notice to VCS. Similarly, the Company agrees not to
disclose the nature and terms of this Agreement and Release, except as is
necessary to obtain approval of it, to inform employees and officials with a
"need to know," in any relevant legal proceedings, in any public reporting
documents (to the extent required by law, rule or regulation), and to prepare
proper documentation in tax, legal, accounting, and claim records.
The undersigned acknowledges his obligations regarding trade secrets,
competition and inventions under the Confidentiality and Non-Competition
Agreement with Assignment of Inventor's Rights which he previously executed and
reaffirms that he shall comply with the terms of such agreement.
EXECUTED this 12th day of April, 1999.
/s/ Peter J. Foster
- -------------------
<PAGE> 1
Excerpted portion from the Company's Form 10-KSB/A Amendment No. 1 filed April
30, 1999.
The Company has entered into an employment agreement with Dr. Thomas B. Schalk
providing that Dr. Schalk will serve as Chief Technical Officer until June 18,
1998, which agreement shall be extended for one additional one-year period
unless either the Company or Dr. Schalk notifies the other party of an intention
to terminate the agreement 30 days prior to the end of the present term. Dr.
Schalk receives an annual salary of $155,000, plus a performance bonus of up to
$12,500 per calendar quarter based upon Dr. Schalk's exceptional achievements
during the quarter as determined by the Compensation Committee of the Board of
Directors. The agreement contains confidentiality and invention assignment
provisions. The agreement also contains solicitation and non-competition
provisions that extend for twenty-four months following the termination of Dr.
Schalk's employment; there can be no assurance regarding the enforceability of
such provisions under Texas law. In the event that (i) Dr. Schalk's employment
is terminated without cause or he resigns as a result of a breach of the
agreement by the Company, or (ii) Dr. Schalk resigns under certain circumstances
following a Change in Control (as defined) of the Company, Dr. Schalk will be
entitled to a lump-sum cash payment equal to 150% of his annual aggregate
compensation and any unused vacation time, and the period in which he can
exercise stock options will be extended for one year. The Company agreed to
indemnify Dr. Schalk for losses sustained and expenses incurred as a result of
the discharge of his duties, to the full extent permitted by law.
<PAGE> 1
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of May 9, 1999, by and between Philips Electronics
North America Corporation ("Philips") and Peter J. Foster ("Employee").
WHEREAS, Voice Control Systems, Inc. (the "Company"), Employee's former
employer, has entered into an Agreement and Plan of Merger, dated as of May 9,
1999 with Merger Sub and Philips (the "Merger Agreement"); and
WHEREAS, Philips desires to secure the continued services and
employment of Employee following the successful consummation of the Offer (as
such term is defined in the Merger Agreement) with the Company or such other
subsidiary designated by Philips; and
WHEREAS, the parties desire to enter into an agreement setting forth
the terms and conditions of the employment of Employee with the Company or such
other subsidiary designated by Philips on and after the successful consummation
of the Offer;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto agree
as follows:
1. Employment. For all purposes under this Agreement, references to the
Company shall be deemed to refer to the subsidiary of Philips which employs
Employee during the Term, as defined below. The Company hereby agrees to employ
Employee, and Employee agrees to serve as an employee of the Company, on the
terms and conditions set forth in this Agreement, effective upon the purchase of
Shares by Merger Sub pursuant to the Offer (as such terms are defined in the
Merger Agreement) (the "Effective Date"); it being understood that the
employment obligations undertaken by the Company hereunder shall not become
effective, and shall become null and void, in the event that such purchase of
Shares does not occur.
2. Term. The "Term" shall be the period commencing on the Effective
Date and ending on the second anniversary of the Effective Date.
3. Duties and Responsibilities. During the Term, Employee shall serve
as the Senior Vice President, Philips Speech Processing Telephony North America,
and shall be responsible for the general and active management of the business
of the Company with such duties and responsibilities that are customary for such
position. Employee shall perform such other duties and shall have such other
authority and power as the Board of Directors of the Company, or any executive
committee thereof, may from time to time prescribe during the Term. Employee
shall devote substantially all Employee's working time, attention and energies
during normal business hours (other than absences due to illness or vacation) to
the performance of Employee's duties for the Company. Employee may engage in
other outside activities, including community
<PAGE> 2
activities, provided that such activities do not unreasonably interfere with
Employee's performance of Employee's duties with the Company.
4. Place of Performance. The principal place of employment of Employee
shall be at the Company's offices in Dallas, Texas. Employee acknowledges that
he may be required to travel on Company business in connection with the
performance of his duties hereunder without violation of this Section 4.
5. Compensation and Related Matters.
(a) Base Salary and Bonus. During the Term the Company shall
pay Employee a base salary at the rate of not less than $230,000 ("Base Salary")
which shall be annually reviewed by the Company. Employee's Base Salary shall be
paid in approximately equal installments in accordance with the Company's
customary payroll practices. Employee's performance and Base Salary shall be
reviewed annually. If Employee's Base Salary is increased by the Company, such
increased Base Salary shall then constitute the Base Salary for all purposes of
the Agreement other than Section 5(c), below. The Employee shall be eligible to
receive an annual bonus opportunity equal to $90,000 (the "Target Bonus"). The
actual bonus payment, which may be higher or lower than the Target Bonus, will
be determined, by Philips in consultation with Employee, according to the level
of achievement of performance targets established by Philips in consultation
with Employee. The bonus will be paid no later than during the first quarter
after the end of the relevant calendar year, or if this Agreement is terminated
due to its expiration during a calendar year, no later than ninety (90) days
following such termination.
(b) Benefit Plans. Employee shall be entitled to participate
in such employee benefit plans and insurance programs applicable to the Company,
or which it may adopt from time to time, for its executive management or
supervisory personnel generally, in accordance with the eligibility requirements
for participation therein. Notwithstanding the foregoing, Employee shall not be
entitled to receive severance pursuant to any severance plan applicable to the
Company if the Employee is entitled to receive payments pursuant to Section 8(b)
of this Agreement. Nothing herein shall be construed so as to prevent the
Company from modifying or terminating any employee benefit plans or programs, or
employee fringe benefits, it may adopt from time to time; provided that any such
modification or termination is made, or occurs, in connection with modifications
or terminations that are applicable to all similarly situated executives of
Philips.
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<PAGE> 3
(c) Long-Term Incentive Plan. Employee shall be eligible to
participate in a long-term incentive plan (the "LTIP") during the Term, as
specified below. Payments under the LTIP will be based on two components:
(i) Guaranteed Payment. The Employee will be eligible
to receive a guaranteed payment ("Guaranteed Payment") equal
to 50% of $260,000 which shall become payable to Employee in
three (3) substantially equal installments if Employee is
actively employed by the Company on the date which is (A) six
(6) months following the Effective Date, (B) twelve (12)
months following the Effective Date and (C) eighteen (18)
months following the Effective Date, respectively, one such
installment to be paid following each of the dates described
in clauses (A), (B) and (C) above if the employment condition
has been satisfied on such date.
(ii) Earned Payment. The Employee will have the
opportunity to earn an additional long-term incentive payment
("Earned Payment") equal to up to 25% of $260,000 if (A)
business synergies and objectives (as defined by Philips in
consultation with Employee) during the eighteen (18) month
period following the Effective Date are achieved and (B)
Employee remains actively employed by the Company on the date
which is eighteen (18) months following the Effective Date;
provided, however, that Employee's performance in relation to
such objectives shall be measured every six (6) months,
beginning with the date which is six (6) months following the
Effective Date, and if the objectives have been achieved after
such six (6) month period, Employee shall be paid an amount
equal to one-third of the Earned Payment as soon as
practicable thereafter, but in no event later than thirty (30)
days after each such six (6) month period.
(d) Expenses. The Company shall promptly reimburse Employee
for all reasonable business expenses, including cellular telephone usage, upon
the presentation of reasonably itemized statements of such expenses in
accordance with the Company's policies and procedures now in force or as such
policies and procedures may be modified with respect to all employees of the
Company. In addition, the Company shall reimburse Employee for discretionary
expenses of up to $30,000 during each twelve (12) month period during the Term
to be used for expenses which in Employee's sole discretion are related to
Employee's job or position at the Company.
6. Termination. This Agreement shall be terminated upon the earliest to
occur of the following:
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<PAGE> 4
(a) Expiration. The expiration of the Term.
(b) Death. The death of Employee.
(c) Disability. If, as a result of Disability, Employee shall
have been substantially unable to perform the duties of Employee's employment
hereunder for a period of ninety (90) consecutive days or any ninety (90) days
within a period of two hundred seventy (270) days and within thirty (30) days
after written Notice of Termination is given by the Company after such ninety
(90) day period, Employee shall not have returned to the substantial performance
of duties on a full-time basis. For purposes of this Agreement, "Disability"
shall have the same meaning as that term is defined in the Long Term Disability
Plan applicable to employees of the Company; provided, that, if no such plan
exists, "Disability" shall have the same meaning as provided in Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended.
(d) Cause. The Company terminates Employee for Cause. For
purposes of this Agreement, the Company shall have "Cause" to terminate
Employee's employment upon Employee's (i) willful and continued failure to
substantially perform Employee's duties with the Company (other than any such
failure resulting from incapacity due to physical or mental illness) after a
written demand for substantial performance is delivered to Employee which
identifies the manner in which the Company believes that Employee has not
substantially performed Employee's duties and Employee is given a reasonable
opportunity to correct any such deficiency in performance, or (ii) willful
misconduct (but excluding any action that Employee reasonably believes is in the
best interests of the Company) which is demonstrably and materially injurious to
the Company or to any entity in control of, controlled by or under common
control with the Company (an "Affiliate"), including, but not limited to, any
breach of Sections 9 and 10 hereof or gross negligence or gross misconduct, or
(iii) the conviction of, or plea of guilty or nolo contendere to, a felony
involving moral turpitude, or (iv) habitual drug or alcohol abuse by Employee.
(e) Without Cause. The Company terminates Employee's
employment hereunder without Cause by providing Employee with a Notice of
Termination.
(f) Voluntary Termination. Employee terminates this Agreement
and Employee's employment hereunder at any time upon ninety (90) days prior
written notice to the Company.
(g) Material Breach. Employee terminates employment because of
a material breach of this Agreement by the Company. For purposes of this
Agreement, a "material breach" shall be deemed to occur upon a failure by the
Company to comply with any material provision of Sections 4 and 5 (other than
Section 5(c)(ii)) of this Agreement without Employee's written consent,
including (i) any reduction in Base
4
<PAGE> 5
Salary, Target Bonus opportunity and Guaranteed Payment under the LTIP, when
considered in the aggregate, or (ii) a relocation of the Employee to a location
more than 50 miles from the Employee's present location, which in the case of
any alleged breach, has not been cured in all material respects within thirty
(30) days after written notice of such noncompliance has been given by Employee
to the Company.
7. Termination Procedure.
(a) Notice of Termination. Any termination of Employee by the
Company or by Employee (other than termination pursuant to Section 6(a) or (b)
hereof) shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 11. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Employee under the provisions so indicated.
(b) Date of Termination. "Date of Termination" shall mean (i)
if Employee's employment is terminated by reason of Employee's death, the date
of death, (ii) if Employee's employment is terminated pursuant to Section 6(c)
hereof, thirty (30) days after Notice of Termination is given (provided that
Employee shall not have returned to work on a regular basis during such thirty
(30) day period), (iii) if Employee's employment is terminated pursuant to
Sections 6(d), 6(e) or 6(g), the date specified in the Notice of Termination,
and (iv) if Employee's employment is terminated pursuant to Section 6(f), the
date specified in a Notice of Termination which shall not be less than ninety
(90) days following the date of such Notice, unless determined by the Company in
its sole discretion.
8. Amounts Due Upon Termination. In the event Employee's employment
terminates during the Term, the Company shall provide Employee with the payments
set forth below. Employee acknowledges and agrees that the payments set forth in
this Section 8 constitute liquidated damages for termination of employment
during the Term.
(a) If Employee is terminated following expiration of the Term
under Section 6(a), or pursuant to Sections 6(b), 6(c), 6(d), or 6(f), the
Company shall pay Employee all accrued but unpaid Base Salary through the Date
of Termination at the rate in effect at the time Notice of Termination is given
and reimburse Employee for incurred regular, as opposed to discretionary,
expenses pursuant to Section 5(d), and the Company shall have no further
obligations to Employee under this Agreement; provided, that, Employee shall be
entitled to any other benefit or payment provided pursuant to any plan or policy
of the Company in accordance with such plan's or policy's terms.
(b) If Employee's employment is terminated pursuant to
5
<PAGE> 6
Sections 6(e) or 6(g), the Company shall pay to Employee (A) Base Salary accrued
through the Date of Termination and (B) a payment equal to the sum of Employee's
Base Salary and Employee's discretionary expense account payable for the greater
of (i) the remainder of the Term, or (ii) twelve (12) months, and (C) a payment
equal to the sum, pro-rated through the Date of Termination, of (i) the Target
Bonus for the calendar year in which the termination occurs, and (ii) the
Guaranteed Payment under the LTIP. All such payments shall be made no later than
30 days following such termination. Employee shall also be entitled to
reimbursement for regular, as opposed to discretionary, expenses incurred
pursuant to Section 5(d) and to any other benefits or payments provided pursuant
to any plan or policy of the Company in accordance with such plan's or policy's
terms, subject to 5(b).
9. Fair Dealing/Non-Competition/Non-Solicitation.
(a) Employee recognizes and acknowledges that, during the term
of his employment by the Company, he will have access to and become familiar
with various trade secrets and other confidential or proprietary information of
the Company. Trade secrets, proprietary information and confidential information
encompass, without limitation, anything which is owned by the Company and is
regularly used in the operation of the business of the Company to obtain a
competitive advantage over the Company's competitors who do not know, have
access to, or utilize such information or trade secrets. Proprietary information
further includes, but is not limited to, records, files, documents, bulletins,
publications, manuals, financial data and information, marketing plans and
proposals, accounting control procedures, and information concerning and the
identity of customers, prospects and suppliers. Trade secrets further include,
but are not limited to, specifications, software programs, both the source code
and the object code, documentation, flow charts, diagrams, schematics, data,
data bases, and business and production methods and techniques. Employee further
recognizes and acknowledges that the trade secrets and other confidential or
proprietary information of the Company are valuable, special and unique and that
the protection thereof is of critical importance to the Company in maintaining
its competitive position. Employee, therefore, covenants and agrees that, except
as required by his employment hereunder or with the express prior written
consent of the Company or as required by court order, he shall not, during the
term of his employment by the Company or at anytime thereafter, either directly
or indirectly, make independent use of, publish or otherwise disclose any of the
aforesaid trade secrets or other confidential or proprietary information of the
Company (whether acquired, learned, obtained or developed by him alone or in
conjunction with others) to any person, firm, corporation, association or other
entity for any reason or purpose whatsoever or allow any other person, firm,
corporation, association or other entity to make use of, publish or disclose any
of the aforesaid trade secrets or other confidential or proprietary information.
Employee agrees not to use, steal, or appropriate such items or versions
thereof, whether copied or reconstructed from memory or otherwise, in any
manner. Employee further recognizes and acknowledges that in order to enable
Company
6
<PAGE> 7
to perform services for its clients, those clients may furnish to
Company confidential information concerning their business affairs, property,
methods of operation or other data; that the goodwill afforded to Company
depends upon, among other things, Company and its employees keeping such
services and information confidential. Employee therefore covenants and agrees
that he shall keep all such client services and information confidential and
shall not disclose any such information to any third party. Such client
information shall be subject to all of the restrictions to which Company's
confidential information is subject under this Agreement.
(b) Employee agrees not to disclose or use any protected
secret of any of his former employers.
(c) During the term of this Agreement, Employee shall not,
directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer, director, or in any other
individual or representative capacity, engage or participate in any business
that is in competition with the business of Company, or to use in any manner
whatsoever for his own benefit, directly or indirectly, any business opportunity
rightfully belonging to Company.
(d) Employee agrees that during the term of the Agreement and
thereafter he shall not interfere with Company's relationship with any customer
or supplier or with the due performance of any understanding, agreement or
contract, whether written or oral, between Company and any of its customers or
suppliers. Without limiting the generality of the preceding sentence, Employee
agrees that for twelve (12) months following termination of his employment,
Employee will not solicit business from or perform services for any person or
entity which was a customer of the Company at the time of the termination of
employment, whether such solicitation is made or such services are performed on
Employee's own behalf or on behalf of any other person, firm, corporation,
association or other entity, unless such solicitation or service is not
competing, directly or indirectly, with the Company.
(e) Employee agrees upon his termination of employment that he
shall not enter or engage in competition with the Company in the development or
marketing of any speech recognition product or service in the United States,
either as an individual on his own, or as a partner or a joint venturer, or as
an employee, agent, officer, director or shareholder for any other person, or
otherwise for the period starting at the termination and continuing for a period
of twelve (12) months after the date of the termination of his employment.
(f) Employee expressly recognizes and acknowledges that the
Company has expanded substantial resources, energies and efforts in connection
with the aforesaid trade secrets, proprietary information, and customer and
supplier relationships, that the protection and confidentiality thereof are
critical to the growth, development and success of the Company and that
compliance with the restrictive covenants contained in
7
<PAGE> 8
this Agreement is necessary to protect the business and good will of the
Company. As a result, Employee further recognizes that the Company will suffer
substantial, irreparable and continuing injuries, damages and costs attendant
thereto in the event of the breach of this Agreement. Therefore, the existence
of any claim or cause of action of Employee against Company, whether predicated
under this Agreement or otherwise, shall not constitute a defense to the
enforcement by Company of the covenants on the part of the Employee in this
Section 9. Further recognizing that money damages may not provide adequate
relief, the Employee agrees that, in the event that he breaches the provision of
this Section 9, Company shall be entitled to a preliminary or permanent
injunction in order to prevent the continuation of such harm. Employee further
agrees that any and all sums collected by Employee, or any company owned,
controlled, employing or employed by Employee, directly or indirectly, in
violation of this Agreement, shall be constructively held by Employee in trust
for Company. Nothing in this Agreement shall be construed to prohibit the
Company from also pursuing any other remedy, the parties having agreed that all
remedies are cumulative.
(g) Employee hereby assigns and agrees to assign to the
Company or its subsidiaries or affiliates, as appropriate, its successors,
assigns or nominees, his entire right, title and interest in any developments,
designs, patents, inventions and improvements, trade secrets, trademarks,
copyrightable subject matter or proprietary information which Employee made or
conceived, or may make or conceive, either solely or jointly with others while
providing services to Company or with the use of the time, material or
facilities of Company, or resulting from any task assigned to him or work
performed by him for or on behalf of Company. It is further agreed that, without
charge to Company, but at its expense, Employee will execute and deliver all
such further papers as may be necessary, including original applications and
applications for renewal, extension or reissue of patents, trademark
registrations or copyright registrations, in any and all countries, to vest
title thereto in Company, its successors, assigns or nominees. Either during or
after employment with Company, Employee will not disclose to anyone outside of
Company, nor use in other than Company business, except with the prior written
permission of an officer of the Company, any developments, designs, inventions
and improvements, trade secrets, works of authorship, proprietary information or
proprietary things developed by him while providing services to Company.
10. Successors; Binding Agreement. This Agreement shall be binding upon
and shall inure to the benefit of Employee, his heirs, executors,
administrators, beneficiaries and assigns and shall be binding upon and shall
inure to the benefit of the Company and its successors, including, following the
Effective Time, Philips Speech Processing Telephony North America.
11. Notice. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered either personally or by
United States
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<PAGE> 9
certified or registered mail, return receipt requested, postage prepaid,
addressed, in case of Employee, to the last address on file with the Company and
if to the Company, to its executive offices or to such other address as any
party may have furnished to the others in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
12. Resolution of Differences Over Breaches of Agreement. The parties
shall use good faith efforts to resolve any controversy or claim arising out of,
or relating to this Agreement or the breach thereof, first in accordance with
the Company's internal review procedures, except that this requirement shall not
apply to any claim or dispute under or relating to Section 9 of this Agreement.
If despite their good faith efforts, the parties are unable to resolve such
controversy or claim through the Company's internal review procedures, then such
controversy or claim shall be resolved by a court of law having jurisdiction
thereof. If any contest or dispute shall arise between the Company and Employee
regarding any provision of this Agreement, the parties shall be responsible for
paying all of its own legal fees and expenses incurred in connection with such
contest or dispute.
13. Governing Law; Venue. This Agreement is governed by, and is to be
construed and enforced in accordance with, the laws of the State of New York,
without regard to principles of conflicts of laws. If, under such law, any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion shall be deemed
to be modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement, and the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof. The
parties agree and consent that Dallas County, Texas shall be the proper venue
for the resolution of any disputes arising hereunder.
14. Amendment. No provisions of this Agreement may be amended,
modified, or waived unless such amendment or modification is agreed to in
writing signed by Employee and by a duly authorized officer of the Company, and
such waiver is set forth in writing and signed by the party to be charged. No
waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
15. Survival. The respective obligations of, and benefits afforded to,
Employee and Company as provided in Section 9 of this Agreement shall survive
the termination of this Agreement.
16. No Conflict of Interest. During the Term, Employee shall not
directly, or indirectly render service, or undertake any employment or
consulting agreement with another entity without the express written consent of
the Company.
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<PAGE> 10
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
18. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto (and in the case of the Company, its predecessors and
successors) in respect of the subject matter contained herein and supersedes all
prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto in respect of such subject matter,
including, but not limited to, the Employment Agreement by and between VCS
Industries, Inc. and Employee, dated as of June 18, 1993 and any and all
amendments made subsequent thereto and the Severance Agreement entered into
during 1999 (collectively, the "Prior Agreement"), and as of the Effective Date,
such Prior Agreement shall be void and of no further force or effect (except as
to any sums that remain due and owing to Employee thereunder as of the Effective
Date as a result of events occurring prior to the Effective Date. Any prior
agreement of the parties hereto in respect of the subject matter contained
herein is hereby terminated and canceled, as of the successful consummation of
the Offer. Employee acknowledges that in consideration of the benefits to be
provided hereunder, Employee has agreed to terminate the Prior Agreement.
19. Guaranty. Philips hereby guarantees the obligations of the Company
undertaken hereby.
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<PAGE> 11
20. Section Headings. The section headings in this Agreement are for
convenience of reference only, and they form no part of this Agreement and shall
not affect its interpretation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PHILIPS ELECTRONICS NORTH
AMERICA CORPORATION
By:/s/ William E. Curran
------------------------------------
Title: Senior Vice President and Chief
Financial Officer
/s/ Peter J. Foster
----------------------------
Peter J. Foster
11
<PAGE> 1
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of May 9, 1999, by and between Philips Electronics
North America Corporation ("Philips"), Voice Control Systems, Inc. (the
"Company") and Dr. Thomas B. Schalk ("Employee").
WHEREAS, the Company, Employee's current employer, has entered into an
Agreement and Plan of Merger, dated as of May 9, 1999 with Merger Sub and
Philips (the "Merger Agreement"); and
WHEREAS, Philips and the Company desire to secure the continued
employment of Employee following the successful consummation of the Offer (as
such term is defined in the Merger Agreement) with the Company or such other
subsidiary designated by Philips; and
WHEREAS, the parties desire to enter into an agreement setting forth
the terms and conditions of the employment of Employee with the Company on and
after the successful consummation of the Offer;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto agree
as follows:
1. Employment. The Company hereby agrees to employ Employee, and
Employee agrees to serve as an employee of the Company, on the terms and
conditions set forth in this Agreement, effective upon the purchase of Shares by
Merger Sub pursuant to the Offer (as such terms are defined in the Merger
Agreement) (the "Effective Date"); it being understood that the employment
obligations undertaken by the Company hereunder shall not become effective, and
shall become null and void, in the event that such purchase of Shares does not
occur. For all purposes under this Agreement, references to the Company shall be
deemed to refer to the subsidiary of Philips which employs Employee during the
Term, as defined below.
2. Term. The "Term" shall be the period commencing on the Effective
Date and ending on the second anniversary of the Effective Date.
3. Duties and Responsibilities. During the Term, Employee shall serve
as the Vice President and Chief Technical Officer of the Company with such
duties and responsibilities that are customary for such position and shall
include those that are assigned to the Employee by the Company during the Term.
Employee shall devote substantially all Employee's working time, attention and
energies during normal business hours (other than absences due to illness or
vacation) to the performance of Employee's duties for the Company. Employee may
engage in other outside activities, including community activities, provided
that such activities do not unreasonably interfere with Employee's performance
of Employee's duties with the Company.
<PAGE> 2
4. Place of Performance. The principal place of employment of Employee
shall be at the Company's offices in Dallas, Texas. Employee acknowledges that
he may be required to travel on Company business in connection with the
performance of his duties hereunder without violation of this Section 4 by the
Company.
5. Compensation and Related Matters.
(a) Base Salary and Bonus. During the Term the Company shall
pay Employee a base salary at the rate of not less than $180,000 ("Base Salary")
which shall be annually reviewed by the Company. Employee's Base Salary shall be
paid in approximately equal installments in accordance with the Company's
customary payroll practices. Employee's performance and Base Salary shall be
reviewed annually. If Employee's Base Salary is increased by the Company, such
increased Base Salary shall then constitute the Base Salary for all purposes of
the Agreement other than Section 5(c), below. The Employee shall be eligible to
receive an annual bonus opportunity equal to 30% of Employee's Base Salary (the
"Target Bonus"). The actual bonus payment, which may be higher or lower than the
Target Bonus, will be determined, by Philips in consultation with the Senior
Vice President, Philips Speech Processing Telephony North America, according to
the level of achievement of performance targets established thereby; provided,
however that the annual bonus payable to Employee in respect of the first twelve
months of the Term shall not be less than $20,000. The annual bonus will be paid
to Employee on a quarterly basis during the Term.
(b) Benefit Plans. Employee shall be entitled to participate
in such employee benefit plans and insurance programs applicable to the Company,
or which it may adopt from time to time, for its executive management or
supervisory personnel generally, in accordance with the eligibility requirements
for participation therein. Notwithstanding the foregoing, Employee shall not be
entitled to receive severance pursuant to any severance plan applicable to the
Company if the Employee is entitled to receive payments pursuant to Section 8(b)
of this Agreement. Nothing herein shall be construed so as to prevent the
Company from modifying or terminating any employee benefit plans or programs, or
employee fringe benefits, it may adopt from time to time; provided that any such
modification or termination is made, or occurs, in connection with modifications
or terminations that are applicable to all similarly situated executives of
Philips.
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<PAGE> 3
(c) Long-Term Incentive Plan. Employee shall be eligible to
participate in a long-term incentive plan (the "LTIP") during the Term, as
specified below. Payments under the LTIP will be based on two components:
(i) Guaranteed Payment. The Employee will be eligible
to receive a guaranteed payment ("Guaranteed Payment") equal
to 50% of Employee's Base Salary applicable as of June, 1999
which shall become payable to Employee in three (3)
substantially equal installments if Employee is actively
employed by the Company on the date which is (A) six (6)
months following the Effective Date, (B) twelve (12) months
following the Effective Date and (C) eighteen (18) months
following the Effective Date, respectively, one such
installment to be paid following each of the dates described
in clauses (A), (B) and (C) if the employment condition has
been met on such date
(ii) Earned Payment. The Employee will have the
opportunity to earn an additional long-term incentive payment
("Earned Payment") equal to up to 25% of Employee's Base
Salary applicable as of June, 1999 if (A) business synergies
and objectives (as defined by Philips in consultation with the
Senior Vice President, Philips Speech Processing Telephony
North America) during the eighteen (18) month period following
the Effective Date are achieved and (B) Employee remains
actively employed by the Company on the date which is eighteen
(18) months following the Effective Date; provided, however,
that Employee's performance in relation to such objectives
shall be measured every six (6) months, beginning with the
date which is six (6) months following the Effective Date, and
if the objectives have been achieved after such six (6) month
period, Employee shall be paid an amount equal to one-third
of the Earned Payment as soon as practicable thereafter, but
in no event later than thirty (30) days after each such six
(6) month period.
(d) Expenses. The Company shall promptly reimburse Employee
for all reasonable business expenses, including cellular telephone usage, upon
the presentation of reasonably itemized statements of such expenses in
accordance with the Company's policies and procedures now in force or as such
policies and procedures may be modified with respect to all employees of the
Company.
6. Termination. This Agreement shall be terminated upon the earliest to
occur of the following:
(a) Expiration. The expiration of the Term.
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<PAGE> 4
(b) Death. The death of Employee.
(c) Disability. If, as a result of Disability, Employee shall
have been substantially unable to perform the duties of Employee's employment
hereunder for a period of ninety (90) consecutive days or any ninety (90) days
within a period of two hundred seventy (270) days and within thirty (30) days
after written Notice of Termination is given by the Company after such ninety
(90) day period, Employee shall not have returned to the substantial performance
of duties on a full-time basis. For purposes of this Agreement, "Disability"
shall have the same meaning as that term is defined in the Long Term Disability
Plan applicable to employees of the Company; provided, that, if no such plan
exists, "Disability" shall have the same meaning as provided in Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended.
(d) Cause. The Company terminates Employee for Cause. For
purposes of this Agreement, the Company shall have "Cause" to terminate
Employee's employment upon Employee's (i) willful and continued failure to
substantially perform Employee's duties with the Company (other than any such
failure resulting from incapacity due to physical or mental illness) after a
written demand for substantial performance is delivered to Employee which
identifies the manner in which the Company believes that Employee has not
substantially performed Employee's duties and Employee is given a reasonable
opportunity to correct any such deficiency in performance, or (ii) willful
misconduct (but excluding any action that Employee reasonably believes is in the
best interests of the Company) which is demonstrably and materially injurious to
the Company or to any entity in control of, controlled by or under common
control with the Company (an "Affiliate"), including, but not limited to, any
breach of Sections 9 and 10 hereof or gross negligence or gross misconduct, or
(iii) the conviction of, or plea of guilty or nolo contendere to, a felony
involving moral turpitude, or (iv) habitual drug or alcohol abuse by Employee.
(e) Without Cause. The Company terminates Employee's
employment hereunder without Cause by providing Employee with a Notice of
Termination.
(f) Voluntary Termination. Employee terminates this Agreement
and Employee's employment hereunder at any time upon ninety (90) days prior
written notice to the Company.
(g) Material Breach. Employee terminates employment because of
a material breach of this Agreement by the Company. For purposes of this
Agreement, a "material breach" shall be deemed to occur upon a failure by the
Company to comply with any material provision of Sections 4 and 5 (other than
Section 5(c)(ii)) of this Agreement without Employee's written consent,
including (i) any reduction in Base Salary, Target Bonus opportunity and
Guaranteed Payment under the LTIP, when
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<PAGE> 5
considered in the aggregate, or (ii) a relocation of the Employee to a location
more than 50 miles from the Employee's present location, which in the case of
any alleged breach, has not been cured in all material respects within thirty
(30) days after written notice of such noncompliance has been given by Employee
to the Company.
7. Termination Procedure.
(a) Notice of Termination. Any termination of Employee by the
Company or by Employee (other than termination pursuant to Section 6(a) or (b)
hereof) shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 11. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Employee under the provisions so indicated.
(b) Date of Termination. "Date of Termination" shall mean (i)
if Employee's employment is terminated by reason of Employee's death, the date
of death, (ii) if Employee's employment is terminated pursuant to Section 6(c)
hereof, thirty (30) days after Notice of Termination is given (provided that
Employee shall not have returned to work on a regular basis during such thirty
(30) day period), (iii) if Employee's employment is terminated pursuant to
Sections 6(d), 6(e) or 6(g), the date specified in the Notice of Termination,
and (iv) if Employee's employment is terminated pursuant to Section 6(f), the
date specified in a Notice of Termination which shall not be less than ninety
(90) days following the date of such Notice, unless determined by the Company in
its sole discretion.
8. Amounts Due Upon Termination. In the event Employee's employment
terminates during the Term, the Company shall provide Employee with the payments
set forth below. Employee acknowledges and agrees that the payments set forth in
this Section 8 constitute liquidated damages for termination of employment
during the Term.
(a) If Employee is terminated following expiration of the Term
under Section 6(a),or pursuant to Sections 6(b), 6(c), 6(d), or 6(f), the
Company shall pay Employee all accrued but unpaid Base Salary through the Date
of Termination at the rate in effect at the time Notice of Termination is given
and reimburse Employee for incurred expenses in accordance with Section 5(d),
and the Company shall have no further obligations to Employee under this
Agreement; provided, that, Employee shall be entitled to any other benefit or
payment provided pursuant to any plan or policy of the Company in accordance
with such plan's or policy's terms.
(b) If Employee's employment is terminated pursuant to
Sections 6(e) or 6(g), the Company shall pay to Employee (A) Base Salary accrued
through the Date of Termination and (B) a payment equal to the Base Salary
payable for
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<PAGE> 6
the greater of (i) the remainder of the Term, or (ii) eighteen (18) months, and
(C) a payment equal to the sum, pro-rated through the Date of Termination, of
(i) the Target Bonus for the calendar year in which the termination occurs, and
(ii) the Guaranteed Payment under the LTIP. All such payments shall be made no
later than 30 days following such termination. Employee shall also be entitled
to reimbursement for incurred expenses pursuant to Section 5(d) and to any other
benefits or payments provided pursuant to any plan or policy of the Company in
accordance with such plan's or policy's terms, subject to Section 5(b).
9. Fair Dealing/Non-Competition/Non-Solicitation.
(a) Employee recognizes and acknowledges that, during the term
of his employment by the Company, he will have access to and become familiar
with various trade secrets and other confidential or proprietary information of
the Company. Trade secrets, proprietary information and confidential information
encompass, without limitation, anything which is owned by the Company and is
regularly used in the operation of the business of the Company to obtain a
competitive advantage over the Company's competitors who do not know, have
access to, or utilize such information or trade secrets. Proprietary information
further includes, but is not limited to, records, files, documents, bulletins,
publications, manuals, financial data and information, marketing plans and
proposals, accounting control procedures, and information concerning and the
identity of customers, prospects and suppliers. Trade secrets further include,
but are not limited to, specifications, software programs, both the source code
and the object code, documentation, flow charts, diagrams, schematics, data,
data bases, and business and production methods and techniques. Employee further
recognizes and acknowledges that the trade secrets and other confidential or
proprietary information of the Company are valuable, special and unique and that
the protection thereof is of critical importance to the Company in maintaining
its competitive position. Employee, therefore, covenants and agrees that, except
as required by his employment hereunder or with the express prior written
consent of the Company or as required by court order, he shall not, during the
term of his employment by the Company or at anytime thereafter, either directly
or indirectly, make independent use of, publish or otherwise disclose any of the
aforesaid trade secrets or other confidential or proprietary information of the
Company (whether acquired, learned, obtained or developed by him alone or in
conjunction with others) to any person, firm, corporation, association or other
entity for any reason or purpose whatsoever or allow any other person, firm,
corporation, association or other entity to make use of, publish or disclose any
of the aforesaid trade secrets or other confidential or proprietary information.
Employee agrees not to use, steal, or appropriate such items or versions
thereof, whether copied or reconstructed from memory or otherwise, in any
manner. Employee further recognizes and acknowledges that in order to enable
Company to perform services for its clients, those clients may furnish to
Company confidential information concerning their business affairs, property,
methods of operation or other data; that the goodwill afforded to Company
depends upon, among other things,
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<PAGE> 7
Company and its employees keeping such services and information confidential.
Employee therefore covenants and agrees that he shall keep all such client
services and information confidential and shall not disclose any such
information to any third party. Such client information shall be subject to all
of the restrictions to which Company's confidential information is subject under
this Agreement.
(b) Employee agrees not to disclose or use any protected
secret of any of his former employers.
(c) During the term of this Agreement, Employee shall not,
directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer, director, or in any other
individual or representative capacity, engage or participate in any business
that is in competition with the business of Company, or to use in any manner
whatsoever for his own benefit, directly or indirectly, any business opportunity
rightfully belonging to Company.
(d) Employee agrees that during the term of the Agreement and
thereafter he shall not interfere with Company's relationship with any customer
or supplier or with the due performance of any understanding, agreement or
contract, whether written or oral, between Company and any of its customers or
suppliers. Without limiting the generality of the preceding sentence, Employee
agrees that for twenty-four (24) months following termination of his employment,
Employee will not solicit business from or perform services for any person or
entity which was a customer of the Company at the time of the termination of
employment, whether such solicitation is made or such services are performed on
Employee's own behalf or on behalf of any other person, firm, corporation,
association or other entity, unless such solicitation or service is not
competing, directly or indirectly, with the Company.
(e) Employee agrees upon his termination of employment that he
shall not enter or engage in competition with the Company in the development or
marketing of any speech recognition product or service in the United States,
either as an individual on his own, or as a partner or a joint venturer, or as
an employee, agent, officer, director or shareholder for any other person, or
otherwise for the period starting at the termination and continuing for a period
of twenty-four (24) months after the date of the termination of his employment.
(f) Employee expressly recognizes and acknowledges that the
Company has expanded substantial resources, energies and efforts in connection
with the aforesaid trade secrets, proprietary information, and customer and
supplier relationships, that the protection and confidentiality thereof are
critical to the growth, development and success of the Company and that
compliance with the restrictive covenants contained in this Agreement is
necessary to protect the business and good will of the Company. As a result,
Employee further recognizes that the Company will suffer substantial,
irreparable and continuing injuries, damages and costs attendant thereto in the
event of the breach of
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<PAGE> 8
this Agreement. Therefore, the existence of any claim or cause of action of
Employee against Company, whether predicated under this Agreement or otherwise,
shall not constitute a defense to the enforcement by Company of the covenants on
the part of the Employee in this Section 9. Further recognizing that money
damages may not provide adequate relief, the Employee agrees that, in the event
that he breaches the provision of this Section 9, Company shall be entitled to a
preliminary or permanent injunction in order to prevent the continuation of such
harm. Employee further agrees that any and all sums collected by Employee, or
any company owned, controlled, employing or employed by Employee, directly or
indirectly, in violation of this Agreement, shall be constructively held by
Employee in trust for Company. Nothing in this Agreement shall be construed to
prohibit the Company from also pursuing any other remedy, the parties having
agreed that all remedies are cumulative.
(g) Employee hereby assigns and agrees to assign to the
Company or its subsidiaries or affiliates, as appropriate, its successors,
assigns or nominees, his entire right, title and interest in any developments,
designs, patents, inventions and improvements, trade secrets, trademarks,
copyrightable subject matter or proprietary information which Employee made or
conceived, or may make or conceive, either solely or jointly with others while
providing services to Company or with the use of the time, material or
facilities of Company, or resulting from any task assigned to him or work
performed by him for or on behalf of Company. It is further agreed that, without
charge to Company, but at its expense, Employee will execute and deliver all
such further papers as may be necessary, including original applications and
applications for renewal, extension or reissue of patents, trademark
registrations or copyright registrations, in any and all countries, to vest
title thereto in Company, its successors, assigns or nominees. Either during or
after employment with Company, Employee will not disclose to anyone outside of
Company, nor use in other than Company business, except with the prior written
permission of an officer of the Company, any developments, designs, inventions
and improvements, trade secrets, works of authorship, proprietary information or
proprietary things developed by him while providing services to Company.
10. Successors; Binding Agreement. This Agreement shall be binding upon
and shall inure to the benefit of Employee, his heirs, executors,
administrators, beneficiaries and assigns and shall be binding upon and shall
inure to the benefit of the Company and its successors, including, following the
Effective Time, Philips Speech Processing Telephony North America.
11. Notice. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered either personally or by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed, in case of Employee, to the last address on file with the
Company and if to the Company, to its executive offices or to such other address
as any party may have furnished to the others in writing in accordance herewith,
except that notices of change of address shall be effective
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<PAGE> 9
only upon receipt.
12. Resolution of Differences Over Breaches of Agreement. The parties
shall use good faith efforts to resolve any controversy or claim arising out of,
or relating to this Agreement or the breach thereof, first in accordance with
the Company's internal review procedures, except that this requirement shall not
apply to any claim or dispute under or relating to Section 9 of this Agreement.
If despite their good faith efforts, the parties are unable to resolve such
controversy or claim through the Company's internal review procedures, then such
controversy or claim shall be resolved by a court of law having jurisdiction
thereof. If any contest or dispute shall arise between the Company and Employee
regarding any provision of this Agreement, the parties shall be responsible for
paying all of its own legal fees and expenses incurred in connection with such
contest or dispute.
13. Governing Law; Venue. This Agreement is governed by, and is to be
construed and enforced in accordance with, the laws of the State of New York,
without regard to principles of conflicts of laws. If, under such law, any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion shall be deemed
to be modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement, and the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof. The
parties agree and consent that Dallas County, Texas shall be the proper venue
for the resolution of any disputes arising hereunder.
14. Amendment. No provisions of this Agreement may be amended,
modified, or waived unless such amendment or modification is agreed to in
writing signed by Employee and by a duly authorized officer of the Company, and
such waiver is set forth in writing and signed by the party to be charged. No
waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
15. Survival. The respective obligations of, and benefits afforded to,
Employee and Company as provided in Section 9 of this Agreement shall survive
the termination of this Agreement.
16. No Conflict of Interest. During the Term, Employee shall not
directly, or indirectly render service, or undertake any employment or
consulting agreement with another entity without the express written consent of
the Company.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
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<PAGE> 10
18. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto (and in the case of the Company, its predecessors and
successors) in respect of the subject matter contained herein and supersedes all
prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto in respect of such subject matter,
including, but not limited to, the Employment Agreement by and between VCS
Industries, Inc. and Employee, dated as of June 18, 1993 and any and all
amendments made subsequent thereto (the "Prior Agreement"), and as of the
Effective Date, such Prior Agreement shall be void and of no further force or
effect (except as to any sums that remain due and owing to Employee thereunder
as of the Effective Date as a result of events occurring prior to the Effective
Date). Any prior agreement of the parties hereto in respect of the subject
matter contained herein is hereby terminated and canceled, as of the successful
consummation of the Offer. Employee acknowledges that in consideration of the
benefits to be provided hereunder, Employee has agreed to terminate the Prior
Agreement.
19. Guaranty. Philips hereby guarantees the obligations of the Company
undertaken hereby.
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<PAGE> 11
20. Section Headings. The section headings in this Agreement are for
convenience of reference only, and they form no part of this Agreement and shall
not affect its interpretation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PHILIPS ELECTRONICS NORTH
AMERICA CORPORATION
By:/s/ William E. Curran
------------------------
Title: Senior Vice President and
Chief Financial Officer
VOICE CONTROL SYSTEMS, INC.
By:/s/ Kim S. Terry
------------------------
Title: Vice President Finance
/s/ Dr. Thomas B. Schalk
----------------------------
Dr. Thomas B. Schalk
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<PAGE> 1
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of May 9, 1999, by and between Philips Electronics
North America Corporation ("Philips") and Kim Terry ("Employee").
WHEREAS, Voice Control Systems, Inc. (the "Company"), Employee's
current employer, has entered into an Agreement and Plan of Merger, dated as of
May 9, 1999 with Merger Sub and Philips (the "Merger Agreement"); and
WHEREAS, Philips desires to secure the continued employment of Employee
following the successful consummation of the Offer (as such term is defined in
the Merger Agreement) with the Company or such other subsidiary designated by
Philips; and
WHEREAS, the parties desire to enter into an agreement setting forth
the terms and conditions of the employment of Employee with the Company or such
other subsidiary designated by Philips on and after the successful consummation
of the Offer;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto agree
as follows:
1. Employment. For all purposes under this Agreement, references to the
Company shall be deemed to refer to the subsidiary of Philips which employs
Employee during the Term, as defined below. The Company hereby agrees to employ
Employee, and Employee agrees to serve as an employee of the Company, on the
terms and conditions set forth in this Agreement, effective upon the purchase of
Shares by Merger Sub pursuant to the Offer (as such terms are defined in the
Merger Agreement) (the "Effective Date"); it being understood that the
employment obligations undertaken by the Company hereunder shall not become
effective, and shall become null and void, in the event that such purchase of
Shares does not occur.
2. Term. The "Term" shall be the period commencing on the Effective
Date and ending on the second anniversary of the Effective Date.
3. Duties and Responsibilities. During the Term, Employee shall serve
as the Vice President - Operations and Finance of the Company with such duties
and responsibilities that are customary for such position and shall include
those that are assigned to the Employee by the Company during the Term. Employee
shall devote substantially all Employee's working time, attention and energies
during normal business hours (other than absences due to illness or vacation) to
the performance of Employee's duties for the Company. Employee may engage in
other outside activities, including community activities, provided that such
activities do not unreasonably interfere with Employee's performance of
Employee's duties with the Company.
<PAGE> 2
4. Place of Performance. The principal place of employment of Employee
shall be at the Company's offices in Dallas, Texas. Employee acknowledges that
she may be required to travel on Company business in connection with the
performance of her duties hereunder without violation of this Section 4.
5. Compensation and Related Matters.
(a) Base Salary and Bonus. During the Term the Company shall
pay Employee a base salary at the rate of not less than $160,000 ("Base Salary")
which shall be annually reviewed by the Company. Employee's Base Salary shall be
paid in approximately equal installments in accordance with the Company's
customary payroll practices. Employee's performance and Base Salary shall be
reviewed annually. If Employee's Base Salary is increased by the Company, such
increased Base Salary shall then constitute the Base Salary for all purposes of
the Agreement other than Section 5(c), below. The Employee shall be eligible to
receive an annual bonus opportunity equal to 30% of Employee's Base Salary (the
"Target Bonus"). The actual bonus payment, which may be higher or lower than the
Target Bonus, will be determined, by Philips in consultation with the Senior
Vice President, Philips Speech Processing Telephony North America, according to
the level of achievement of performance targets established thereby. The bonus
will be paid no later than during the first quarter after the end of the
relevant calendar year or if this Agreement is terminated due to its expiration
during a calendar year, no later than ninety (90) days following such
termination.
(b) Benefit Plans. Employee shall be entitled to participate
in such employee benefit plans and insurance programs applicable to the Company,
or which it may adopt from time to time, for its executive management or
supervisory personnel generally, in accordance with the eligibility requirements
for participation therein. Notwithstanding the foregoing, Employee shall not be
entitled to receive severance pursuant to any severance plan applicable to the
Company if the Employee is entitled to receive payments pursuant to Section 8(b)
of this Agreement. Nothing herein shall be construed so as to prevent the
Company from modifying or terminating any employee benefit plans or programs, or
employee fringe benefits, it may adopt from time to time; provided that any such
modification or termination is made, or occurs, in connection with modifications
or terminations that are applicable to all similarly situated executives of
Philips.
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<PAGE> 3
(c) Long-Term Incentive Plan. Employee shall be eligible to
participate in a long-term incentive plan (the "LTIP") during the Term, as
specified below. Payments under the LTIP will be based on two components:
(i) Guaranteed Payment. The Employee will be eligible
to receive a guaranteed payment ("Guaranteed Payment") equal
to 50% of Employee's Base Salary applicable as of June, 1999
which shall become payable to Employee in three (3)
substantially equal installments if Employee is actively
employed by the Company on the date which is (A) six (6)
months following the Effective Date, (B) twelve (12) months
following the Effective Date and (C) eighteen (18) months
following the Effective Date, respectively, one such
installment to be paid following each of the dates described
in clauses (A), (B) and (C) above if the employment condition
has been satisfied on such date.
(ii) Earned Payment. The Employee will have the
opportunity to earn an additional long-term incentive payment
("Earned Payment") equal to up to 25% of Employee's Base
Salary applicable as of June, 1999 if (A) business synergies
and objectives (as defined by Philips in consultation with the
Senior Vice President, Philips Speech Processing Telephony
North America) during the eighteen (18) month period following
the Effective Date are achieved and (B) Employee remains
actively employed by the Company on the date which is eighteen
(18) months following the Effective Date; provided, however,
that Employee's performance in relation to such objectives
shall be measured every six (6) months, beginning with the
date which is six (6) months following the Effective Date, and
if the objectives have been achieved after such six (6) month
period, Employee shall be paid an amount equal to one-third
of the Earned Payment as soon as practicable thereafter, but
in no event later than thirty (30) days after each such six
(6) month period.
(d) Expenses. The Company shall promptly reimburse Employee
for all reasonable business expenses, including cellular telephone usage, upon
the presentation of reasonably itemized statements of such expenses in
accordance with the Company's policies and procedures now in force or as such
policies and procedures may be modified with respect to all employees of the
Company.
(e) Signing Bonus. In addition to the foregoing, Employee
shall be paid a bonus of $10,000 in consideration of her entering into this
Agreement, which shall be payable within one month following the Effective Date.
6. Termination. This Agreement shall be terminated upon the
earliest
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to occur of the following:
(a) Expiration. The expiration of the Term.
(b) Death. The death of Employee.
(c) Disability. If, as a result of Disability, Employee shall
have been substantially unable to perform the duties of Employee's employment
hereunder for a period of ninety (90) consecutive days or any ninety (90) days
within a period of two hundred seventy (270) days and within thirty (30) days
after written Notice of Termination is given by the Company after such ninety
(90) day period, Employee shall not have returned to the substantial performance
of duties on a full-time basis. For purposes of this Agreement, "Disability"
shall have the same meaning as that term is defined in the Long Term Disability
Plan applicable to employees of the Company; provided, that, if no such plan
exists, "Disability" shall have the same meaning as provided in Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended.
(d) Cause. The Company terminates Employee for Cause. For
purposes of this Agreement, the Company shall have "Cause" to terminate
Employee's employment upon Employee's (i) willful and continued failure to
substantially perform Employee's duties with the Company (other than any such
failure resulting from incapacity due to physical or mental illness) after a
written demand for substantial performance is delivered to Employee which
identifies the manner in which the Company believes that Employee has not
substantially performed Employee's duties and Employee is given a reasonable
opportunity to correct any such deficiency in performance, or (ii) willful
misconduct (but excluding any action that Employee reasonably believes is in the
best interests of the Company) which is demonstrably and materially injurious to
the Company or to any entity in control of, controlled by or under common
control with the Company (an "Affiliate"), including, but not limited to, any
breach of Sections 9 and 10 hereof or gross negligence or gross misconduct, or
(iii) the conviction of, or plea of guilty or nolo contendere to, a felony
involving moral turpitude, or (iv) habitual drug or alcohol abuse by Employee.
(e) Without Cause. The Company terminates Employee's
employment hereunder without Cause by providing Employee with a Notice of
Termination.
(f) Voluntary Termination. Employee terminates this Agreement
and Employee's employment hereunder at any time upon ninety (90) days prior
written notice to the Company.
(g) Material Breach. Employee terminates employment because of
a material breach of this Agreement by the Company. For purposes of this
Agreement, a "material breach" shall be deemed to occur upon a failure by the
Company
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to comply with any material provision of Sections 4 or 5 (other than Section
5(c)(ii)) of this Agreement without Employee's written consent, including (i)
any reduction in Base Salary, Target Bonus opportunity and Guaranteed Payment
under the LTIP, when considered in the aggregate, or (ii) a relocation of the
Employee to a location more than 50 miles from the Employee's present location,
which in the case of any alleged breach, has not been cured in all material
respects within thirty (30) days after written notice of such noncompliance has
been given by Employee to the Company.
7. Termination Procedure.
(a) Notice of Termination. Any termination of Employee by the
Company or by Employee (other than termination pursuant to Section 6(a) or (b)
hereof) shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 11. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Employee under the provisions so indicated.
(b) Date of Termination. "Date of Termination" shall mean (i)
if Employee's employment is terminated by reason of Employee's death, the date
of death, (ii) if Employee's employment is terminated pursuant to Section 6(c)
hereof, thirty (30) days after Notice of Termination is given (provided that
Employee shall not have returned to work on a regular basis during such thirty
(30) day period), (iii) if Employee's employment is terminated pursuant to
Sections 6(d), 6(e) or 6(g), the date specified in the Notice of Termination,
and (iv) if Employee's employment is terminated pursuant to Section 6(f), the
date specified in a Notice of Termination which shall not be less than ninety
(90) days following the date of such Notice, unless determined by the Company in
its sole discretion.
8. Amounts Due Upon Termination. In the event Employee's employment
terminates during the Term, the Company shall provide Employee with the payments
set forth below. Employee acknowledges and agrees that the payments set forth in
this Section 8 constitute liquidated damages for termination of employment
during the Term.
(a) If Employee is terminated following expiration of the Term
under Section 6(a), or pursuant to Sections 6(b), 6(c), 6(d), or 6(f), the
Company shall pay Employee all accrued but unpaid Base Salary through the Date
of Termination at the rate in effect at the time Notice of Termination is given
and reimburse Employee for incurred expenses pursuant to Section 5(d), and the
Company shall have no further obligations to Employee under this Agreement;
provided, that, Employee shall be entitled to any other benefit or payment
provided pursuant to any plan or policy of the Company in accordance with such
plan's or policy's terms.
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(b) If Employee's employment is terminated pursuant to
Sections 6(e) or 6(g), the Company shall pay to Employee (A) Base Salary accrued
through the Date of Termination and (B) a payment equal to the Base Salary
payable for the greater of (i) the remainder of the Term, or (ii) twelve (12)
months, and (C) a payment equal to the sum, pro-rated through the Date of
Termination, of (i) the Target Bonus for the calendar year in which the
termination occurs, and (ii) the Guaranteed Payment under the LTIP. All such
payments shall be made no later than 30 days following such termination.
Employee shall also be entitled to reimbursement for incurred expenses pursuant
to Section 5(d) and to any other benefits or payments provided pursuant to any
plan or policy of the Company in accordance with such plan's or policy's terms,
subject to Section 5(b).
9. Fair Dealing/Non-Competition/Non-Solicitation.
(a) Employee recognizes and acknowledges that, during the term
of his employment by the Company, he will have access to and become familiar
with various trade secrets and other confidential or proprietary information of
the Company. Trade secrets, proprietary information and confidential information
encompass, without limitation, anything which is owned by the Company and is
regularly used in the operation of the business of the Company to obtain a
competitive advantage over the Company's competitors who do not know, have
access to, or utilize such information or trade secrets. Proprietary information
further includes, but is not limited to, records, files, documents, bulletins,
publications, manuals, financial data and information, marketing plans and
proposals, accounting control procedures, and information concerning and the
identity of customers, prospects and suppliers. Trade secrets further include,
but are not limited to, specifications, software programs, both the source code
and the object code, documentation, flow charts, diagrams, schematics, data,
data bases, and business and production methods and techniques. Employee further
recognizes and acknowledges that the trade secrets and other confidential or
proprietary information of the Company are valuable, special and unique and that
the protection thereof is of critical importance to the Company in maintaining
its competitive position. Employee, therefore, covenants and agrees that, except
as required by his employment hereunder or with the express prior written
consent of the Company or as required by a court order, she shall not, during
the term of his employment by the Company or at anytime thereafter, either
directly or indirectly, make independent use of, publish or otherwise disclose
any of the aforesaid trade secrets or other confidential or proprietary
information of the Company (whether acquired, learned, obtained or developed by
him alone or in conjunction with others) to any person, firm, corporation,
association or other entity for any reason or purpose whatsoever or allow any
other person, firm, corporation, association or other entity to make use of,
publish or disclose any of the aforesaid trade secrets or other confidential or
proprietary information. Employee agrees not to use, steal, or appropriate such
items or versions thereof, whether copied or reconstructed from memory or
otherwise, in any
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manner. Employee further recognizes and acknowledges that in order to enable
Company to perform services for its clients, those clients may furnish to
Company confidential information concerning their business affairs, property,
methods of operation or other data; that the goodwill afforded to Company
depends upon, among other things, Company and its employees keeping such
services and information confidential. Employee therefore covenants and agrees
that she shall keep all such client services and information confidential and
shall not disclose any such information to any third party. Such client
information shall be subject to all of the restrictions to which Company's
confidential information is subject under this Agreement.
(b) Employee agrees not to disclose or use any protected
secret of any of her former employers.
(c) During the term of this Agreement, Employee shall not,
directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer, director, or in any other
individual or representative capacity, engage or participate in any business
that is in competition with the business of Company, or to use in any manner
whatsoever for his own benefit, directly or indirectly, any business opportunity
rightfully belonging to Company.
(d) Employee agrees that during the term of the Agreement and
thereafter she shall not interfere with Company's relationship with any customer
or supplier or with the due performance of any understanding, agreement or
contract, whether written or oral, between Company and any of its customers or
suppliers. Without limiting the generality of the preceding sentence, Employee
agrees that for twelve (12) months following termination of his employment,
Employee will not solicit business from or perform services for any person or
entity which was a customer of the Company at the time of the termination of
employment, whether such solicitation is made or such services are performed on
Employee's own behalf or on behalf of any other person, firm, corporation,
association or other entity, unless such solicitation or service is not
competing, directly or indirectly, with the Company.
(e) Employee agrees upon her termination of employment that
she shall not enter or engage in competition with the Company in the development
or marketing of any speech recognition product or service in the United States,
either as an individual on his own, or as a partner or a joint venturer, or as
an employee, agent, officer, director or shareholder for any other person, or
otherwise for the period starting at the termination and continuing for a period
of twelve (12) months after the date of the termination of her employment.
(f) Employee expressly recognizes and acknowledges that the
Company has expanded substantial resources, energies and efforts in connection
with the aforesaid trade secrets, proprietary information, and customer and
supplier relationships, that the protection and confidentiality thereof are
critical to the growth, development and
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success of the Company and that compliance with the restrictive covenants
contained in this Agreement is necessary to protect the business and good will
of the Company. As a result, Employee further recognizes that the Company will
suffer substantial, irreparable and continuing injuries, damages and costs
attendant thereto in the event of the breach of this Agreement. Therefore, the
existence of any claim or cause of action of Employee against Company, whether
predicated under this Agreement or otherwise, shall not constitute a defense to
the enforcement by Company of the covenants on the part of the Employee in this
Section 9. Further recognizing that money damages may not provide adequate
relief, the Employee agrees that, in the event that he breaches the provision of
this Section 9, Company shall be entitled to a preliminary or permanent
injunction in order to prevent the continuation of such harm. Employee further
agrees that any and all sums collected by Employee, or any company owned,
controlled, employing or employed by Employee, directly or indirectly, in
violation of this Agreement, shall be constructively held by Employee in trust
for Company. Nothing in this Agreement shall be construed to prohibit the
Company from also pursuing any other remedy, the parties having agreed that all
remedies are cumulative.
(g) Employee hereby assigns and agrees to assign to the
Company or its subsidiaries or affiliates, as appropriate, its successors,
assigns or nominees, his entire right, title and interest in any developments,
designs, patents, inventions and improvements, trade secrets, trademarks,
copyrightable subject matter or proprietary information which Employee made or
conceived, or may make or conceive, either solely or jointly with others while
providing services to Company or with the use of the time, material or
facilities of Company, or resulting from any task assigned to her or work
performed by her for or on behalf of Company. It is further agreed that, without
charge to Company, but at its expense, Employee will execute and deliver all
such further papers as may be necessary, including original applications and
applications for renewal, extension or reissue of patents, trademark
registrations or copyright registrations, in any and all countries, to vest
title thereto in Company, its successors, assigns or nominees. Either during or
after employment with Company, Employee will not disclose to anyone outside of
Company, nor use in other than Company business, except with the prior written
permission of an officer of the Company, any developments, designs, inventions
and improvements, trade secrets, works of authorship, proprietary information or
proprietary things developed by him while providing services to Company.
10. Successors; Binding Agreement. This Agreement shall be binding upon
and shall inure to the benefit of Employee, her heirs, executors,
administrators, beneficiaries and assigns and shall be binding upon and shall
inure to the benefit of the Company and its successors, including, following the
Effective Time, Philips Speech Processing Telephony North America.
11. Notice. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be
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deemed to have been duly given when delivered either personally or by United
States certified or registered mail, return receipt requested, postage prepaid,
addressed, in case of Employee, to the last address on file with the Company and
if to the Company, to its executive offices or to such other address as any
party may have furnished to the others in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
12. Resolution of Differences Over Breaches of Agreement. The parties
shall use good faith efforts to resolve any controversy or claim arising out of,
or relating to this Agreement or the breach thereof, first in accordance with
the Company's internal review procedures, except that this requirement shall not
apply to any claim or dispute under or relating to Section 9 of this Agreement.
If despite their good faith efforts, the parties are unable to resolve such
controversy or claim through the Company's internal review procedures, then such
controversy or claim shall be resolved by a court of law having jurisdiction
thereof. If any contest or dispute shall arise between the Company and Employee
regarding any provision of this Agreement, the parties shall be responsible for
paying all of its own legal fees and expenses incurred in connection with such
contest or dispute.
13. Governing Law; Venue. This Agreement is governed by, and is to be
construed and enforced in accordance with, the laws of the State of New York,
without regard to principles of conflicts of laws. If, under such law, any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion shall be deemed
to be modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement, and the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof. The
Parties agree and consent that Dallas County, Texas shall be the proper venue
for the resolution of any disputes arising hereunder.
14. Amendment. No provisions of this Agreement may be amended,
modified, or waived unless such amendment or modification is agreed to in
writing signed by Employee and by a duly authorized officer of the Company, and
such waiver is set forth in writing and signed by the party to be charged. No
waiver by either party hereto at any time of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
15. Survival. The respective obligations of, and benefits afforded to,
Employee and Company as provided in Section 9 of this Agreement shall survive
the termination of this Agreement.
16. No Conflict of Interest. During the Term, Employee shall not
directly, or indirectly render service, or undertake any employment or
consulting agreement with another entity without the express written consent of
the Company.
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17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
18. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto (and in the case of the Company, its predecessors and
successors) in respect of the subject matter contained herein and supersede all
prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto in respect of such subject matter. Any
prior agreement of the parties hereto in respect of the subject matter contained
herein is hereby terminated and canceled, as of the Effective Date.
19. Guaranty. Philips hereby guarantees the obligations of the Company
undertaken hereby.
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20. Section Headings. The section headings in this Agreement are for
convenience of reference only, and they form no part of this Agreement and shall
not affect its interpretation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PHILIPS ELECTRONICS NORTH
AMERICA CORPORATION
By:/s/ William E. Curran
--------------------------------
Title: Senior Vice President and
Chief Financial Officer
/s/ Kim Terry
-----------------------------------
Kim Terry
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