<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1997
FILE NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LAM RESEARCH CORPORATION
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CERTIFICATE)
DELAWARE 3559 94-2634797
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
LAM RESEARCH CORPORATION
4650 CUSHING PARKWAY
FREMONT, CALIFORNIA 94538
(510) 659-0200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RICHARD H. LOVGREN
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
LAM RESEARCH CORPORATION
4650 CUSHING PARKWAY
FREMONT, CALIFORNIA 94538
(510) 659-0200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF AGENT FOR SERVICE)
WITH COPIES TO:
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M. GREG ALLIO, ESQ. KENTON J. KING, ESQ. SARAH A. O'DOWD, ESQ.
SHARTSIS, FRIESE & GINSBURG LLP SKADDEN, ARPS, SLATE, MEAGHER HELLER EHRMAN WHITE & MCAULIFFE
ONE MARITIME PLAZA, 18TH FLOOR & FLOM LLP 525 UNIVERSITY AVENUE
SAN FRANCISCO, CALIFORNIA 94111 FOUR EMBARCADERO CENTER PALO ALTO, CALIFORNIA 94301
(415) 421-6500 SAN FRANCISCO, CALIFORNIA 94111 (415) 324-7000
(415) 984-6400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
Upon consummation of the Merger (as defined herein).
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM
OF TO BE MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED(1) OFFERING PRICE OFFERING REGISTRATION
REGISTERED SHARES PER SHARE(2) PRICE(2) FEE(3)
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Common Stock ($0.001
par value)... 8,843,361 shares $29.21 $258,314,574.81 $78,277.14
==================================================================================
</TABLE>
(1) Represents the number of shares of common stock of the Registrant which
may be issued to former stockholders of OnTrak Systems, Inc. ("OnTrak")
pursuant to the Merger described herein.
(2) Based on each share of OnTrak being converted into 0.83 of a share of
common stock of the Registrant pursuant to the Merger described herein.
Pursuant to Rule 457(f) under the Securities Act of 1933, as amended, the
registration fee has been calculated as of June 24, 1997.
(3) The amount of the registration fee includes $62,775 previously paid
pursuant to Section 14(g) of the Securities Act of 1934, as amended, in
connection with the filing by the Registrant and OnTrak of a preliminary
Joint Proxy Statement/Prospectus related to the proposed Merger.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A)
OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING THE LOCATION IN THE PROXY STATEMENT/PROSPECTUS
OF THE INFORMATION REQUIRED BY THE ITEMS OF FORM S-4
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LOCATION IN PROXY
S-4 ITEM NUMBER AND CAPTION STATEMENT/PROSPECTUS
--------------------------- --------------------
A.INFORMATION ABOUT THE TRANSACTION
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1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus....... Cover Page of Registration
Statement; Cross Reference
Sheet; Outside Front Cover
Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front Cover Page;
Available Information;
Incorporation of Certain
Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information............... Summary; Risk Factors;
Comparative Per Share
Data; Comparative Market
Price Data
4. Terms of the Transaction..................... Summary; The Merger and
Related Transactions; Terms
of the Merger Agreement;
Comparison of Capital Stock
and Stockholder Rights
5. Pro Forma Financial Information.............. Summary; Pro Forma Combined
Condensed Financial
Statements
6. Material Contacts with the Company Being
Acquired..................................... The Merger and Related
Transactions
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters.............................. *
8. Interests of Named Experts and Counsel....... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. *
B.INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants.. Summary; Risk Factors;
Incorporation of Certain
Documents By Reference
11. Incorporation of Certain Information by
Reference.................................... Incorporation of Certain
Documents By Reference
12. Information with Respect to S-2 or S-3
Registrants.................................. *
13. Incorporation of Certain Information by
Reference.................................... *
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants.................. *
C.INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies.... Summary; Risk Factors; Pro
Forma Combined Condensed
Financial Statements;
Incorporation of Certain
Documents By Reference
16. Information with Respect to S-2 or S-3
Companies.................................... *
17. Information with Respect to Companies Other
Than S-2 or S-3 Companies.................... *
</TABLE>
<PAGE>
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LOCATION IN PROXY
S-4 ITEM NUMBER AND CAPTION STATEMENT/PROSPECTUS
--------------------------- --------------------
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D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited........... Incorporation of Certain
Documents By Reference;
Summary; Lam Special
Meeting; OnTrak Special
Meeting; The Merger and
Related Transactions
19. Information if Proxies, Consents or
Authorizations are not to be Solicited, or in
an Exchange Offer............................ *
</TABLE>
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* Omitted because inapplicable or answer is negative.
<PAGE>
LAM RESEARCH CORPORATION AND ONTRAK SYSTEMS, INC.
JOINT PROXY STATEMENT
----------------
LAM RESEARCH CORPORATION PROSPECTUS
Lam Research Corporation, a Delaware corporation ("Lam"), and OnTrak
Systems, Inc., a Delaware corporation ("OnTrak"), have entered into an
Agreement and Plan of Merger, dated as of March 24, 1997 (the "Merger
Agreement") among Lam, OnTrak and Omega Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Lam ("Merger Sub"). Pursuant to
the Merger Agreement, Merger Sub will merge with and into OnTrak, (the
"Merger"), OnTrak will become a wholly-owned subsidiary of Lam, and each
outstanding share of common stock of OnTrak, $0.0001 par value per share
("OnTrak Common Stock") will be converted into 0.83 of a share of the common
stock of Lam, $0.001 par value per share ("Lam Common Stock"), subject to the
following adjustment (the "Exchange Ratio"). If the average of the daily sales
prices per share of the Lam Common Stock as reported on the Nasdaq National
Market (the "Lam Closing Value") on the ten trading days ending the eighth
trading day preceding the special meeting of the stockholders of OnTrak (the
"Closing Calculation Period") is less than $30.00 and the Lam Closing Value is
less than the OnTrak Walk Away Threshold (as defined in "Summary--The Merger"
on page 12 below), then Lam may elect to adjust the Exchange Ratio to that
number of shares of Lam Common Stock equal to $24.90 divided by the Lam
Closing Value. If Lam determines not to adjust the Exchange Ratio in those
circumstances, OnTrak has the option to terminate the Merger Agreement. As of
June 25, 1997 assuming the Closing Calculation Period to be the ten trading
days ending the trading day preceding June 25, 1997, the OnTrak Walk Away
Threshold was $34.04. If adjusted, the Exchange Ratio will be fixed prior to
the respective special meetings of stockholders of Lam and OnTrak.
Stockholders may ascertain whether Lam has adjusted the Exchange Ratio or
whether OnTrak has terminated the Merger Agreement by phoning 1-888-LAM-TRAK
or logging onto the World Wide Web at http://www. lamrc.com at any time after
July 25, 1997. If, subsequent to the mailing of the Proxy Card, a stockholder
wishes to revoke or change such stockholder's vote, the stockholder may do so
by phoning 1-888-LAM-TRAK or logging onto the World Wide Web at
http://www.lamrc.com at any time after July 25, 1997 and following the
instructions provided by the messages thereon. Based on the number of shares
of OnTrak Common Stock outstanding as of March 31, 1997 and assuming an
Exchange Ratio of 0.83 of a share of Lam Common Stock for each share of OnTrak
Common Stock, a total of 6,422,165 shares of Lam Common Stock, representing an
aggregate value of $229.6 million (based on the closing price for Lam Common
Stock on June 25, 1997) and 17.3% of the outstanding shares of Lam Common
Stock as of March 31, 1997, will be issued in connection with the Merger. In
the event that Lam elects to adjust the Exchange Ratio, additional shares of
Lam Common Stock may be issued in exchange for shares of OnTrak Common Stock.
The issuance of additional shares of Lam Common Stock would result in the
further dilution of the equity interests of Lam stockholders. As provided for
in the Shareholder Rights Agreement dated as of January 23, 1997 between Lam
and ChaseMellon Shareholder Services LLC ("Lam Rights Plan"), each share of
Lam Common Stock issued in the Merger will be accompanied by one Lam right (a
"Lam Right") to purchase one unit of a share of preferred stock of Lam for
$250.00. In addition, each outstanding option or right to purchase shares of
OnTrak Common Stock under OnTrak's stock option and stock purchase plans (the
"OnTrak Stock Plans") will be assumed by Lam and will be converted into an
option or right to purchase shares of Lam Common Stock, with appropriate
adjustments based on the Exchange Ratio made to the number of shares issuable
under such option, and to the exercise or purchase price of such options or
rights. A copy of the Merger Agreement is attached to this Joint Proxy
Statement/Prospectus as Annex A and is incorporated by reference herein. See
"Terms of the Merger."
On June 25, 1997, the last practicable date before the printing of this
Joint Proxy Statement/Prospectus, the closing price of Lam Common Stock as
reported on the Nasdaq National Market ("Nasdaq") was $35.75, and the closing
price of OnTrak Common Stock as reported on Nasdaq was $28.75. The equivalent
market price per share of OnTrak Common Stock, based on an Exchange Ratio of
0.83 of a share of Lam Common Stock for each share of OnTrak Common Stock and
assuming that the Merger had been consummated on such day, is $29.67.
Pursuant to stockholder agreements, certain executive officers and directors
who beneficially own shares of OnTrak Common Stock, and certain other
stockholders of OnTrak, who in the aggregate beneficially own approximately
26% of all outstanding shares of OnTrak Common Stock, intend to vote in favor
of the adoption of the Merger Agreement.
(Continued on next page)
The date of this Joint Proxy Statement/Prospectus is July 7, 1997.
<PAGE>
(Continued from preceding page)
In addition to approval of the issuance of shares of Lam Common Stock
pursuant to the Merger Agreement (the "Share Issuance"), at the special
meeting of the stockholders of Lam, holders of Lam Common Stock will be asked
to consider and vote upon (i) a proposal to approve and adopt the Lam 1997
Stock Incentive Plan (the "Lam 1997 Stock Plan"), (ii) a proposal to amend the
Certificate of Incorporation of Lam (the "Certificate") to eliminate
stockholder action by written consent (the "Written Consent Amendment"), and
(iii) a proposal to amend the Certificate to eliminate cumulative voting in
the election of members of the Lam Board of Directors (the "Cumulative Voting
Amendment" and together with the "Written Consent Amendment," the "Certificate
of Incorporation Amendments"). See "Lam Special Meeting."
This Joint Proxy Statement/Prospectus is being furnished to holders of Lam
Common Stock, in connection with the solicitation of proxies by the Lam Board
of Directors (the "Lam Board") for use at the special meeting of Lam
stockholders (the "Lam Special Meeting") to be held on August 5, 1997, at the
offices of Lam at 4650 Cushing Parkway, Fremont, California, commencing at
2:00 p.m., local time, and at any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
OnTrak Common Stock, in connection with the solicitation of proxies by the
OnTrak Board of Directors (the "OnTrak Board") for use at the special meeting
of OnTrak stockholders (the "OnTrak Special Meeting") to be held on August 5,
1997, at the offices of OnTrak at 1010 Rincon Circle, San Jose, California,
commencing at 2:00 p.m., local time, and at any adjournment or postponement
thereof.
This Joint Proxy Statement/Prospectus constitutes the prospectus of Lam with
respect to shares of Lam Common Stock to be issued in the Merger in exchange
for outstanding shares of OnTrak Common Stock.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. THE
RESPECTIVE STOCKHOLDERS OF LAM AND ONTRAK ARE URGED TO READ AND CONSIDER
CAREFULLY THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY, INCLUDING THE
MATTERS REFERRED TO BEGINNING ON PAGE 23 UNDER "RISK FACTORS."
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY
STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus and the accompanying proxy cards are
first being mailed to the respective stockholders of Lam and OnTrak on or
about July 7, 1997.
2
<PAGE>
TABLE OF CONTENTS
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PAGE
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<S> <C>
AVAILABLE INFORMATION.................................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 4
TRADEMARKS............................................................... 5
FORWARD-LOOKING STATEMENTS............................................... 5
SUMMARY.................................................................. 6
The Companies.......................................................... 6
Special Meeting of Stockholders of Lam................................. 7
Special Meeting of Stockholders of OnTrak.............................. 9
Risk Factors........................................................... 10
Reasons for the Merger................................................. 10
Opinions of Financial Advisors......................................... 10
Income Tax Treatment................................................... 11
Regulatory Matters..................................................... 11
Accounting Treatment................................................... 11
The Merger............................................................. 11
Interests of Certain Persons in the Merger............................. 16
Market and Price Data for Lam Common Stock and OnTrak Common Stock..... 18
Comparative Rights of Stockholders of Lam and OnTrak................... 18
Appraisal Rights....................................................... 18
Lam 1997 Stock Plan.................................................... 18
Certificate of Incorporation Amendments................................ 19
RECENT EVENTS............................................................ 19
Lam Third Quarter 1997 Results......................................... 19
Lam Reserve and Non-Recurring Charge for At-Risk Receivables........... 19
Sublease Between Lam and OnTrak........................................ 19
SELECTED HISTORICAL AND SELECTED PRO FORMA COMBINED FINANCIAL DATA....... 20
RISK FACTORS............................................................. 23
COMPARATIVE PER SHARE DATA............................................... 32
COMPARATIVE MARKET PRICE DATA............................................ 33
LAM SPECIAL MEETING...................................................... 34
Date, Time and Place of Lam Special Meeting............................ 34
Purpose................................................................ 34
Record Date and Outstanding Shares..................................... 34
Vote Required.......................................................... 34
Proxies................................................................ 34
Solicitation of Proxies; Expenses...................................... 35
ONTRAK SPECIAL MEETING................................................... 36
Date, Time and Place of OnTrak Special Meeting......................... 36
Purpose................................................................ 36
Record Date and Outstanding Shares..................................... 36
Vote Required.......................................................... 36
Proxies................................................................ 36
Solicitation of Proxies; Expenses...................................... 37
THE MERGER AND RELATED TRANSACTIONS...................................... 38
(Proposal No. 1 for Lam Stockholders and the Only Proposal for OnTrak
Stockholders)........................................................... 38
Joint Reasons For the Merger........................................... 38
Lam's Reasons For the Merger........................................... 39
OnTrak's Reasons For the Merger........................................ 40
</TABLE>
i
<PAGE>
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PAGE
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Material Contacts and Board Deliberations............................... 41
Opinion of Lam's Financial Advisor...................................... 44
Opinion of OnTrak's Financial Advisor................................... 48
Certain Federal Income Tax Considerations............................... 52
Governmental and Regulatory Approvals................................... 54
Accounting Treatment.................................................... 54
TERMS OF THE MERGER....................................................... 56
Effective Time.......................................................... 56
Manner and Basis of Converting Shares................................... 56
Stock Ownership Following the Merger.................................... 57
Conduct Following the Merger............................................ 58
Conduct of Lam's Business and OnTrak's Business Prior to the Merger..... 58
No Solicitation......................................................... 60
Fees; Expenses and Break Up Fees........................................ 62
Conditions to the Merger................................................ 62
Termination of the Merger Agreement..................................... 63
Affiliate Agreements.................................................... 64
Stockholder Agreements.................................................. 65
New Bagley Employment Agreement......................................... 65
Employee Benefits....................................................... 66
Interests of Certain Persons............................................ 67
Appraisal Rights........................................................ 68
COMPARISON OF CAPITAL STOCK AND STOCKHOLDER RIGHTS........................ 69
Description of Lam Capital Stock........................................ 69
Description of OnTrak Capital Stock..................................... 70
Comparison of Stockholder Rights........................................ 71
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS......................... 74
PRO FORMA COMBINED CONDENSED BALANCE SHEET................................ 75
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS...................... 76
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................ 81
ADDITIONAL MATTERS BEING SUBMITTED TO A VOTE OF ONLY LAM STOCKHOLDERS..... 82
Proposal Two--Approval and Adoption of Lam 1997 Stock Plan.............. 82
Proposal Three--Amendment to Certificate of Incorporation--Elimination
of Stockholder Written Consent......................................... 90
Proposal Four--Amendment to Certificate of Incorporation--Elimination of
Cumulative Voting...................................................... 91
LEGAL MATTERS............................................................. 92
EXPERTS................................................................... 92
ANNEX A Agreement and Plan of Merger, dated as of March 24, 1997, among
Lam Research Corporation, Omega Acquisition Corporation and
OnTrak Systems, Inc............................................ A
ANNEX B-1Form of Lam Affiliates Agreement, dated as of March 24, 1997..... B-1
ANNEX B-2Form of OnTrak Affiliates Agreement, dated as of March 24, 1997.. B-2
ANNEX C-1Form of Stockholder Agreement for individual stockholders, dated
as of March 24, 1997..................................................... C-1
ANNEX C-2Form of Stockholder Agreement for TA Associates, dated as of
March 24, 1997........................................................... C-2
ANNEX D Form of Lam Research Corporation 1997 Stock Incentive Plan........ D
ANNEX E Certificate of Amendment of Certificate of Incorporation of Lam
Research Corporation .................................................... E
ANNEX F Opinion of Smith Barney Inc. ..................................... F
ANNEX G Opinion of Deutsche Morgan Grenfell Inc........................... G
</TABLE>
ii
<PAGE>
AVAILABLE INFORMATION
Lam and OnTrak are subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Copies of such reports, proxy statements and other information can be
obtained, upon payment of prescribed fees, at the Public Reference Room of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such reports,
proxy statements and other information can also be inspected at the
Commission's facilities referred to above and at the Commission's Regional
Offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511,
and at 7 World Trade Center, Suite 1300, New York, New York 10048. Electronic
copies of all such reports are also available on the World Wide Web at
http://www.sec.gov/edgarhp.htm. In addition, each of the Lam Common Stock and
OnTrak Common Stock is listed and traded on Nasdaq, and such reports, proxy
statements and other information concerning Lam and OnTrak are available for
inspection and copying at the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
Lam has filed with the Commission a registration statement on Form S-4
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Lam Common Stock to be issued pursuant to the
Merger Agreement. This Joint Proxy Statement/Prospectus does not contain all
the information set forth in the Registration Statement, certain portions of
which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement. Copies of the Registration Statement and the exhibits
and schedules thereto may be inspected, without charge, at the offices of the
Commission or obtained at prescribed rates from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY STATEMENT/
PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF
SECURITIES MADE HEREBY, AND, IF GIVEN, ANY SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY LAM, ONTRAK, OR ANY OTHER
PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OR THE SOLICITATION
OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON WHOM IT IS NOT LAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF LAM OR ONTRAK SINCE THE DATE HEREOF, OR THAT
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Lam incorporates by reference herein the following documents filed with the
Commission (File Number 000-12933) pursuant to the Exchange Act:
1. Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
2. Quarterly Reports on Form 10-Q for the quarters ended September 30,
1996, December 31, 1996 and March 31, 1997.
3. Current Reports on Form 8-K reporting events on January 23, 1997
(filed on February 4, 1997 and amended on March 17, 1997), and March 24,
1997 (filed on March 31, 1997).
4. Description of Lam Common Stock contained in Registration Statement on
Form S-1 filed with the Commission on May 4, 1984.
5. Description of Lam Preferred Stock Purchase Rights contained in
Registration Statement on Form 8-A filed with the Commission on January 28,
1997 (amended on January 30, 1997).
OnTrak incorporates by reference herein the following documents filed with
the Commission (File Number 000-26222) pursuant to the Exchange Act:
1. Annual Report on Form 10-K for the fiscal year ended June 30, 1996, as
amended by Annual Report on Form 10-K/A.
2. Quarterly Reports on Form 10-Q for the quarters ended September 30,
1996, December 31, 1996 and March 31, 1997.
3. Current Reports on Form 8-K reporting events on September 18, 1996
(filed on September 23, 1996), November 22, 1996 (filed on November 26,
1997) and March 24, 1997 (filed on April 1, 1997).
4. Description of OnTrak Common Stock contained in Registration Statement
on Form 8-A filed with the Commission on June 9, 1995.
All documents filed by OnTrak and Lam pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act, after the date of this Joint Proxy
Statement/Prospectus and prior to the date of the Lam Special Meeting and the
OnTrak Special Meeting shall be deemed to be incorporated by reference into
this Joint Proxy Statement/Prospectus and to be a part hereof from the dates
of filing of such documents and reports.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement herein (or in any other
subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any
statement so modified or superseded shall not be deemed to constitute a part
hereof except as so modified or superseded.
All information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus relating to OnTrak and its subsidiaries has been supplied
by OnTrak and all such information relating to Lam and its subsidiaries has
been supplied by Lam.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON ORAL OR
WRITTEN REQUEST BY ANY PERSON TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS
HAS BEEN DELIVERED, IN THE CASE OF DOCUMENTS RELATING TO LAM, FROM LAM, 4650
CUSHING PARKWAY, FREMONT, CALIFORNIA 94538 ATTENTION: DAVID L. RINGLER;
TELEPHONE NUMBER (510) 659-0200, AND IN THE CASE OF DOCUMENTS RELATING TO
ONTRAK, FROM ONTRAK, 1010 RINCON CIRCLE, SAN JOSE,
4
<PAGE>
CALIFORNIA 95131, ATTENTION: KATHLEEN BELA; TELEPHONE NUMBER: (408) 577-1010.
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL
MEETINGS, ANY SUCH REQUEST SHOULD BE MADE BY JULY 28, 1997.
TRADEMARKS
Aurora 2000(TM), Aurora 4000(TM), DSS(R), DSS-150(R), DSS-200(R),
Synergy(TM) and Synergy Integra(TM) are trademarks of OnTrak. Advanced
Capabilities Rainbow(TM), Transformer Coupled Plasma(TM), TCP(TM), DSM(TM),
Alliance(TM) and Continuum(TM) are trademarks of Lam. Tradenames and
trademarks of other companies appearing in this Joint Proxy
Statement/Prospectus are the property of their respective holders.
FORWARD-LOOKING STATEMENTS
Other than statements of historical fact, statements made in this Joint
Proxy Statement/Prospectus, including statements as to the benefits expected
to result from the Merger and as to future operating results and financial
performance and the analyses performed by the financial advisors to Lam and
OnTrak, are forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act. Actual results could
differ materially from those anticipated in such forward-looking statements as
a result of certain factors, including those set forth in "Risk Factors"
below, which stockholders should carefully review.
5
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained in this
Joint Proxy Statement/Prospectus, the Annexes hereto and the documents
incorporated by reference herein. Stockholders of both Lam and OnTrak are urged
to read this Joint Proxy Statement/Prospectus and the Annexes hereto.
Capitalized terms used herein and not defined shall have the meanings ascribed
to them elsewhere in this Joint Proxy Statement/Prospectus.
THE COMPANIES
Lam Research Corporation
Lam is a leading global supplier of advanced processing equipment used in the
fabrication of semiconductors. Lam's processing systems are used to deposit
special films on a substrate ("deposition") and to selectively remove portions
of various films ("etch") to create an integrated circuit. Deposition and etch
processes, which are repeated numerous times during the fabrication cycle, are
required to manufacture every semiconductor device produced today. Lam's
advanced etch technology is also used to process device features in flat panel
displays ("FPDs").
Lam currently sells a broad range of plasma (dry) etch products to address
specific applications, including the Advanced Capabilities Rainbow(TM) and
TCP(TM) product lines. Lam's TCP etchers utilize a high density plasma process
to etch device features down to 0.18 micron. In the deposition market, Lam
offers its DSM(TM) 9800 low pressure (LP) chemical vapor deposition ("CVD")
systems, a fully automated batch thermal CVD system for pre-metal dielectric
applications, and its DSM 9900 high density plasma (HDP) CVD system, which
addresses advanced intermetal passivation dielectric applications for logic and
microprocessor integrated circuits as well as shallow trenches for isolation in
memory circuits. All current generation TCP and DSM 9900 modules are available
on Lam's Alliance(TM) multi-chamber platform. Lam formally entered the FPD
market in 1996 with the introduction of its TCP-based Continuum(TM) etch
system.
Lam is focused on providing its global customer base with advanced process
solutions with the highest reliabilities for the lowest possible cost. Lam is
highly regarded for its leading-edge technology and outstanding worldwide
customer service.
In the event the Merger is not approved by Lam stockholders, Lam will
continue current operations, focussing on its etch, CVD and FPD product lines.
Lam will also continue to evaluate the addition of complementary product lines,
including post-chemical mechanical planarization or CMP, either through
combinations or alliances with other companies or internal development.
Lam was originally incorporated in California in 1980 and reincorporated in
Delaware in 1989. Lam's executive offices are located at 4650 Cushing Parkway,
Fremont, California 94538, and its telephone number is (510) 659-0200. For
further information concerning Lam, see "--Selected Historical and Selected Pro
Forma Combined Financial Data," "Available Information" and "Incorporation of
Certain Documents By Reference."
OnTrak Systems, Inc.
OnTrak is a provider of semiconductor capital equipment for use in the
cleaning stage of CMP. CMP enables the fabrication of advanced semiconductor
devices featuring design rules of 0.5 micron and below with multiple metal
layers. CMP consists of two steps: first, polishing the wafer through the use
of a chemical and mechanical polishing process; and, second, cleaning the
residue from the polished wafer. OnTrak has focused on the cleaning stage of
CMP since 1991 and has gained expertise in CMP process technology through its
internal research and development programs, close working relationships with
customers and technology collaboration activities with industry consortia and
with suppliers of complementary equipment and consumables. OnTrak offers
products to address the requirements of its customers for CMP cleaning and
other application-specific cleaning systems.
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OnTrak currently offers a family of products for wafer cleaning applications
and is developing a CMP polishing system. In addition to CMP cleaning, OnTrak's
cleaning systems can be used before and after a number of essential
semiconductor process steps, such as CVD, etch and photoresist removal. As a
result, OnTrak's cleaning systems are used repeatedly in the fabrication cycle
to remove yield-impairing residue and contaminants from wafer surfaces. OnTrak
sells its products to leading semiconductor manufacturers located throughout
the United States, Europe and the Pacific Rim.
OnTrak's strategy is to maintain a leading market position in CMP cleaning
systems, to pursue additional cleaning applications, and to leverage its CMP
expertise to develop and introduce its CMP polishing system. OnTrak's CMP
polisher, which is currently under development, is being used at OnTrak's
facility and at selected customer development sites for preliminary evaluation.
If the Merger is not consummated, OnTrak will continue current operations.
OnTrak may, from time to time, also consider strategic alliances or other
relationships to strengthen its business in light of then existing market
conditions.
OnTrak was originally incorporated in California in June 1985 as "Teleparts
International, Inc.," changed its name to OnTrak Systems, Inc. in July 1991 and
reincorporated in Delaware in November 1996. OnTrak's executive offices are
located at 1010 Rincon Circle, San Jose, California 95131, and its telephone
number is (408) 577-1010. For further information concerning OnTrak, see "--
Selected Historical and Selected Pro Forma Combined Financial Data," "Available
Information" and "Incorporation of Certain Documents by Reference."
Omega Acquisition Corporation
Omega Acquisition Corporation ("Merger Sub") is a corporation incorporated in
Delaware on March 18, 1997 by Lam for the purpose of effecting the Merger. It
has no material assets and has not engaged in any activities except in
connection with the Merger. Merger Sub's executive offices are located at 4650
Cushing Parkway, Fremont, California 94538, and its telephone number is (510)
659-0200.
Combined Company
The combined company, on a pro forma basis, had revenues of $790.6 million
for the nine months ended March 31, 1997, 94% of which were attributable to Lam
and 6% of which were attributable to OnTrak. Total assets as of March 31, 1997,
on a pro forma basis, were $990.1 million, 93% of which were attributable to
Lam and 7% of which were attributable to OnTrak.
Following consummation of the Merger, Lam intends to integrate the operations
of OnTrak into those of Lam while maintaining OnTrak as a separate business
unit which will continue to focus on CMP cleaning and polishing. To the extent
possible, Lam will integrate sales and administrative functions currently
conducted by OnTrak with Lam's existing operations.
SPECIAL MEETING OF STOCKHOLDERS OF LAM
Time, Date, Place and Purpose
The Lam Special Meeting will be held at the offices of Lam at 4650 Cushing
Parkway, Fremont, California on August 5, 1997 at 2:00 p.m., local time. The
purpose of the Lam Special Meeting is to consider and vote upon (i) a proposal
(the "Share Issuance") to approve the issuance of shares of Lam Common Stock to
the stockholders of OnTrak pursuant to the Merger Agreement, (ii) a proposal
(the "Lam 1997 Stock Plan Adoption") to approve and adopt the Lam Research
Corporation 1997 Stock Incentive Plan (the "Lam 1997 Stock Plan"), (iii) a
proposal to amend the Certificate of Incorporation of Lam (the "Certificate")
to eliminate stockholder action by written consent (the "Written Consent
Amendment"), and (iv) a proposal to amend the Certificate to eliminate
cumulative voting in the election of members of the Lam Board (the "Cumulative
Voting
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Amendment" and together with the Written Consent Amendment, the "Certificate of
Incorporation Amendments"). The Share Issuance, the Lam 1997 Stock Plan
Adoption, and the Certificate of Incorporation Amendments shall be collectively
referred to herein as the "Lam Proposals." See "Lam Special Meeting--Date, Time
and Place of Special Meeting," and "--Purpose."
Record Date, Proxies and Vote Required
Only Lam stockholders of record at the close of business on July 3, 1997 (the
"Lam Record Date") are entitled to notice of and to vote at the Lam Special
Meeting. Each stockholder is entitled to one vote for each share of Lam Common
Stock on all matters proposed at the Lam Special Meeting.
Pursuant to the rules of Nasdaq, the affirmative vote of a majority of the
votes present in person or by proxy and entitled to vote is required to approve
the Share Issuance and the Lam 1997 Stock Plan Adoption. Pursuant to Delaware
General Corporation Law ("DGCL"), the affirmative vote of a majority of the
shares of Lam Common Stock issued and outstanding as of the Lam Record Date is
required to approve the Certificate of Incorporation Amendments.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Lam Common Stock entitled to vote at the
Lam Special Meeting shall constitute a quorum. Abstentions and broker non-votes
will be included for purposes of determining whether a quorum of shares is
present at the Lam Special Meeting. In the Share Issuance and the Lam 1997
Stock Plan Adoption, requiring approval by a majority of the total present in
person or by proxy and entitled to vote, abstentions will be counted in the
tabulation of the voting results and will be treated as votes against the
proposal. Broker non-votes will not be treated as "entitled to vote" and will
have no effect on the voting result. In the Certificate of Incorporation
Amendments, requiring approval by a majority of the shares of Lam Common Stock
issued and outstanding as of the Record Date, abstentions and broker non-votes
will be treated as votes against the proposals. A broker non-vote occurs when a
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received instructions from the beneficial
owner. It is not expected that any matters other than those contemplated by the
Lam Proposals will be brought before the Lam Special Meeting; however, if other
matters are properly presented, the persons named in such proxy will have
authority to vote in accordance with their judgment on any such matters,
including without limitation, a proposal to adjourn the Lam Special Meeting. If
a proxy is returned which specifies a vote against the Share Issuance, such
discretionary authority will not be used to adjourn the Lam Special Meeting in
order to solicit additional votes in favor of the Share Issuance. See "Special
Meeting--Record Date and Outstanding Shares" and "--Vote Required."
As of March 31, 1997, officers and directors of Lam beneficially owned an
aggregate of 162,161 shares of Lam Common Stock representing 0.529% of the
issued and outstanding shares of Lam Common Stock. As of the Lam Record Date,
there were approximately 1,081 stockholders of record of Lam Common Stock and
30,884,205 shares of Lam Common Stock outstanding, each of which shares will be
entitled to one vote on each matter to be acted upon at the Lam Special
Meeting. See "Special Meeting--Vote Required."
Recommendations of the Lam Board
The Lam Board has unanimously approved the Merger Agreement and the
transactions contemplated thereby and has determined that the Merger is fair to
and in the best interests of Lam and its stockholders. After careful
consideration, the Lam Board unanimously recommends a vote in favor of (i) the
Share Issuance, (ii) the Lam 1997 Stock Plan Adoption, (iii) the Written
Consent Amendment, and (iv) the Cumulative Voting Amendment. Stockholders
should read this Joint Proxy Statement/Prospectus (including information deemed
incorporated herein by reference) carefully before voting. See "The Merger and
Related Transactions--Joint Reasons For the Merger," "--Lam's Reasons For the
Merger" and "--Material Contacts and Board Deliberations."
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SPECIAL MEETING OF STOCKHOLDERS OF ONTRAK
Time, Date, Place and Purpose
The OnTrak Special Meeting will be held at the offices of OnTrak at 1010
Rincon Circle, San Jose, California on August 5, 1997, 2:00 p.m., local time.
The purpose of the OnTrak Special Meeting is to consider and vote upon a
proposal to approve and adopt the Merger Agreement, providing for the Merger of
Merger Sub with and into OnTrak. As a result of the Merger, OnTrak will become
a wholly-owned subsidiary of Lam. In the Merger, each outstanding share of
OnTrak Common Stock will be converted into and represent the right to receive
0.83 of a share of Lam Common Stock, subject to adjustment in certain
circumstances. (See "Terms of the Merger--Manner and Basis of Converting
Shares.") Each share of Lam Common Stock issued in connection with the Merger
will be accompanied by one Lam Right pursuant to the Lam Rights Plan adopted by
the Lam Board on January 23, 1997. See "OnTrak Special Meeting--Date, Time and
Place of OnTrak Special Meeting," and "--Purpose."
Record Date, Proxies and Vote Required
Only stockholders of OnTrak at the close of business on July 3, 1997 (the
"OnTrak Record Date") are entitled to notice of and to vote at the OnTrak
Special Meeting. Each stockholder is entitled to one vote for each share of
OnTrak Common Stock.
Pursuant to the DGCL, approval and adoption of the Merger Agreement requires
the affirmative vote of the holders of a majority of the outstanding shares of
OnTrak Common Stock entitled to vote thereon. The presence, in person or by
properly executed proxy, of the holders of a majority of the outstanding shares
of OnTrak Common Stock entitled to vote at the OnTrak Special Meeting shall
constitute a quorum. Abstentions and broker non-votes will be included for
purposes of determining whether a quorum of shares is present at the OnTrak
Special Meeting. Since approval and adoption of the Merger Agreement requires
approval of a majority of the shares of OnTrak Common Stock issued and
outstanding as of the OnTrak Record Date, abstentions and broker non-votes will
be treated as votes against such proposal. A broker non-vote occurs when a
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received instructions from the beneficial
owner. It is not expected that any other matter other than approval and
adoption of the Merger Agreement will be brought before the OnTrak Special
Meeting; however, if other matters are properly presented, the persons named in
such proxy will have authority to vote in accordance with their judgment on
such matters, including without limitation, any proposal to adjourn the OnTrak
Special Meeting. If a proxy is returned which specifies a vote against approval
and adoption of the Merger Agreement, such discretionary authority will not be
used to adjourn the OnTrak Special Meeting in order to solicit additional votes
in favor of the Merger.
Certain executive officers and directors who beneficially own shares of
OnTrak Common Stock and certain other stockholders of OnTrak, who in the
aggregate beneficially own approximately 26% of the outstanding shares of
OnTrak Common Stock as of March 31, 1997, have entered into Stockholder
Agreements (the "Stockholder Agreements") with Lam. Pursuant to the Stockholder
Agreements, the foregoing persons have agreed to vote their shares in favor of
the adoption of the Merger Agreement. In addition, such persons have granted
irrevocable proxies to Lam to vote such persons' OnTrak Common Stock in favor
of the Merger.
As of March 31, 1997, officers and directors of OnTrak beneficially owned an
aggregate of 1,153,924 outstanding shares of OnTrak Common Stock representing
14.9% of the issued and outstanding shares of OnTrak Common Stock. As of the
OnTrak Record Date, there were approximately 165 stockholders of record of
OnTrak Common Stock and 7,763,177 shares of OnTrak Common Stock outstanding,
each of which shares will be entitled to one vote on each matter to be acted
upon at the Special Meeting. See "OnTrak Special Meeting--Vote Required."
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Recommendation of the OnTrak Board
The OnTrak Board has unanimously approved the Merger Agreement and the
transactions contemplated thereby and has determined that the Merger is fair to
and in the best interests of OnTrak and its stockholders. After careful
consideration, the OnTrak Board unanimously recommends a vote in favor of
approval and adoption of the Merger Agreement and approval of the Merger.
Stockholders should read this Joint Proxy Statement/Prospectus (including
information deemed incorporated herein by reference) carefully prior to voting.
See "The Merger and Related Transactions--Joint Reasons For the Merger," "--
OnTrak's Reasons For the Merger," and "--Material Contacts and Board
Deliberations."
RISK FACTORS
Stockholders of Lam and OnTrak should carefully evaluate the matters set
forth under "Risk Factors." Factors to be considered, among other things,
include the potential for fluctuation in the number of shares of
Lam Common Stock to be issued in the Merger as well as certain risks associated
with the business and operations of Lam and its subsidiaries. See "Risk
Factors."
REASONS FOR THE MERGER
The Boards of Directors of Lam and OnTrak have unanimously approved the
Merger and the Merger Agreement and the transactions contemplated thereby with
the expectation that, by combining the complementary product lines of the two
companies, the combined company will have the potential to realize long-term
synergies and improved financial and operating results. See "The Merger and
Related Transactions--Joint Reasons for the Merger," "--Lam's Reasons for the
Merger," and "--OnTrak's Reasons for the Merger."
OPINIONS OF FINANCIAL ADVISORS
Lam
Smith Barney Inc. ("Smith Barney"), Lam's financial advisor, has delivered to
the Lam Board a written opinion dated March 24, 1997 to the effect that, as of
the date of such opinion and based upon and subject to certain matters stated
therein, the Exchange Ratio was fair, from a financial point of view, to Lam.
The full text of the written opinion of Smith Barney dated March 24, 1997,
which sets forth the assumptions made, matters considered and limitations on
the review undertaken, is attached hereto as Annex F to this Joint Proxy
Statement/Prospectus and should be read carefully in its entirety. Smith
Barney's opinion is directed to the Lam Board and relates only to the fairness
of the Exchange Ratio from a financial point of view to Lam, does not address
any other aspect of the Merger or related transactions and does not constitute
a recommendation to any stockholder as to how such stockholder should vote at
the Lam Special Meeting. See "The Merger--Opinion of Lam's Financial Advisor"
and Annex F attached hereto.
OnTrak
Deutsche Morgan Grenfell Inc. ("DMG") has delivered to the OnTrak Board a
written opinion dated March 24, 1997, to the effect that, as of the date of
such opinion and based upon and subject to certain matters stated therein, the
Exchange Ratio pursuant to the Merger Agreement was fair from a financial point
of view to the holders of OnTrak Common Stock. The full text of the written
opinion of DMG, which sets forth assumptions made, matters considered and
limitations on the review undertaken, is attached hereto as Annex G to this
Joint Proxy Statement/Prospectus, and should be read carefully in its entirety.
DMG's opinion relates only to the fairness of the Exchange Ratio pursuant to
the Merger Agreement from the financial point of view to holders of OnTrak
Common Stock and does not constitute a recommendation to any stockholder as to
how such stockholder should vote at the OnTrak Special Meeting. See "The Merger
and Related Transactions--Opinion of OnTrak's Financial Advisor" and Annex G
attached hereto.
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INCOME TAX TREATMENT
The Merger is intended to qualify as a reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), in which case no
gain or loss generally should be recognized by the holders of shares of OnTrak
Common Stock on the exchange of their shares of OnTrak Common Stock solely for
shares of Lam Common Stock except with respect to cash, if any, received in
lieu of fractional shares of Lam Common Stock. As a condition to the
consummation of the Merger, each of OnTrak and Lam will have received an
opinion from their respective counsel that the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Code. However, all
OnTrak stockholders are urged to consult their own tax advisors. See "The
Merger and Related Transactions--Certain Federal Income Tax Considerations."
REGULATORY MATTERS
Consummation of the Merger is subject to compliance with the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). The
notifications required under the HSR Act as well as certain information have
been furnished to the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice (the "Antitrust Division"). Lam received
notification of the early termination of the specified waiting period under the
HSR Act for the Merger on April 15, 1997. The Merger will also need to satisfy
the requirements of the federal securities laws and applicable securities and
"blue sky" laws of the state of New York. See "The Merger and Related
Transactions--Governmental and Regulatory Approvals."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling-of-interests for financial
reporting purposes in accordance with generally accepted accounting principles.
Consummation of the Merger is conditioned upon receipt at the closing of the
Merger by Lam and OnTrak of letters from Ernst & Young LLP, Lam's independent
auditors, and Price Waterhouse LLP, OnTrak's independent accountants,
reaffirming each firm's concurrence with Lam management's and OnTrak
management's conclusions, respectively, as to the appropriateness of pooling-
of-interests accounting for the Merger, if consummated in accordance with the
Merger Agreement, under Accounting Principles Board ("APB") Opinion No. 16 and
the related interpretations of the American Institute of Certified Public
Accountants ("AICPA") and the Financial Accounting Standards Board ("FASB") and
the rules and regulations of the Commission. On March 24, 1997, Lam received a
letter from Ernst & Young LLP affirming that firm's concurrence with Lam
management's and OnTrak Management's conclusions as to the appropriateness of
pooling-of-interests accounting for the Merger, if consummated in accordance
with the Merger Agreement. On March 24, 1997, OnTrak received a letter from
Price Waterhouse LLP affirming that firm's concurrence with OnTrak management's
conclusions that OnTrak qualifies for pooling-of-interests accounting for the
Merger, if consummated in accordance with the Merger Agreement. Pursuant to the
Merger Agreement, on July 2, 1997, two business days prior to the date of this
Joint Proxy Statement/Prospectus, Price Waterhouse LLP delivered to OnTrak a
letter affirming that firm's concurrence with OnTrak management's conclusions
that OnTrak qualifies for pooling-of-interests accounting for the Merger, if
consummated in accordance with the Merger Agreement. Pursuant to the Merger
Agreement, on July 2, 1997, two business days prior to the date of this Joint
Proxy Statement/Prospectus, Ernst & Young LLP delivered to Lam a letter
affirming that firm's concurrence with Lam management's and OnTrak management's
conclusions, respectively, as to the appropriateness of pooling-of-interests
accounting for the Merger under APB Opinion No. 16 if closed and consummated in
accordance with the Merger Agreement. See "The Merger and Related
Transactions--Accounting Treatment."
THE MERGER
Terms of the Merger; Exchange Ratio
At the Effective Time (as defined below) of the Merger, Merger Sub will merge
with and into OnTrak and OnTrak will become a wholly-owned subsidiary of Lam.
Once the Merger is consummated, Merger Sub will cease to exist as a corporation
with OnTrak remaining as the surviving corporation (the "Surviving
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Corporation"). As a result of the Merger, each outstanding share of OnTrak
Common Stock will be converted into the right to receive 0.83 of a share of Lam
Common Stock, subject to adjustment as set forth below, and each outstanding
option or right to purchase shares of OnTrak Common Stock under the OnTrak
Stock Plans will be assumed by Lam and will be converted into an option to
purchase shares of Lam Common Stock, with appropriate adjustments made to the
number of shares issuable under the option and to the exercise price of the
options and rights, based on the Exchange Ratio.
In the event that the Lam Closing Value is less than $30.00 per share and is
less than the OnTrak Walk Away Threshold (as defined below), Lam may, but is
not obligated to, adjust the Exchange Ratio so that it equals $24.90 divided by
the Lam Closing Value. As of June 25, 1997 assuming the Closing Calculation
Period to be the ten trading days ending the trading day preceding June 25,
1997, the OnTrak Walk Away Threshold was $34.04. If Lam determines not to
adjust the Exchange Ratio in those circumstances, OnTrak has the option to
terminate the Merger Agreement. The OnTrak Board has not made any determination
as to what course of action it would take in such event. The OnTrak Board would
make its decision, consistent with the exercise of its fiduciary duties, based
on all material facts and circumstances existing at such time, including,
without limitation, recent developments in the businesses of Lam and OnTrak as
of such date, the OnTrak Board's view of the impact that termination of the
Merger Agreement would have on OnTrak, the advice of its financial advisor and
legal counsel, and such other factors as the OnTrak Board deems relevant at
such time. The parties will promptly announce any determination by OnTrak not
to terminate the Merger Agreement under the foregoing circumstances. If the Lam
Closing Value is less than $30.00 per share and is less than the OnTrak Walk
Away Threshold, Lam elects not to adjust the Exchange Ratio and OnTrak
determines not to exercise its right to terminate the Merger Agreement under
such circumstances, whether OnTrak will recirculate proxy materials to its
stockholders prior to the OnTrak Special Meeting will be determined by the
OnTrak Board at such time. Such determination will be made in light of the
factors described above and taking into account that provision for changing or
revoking stockholder votes subsequent to mailing the proxy card.
The "OnTrak Walk Away Threshold" is computed as the product of (a) 0.85
multiplied by (b) the product of $35.464 (the average of the daily closing sale
prices per share of Lam Common Stock on Nasdaq on the ten trading days ended
with the trading day preceding the date of the Merger Agreement) multiplied by
a fraction, the numerator of which is the Semiconductor Equipment Group Closing
Index (as defined below) and the denominator of which is 100. Assuming that the
Lam Closing Value is below $30.00, the OnTrak Walk Away Threshold is triggered
if the performance of the Lam Common Stock during the period between March 24,
1997 and the calculation of the Lam Closing Value falls more than 15% below the
performance over the same period of an index (the "Semiconductor Equipment
Group Closing Index") of semiconductor equipment companies consisting of:
Applied Materials, Inc., Novellus Systems, Inc., KLA-Tencor Corporation,
Silicon Valley Group, Inc. and Ultratech Stepper, Inc. For purposes of the
comparison, each of the foregoing companies was assigned a reference price on
March 24, 1997 equal to the average closing sale price over the ten trading
days ending March 21, 1997 (the "Reference Prices"), and the closing values of
each of the index companies will be calculated over the Closing Calculation
Period to determine if the Semiconductor Equipment Group Closing Index has
outperformed the Lam Common Stock by more than 15% during this period. In the
event that Lam adjusts the Exchange Ratio, additional shares of Lam Common
Stock will be issued in exchange for shares of OnTrak Common Stock. The
issuance of additional shares of Lam Common Stock would result in further
dilution of the equity interests of Lam stockholders. If adjusted, the Exchange
Ratio will be fixed prior to the Lam Special Meeting and OnTrak Special
Meeting. Stockholders may ascertain whether Lam has adjusted the Exchange Ratio
or whether OnTrak has terminated the Merger Agreement by phoning 1-888-LAM-TRAK
or logging onto the World Wide Web at http://www.lamrc.com at anytime after
July 25, 1997. If, subsequent to the mailing of the Proxy Card, a stockholder
wishes to revoke or change such stockholder's vote, the stockholder may do so
by phoning 1-888-LAM-TRAK or logging onto the World Wide Web at
http://www.lamrc.com at any time after July 25, 1997, and following the
instructions provided by the messages thereon. Lam stockholders and OnTrak
stockholders are encouraged to obtain current market quotations for Lam Common
Stock and OnTrak Common Stock prior to the Lam Special Meeting and the OnTrak
Special Meeting, respectively.
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On June 25, 1997, the last practicable date before the printing of this Joint
Proxy Statement/Prospectus, the closing price of Lam Common Stock as reported
on Nasdaq was $35.75, and the closing price of OnTrak Common Stock as reported
on Nasdaq was $28.75. The equivalent market price per share of OnTrak Common
Stock, based on an Exchange Ratio of 0.83 of a share of Lam Common Stock for
each share of OnTrak Common Stock and assuming that the Merger had been
consummated on such day, was $29.67.
In lieu of any fractional shares of Lam Common Stock, each holder of OnTrak
Common Stock who would be entitled to receive a fractional share of Lam Common
Stock will be paid an amount in cash equal to the product of (i) such fraction
multiplied by (ii) the average closing price of a share of Lam Common Stock for
the ten most recent trading days ending on the trading day preceding the
Effective Time, as reported on Nasdaq; provided that in no case shall the
amounts paid in exchange for all such fractional shares exceed 10% of the value
of the total shares of Lam Common Stock issued to stockholders of OnTrak in
connection with the Merger. See "Terms of the Merger--Manner and Basis of
Converting Shares."
Toll-Free Number; Website
Stockholders may call telephone number 1-888-LAM-TRAK or log onto the World
Wide Web at http://www.lamrc.com at any time after July 25, 1997, to ascertain
whether Lam has adjusted the Exchange Ratio or whether OnTrak has terminated
the Merger Agreement. If, subsequent to the mailing of the Proxy Card, a
stockholder wishes to revoke or change such stockholder's vote, the stockholder
may do so by phoning 1-888-LAM-TRAK or logging onto the World Wide Web at
http://www.lamrc.com at any time after July 25, 1997 and following the
instructions provided by the messages thereon.
Effective Time of the Merger
The Merger will become effective upon the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware or at such later time as
may be agreed to in writing by Lam, OnTrak and Merger Sub and specified in the
Certificate of Merger (the "Effective Time"). The Certificate of Merger will be
filed as soon as practicable on or after the Closing Date (as defined in the
Merger Agreement). The Closing (as defined in the Merger Agreement) will occur
at the offices of Shartsis, Friese & Ginsburg LLP on a date to be specified by
the parties, which will be no later than the third business day after the
satisfaction or waiver of the conditions to the Merger or such other date as
the parties agree. The Closing and the Effective Time are anticipated to be on
or about August 5, 1997.
Exchange of OnTrak Stock Certificates
Promptly after the Effective Time, Lam, acting through ChaseMellon
Shareholder Services, L.L.C. (the "Exchange Agent"), will deliver to each
OnTrak stockholder of record as of the Effective Time a letter of transmittal
with instructions to be used by such stockholder in surrendering certificates
which, prior to the Merger, represented shares of OnTrak Common Stock.
CERTIFICATES SHOULD NOT BE SURRENDERED BY THE HOLDERS OF ONTRAK COMMON STOCK
UNTIL SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
At the Effective Time, each then outstanding option or right to purchase OnTrak
Common Stock will be assumed by Lam without any action on the part of the
holder thereof, and the number of shares issuable thereunder and the exercise
price thereof will be appropriately adjusted according to the Exchange Ratio.
OPTION AND STOCK PURCHASE AGREEMENTS NEED NOT BE SURRENDERED. See "Terms of the
Merger--Manner and Basis of Converting Shares."
Form S-8 Registration Statement
No later than three (3) business days after the Closing, Lam will file a
registration statement on Form S-8 under the Securities Act covering the shares
of Lam Common Stock issuable upon the exercise of options or rights to purchase
shares of OnTrak Common Stock to be assumed by Lam at the Effective Time. See
"Terms of the Merger--Manner and Basis of Converting Shares."
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Stock Ownership Following the Merger
Based on the capitalization of OnTrak as of the close of business on March
31, 1997 and an Exchange Ratio of 0.83 of a share of Lam Common Stock for each
share of OnTrak Common Stock, an aggregate of approximately 6,422,165 shares of
Lam Common Stock will be issued to OnTrak stockholders in the Merger. At the
Effective Time, Lam will assume all options to purchase OnTrak Common Stock
then outstanding under OnTrak's 1992 Stock Option Plan, 1995 Director Stock
Option Plan, and 1996 Equity Incentive Plan (collectively, the "OnTrak Stock
Option Plans"), and all purchase rights outstanding under the OnTrak 1995
Employee Stock Purchase Plan for the offering period that began February 1,
1997 exercisable for up to an additional 1,920,000 shares of Lam Common Stock.
Based on the number of shares of Lam Common Stock issued and outstanding as of
March 31, 1997, and after giving effect to the issuance of Lam Common Stock as
described in the previous two sentences, the former holders of OnTrak Common
Stock would hold, and have voting power with respect to approximately 17.3% of
Lam's total issued and outstanding shares immediately after the Effective Time,
and holders of former OnTrak options or rights would hold options or rights to
acquire approximately 5.2% of the total issued and outstanding shares of Lam
Common Stock immediately after the Effective Time (assuming the exercise of
only such options and rights). The foregoing numbers of shares and percentages
are subject to change in the event that the capitalization of either OnTrak or
Lam changes subsequent to March 31, 1997 and prior to the Effective Time, or in
the event of an adjustment to the Exchange Ratio pursuant to the Merger
Agreement, and there can be no assurance as to the actual capitalization of
OnTrak or Lam at the Effective Time or of Lam at any time following the
Effective Time.
Management; Board of Directors Following the Merger
Pursuant to the Merger Agreement, an Office of the Chairman will be created
at Lam at the Effective Time and will include Roger D. Emerick and James W.
Bagley. Roger D. Emerick will be the Chairman of the Board of Lam, and,
beginning on the business day following the Effective Time, James W. Bagley
will be the Chief Executive Officer of Lam. The Lam Board will be increased by
two directors following the Merger, and James W. Bagley and Richard J. Elkus,
Jr. will be appointed to fill the resulting vacancies on the business day
following the Effective Time. In addition, the Lam Board will appoint Richard
J. Elkus, Jr. to its Audit Committee. See "Terms of the Merger--Conduct
Following the Merger."
Conduct of Business Prior to the Merger
Pursuant to the Merger Agreement, until the earlier of the termination of the
Merger Agreement pursuant to its terms and the Effective Time, each of OnTrak
(and each of its subsidiaries) and Lam (and each of its subsidiaries) has
agreed, except (i) to the extent expressly contemplated by the Merger Agreement
or (ii) as the other of them shall otherwise consent in writing, to conduct its
business in the usual, regular and ordinary course in substantially the same
manner as previously conducted; to pay its debts and taxes when due, subject to
good faith disputes over such debts or taxes; to pay or perform other material
obligations when due; and to use all reasonable efforts consistent with past
practices and policies to keep available the services of its present officers
and key employees and use its reasonable efforts consistent with past practice
to preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others with which it has business dealings. Each of
OnTrak and Lam has agreed to promptly notify the other of any material event
involving its business or operations. In addition, each of OnTrak and Lam has
agreed that it shall not, without the prior written consent of the other,
perform or engage in certain other activities in the conduct of its business
and the business of its subsidiaries. See "Terms of the Merger--Conduct of
Lam's Business and OnTrak's Business Prior to the Merger."
No Solicitation
Under the terms of the Merger Agreement, until the earlier of the termination
of the Merger Agreement or the Effective Time, OnTrak has agreed that it, its
subsidiaries, and the officers and directors of it and its subsidiaries will
not authorize or permit its or its subsidiaries' employees, agents and
representatives, directly or
14
<PAGE>
indirectly, to initiate, solicit, encourage or otherwise facilitate (including
by furnishing information) any Acquisition Proposal (as defined below). Nothing
in the Merger Agreement will prevent OnTrak or the OnTrak Board from
(i) complying with Rule 14e-2 promulgated under the Exchange Act with regard to
an Acquisition Proposal, (ii) engaging in any discussion or negotiations with,
or providing any information to, any person or entity in response to an
unsolicited bona fide written Acquisition Proposal, or (iii) recommending such
an unsolicited bona fide written Acquisition Proposal to the stockholders of
OnTrak or withdrawing or modifying its recommendation in favor of the Merger
Agreement and the Merger in compliance with certain provisions of the Merger
Agreement, if and only to the extent that, in any such case as is referred to
in clause (ii) or (iii), (A) a majority of the members of the OnTrak Board
concludes in good faith (after consultation with its financial advisors) that
such Acquisition Proposal is reasonably capable of being completed, taking into
account all legal, financial, regulatory and other aspects of the proposal and
the person or entity making the proposal, and would, if consummated, result in
a transaction more favorable to OnTrak's stockholders than the transaction
contemplated by the Merger Agreement (any such more favorable Acquisition
Proposal being referred to as a "Superior Proposal"), (B) a majority of the
members of the OnTrak Board concludes in good faith (after consultation with
outside counsel) that such action is necessary for the OnTrak Board to act in a
manner consistent with its fiduciary duties under applicable law, (C) prior to
providing any information or data to any person or entity in connection with an
Acquisition Proposal by any such person or entity, the OnTrak Board receives
from such person or entity an executed confidentiality agreement on terms
substantially similar to those contained in the confidentiality agreement
previously entered into between Lam and OnTrak in connection with their
consideration of the Merger, and (D) prior to providing any information or data
to any person or entity or entering into discussions or negotiations with any
person or entity, the OnTrak Board notifies Lam of such inquiries, expressions
of interest, proposals or offers received by, any such information requested
from, or any such discussions or negotiations to be initiated or continued
with, any of OnTrak's representatives indicating, in connection with such
notice, the name of such person or entity and the terms and conditions of any
proposals or offers. For the purposes of the Merger Agreement, an "Acquisition
Proposal" is any inquiry or expression of interest or the making of any
proposal or offer with respect to a merger, reorganization, share exchange,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving OnTrak or any of its subsidiaries, or any
purchase or sale of all or any significant part of the assets or any of the
equity securities of OnTrak or any of its subsidiaries, that could reasonably
be expected to interfere with the completion of the Merger or the other
transactions contemplated by the Merger Agreement. See "Terms of the Merger--No
Solicitation."
Alternative Transactions Involving Lam
Under the Merger Agreement, Lam must recommend the Merger to its stockholders
in all circumstances. In addition, Lam has agreed that it will not, nor will it
permit any of its subsidiaries to, authorize or enter into any Alternative
Transaction (as defined below) involving Lam until two days after the Effective
Time. Subject to these obligations, the Merger Agreement does not prohibit Lam
from taking and disclosing to its stockholders a position contemplated by Rule
14e-2 of the Exchange Act or from making any disclosure to its stockholders if,
in the good faith judgment of the Lam Board, after consultation with outside
counsel, failure to so disclose would be inconsistent with its duties to Lam or
the Lam stockholders under applicable law. Lam has also agreed to notify OnTrak
immediately of any proposals received by Lam, to keep OnTrak informed of the
status and terms of any such proposals and related discussions and to consult
with OnTrak with respect thereto. See "Terms of the Merger--Alternative
Transactions Involving Lam."
Termination; Break Up Fees
The Merger Agreement may be terminated under certain circumstances. Lam has
agreed to pay OnTrak a termination fee of $8.4 million in cash, if (i) either
Lam or OnTrak terminates the Merger Agreement because the Lam Special Meeting
is not completed (and a vote of the Lam stockholders recorded) on or before
August 31, 1997, and at the time of such termination an Alternative Transaction
involving Lam has been announced and has not been unconditionally withdrawn and
abandoned, (ii) either Lam or OnTrak terminates the Merger Agreement
15
<PAGE>
because the Lam stockholders fail to approve the Share Issuance, or (iii)
OnTrak terminates the Merger Agreement because of a material breach of the
Merger Agreement by Lam that has not been cured within 30 days after Lam
receives notice of such alleged breach, and at the time of such breach, an
Alternative Transaction involving Lam has been announced and not
unconditionally withdrawn and abandoned.
OnTrak has agreed to pay Lam a termination fee of $8.4 million in cash, if
(i) either Lam or OnTrak terminates the Merger Agreement because the OnTrak
Special Meeting is not completed (and a vote of the OnTrak stockholders
recorded) on or before August 31, 1997, and at the time of such termination an
Alternative Transaction involving OnTrak has been announced and has not been
unconditionally abandoned, (ii) either Lam or OnTrak terminates the Merger
Agreement because the OnTrak stockholders fail to approve the Merger and the
Merger Agreement at the OnTrak Special Meeting, (iii) Lam terminates the Merger
Agreement because of a material breach of the Merger Agreement by OnTrak that
has not been cured within 30 days after OnTrak receives notice of such alleged
breach, and at the time of such breach, an Alternative Transaction involving
OnTrak has been announced and not unconditionally abandoned, (iv) Lam
terminates the Merger Agreement following: (y) the withdrawal or modification
in a manner adverse to Lam (or public announcement of an intention to so
withdraw or modify) by the OnTrak Board of its recommendation of the Merger
Agreement or the Merger, or (z) the failure of the OnTrak Board to recommend
against acceptance of a competing tender offer for any of the outstanding
shares of OnTrak capital stock within the ten day time period prescribed by
Rule 14e-2 under the Exchange Act, or (v) either party terminates the Merger
Agreement following the acceptance by the OnTrak Board of a Superior Proposal.
See "Terms of the Merger--Fees, Expenses and Break Up Fees" and "--Termination
of the Merger Agreement."
Conditions to the Merger
Consummation of the Merger is subject to the satisfaction or waiver in
writing of certain conditions, including, among others (i) approval of the
Share Issuance by the holders of shares of Lam Common Stock by the requisite
vote under applicable law, and approval and adoption of the Merger Agreement by
the holders of shares of OnTrak Common Stock by the requisite vote under
applicable law; (ii) declaration by the Commission of the effectiveness of the
Registration Statement; (iii) expiration or termination of the waiting period
under the HSR Act (such early termination was received on April 15, 1997); (iv)
receipt by Lam and OnTrak of opinions of their respective counsel to the effect
that, on the basis of the representations made by Lam and OnTrak and referred
to therein, for U.S. federal income tax purposes, the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code; (v) receipt by
Lam and OnTrak of letters of their respective independent auditors that the
Merger will qualify as a "pooling-of-interests" transaction under APB Opinion
No. 16; (vi) the execution and delivery of a new employment agreement between
Mr. Bagley, Chairman and Chief Executive Officer of OnTrak, and Lam (the "New
Bagley Employment Agreement") and (vii) certain other conditions. Currently,
both Lam and OnTrak anticipate that they will satisfy all conditions to the
Merger at or prior to consummation of the Merger. See "Terms of the Merger--
Conditions to the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Lam Board and the OnTrak Board with
respect to the Merger Agreement, holders of Lam Common Stock and OnTrak Common
Stock should be aware that certain officers and directors of Lam and OnTrak
have certain interests in the Merger that are in addition to their interests
solely as holders of Lam Common Stock and OnTrak Common Stock. These interests
arise from, among other things, certain employment agreements and benefit
plans, indemnification and insurance arrangements and other matters which Lam
has agreed to assume or to provide after the Merger.
In connection with his employment as Chairman and Chief Executive Officer of
OnTrak, Mr. Bagley entered into an employment agreement with OnTrak, dated May
17, 1996 (the "Existing Bagley Employment Agreement"), pursuant to which
unvested options held by Mr. Bagley to purchase 300,000 shares of OnTrak
16
<PAGE>
Common Stock at an exercise price of $17.25 per share will accelerate and
become exercisable in full shortly prior to the consummation of the Merger. Mr.
Bagley also holds vested options to purchase an additional 500,000 shares of
OnTrak Common Stock at the same exercise price. As with all other options to
acquire OnTrak Common Stock to be assumed by Lam in the Merger, the number of
shares subject to Mr. Bagley's options and the exercise price thereof will be
adjusted, based on the Exchange Ratio, as described in "Terms of the Merger--
Employee Benefits." Based on an Exchange Ratio of 0.83 and the $35.75 per share
closing price of Lam Common Stock as reported on Nasdaq on June 25, 1997, the
most recent practicable date prior to the printing of this Joint Proxy
Statement/Prospectus, Mr. Bagley's options would have an aggregate value of
$9.9 million. The Existing Bagley Employment Agreement also provides that if
Mr. Bagley chooses to exercise his options prior to the closing of the Merger,
he may request OnTrak to loan him up to $4 million for a period of up to seven
months at a rate of interest equal to the lowest rate that will not give rise
to imputed interest under the Code (adjusted monthly and, for the month of
June, 6.23% per annum) in payment of the exercise price of the options. It is
Mr. Bagley's intent not to exercise the options prior to the closing of the
Merger. In addition, the Existing Bagley Employment Agreement provides that Mr.
Bagley will receive a cash bonus in the amount of $250,000 upon consummation of
the Merger. The Existing Bagley Employment Agreement provides for a severance
payment in the amount of $750,000 if Mr. Bagley's employment is terminated
without cause. However, this provision will be superseded by the severance
provisions of the New Bagley Employment Agreement. If Mr. Bagley becomes
subject to the excise tax on "golden parachute" payments imposed under the
Code, OnTrak will provide Mr. Bagley with an additional cash payment in an
amount sufficient to offset the effects of the excise tax.
It is also a condition to Lam's obligation to consummate the Merger that Mr.
Bagley shall have executed and delivered to Lam the New Bagley Employment
Agreement relating to his employment by Lam on terms satisfactory to Lam.
Pursuant to the New Bagley Employment Agreement, Mr. Bagley will serve as Chief
Executive Officer of Lam for a five-year term following the Merger. He will
receive a base salary of $100,000 per year. In lieu of additional base salary,
participation in Lam's performance bonus plan or other base compensation, and
subject to stockholder approval of the Lam 1997 Stock Plan, Mr. Bagley will
receive a grant of options (the "Base Options") to purchase 225,000 shares of
Lam Common Stock with an exercise price equal to the closing price of Lam
Common Stock on the first business day after the Merger is consummated, such
options to vest ratably over a five year period and have a term of ten years
from the date of grant. Mr. Bagley will also receive options (the "Incentive
Options") to purchase an additional 250,000 shares of Lam Common Stock on the
same terms and conditions as the Base Options. In the event Mr. Bagley's
employment is terminated by Lam without cause or by Mr. Bagley for good reason,
(i) the Incentive Options will immediately vest in full, (ii) that portion of
the Base Options that would have vested in the year following the date of Mr.
Bagley's termination will immediately vest, and (iii) Mr. Bagley will receive a
cash severance payment in the amount of $100,000; provided, that if such
termination occurs within the first year of employment, Mr. Bagley will instead
receive the benefit of two years of additional vesting with respect to the Base
Options, and the amount of the cash severance payment will be $200,000. In
either such case, the accelerated options would remain exercisable for a period
of two years following the date of termination. The New Bagley Employment
Agreement provides, in addition, that the Incentive Options would also vest and
become exercisable in the event of a subsequent change in control of Lam. The
New Bagley Employment Agreement also provides for a tax gross up to offset the
effects of any excise tax imposed under the "golden parachute" provisions of
the Code.
In connection with his employment as Chairman and Chief Executive Officer of
Lam, Roger D. Emerick entered into an employment agreement with Lam, dated July
1, 1996 (the "Emerick Employment Agreement"), pursuant to which, upon the
hiring of a successor to Mr. Emerick as Chief Executive Officer of Lam, Mr.
Emerick would become a consultant to Lam for the period ending June 30, 2002.
During the consulting period, Mr. Emerick would receive an annual consulting
fee of $400,000. However, pursuant to an amendment to the Emerick Employment
Agreement, dated as of June 26, 1997, Mr. Emerick will instead remain a full-
time employee of Lam, with such strategic, senior level duties and
responsibilities as the Lam Board may assign him
17
<PAGE>
from time to time, and will continue to receive his current compensation and
benefits. Upon termination of his employment with Lam, Mr. Emerick will then
become a consultant to Lam as provided in the Emerick Employment Agreement.
Pursuant to the Merger Agreement, Mr. Bagley and Richard J. Elkus, Jr.,
currently members of the OnTrak Board, will be appointed to the Lam Board and
Mr. Bagley will be appointed Chief Executive Officer of Lam on the business day
following the Effective Time. The Lam Board and the OnTrak Board were aware of
these interests and considered them in their respective deliberations
concerning the Merger. See "Terms of the Merger--Interests of Certain Persons"
"--New Bagley Employment Agreement", "--Conditions to the Merger" and "--
Conduct Following the Merger."
MARKET AND PRICE DATA FOR LAM COMMON STOCK AND ONTRAK COMMON STOCK
Lam Common Stock trades on Nasdaq under the symbol "LRCX". On March 21, 1997,
the last full trading day prior to the public announcement of the execution of
the Merger Agreement, the closing price per share of Lam Common Stock on Nasdaq
was $32.25. On June 25, 1997, the most recent practicable date prior to the
printing of this Joint Proxy Statement/Prospectus, the closing price per share
of Lam Common Stock on Nasdaq was $35.75. There can be no assurance as to the
actual price of Lam Common Stock prior to, at or at any time following, the
Effective Time of the Merger, or in the event the Merger is not consummated.
See "Risk Factors" and "Comparative Market Price Data."
OnTrak Common Stock trades on Nasdaq under the symbol "ONTK." On March 21,
1997, the last full day prior to the public announcement of the execution of
the Merger Agreement, the closing price of OnTrak Common Stock as reported on
Nasdaq was $27.00 per share. Following the Merger, OnTrak Common Stock will no
longer be traded on Nasdaq. On June 25, 1997, the most recent practicable date
prior to the printing of this Joint Proxy Statement/Prospectus, the closing
price per share of OnTrak Common Stock as reported on Nasdaq was $28.75. There
can be no assurance as to the actual price of OnTrak Common Stock prior to the
Effective Time of the Merger, or in the event the Merger is not consummated.
See "Risk Factors" and "Comparative Market Price Data."
COMPARATIVE RIGHTS OF STOCKHOLDERS OF LAM AND ONTRAK
As a result of the Merger, shares of OnTrak Common Stock, issued by a
Delaware corporation, will be converted into the right to receive shares of Lam
Common Stock, which are also issued by a Delaware corporation. There are
differences between the rights of OnTrak stockholders and the rights of Lam
stockholders which result from differences between the bylaws and the
certificates of incorporation of OnTrak and Lam, respectively. For a discussion
of certain differences between the rights of OnTrak stockholders and the rights
of Lam stockholders, see "Comparison of Capital Stock and Stockholder Rights."
APPRAISAL RIGHTS
Under DGCL, neither the holders of Lam Common Stock nor the holders of OnTrak
Common Stock will have appraisal rights in connection with the Merger, the
Merger Agreement or the consummation of the transactions contemplated thereby.
LAM 1997 STOCK PLAN
At the Lam Special Meeting, Lam stockholders will be asked to consider and
vote upon the adoption of the Lam 1997 Stock Plan. The form of the proposed Lam
1997 Stock Plan is attached hereto as Annex D.
18
<PAGE>
CERTIFICATE OF INCORPORATION AMENDMENTS
At the Lam Special Meeting, Lam stockholders will be asked to consider and
vote upon the Written Consent Amendment and the Cumulative Voting Amendment.
Stockholders of Lam should carefully evaluate the matters set forth under
"Additional Matters Being Submitted to a Vote of Only Lam Stockholders--
Amendment to the Certificate of Incorporation--Elimination of Stockholder
Written Consent" and "--Amendment to Certificate of Incorporation--Elimination
of Cumulative Voting," and "Annex E--Form of Certificate of Amendment of the
Certificate of Incorporation of Lam Research Corporation."
RECENT EVENTS
LAM THIRD QUARTER 1997 RESULTS
In its quarterly report on Form 10-Q, filed with the Commission on May 14,
1997, Lam reported a net loss for the third quarter of fiscal year 1997 of
$44.8 million, or $1.46 per share, compared to net income of $38.6 million, or
$1.28 per share, fully diluted, for the third quarter of fiscal year 1996. The
net loss was due in part to a revenue shortfall and inventory, product warranty
and installation related adjustments of approximately $57 million. The revenue
shortfall was due primarily to the slowdown in the semiconductor market which
led to customers' reduced production capacity requirements and reduced demand
for Lam equipment.
LAM RESERVE AND NON-RECURRING CHARGE FOR AT-RISK RECEIVABLES
On June 19, 1997, Lam announced that it has determined that certain
receivables related to previously recorded sales of its equipment to Thailand-
based SubMicron Technology PLC ("SubMicron") are at risk for collection due to
financial difficulties that SubMicron is experiencing. As a result Lam will
take a non-recurring charge to operations of $6.5 million, or $0.15 per share
of Lam Common Stock in the fourth quarter of fiscal year 1997, to establish a
bad debt reserve to cover the exposure related to the receivable balance.
Lam has participated in an informal committee of creditors recently formed to
obtain satisfactory delivery and payment terms with SubMicron for amounts owned
to each of the committee members. Other committee members include Applied
Materials, Inc., Novellus Systems, Inc., Silicon Valley Group, Inc. and
Gasonics International Corp. The committee announced also on June 19, 1997 that
due to a lack of satisfactory response by SubMicron to concerns raised by the
group, the committee had concluded that each company should take its own action
to protect its own financial interest with respect to amounts owed it by
SubMicron.
SUBLEASE BETWEEN LAM AND ONTRAK
Lam and OnTrak intend to execute a sublease (the "Sublease") pursuant to
which Lam will sublease to OnTrak approximately 65,000 square feet of
industrial space in a building located in Fremont, California. The term of the
Sublease is to commence on August 1, 1997 and end on May 17, 2002, subject to
earlier termination pursuant to its terms. The Sublease is not subject to
consummation of the Merger.
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<PAGE>
SELECTED HISTORICAL AND SELECTED
PRO FORMA COMBINED FINANCIAL DATA
The following selected historical financial information of Lam and OnTrak has
been derived from their respective historical consolidated financial statements
and should be read in conjunction with the consolidated financial statements
and notes thereto incorporated by reference herein. Lam's and OnTrak's
unaudited historical financial statement data as of and for the nine months
ended March 31, 1997 and 1996 have been prepared on the same basis as the
historical information derived from audited financial statements and, in the
opinion of Lam's and OnTrak's management, respectively, contain all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of the financial position and results of operations for such
periods. The unaudited Selected Pro Forma Combined Financial Data are derived
from the unaudited Pro Forma Combined Condensed Financial Statements, appearing
elsewhere in this Joint Proxy Statement/Prospectus, which give effect to the
Merger as a pooling-of-interests, and should be read in conjunction with such
pro forma statements and the notes thereto. For the Pro Forma Combined
Condensed Statements of Operations data, Lam's and OnTrak's historical results
for the nine months ended March 31, 1997 and 1996, and for the fiscal years
ended June 30, 1996, 1995, and 1994 have been combined to reflect the Merger as
if it had occurred at the beginning of the earliest period presented. No cash
dividends have been declared or paid on Lam Common Stock or OnTrak Common
Stock.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated as of the beginning of
the earliest period presented, nor necessarily indicative of the future
operating results or financial position of the combined companies.
LAM RESEARCH CORPORATION
HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS
AS OF AND FOR THE YEAR ENDED JUNE 30, ENDED MARCH 31,
---------------------------------------------- ------------------
1996 1995 1994 1993 1992 1997 1996
---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF
OPERATIONS DATA:
Total revenue........... $1,276,884 $810,557 $493,695 $265,038 $171,416 $739,717 $900,400
Net income (loss)....... $ 141,091 $ 89,211 $ 37,756 $ 18,907 $ 9,947 $(31,676) $102,595
Net income (loss) per
share
Primary............... $ 4.92 $ 3.27 $ 1.55 $ 0.79 $ 0.49 $ (1.04) $ 3.63
Fully diluted......... $ 4.67 $ 3.06 $ 1.51 $ 0.79 $ 0.49 $ (1.04) $ 3.40
HISTORICAL BALANCE SHEET
DATA:
Working capital......... $ 470,192 $337,386 $171,918 $154,723 $ 81,521 $419,980 $416,358
Total assets............ $ 969,365 $682,649 $381,497 $268,839 $156,600 $922,461 $919,110
Long-term obligations,
less current portion... $ 52,926 $ 95,928 $ 78,843 $ 79,066 $ 13,698 $ 57,294 $100,075
Total stockholders'
equity................. $ 609,786 $395,262 $176,831 $130,270 $106,592 $587,516 $502,590
</TABLE>
20
<PAGE>
ONTRAK SYSTEMS, INC.
HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS ENDED
AS OF AND FOR THE YEAR ENDED JUNE 30, MARCH 31,
------------------------------------- -----------------
1996 1995 1994 1993 1992 1997 1996
------- ------- ------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF
INCOME DATA:
Net revenue............. $55,829 $26,024 $11,497 $5,451 $3,244 $ 50,859 $ 38,995
Net income.............. $ 4,787 $ 1,068 $ 1,513 $ 324 $ 34 $ 2,476 $ 3,319
Net income per share.... $ 0.59 $ 0.17 $ 0.24 $ 0.06 $ 0.01 $ 0.31 $ 0.41
HISTORICAL BALANCE SHEET
DATA:
Working capital......... $45,970 $ 6,024 $ 1,995 $ 634 $ 311 $ 46,061 $ 43,527
Total assets............ $62,132 $15,767 $ 5,275 $2,300 $1,196 $ 67,593 $ 59,777
Long-term obligations,
less current portion... $ 1,173 $ 1,471 $ 805 $ 612 $ 464 $ 965 $ 1,244
Mandatorily redeemable
preferred stock........ -- $ 6,522 -- -- -- -- --
Total stockholders' eq-
uity................... $52,090 $ 836 $ 1,884 $ 406 $ 38 $ 55,315 $ 49,007
</TABLE>
21
<PAGE>
LAM RESEARCH CORPORATION
SELECTED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
---------------------------- ------------------
1996 1995 1994 1997 1996
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENT
OF OPERATIONS DATA:
Total revenue................. $1,332,713 $836,581 $505,192 $790,576 $939,395
Net income (loss) ............ $ 145,878 $ 90,279 $ 39,269 $(29,200) $105,914
Net income (loss) per share
Primary..................... $ 4.11 $ 2.79 $ 1.33 $ (0.79) $ 3.02
Fully diluted............... $ 3.95 $ 2.65 $ 1.31 $ (0.79) $ 2.88
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
--------------------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Working capital(1)......................................... $454,041
Total assets............................................... $990,054
Long-term obligations, less current portion................ $ 58,259
Total stockholders' equity(1).............................. $630,831
</TABLE>
- --------
(1) Lam and OnTrak anticipate that they will incur costs associated with the
Merger of approximately $12 million. Such expenses include investment
advisory fees, legal and accounting fees, financial printing costs and
other Merger related costs. These costs are preliminary and therefore
subject to change, and will be charged to operations in the fiscal quarter
in which the Merger is consummated, currently expected to be the quarter
ending September 30, 1997. The Pro Forma Combined Condensed Balance Sheet
gives effect to such non-recurring costs as if they had been incurred as of
March 31, 1997, but the Pro Forma Combined Condensed Statements of
Operations do not give effect to such non-recurring costs. See "Pro Forma
Combined Condensed Financial Statements" and the notes thereto.
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RISK FACTORS
The following factors should be considered carefully by stockholders of
OnTrak in evaluating whether to approve and adopt the Merger Agreement, and by
stockholders of Lam in evaluating whether to approve the Share Issuance. The
risks associated with the combined company in the Merger will be additional
risks faced by both the OnTrak stockholders and the Lam stockholders following
the Merger. The risks described that are currently specific to OnTrak will be
additional risks faced by Lam stockholders following the Merger. The risks
described that are currently specific to Lam will be additional risks faced by
OnTrak stockholders following the Merger. This Joint Proxy
Statement/Prospectus contains forward-looking statements that involve risks
and uncertainties. Actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
herein. These factors should be considered in conjunction with the other
information included or incorporated by reference in this Joint Proxy
Statement/Prospectus.
RISKS RELATED TO THE MERGER
INTEGRATION OF OPERATIONS
The realization of the benefits sought from the Merger depends on the
ability of the combined company following the Effective Time to effectively
utilize the joint product development capabilities, sales and marketing
capabilities, administrative organizations and facilities of the two
companies. There can be no assurance that these benefits will be achieved or
that the activities of Lam and OnTrak will be integrated in a coordinated,
timely and efficient manner. The combination of the two organizations also
will require the dedication of management resources, which will detract such
persons' attention from the day-to-day business of the combined company. There
can be no assurance that the integration will be completed without disrupting
Lam's and OnTrak's businesses. The inability of Lam and OnTrak to effectively
utilize resources and to achieve integration in a timely and coordinated
fashion could result in a material adverse effect on the combined company's
financial condition, operating results and cash flows. There can be no
assurance that the combined company will retain and successfully integrate its
key management, technical, sales and customer support personnel, or that it
will obtain any of the anticipated benefits of the Merger. See "The Merger and
Related Transactions--Joint Reasons for the Merger."
SUBSTANTIAL EXPENSES RESULTING FROM THE MERGER
Lam and OnTrak anticipate that they will incur costs associated with the
Merger of approximately $12 million which on a pro forma basis would increase
net loss per share by $0.33 for the nine months ended March 31, 1997. Such
expenses include investment advisory fees, legal and accounting fees,
financial printing costs and other Merger related costs. Although the
companies do not believe that the costs will exceed the aforementioned amount,
there can be no assurance that the companies' estimate is correct or that
unanticipated contingencies will not occur that will substantially increase
the costs of combining the operations of the two companies. In any event,
costs associated with the Merger are expected to negatively impact results of
operations in the fiscal period in which the Merger is consummated by either
increasing net loss or decreasing net income per share.
RISKS ASSOCIATED WITH FIXED EXCHANGE RATIO
Under the terms of the Merger Agreement, each share of OnTrak Common Stock
issued and outstanding at the Effective Time will be converted into the right
to receive 0.83 of a share of Lam Common Stock, subject to adjustment at the
election of Lam if the Lam Closing Value falls below certain thresholds
specified in the Merger Agreement. In the event that Lam elects to adjust the
Exchange Ratio, additional shares of Lam Common Stock will be issued in
exchange for shares of OnTrak Common Stock. The issuance of additional shares
of Lam Common Stock would result in the further dilution of the equity
interests of Lam stockholders. If, however, Lam determines not to adjust the
Exchange Ratio in those circumstances, OnTrak has the option to terminate the
Merger Agreement. Whether or not there is an adjustment to the Exchange Ratio,
the value of the consideration to be received by stockholders of OnTrak in the
Merger will depend in large part on the market price of the Lam Common Stock
at the Effective Time. In the event that the market price of Lam Common Stock
decreases or
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increases prior to the Effective Time, the market value at the Effective Time
of the Common Stock to be received by OnTrak stockholders in the Merger would
correspondingly decrease or increase. The market prices of Lam Common Stock
and OnTrak Common Stock as of recent dates are set forth herein under "--
Market and Price Data for Lam Common Stock and OnTrak Common Stock," and
"Comparative Market Price Data." There can be no assurance that the market
price of the Lam Common Stock at and after the Effective Time will not be
higher or lower than such price. Stockholders of Lam and OnTrak should obtain
and consider historical and recent trading prices for the Lam Common Stock in
determining whether to vote in favor of the Share Issuance, the Merger and the
Merger Agreement, respectively. See "--Potential Volatility of Lam Common
Stock Price."
POTENTIAL DILUTIVE EFFECT TO STOCKHOLDERS
Although the companies believe that beneficial synergies will result from
the Merger, there can be no assurance that combining the two companies'
businesses, even in an efficient, effective and timely manner, will result in
combined results of operations and financial condition superior to what would
have been achieved by each company independently, or as to the period of time
required to achieve such result. The issuance of Lam Common Stock in
connection with the Merger may have the effect of reducing the combined
company's net income per share from levels otherwise expected for Lam. On a
pro forma basis and based on an Exchange Ratio of 0.83, the issuance of
additional shares of Lam Common Stock in connection with the Merger results in
a decrease in net income per share of $0.81 (16.5%), primary, and $0.72
(15.4%), fully diluted, for the year ended June 30, 1996, and results in the
decrease in net loss per share of $0.25 (24.0%) for the nine months ended
March 31, 1997. The issuance of these additional shares, on a pro forma basis
and based on an Exchange Ratio of 0.83, results in a decrease in book value
per share of $2.02 (10.0%) at June 30, 1996 and $2.15 (11.2%) at
March 31, 1997. This could reduce the market price of the Lam Common Stock
following the Effective Time unless revenue growth or cost savings and other
business synergies sufficient to offset the effect of such issuance can be
achieved. In addition, former OnTrak stockholders will control approximately
17.3% of the total shares of Lam Common Stock outstanding after the Merger.
LOSS OF OPPORTUNITY FOR ONTRAK AS A STAND-ALONE ENTITY
As a consequence of the Merger, OnTrak stockholders will lose the
opportunity to invest in the development and exploitation of OnTrak's products
on a stand-alone basis. Additionally, the combined company will have different
management than OnTrak's current management, and consequently the management
of the combined company may make strategic and operational decisions that
differ from those of OnTrak's current management. It is possible that OnTrak,
if it were to remain independent, could achieve economic performance superior
to that of the combined company. Consequently, there can be no assurance that
stockholders of OnTrak would not achieve greater returns on investment if
OnTrak were to remain an independent company.
DEPENDENCE ON KEY PERSONNEL AND DIFFICULTY OF IDENTIFYING AND HIRING CERTAIN
PERSONNEL
The future performance of the combined company is substantially dependent on
the performance of its executive officers and key employees. The loss of the
services of any of the executive officers or other key employees of Lam or
OnTrak for any reason could have a material adverse effect on the business,
operating results, financial condition and cash flows of the combined company
after the Merger.
The future success of the combined company also depends on its continuing
ability to identify, hire, train and retain other highly qualified technical
and managerial personnel. Competition for such personnel is intense, and Lam
and OnTrak have experienced difficulty in identifying and hiring qualified
engineering personnel. There can be no assurance that the combined company
will be able to attract, assimilate or retain highly qualified technical and
managerial personnel in the future. The inability to attract and retain the
necessary technical and managerial personnel could have a material adverse
effect on the combined company's business, operating results, financial
condition and cash flows.
MANAGEMENT TRANSITION
In recent years, both Lam and OnTrak have experienced expansion of their
operations that have placed significant demands on their respective
administrative, operational and financial resources, the demands of which
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are expected to intensify as a result of the Merger. James W. Bagley, the
Chairman and Chief Executive Officer of OnTrak, will become the Chief
Executive Officer of Lam following the Merger, and Roger D. Emerick, currently
the Chairman and Chief Executive Officer of Lam, will continue to serve as
Chairman of the Board of Lam following the Merger. In addition, Lam hired a
new Chief Financial Officer, Mercedes Johnson, in April 1997. There can be no
assurance that such management transitions can be accomplished in an efficient
manner without business disruption.
RISKS RELATED TO BUSINESS AND OPERATIONS
FACTORS AFFECTING QUARTERLY REVENUES
Lam's and OnTrak's quarterly revenues have fluctuated in the past and the
combined company's revenues may fluctuate in the future. The combined
company's financial results are dependent on many factors, including the
economic conditions in the semiconductor industry, the size and timing of the
receipt of orders from customers, customer cancellations or delays of
shipments, the combined company's ability to develop, introduce and market new
and enhanced products on a timely basis, the introduction of new products by
its competitors, changes in average selling prices and product mix, and
exchange rate fluctuations, among others. The combined company's expense
levels will be based, in part, on expectations of future revenues. If revenue
levels in a particular quarter do not meet expectations, operating results
could be adversely affected. Both Lam and OnTrak derive their revenues
primarily from the sale of a relatively small number of high-priced systems.
Lam's systems can range in price from approximately $300,000 to over $3
million per unit while OnTrak's systems can range from approximately $150,000
to $600,000 per unit. The sale of fewer systems than anticipated in any
quarter may have a substantial negative impact on the operating results for
the quarter. The combined company's results of operations for a particular
quarter could be adversely affected if anticipated orders are not received in
time to enable shipment during such quarter, if anticipated shipments are
delayed or canceled by one or more customers, or if shipments are delayed due
to procurement shortages or manufacturing difficulties. The slowdown in the
semiconductor industry and in the construction of new wafer fabrication
facilities has resulted in both Lam and OnTrak experiencing a reduction in new
orders as well as rescheduled and canceled orders. There can be no assurance
that this slowdown will not continue. The impact of these and other factors on
Lam's revenues and operating results in any future period is difficult for Lam
to forecast. There can be no assurance that these and other factors will not
materially adversely affect the combined company's future business and
financial results. See "--Current Slowdown and Volatility in the Semiconductor
Equipment Industry" and "Recent Events--Lam Third Quarter 1997 Results" and
"--Lam Reserve and Non-Recurring Charge for At-Risk Receivables."
LOWER MARGINS ON NEW PRODUCTS
Lam generally realizes a higher margin on sales of its mature etch products
and on revenue from service and spare parts than on sales of Alliance, CVD,
FPD and newly released TCP products. Newer products have lower margins in the
initial phase of production. Lam is experiencing a transition from its mature
etch products to its next generation etch tools which is expected to affect
margins. There can be no assurance that declining margins associated with the
introduction of newer products will not materially adversely affect the
combined company's future results of operations.
CURRENT SLOWDOWN AND VOLATILITY IN THE SEMICONDUCTOR EQUIPMENT INDUSTRY
Both Lam's and OnTrak's businesses depend and the business of the combined
company will depend upon the capital equipment expenditures of semiconductor
manufacturers, which in turn depend on the current and anticipated market
demand for integrated circuits and products utilizing integrated circuits. The
semiconductor industry has been cyclical in nature and historically has
experienced periodic downturns. The semiconductor industry is presently
experiencing a slowdown in terms of product demand and volatility in terms of
product pricing. This slowdown and volatility has caused the semiconductor
industry to reduce or delay purchases of semiconductor manufacturing equipment
and construction of new fabrication facilities. These conditions have
adversely affected
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Lam's and OnTrak's, and may continue to adversely affect the combined
company's, aggregate bookings, revenues and operating results, and no
assurance can be given that the combined company's bookings, revenue and
operating results will not be adversely affected by future downturns in the
semiconductor industry. Even during periods of reduced revenues, in order to
remain competitive, Lam and OnTrak as well as the combined company will be
required to continue to invest in research and development and to maintain
extensive ongoing worldwide customer service and support capability which
could adversely affect its financial results.
NO DIVIDENDS
Lam has never declared or paid cash dividends. Lam currently expects to
retain its earnings for its business and does not anticipate paying dividends
in the foreseeable future. See "Comparative Market Price Data."
DEPENDENCE ON NEW PRODUCTS AND PROCESSES; RAPID TECHNOLOGICAL CHANGE
Rapid technological changes in semiconductor manufacturing processes subject
the semiconductor manufacturing equipment industry to increased pressure to
maintain technological parity with deep submicron process technology. Both Lam
and OnTrak believe that the future success of the combined company will depend
in part upon its ability to develop, manufacture and successfully introduce
new products and product lines with improved capabilities and to continue to
enhance existing products. Due to the risks inherent in transitioning to new
products, the combined company will be required to accurately forecast demand
for new products while managing the transition from older products. If new
products have reliability or quality problems, reduced orders or higher
manufacturing costs, delays in acceptance of and payment for new products and
additional service and warranty expenses may result. In the past, both Lam and
OnTrak have experienced some delays as well as reliability and quality
problems in connection with product introductions, resulting in some of these
consequences. There can be no assurance that the combined company will
successfully develop and manufacture new products, or that new products
introduced by the combined company will be accepted in the marketplace. If the
combined company does not successfully introduce new products, the combined
company's results of operations will be materially adversely affected.
In addition, both Lam and OnTrak expect the combined company to continue to
make significant investments in research and development. The combined company
also must manage product transitions successfully, as introduction of new
products could adversely affect sales of existing products. There can be no
assurance that future technologies, processes or product developments will not
render the combined company's current product offerings obsolete or that the
combined company will be able to develop and introduce new products or
enhancements to existing products which satisfy customer needs in a timely
manner or achieve market acceptance. The failure to do so could adversely
affect the combined company's business. Furthermore, if the combined company
is not successful in the marketing and selling of advanced processes or
equipment to customers with whom Lam and OnTrak have formed strategic
alliances, the results of operations of the combined company to sell its
products to those customers could be adversely affected. In addition, in
connection with the development of the combined company's new products, the
combined company will invest in high levels of preproduction inventory, and
the failure to complete development and commercialization of these new
products in a timely manner could result in inventory obsolescence, which
could have an adverse effect on the combined company's financial results.
PRODUCT CONCENTRATION; LACK OF PRODUCT REVENUE DIVERSIFICATION
A substantial percentage of Lam's and OnTrak's revenues to date have been
derived from a limited number of products, and such products are expected to
continue to account for a substantial percentage of the combined company's
revenues in the near term. OnTrak currently markets two primary products, the
DSS-200 cleaning system and the Synergy advanced cleaning system, which are
based on CMP technology. Revenues from the DSS-200 have been the primary
source of OnTrak's net revenues since 1991. The DSS-200 and Synergy systems
accounted for 88% of OnTrak's net revenues for the nine months ended March 31,
1997, and the DSS-200 and
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the Synergy systems are expected to constitute a substantial portion of
OnTrak's net revenues for the foreseeable future. Collective sales of Lam's
two primary products, Alliance and TCP, accounted for approximately 54% of
Lam's net revenues for the nine months ended March 31, 1997. Continued market
acceptance of Lam's and OnTrak's primary products is therefore critical to the
future success of the combined company. Any decline in demand for or failure
to achieve continued market acceptance of such products or any new version of
these products, if any, as a result of competition, technological change,
failure of the combined company to timely release new versions of these
products, or otherwise, could have a material adverse effect on the business,
operating results, financial condition and cash flows of the combined company.
During the quarter ended March 31, 1997 Lam experienced a faster than
anticipated transition from its single-chamber etch products to its next
generation, multi-chamber etch cluster tools which has resulted in the need
for higher-than-anticipated reserve provisions for excess and obsolete
manufacturing and spare parts inventories and additional provisions for
installation and warranty costs. These factors, among others, have resulted in
Lam's reported third quarter loss.
DEPENDENCE UPON KEY SUPPLIERS AND KEY DISTRIBUTORS
Certain of the components and subassemblies included in the products of both
Lam and OnTrak are obtained from a single supplier or a limited group of
suppliers. Lam's key suppliers include Bullen Ultrasonics, Inc., which
supplies electrodes, Edwards High Vacuum Inc., Lam's supplier of chillers, and
Advanced Energy Industries, Lam's RF generator supplier. Lam purchases on
average in excess of $500,000 of supplies on a monthly basis from each of
these suppliers. Each of these suppliers has a one year blanket purchase
contract with Lam under which Lam may issue purchase orders. These contracts
may be renewed annually. Each of these suppliers has sold products to Lam
during at least the last four years, and Lam has no reason to expect that they
will not continue to renew these contracts in the future. OnTrak's key
supplier is Rippey Corporation ("Rippey"), which supplies brushes to OnTrak.
While OnTrak does not purchase Rippey's products pursuant to a long term
contract, OnTrak's relationship with Rippey has existed since 1991 and OnTrak
has no reason to believe that this relationship will be compromised in the
future. OnTrak currently purchases approximately $35,000 per month of supplies
from Rippey. Both Lam and OnTrak believe that alternative sources could be
obtained and qualified to supply these products. Nevertheless, a prolonged
inability to obtain certain components could have an adverse effect on the
combined company's operating results and could result in damage to customer
relationships. OnTrak currently relies on exclusive distribution arrangements
with a number of distributors to market its products in many of the
territories in which its products are sold. There can be no assurance that
these distribution arrangements can be effectively integrated with Lam's
existing marketing infrastructure so that the benefits intended from the
Merger can be achieved.
HIGHLY COMPETITIVE INDUSTRY
The semiconductor processing industry is highly competitive. Each of Lam and
OnTrak has experienced, and the combined company expects to continue to face,
substantial competition throughout the world. A substantial investment is
required by semiconductor manufacturers to install and integrate capital
equipment into a semiconductor production line. Both Lam and OnTrak believe
that as a result, once a semiconductor manufacturer has selected a particular
supplier's capital equipment, the manufacturer generally relies upon that
equipment for the specific production line application and frequently will
attempt to consolidate its other capital equipment requirements with the same
supplier. Accordingly, both Lam and OnTrak would expect to experience
difficulty in selling to a given customer if that customer had initially
selected or selects a competitor's capital equipment. Both Lam and OnTrak
believe that to remain competitive, the combined company will require a level
of financial resources comparable to the levels that Lam and OnTrak have
expended to run their businesses.
Both Lam and OnTrak believe that the combined company will continue to
support Lam's and OnTrak's current efforts to increase sales of its systems to
Japanese semiconductor manufacturers, who represent a substantial portion of
the worldwide semiconductor market and whose market is difficult for non-
Japanese equipment companies to penetrate. Both Lam and OnTrak believe that
the semiconductor equipment industry is becoming increasingly dominated by
large manufacturers who have the resources to support customers on a worldwide
basis, and certain of their competitors have substantially greater financial
resources and more extensive engineering, manufacturing, marketing and
customer service and support capabilities than Lam, OnTrak or the combined
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company. In addition, there are smaller emerging semiconductor equipment
companies which provide innovative technology that may have performance
advantages over systems offered by Lam and OnTrak.
Lam faces significant competitive factors in the etch equipment market which
include etch quality, repeatability, process capability and flexibility and
overall cost of ownership, including reliability, software automation,
throughput, customer support and system price. Although Lam believes that it
competes favorably with respect to each of these factors, Lam's ability to
compete successfully in this market will depend upon its ability to introduce
product enhancements and new products on a timely basis. There can be no
assurance that Lam will continue to compete successfully in the future. In the
etch equipment market, Lam's primary competitors are Applied Materials, Inc.,
Tokyo Electron Limited and Hitachi Ltd.
Lam faces significant competitive factors in the deposition equipment market
which include film quality, flow uniformity, contamination control,
temperature control and overall cost of ownership, including throughput,
system reliability, cost of consumables, system price and customer support. In
the deposition equipment market, the principal suppliers of equipment are
Applied Materials, Inc., Canon Sales Co. Inc., Novellus Systems, Inc. and
Watkins-Johnson Company.
OnTrak's current principal product line is the DSS-200 cleaning system,
which is primarily designed for cleaning during the CMP process and, to a
lesser extent, for general wafer cleaning. In December 1996, OnTrak introduced
the Synergy advanced cleaning system, its new chemically enhanced cleaning
system used primarily for removal of metallic contamination and embedded
particles from the surface of a polished wafer. In CMP slurry removal and
cleaning applications, OnTrak's principal competitor is Dainippon Screen
Manufacturing Co. Ltd. ("Dainippon Screen"). OnTrak expects that it will face
increased competition from Integrated Process Equipment Corp. ("IPEC"), which
currently offers a slurry removal cleaning system, and SpeedFam Corp.
("SpeedFam"), as well as others as the CMP market continues to develop. In
general cleaning applications, OnTrak competes against Dainippon Screen and
others.
The CMP polishing system under development by OnTrak is expected to face
significant competition from multiple current and future competitors.
Companies currently offering polishing systems include Applied Materials,
Inc., Cybeq Systems, Ebara Corporation, IPEC, SpeedFam, Strasbaugh and
Sumitomo Metal Industries, Ltd. IPEC currently has the largest installed base
of CMP polishers and also offers an integrated CMP polishing and cleaning
system. OnTrak believes that other companies are developing polishing systems
and are planning to introduce new products to this market before or during the
same time frame as OnTrak's planned introduction of its CMP polishing system.
Many of these current and potential new competitors have greater financial,
marketing, technical and other resources, broader product lines, long-term
customer relationships, greater customer service capabilities and larger and
more established sales organizations than OnTrak.
Both Lam and OnTrak expect their competitors to continue to improve the
design and performance of their current products and processes and to
introduce new products and processes with improved price and performance
characteristics. If Lam's or OnTrak's competitors enter into strategic
relationships with leading semiconductor manufacturers covering etch, CVD
products or CMP products similar to those sold by Lam or cleaning or polishing
systems sold or under development by OnTrak, their ability to sell their
products to those manufacturers could be adversely affected. No assurance can
be given that Lam, OnTrak or the combined company will continue to compete
successfully in the United States or worldwide.
Present or future competitors may be able to develop products comparable or
superior to those offered by the combined company or adapt more quickly to new
technologies or evolving customer requirements. In particular, while Lam and
OnTrak currently are developing additional product enhancements that they
believe address customer requirements, there can be no assurance that the
development or introduction of these additional product enhancements will be
successfully completed on a timely basis or that these product enhancements
will achieve market acceptance. Accordingly, there can be no assurance that
the combined company will be able to continue to compete effectively in its
markets, that competition will not intensify or that future competition will
not have a material adverse effect on the business, operating results,
financial condition and cash flows of the combined company.
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INTERNATIONAL OPERATIONS AND EXPANSION
International sales accounted for 64%, 54%, 48%, 61% and 60% of Lam's net
revenues in the fiscal years 1996, 1995 1994 and the nine months ended March
31, 1997 and 1996, respectively, and 32%, 27%, 31%, 49% and 32% of OnTrak's
net revenues in the fiscal years 1996, 1995, 1994 and the nine months ended
March 31, 1997 and 1996, respectively. On a pro forma combined basis,
international sales accounted for 63%, 53%, 48%, 61% and 59%, of total revenue
in the fiscal years 1996, 1995, 1994 and the nine months ended March 31, 1997
and 1996, respectively. Both Lam and OnTrak anticipate that international
sales will continue to account for a significant portion of net sales.
Additionally, both Lam and OnTrak intend to continue expansion of
international operations, including expansion of facilities in the Asia
Pacific region. As a result, a significant portion of the combined company's
sales and operations will be subject to certain risks, including tariffs and
other barriers, difficulties in staffing and managing foreign subsidiary and
branch operations, difficulties in managing distributors, potentially adverse
tax consequences and the possibility of difficulties in accounts receivable
collection.
In addition to the uncertainty as to the combined company's ability to
expand its international presence, there are certain risks inherent in doing
business on an international level, such as unexpected changes in regulatory
requirements, political instability, fluctuations in currency exchange rates,
and seasonal reductions in business activity during summer months in Europe
and certain other parts of the world, any of which could adversely impact the
success of international operations. Sales of products by Lam and OnTrak are
denominated principally in U.S. dollars, representing in excess of 85% of
total combined revenue. Accordingly, any increase in the value of the U.S.
dollar as compared to currencies in the companies' principal overseas markets
would increase the foreign currency-denominated cost of the companies'
products, which may negatively affect the companies' sales in those markets.
The Japanese yen has decreased in value relative to the U.S. dollar in recent
months. In addition to the potential impact on the pricing of the combined
company products, this decline will likely lower the rate of dollar revenue
growth. Currently, Lam enters into foreign currency forward contracts,
designated as hedges of existing yen-denominated assets and liabilities to
minimize the impact of exchange rate fluctuations on such assets and
liabilities. The combined company currently anticipates continuing to enter
into such hedging transactions in the future. Lam does not currently enter
into speculative foreign currency forward contracts. In addition, effective
patent, copyright, trademark and trade secret protection may be limited or
unavailable under the laws of certain foreign jurisdictions. There can be no
assurance that one or more of such factors will not have a material adverse
effect on the combined company's international operations and, consequently,
on the business, operating results, financial condition and cash flows of the
combined company.
MANAGEMENT OF POTENTIAL GROWTH; INTEGRATION OF POTENTIAL ACQUISITIONS
To manage future growth, if any, new management of the combined company will
face significant challenges in improving financial and management controls,
management processes, business and management information systems and
procedures on a timely basis and expanding, training and managing its work
force. There can be no assurance that the combined company will be able to
perform such actions successfully.
In the future, the combined company may make additional acquisitions of
complementary companies, products or technologies. Managing an acquired
business entails numerous operational and financial risks, including
difficulties in assimilating acquired operations, diversion of management's
attention to other business concerns, amortization of acquired intangible
assets and potential loss of key employees or customers of acquired
operations. The combined company's success will depend, to a significant
extent, on the ability of its executive officers and other members of senior
management to respond to these challenges effectively. There can be no
assurance that the combined company will be able to effectively achieve and
manage any such growth, or that its management, personnel or systems will be
adequate to support the combined company's operations. Any such inabilities or
inadequacies would have a material adverse effect on the combined company's
business, operating results, financial condition and cash flows.
An important element of Lam management's strategy is to review acquisition
prospects that would complement Lam's existing products, augment its market
coverage and distribution ability or enhance its technological capabilities.
While Lam has no current agreements or negotiations underway with respect to
any
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new acquisitions other than the Merger, Lam may acquire additional businesses,
products or technologies in the future. Future acquisitions by the combined
company could result in changes similar to those that will be incurred in
connection with the Merger, potentially dilutive issuances of equity
securities, the incurrence of debt and contingent liabilities and amortization
expense related to goodwill and other intangible assets, any of which could
materially adversely affect the combined company's business, financial
condition and results of operations and/or the price of the Lam Common Stock.
MAJOR CUSTOMERS
On a pro forma combined basis, sales to the combined company's top five
customers accounted for 23%, 29%, 44%, 21% and 24% of total revenue in the
fiscal years 1996, 1995, 1994 and the nine months ended March 31, 1997 and
1996, respectively. During fiscal year 1996 and the nine month periods ended
March 31, 1997 and 1996, no individual customer accounted for greater than 10%
of combined sales. Intel Corporation accounted for 11% and 12% of combined
sales for fiscal years 1995 and 1994, respectively. Motorola, Inc. accounted
for 10% of combined sales for fiscal year 1994. The loss of one or more of the
combined company's largest customers could have a material adverse effect on
the combined company's business financial condition and results of operations.
INTELLECTUAL PROPERTY MATTERS
From time to time, both Lam and OnTrak have received notices from third
parties alleging infringement of such parties' patent rights by Lam's and
OnTrak's respective products. In such cases, it is the policy of both Lam and
OnTrak to defend against the claims or negotiate licenses on commercially
reasonable terms where considered appropriate. However, no assurance can be
given that the combined company will be able to negotiate necessary licenses
on commercially reasonable terms, or at all, or that any litigation resulting
from such claims would not have a material adverse effect on the combined
company's business and financial results.
In October 1993, Varian Associates, Inc. ("Varian") brought suit against Lam
in the United States District Court for the Northern District of California,
seeking monetary damages and injunctive relief based on Lam's alleged
infringement of certain patents held by Varian. The lawsuit is in the late
stages of discovery and has been reassigned to a new judge. The trial date has
been set for March, 1998. Lam has asserted defenses of invalidity and
unenforceability of the patents that are the subject of the lawsuit, as well
as noninfringement of such patents by Lam's products. While litigation is
subject to inherent uncertainties and no assurance can be given that Lam will
prevail in such litigation or will obtain a license under such patents on
commercially reasonable terms, or at all, if such patents are held valid and
infringed by Lam's products, Lam believes that the Varian lawsuit will not
have a material adverse effect on Lam's operating results or Lam's financial
position.
Both Lam's and OnTrak's success depends in part on their proprietary
technology. While Lam and OnTrak attempt to protect their proprietary
technology through patents, copyrights and trade secret protection, they
believe that the success of the combined company will depend upon more
technological expertise, continuing the development of new systems, market
penetration and installed base and the ability to provide comprehensive
support and service to customers. There can be no assurance that the combined
company will be able to protect its technology or that competitors will not be
able to develop similar technology independently. Lam and OnTrak currently
have a number of United States and foreign patents and patent applications.
There can be no assurance that any patents issued to Lam or OnTrak will not be
challenged, invalidated or circumvented or that the rights granted thereunder
will provide competitive advantages to Lam, OnTrak or the combined company.
POTENTIAL VOLATILITY OF COMMON STOCK PRICE
The market price for Lam Common Stock has been volatile. The market price of
the Lam Common Stock following the Effective Time could be subject to
significant fluctuations in response to variations in quarterly operating
results, shortfalls in revenues or earnings from levels expected by securities
analysts and other factors such as announcements of technological innovations
or new products by the combined company or by the combined company's
competitors, government regulations, developments in patent or other
proprietary rights. In addition, the stock market has in recent years
experienced significant price fluctuations. These fluctuations often
30
<PAGE>
have been unrelated to the operating performance of the specific companies
whose stocks are traded. Broad market fluctuations, as well as economic
conditions generally in the semiconductor industry, may adversely affect the
market price of the Lam Common Stock following the Effective Time.
POTENTIAL ANTI-TAKEOVER EFFECTS
Certain provisions of the Lam Rights Plan, its Certificate, its Bylaws and
Delaware law could discourage potential acquisition proposals and could delay
or prevent a change in control of the combined company. The Lam Board
following the Effective Time will have the authority to issue up to 5,000,000
shares of Preferred Stock without any further vote or action by the
stockholders. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of Lam following the Effective
Time without further action by the stockholders and could adversely affect the
rights and powers, including voting rights, of the holders of Lam Common Stock
following the Effective Time. Such effects could result in a decrease in the
market price of the Lam Common Stock following the Effective Time. In
addition, should stockholders of Lam approve the Certificate of Incorporation
Amendments described herein, stockholders of Lam following the Effective Time
will not be permitted to take actions by written consent or elect directors by
cumulative voting. Such provisions may inhibit increases in the market price
of the Lam Common Stock following the Effective Time that could result from
takeover attempts. See "Comparison of Capital Stock and Stockholder Rights."
ENVIRONMENTAL REGULATIONS
Both Lam and OnTrak are, and the combined company will be, subject to a
variety of governmental regulations related to the discharge or disposal of
toxic, volatile, or otherwise hazardous chemicals used in the manufacturing
process. Each of Lam and OnTrak believe that it is in general compliance with
these regulations and that it has obtained (or otherwise addressed) all
necessary environmental permits to conduct its business, which permits
generally relate to the disposal of hazardous wastes. Nevertheless, the
failure to comply with present or future regulations could result in fines
being imposed on Lam, OnTrak or the combined company, suspension of production
or cessation of operations. Such regulations could require Lam, OnTrak or the
combined company to acquire significant equipment or to incur substantial
other expenses to comply with environmental regulations. Any failure by Lam,
OnTrak or the combined company to control the use of, or adequately restrict
the discharge or disposal of, hazardous substances could subject Lam, OnTrak
or the combined company to future liabilities.
SHARES ELIGIBLE FOR FUTURE SALE
Based on the capitalization of OnTrak as of the close of business on March
31, 1997 (including the number of shares of OnTrak Common Stock outstanding
and the number of shares issuable on exercise of outstanding options to
purchase OnTrak Common Stock), and an Exchange Ratio of 0.83 of a share of Lam
Common Stock for each share of OnTrak Common Stock, an aggregate of
approximately 6,422,165 shares of Lam Common Stock will be issued to OnTrak
stockholders in the Merger, and Lam will assume OnTrak employee and director
stock options and purchase rights under the OnTrak Stock Plans to acquire
additional shares of Lam Common Stock. In general, the shares issued in the
Merger, other than to OnTrak affiliates, will be freely tradeable following
the Merger. The shares issued after the Effective Time upon the exercise of
the assumed OnTrak options and rights will be registered pursuant to a
registration statement on Form S-8 to be filed by Lam within three business
days following the Closing. In addition, certain stockholders of Lam and
OnTrak who, following the Merger, will be holders of approximately 4.9% of Lam
Common Stock, have agreed that, without the prior consent of Lam, they will
not transfer, sell, exchange, pledge or otherwise dispose of any Lam Common
Stock or OnTrak Common Stock, as the case may be, from 30 days prior to the
anticipated Effective Time until the date Lam publicly releases financial
results for a period that includes at least 30 days of combined operations of
Lam and OnTrak (the "Affiliates Expiration Date"). Immediately after the
Affiliates Expiration Date, these shares will be eligible for sale in the
public market, subject to compliance with Rules 144 and 145 under the
Securities Act. Substantially all shares of Lam Common Stock outstanding prior
to the Merger are freely tradeable in the public market, subject in the case
of affiliates to compliance with the volume restrictions of Rule 144. The sale
of any currently outstanding shares of Lam Common Stock and any Lam Common
Stock issued in connection with the Merger may cause substantial fluctuations
in the price of the Lam Common Stock over short time periods.
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<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth certain historical per share data of Lam and
OnTrak and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a pooling-of-interests basis assuming the
issuance of 0.83 of a share of Lam Common Stock for each outstanding share of
OnTrak Common Stock. The following tables assume that the transaction was
consummated on March 31, 1997. The actual number of shares of Lam Common Stock
to be exchanged for all of the outstanding OnTrak Common Stock will be
determined at the Effective Time based on the capitalization of OnTrak at the
Effective Time. The following data should be read in conjunction with the
Selected Historical Financial Data, the Selected Pro Forma Combined Financial
Data, the Pro Forma Combined Condensed Financial Statements and the separate
historical financial statements of Lam and OnTrak included elsewhere in this
Joint Proxy Statement/Prospectus or incorporated herein by reference. The
unaudited pro forma combined per share data are not necessarily indicative of
the operating results that would have been achieved had the Merger been
consummated as of the beginning of the earliest period presented and should
not be construed as representative of future operations. Neither Lam nor
OnTrak has declared or paid any cash dividends on its common stock.
<TABLE>
<CAPTION>
AS OF OR FOR THE
AS OF OR FOR THE NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------- -------------------
1996 1995 1994 1997 1996
------- ------ ------ --------- --------
<S> <C> <C> <C> <C> <C>
HISTORICAL--LAM
Net income (loss) per share:
Primary........................... $ 4.92 $ 3.27 $ 1.55 $ (1.04) $3.63
Fully diluted..................... $ 4.67 $ 3.06 $ 1.51 $ (1.04) $3.40
Book value per share (2)............ $ 20.15 $19.16
HISTORICAL--ONTRAK
Net income per share................ $ 0.59 $ 0.17 $ 0.24 $ 0.31 $0.41
Book value per share (2)............ $ 6.93 $ 7.15
<CAPTION>
AS OF OR FOR THE
AS OF OR FOR THE NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------- -------------------
1996 1995 1994 1997 1996
------- ------ ------ --------- --------
<S> <C> <C> <C> <C> <C>
PRO FORMA AND EQUIVALENT PRO FORMA
COMBINED NET INCOME (LOSS) PER
SHARE
Pro forma combined net income (loss)
per Lam share: (3)
Primary........................... $ 4.11 $ 2.79 $ 1.33 $ (0.79) $3.02
Fully diluted..................... $ 3.95 $2.65 $1.31 $ (0.79) $2.88
Equivalent pro forma combined net
income (loss) per OnTrak share: (4)
Primary........................... $ 3.41 $ 2.31 $ 1.10 $ (0.66) $2.51
Fully diluted..................... $ 3.28 $2.20 $1.09 $ (0.66) $2.39
PRO FORMA AND EQUIVALENT PRO FORMA
COMBINED BOOK VALUE PER SHARE:
Pro forma combined book value per
Lam share (1)(2)................... $ 18.13 $ 17.01
Equivalent pro forma combined book
value per OnTrak share(1)(4)....... $ 15.05 $ 14.12
</TABLE>
- --------
(1) Lam and OnTrak anticipate that they will incur costs associated with the
Merger of approximately $12 million. Such expenses include investment
advisory fees, legal and accounting expenses, financial printing charges
and other Merger-related costs. These costs are preliminary and therefore
subject to change, and will be charged to operations in the fiscal quarter
in which the Merger is consummated, currently expected to be the quarter
ending September 30, 1997. The pro forma combined book value per share
gives effect to such non-recurring expenses as if they had been incurred
as of March 31, 1997, but the pro forma combined net income (loss) per
share does not give effect to such non-recurring expenses.
(2) Historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock outstanding at the end of
each period. Pro forma combined book value per share is computed by
dividing pro forma stockholders' equity by the pro forma number of shares
of common stock outstanding at the end of the period. The actual number of
shares of Lam Common Stock to be exchanged for all of the outstanding
OnTrak Common Stock will be determined at the Effective Time based on the
capitalization of OnTrak at the Effective Time and the final Exchange
Ratio.
(3) The pro forma combined net income (loss) per share is based on the
combined weighted average number of common and dilutive common equivalent
shares of Lam Common Stock and of OnTrak Common Stock (assuming an
Exchange Ratio as of March 31, 1997 of 0.83 of a share of Lam Common Stock
for each outstanding share of OnTrak Common Stock). The actual number of
shares of Lam Common Stock to be exchanged for all of the outstanding
OnTrak Common Stock will be determined at the Effective Time based on the
capitalization of OnTrak at the Effective Time and the final Exchange
Ratio.
(4) The OnTrak equivalent pro forma per share amounts are calculated by
multiplying Lam pro forma combined per share amounts by the Exchange Ratio
of 0.83 of a share of Lam Common Stock for each outstanding share of
OnTrak Common Stock.
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<PAGE>
COMPARATIVE MARKET PRICE DATA
Lam Common Stock trades on Nasdaq under the symbol "LRCX," and OnTrak Common
Stock trades on Nasdaq under the symbol "ONTK." The table below sets forth,
for the calendar quarters indicated, the reported high and low sale prices of
Lam Common Stock and OnTrak Common Stock as reported on Nasdaq.
<TABLE>
<CAPTION>
LAM ONTRAK
COMMON STOCK COMMON STOCK
------------- -------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1995 CALENDAR YEAR
First Quarter(a).................................. $51.50 $35.25 -- --
Second Quarter(a)................................. $68.50 $42.50 -- --
Third Quarter..................................... $73.38 $56.75 $34.75 $23.50
Fourth Quarter.................................... $68.50 $45.38 $27.00 $14.00
1996 CALENDAR YEAR
First Quarter..................................... $52.50 $32.00 $17.75 $12.00
Second Quarter.................................... $45.50 $24.50 $28.75 $11.50
Third Quarter..................................... $28.88 $20.00 $18.13 $13.25
Fourth Quarter.................................... $38.25 $24.00 $19.00 $14.00
1997 CALENDAR YEAR
First Quarter..................................... $43.25 $27.13 $29.50 $14.25
Second Quarter(b)................................. $38.63 $23.38 $31.00 $18.88
</TABLE>
- --------
(a) OnTrak commenced trading on Nasdaq on July 11, 1995.
(b) Through June 25, 1997, the last practicable trading day prior to this
Joint Proxy Statement/Prospectus.
Set forth below is a table containing, for each of March 21, 1997 (the last
trading day before the announcement of the Merger Agreement) and June 25, 1997
(the last practicable trading day before the printing of this Joint Proxy
Statement/Prospectus), the last reported sale price per share of each of Lam
Common Stock and OnTrak Common Stock, as reported on Nasdaq, as well as the
equivalent market price per share of OnTrak Common Stock, based on an Exchange
Ratio of 0.83 of a share of Lam Common Stock for each share of OnTrak Common
Stock and assuming that the Merger had been consummated on such day:
<TABLE>
<CAPTION>
MARCH 21, 1997 JUNE 25, 1997
-------------- -------------
<S> <C> <C>
Lam............................................. $32.25 $35.75
OnTrak.......................................... $27.00 $28.75
OnTrak (Lam equivalent market price)............ $26.77 $29.67
</TABLE>
Because the Exchange Ratio is fixed subject to adjustment in certain
circumstances, at Lam's discretion, changes in the market price of Lam Common
Stock prior to consummation of the Merger will affect the dollar value of the
Lam Common Stock to be received by stockholders of OnTrak in the Merger. Lam
stockholders and OnTrak stockholders are urged to obtain current market
quotations for Lam Common Stock and OnTrak Common Stock prior to the Lam
Special Meeting and OnTrak Special Meeting, respectively.
Neither Lam nor OnTrak has ever paid cash dividends. Following the Effective
Time, Lam intends to retain earnings for the development of its business and
not to distribute earnings to stockholders as dividends. The declaration and
payment by Lam following the Effective Time of any future dividends and the
amount thereof, if any, will depend upon the results of operations, financial
condition, cash requirements, future prospects, limitations imposed by credit
agreements or senior securities and other factors deemed relevant by the Lam
Board following the Effective Time.
33
<PAGE>
LAM SPECIAL MEETING
DATE, TIME AND PLACE OF LAM SPECIAL MEETING
The Lam Special Meeting will be held at the offices of Lam at 4650 Cushing
Parkway, Fremont, California on August 5, 1997 at 2:00 p.m. local time.
PURPOSE
The purpose of the Lam Special Meeting is to consider and vote upon
proposals to approve (i) the Share Issuance, (ii) the Lam 1997 Stock Plan
Adoption, (iii) the Written Consent Amendment, and (iv) the Cumulative Voting
Amendment. See "Terms of the Merger" and "Additional Matters Being Submitted
to a Vote of Only Lam Stockholders--Proposal Two--Approval of the Lam 1997
Stock Plan," "--Proposal Three--Amendment to Certificate of Incorporation--
Elimination of Stockholder Written Consent," "--Proposal Four--Amendment to
Certificate of Incorporation--Elimination of Cumulative Voting."
RECORD DATE AND OUTSTANDING SHARES
Only Lam stockholders of record at the close of business on the Lam Record
Date are entitled to notice of and to vote at the Lam Special Meeting. As of
the Lam Record Date, there were 1,081 stockholders of record holding an
aggregate of approximately 30,884,205 shares of Lam Common Stock.
On or about July 7 , 1997, a notice meeting the requirements of Delaware law
was mailed to all stockholders of record as of the Lam Record Date.
VOTE REQUIRED
Each stockholder is entitled to one vote for each share of Lam Common Stock
on all matters at the Lam Special Meeting.
Pursuant to the rules of Nasdaq, the affirmative vote of a majority of the
votes present in person or by proxy and entitled to vote is required to
approve the Share Issuance and the Lam 1997 Stock Plan. Pursuant to the DGCL,
the affirmative vote of a majority of the shares of Lam Common Stock issued
and outstanding as of the Lam Record Date is required to approve (i) the
Written Consent Amendment, and (ii) the Cumulative Voting Amendment.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Lam Common Stock entitled to vote at the
Lam Special Meeting shall constitute a quorum. Abstentions and broker non-
votes will be included for purposes of determining whether a quorum of shares
is present at the Lam Special Meeting. In the Share Issuance and the Lam 1997
Stock Plan Adoption, requiring a majority of the total present in person or by
proxy and entitled to vote, abstentions will be counted in the tabulation of
the voting results and will be treated as votes against the proposal. Broker
non-votes will not be treated as "entitled to vote" and will have no effect on
the voting result. In the Certificate of Incorporation Amendments, requiring a
majority of the shares of Lam Common Stock issued and outstanding as of the
Record Date, abstentions and broker non-votes will be treated as votes against
the proposals. A broker non-vote occurs when a nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee
does not have discretionary voting power with respect to that item and has not
received instructions from the beneficial owner.
PROXIES
Each of the persons named as proxies in the proxy is an officer of Lam. All
shares of Lam Common Stock that are entitled to vote and are represented at
the Lam Special Meeting either in person or by properly executed proxies
received prior to or at the Lam Special Meeting and not duly and timely
revoked will be voted at the Lam Special Meeting in accordance with the
instructions indicated on such proxies. If no such instructions are
34
<PAGE>
indicated, such proxies will be voted for (i) the Share Issuance, (ii) the Lam
1997 Stock Plan, and (iii) the Certificate of Incorporation Amendments.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Lam at or before the taking of the vote at the Lam
Special Meeting, a written notice of revocation bearing a later date than the
proxy; (ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Lam before the taking of the vote at the Lam
Special Meeting; (iii) attending the Lam Special Meeting and voting in person
(although attendance at the Lam Special Meeting will not in and of itself
constitute a revocation of a proxy); or (iv) by phoning 1-888-LAM-TRAK or
logging onto the World Wide Web at http://www.lamrc.com at any time after July
25, 1997, and following the instructions provided by the messages thereon. Any
written notice of revocation or subsequent proxy should be sent so as to be
delivered to Lam at 4650 Cushing Parkway, Fremont, California 94538,
Attention: Secretary, or hand-delivered to the Secretary of Lam, in each case
at or before the taking of the vote at the Lam Special Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of Lam stockholders will be borne by Lam. In
addition, Lam may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may also be solicited by certain
Lam directors, officers and regular employees personally or by telephone,
telegram, letter or facsimile. Such persons will not receive additional
compensation, but may be reimbursed for reasonable out-of-pocket expenses
incurred in connection with such solicitation. In addition, Lam has retained
MacKenzie Partners, Inc. to assist in the solicitation of proxies from
brokers, nominees, institutions and individuals at an estimated fee of not
more than $25,000 plus reimbursement of reasonable expenses. Arrangements will
also be made with custodians, nominees and fiduciaries for forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
custodians, nominees and fiduciaries, and Lam will reimburse such custodians,
nominees and fiduciaries for reasonable expenses incurred in connection
therewith.
THE MATTERS TO BE CONSIDERED AT THE LAM SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF LAM. ACCORDINGLY, STOCKHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
35
<PAGE>
ONTRAK SPECIAL MEETING
DATE, TIME AND PLACE OF ONTRAK SPECIAL MEETING
The OnTrak Special Meeting will be held at the offices of OnTrak at 1010
Rincon Circle, San Jose, California on August 5, 1997, at 2:00 p.m., local
time.
PURPOSE
The purpose of the OnTrak Special Meeting, is to consider and vote upon a
proposal to approve and adopt the Merger Agreement. See "Terms of the Merger."
RECORD DATE AND OUTSTANDING SHARES
Only stockholders of record of OnTrak Common Stock on the OnTrak Record Date
are entitled to notice of, and to vote at, the OnTrak Special Meeting. As of
the OnTrak Record Date, there were 165 stockholders of record holding an
aggregate of approximately 7,763,177 shares of OnTrak Common Stock.
On or about July 7, 1997, a notice regarding the OnTrak special meeting
conforming to the requirements of Delaware law was mailed to all stockholders
of record as of the OnTrak Record Date.
VOTE REQUIRED
Each stockholder is entitled to one vote for each share of OnTrak Common
Stock on all matters at the OnTrak Special Meeting. The approval and adoption
of the Merger Agreement requires the affirmative vote of the holders of a
majority of the outstanding shares of OnTrak Common Stock. As of the OnTrak
Record Date, directors and officers of OnTrak beneficially owned 1,153,924
shares of OnTrak Common Stock or approximately 15% of those shares of OnTrak
Common Stock outstanding as of such date. Certain directors, executive
officers and other stockholders of OnTrak have granted irrevocable proxies in
favor of Lam to vote all of such stockholders' shares of OnTrak Common Stock
held as of the OnTrak Record Date in favor of the Merger Agreement and the
Merger (2,002,436 shares of OnTrak Common Stock or approximately 26% of the
outstanding shares of OnTrak Common Stock as of the OnTrak Record Date).
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of OnTrak Common Stock entitled
to vote shall constitute a quorum at the OnTrak Special Meeting. Votes cast by
proxy or in person at the OnTrak Special Meeting will be tabulated by the
election inspectors appointed for the meeting who will determine whether or
not a quorum is present. Where, as to any matter submitted to the stockholders
for a vote, proxies are marked as abstentions (or stockholders appear in
person but abstain from voting), such abstentions will be treated as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum. If a broker indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will not be considered as present and entitled to vote with
respect to that matter.
Since the affirmative vote of a majority of the outstanding shares of OnTrak
Common Stock is required to approve and adopt the Merger Agreement, an
abstention and a broker non-vote each will have the effect of a vote against
the approval and adoption of the Merger Agreement.
PROXIES
Each of the persons named as proxies in the proxy is an officer of OnTrak.
All shares of OnTrak Common Stock that are entitled to vote and are
represented at the OnTrak Special Meeting either in person or by properly
executed proxies received prior to or at the OnTrak Special Meeting and not
duly and timely revoked will be voted at the OnTrak Special Meeting in
accordance with the instructions indicated on such proxies.
36
<PAGE>
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of OnTrak at or before the taking of the vote at the OnTrak
Special Meeting, a written notice of revocation bearing a later date than the
proxy; (ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of OnTrak before the taking of the vote at the
OnTrak Special Meeting; (iii) attending the OnTrak Special Meeting and voting
in person (although attendance at the OnTrak Special Meeting will not in and
of itself constitute a revocation of a proxy); or (iv) by phoning 1-888-LAM-
TRAK or logging onto the World Wide Web at http://www.lamrc.com at any time
after July 25, 1997, and following the instructions provided by the messages
thereon. Any written notice of revocation or subsequent proxy should be sent
so as to be delivered to OnTrak at 1010 Rincon Circle, San Jose, California
95131, Attention: Secretary, or hand-delivered to the Secretary of OnTrak, in
each case at or before the taking of the vote at the OnTrak Special Meeting.
SOLICITATION OF PROXIES; EXPENSES
OnTrak will bear its own cost of solicitation of proxies. In addition to the
use of the mails, proxies may be solicited by the directors and officers of
OnTrak by personal interview, telephone, telegram or e-mail. Such directors
and officers will not receive additional compensation for such solicitation
but may be reimbursed for out-of-pocket expenses incurred in connection
therewith. In addition, OnTrak has retained MacKenzie Partners, Inc. to assist
in the solicitation of proxies from brokers, nominees, institutions and
individuals at an estimated fee of not more than $6,000 plus reimbursement of
reasonable expenses. Arrangements may also be made with brokerage firms and
other custodians, nominees and fiduciaries to forward solicitation materials
to the beneficial owners of shares of OnTrak Common Stock held of record by
such persons, in which case OnTrak will reimburse such brokerage firms,
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred by them in connection therewith.
THE MATTERS TO BE CONSIDERED AT THE ONTRAK SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF ONTRAK. ACCORDINGLY, STOCKHOLDERS ARE URGED
TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
37
<PAGE>
THE MERGER AND RELATED TRANSACTIONS
THIS IS PROPOSAL NO. 1 TO BE CONSIDERED AND VOTED ON BY LAM STOCKHOLDERS AND
IS THE ONLY PROPOSAL TO BE CONSIDERED AND VOTED ON BY ONTRAK STOCKHOLDERS.
The following discussion summarizes the proposed Merger and related
transactions. The following is not, however, a complete statement of all
provisions of the Merger Agreement and related agreements. Detailed terms of
and conditions to the Merger and certain related transactions are contained in
the Merger Agreement, a conformed copy of which is attached to this Joint
Proxy Statement/Prospectus as Annex A. Reference is also made to the Forms of
Stockholder Agreement attached to this Joint Proxy Statement/Prospectus as
Annex C, and to the other Annexes hereto. Statements made in this Joint Proxy
Statement/Prospectus with respect to the terms of the Merger and such related
transactions are qualified in their entirety by reference to the more detailed
information set forth in the Merger Agreement and the other Annexes hereto.
This discussion contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual
results could differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including those set forth
in Risk Factors and elsewhere herein or incorporated by reference.
JOINT REASONS FOR THE MERGER
The Lam Board and the OnTrak Board believe that by combining the highly
complementary product lines of the two companies, the combined company will
have the potential to realize long-term improved growth and profitability and
a stronger position in the semiconductor equipment industry. Lam is a leading
supplier of semiconductor etch and CVD equipment and OnTrak is the industry
leader in the production of CMP cleaning systems used to fabricate
semiconductor devices, and is currently introducing a next-generation CMP
polishing tool. When combined, the company will provide a broad line of cost-
effective integrated process solutions. In addition, the combined company's
global infrastructure of more than 40 regional sales, service and technical
support offices should allow increased penetration of OnTrak's cleaning
products and facilitate introduction of OnTrak's CMP polisher product. Lam's
highly-regarded research and development infrastructure should complement
OnTrak's ongoing product development programs. In addition, the Boards of
Directors of both companies believe that Mr. Bagley's operational expertise
will prove to be valuable in the management of the combined company. In sum,
Lam and OnTrak believe that the Merger will give the combined company the
ability to compete more effectively against large competitors.
Each of the Boards of Directors of Lam and OnTrak has identified additional
mutual benefits of the Merger that they believe will contribute to the success
of the combined company. These potential benefits include principally the
following:
. The combination of OnTrak's CMP cleaning and polishing systems with
Lam's semiconductor etch and CVD equipment will allow the combined
company to offer a more comprehensive set of semiconductor equipment
products to its customers.
. The Merger will allow the combined company to offer integrated product
solutions to address next-generation device manufacturing requirements.
. The combination will enable joint marketing and product development.
. Sales of CMP cleaning and polishing systems are expected to benefit from
access to the integrated sales and service organization of Lam, and from
Lam's reputation and relationships with domestic and international
customers.
. The combined experience, financial resources, size and breadth of
product offerings of the combined company may allow the combined company
to respond more quickly and effectively to technological change,
increased competition and industry demands in an industry which requires
rapid innovation and change.
38
<PAGE>
Lam and OnTrak have each identified additional reasons for the Merger, which
are discussed below. Each Board of Directors has recognized that the potential
benefits of the Merger may not be realized. See "Risk Factors."
LAM'S REASONS FOR THE MERGER
At its March 24, 1997, board meeting, the Lam Board unanimously approved the
Merger Agreement and the transactions contemplated thereby. Lam's Board
unanimously recommends that the Lam stockholders vote for the issuance of
shares of Lam Common Stock pursuant to the Merger Agreement.
In addition to the anticipated joint benefits described above, the Lam Board
believes that the following are additional reasons the Merger will be
beneficial to Lam and its stockholders and for Lam stockholders to vote FOR
the proposals set forth herein:
. Given the complementary nature of the product lines of Lam and OnTrak,
the Merger would enhance the opportunity for the potential realization
of Lam's strategic objective of achieving greater scale and presence in
the semiconductor equipment industry.
. The Merger would enable Lam to participate in the CMP market, one of the
fastest growing segments of the semiconductor equipment market.
. The Merger would provide an opportunity for increased sales to current
Lam and OnTrak customers by offering an integrated and broader product
line.
. OnTrak's technology would enable Lam to participate in emerging
processing markets that will require CMP, including damascene/copper
deposition and planarization as more layers are added to semiconductor
chips.
. The Lam stockholders would have the opportunity to participate in the
potential for growth of the combined company after the Merger.
The Lam Board considered a number of factors relating to the Merger,
including the following: (i) the business, assets, management, competitive
position and prospects of Lam and OnTrak, including the analysis, judgment and
advice of Lam management with respect thereto, the synergistic businesses of
Lam and OnTrak, the quality of OnTrak's assets, the complementary management
teams, and the strong competitive position of the combined company; (ii) the
financial condition, cash flows and results of operations of Lam and OnTrak,
both on a historical and prospective basis, including the strong balance sheet
of the combined company, strong results of operations and cash flows of the
combined company; (iii) OnTrak's strong position in the CMP cleaning business
and its opportunities in the CMP polishing business, each of which may
complement Lam's current business; (iv) the significant potential enhancement
of the strategic and market position of the combined company beyond that
achievable by Lam alone, particularly in the CMP polishing business, which
offers significant new growth opportunities for the combined company, and the
increase in business opportunities expected to result from the combination of
the two companies; (v) current financial market conditions and historical
market prices, volatility and trading information with respect to Lam Common
Stock and OnTrak Common Stock and the Exchange Ratio to be used as a basis for
converting OnTrak Common Stock into Lam Common Stock; (vi) the terms and
conditions of the Merger Agreement, including the form and amount of
consideration, that the consideration was fair to Lam, that the transaction
was structured as a stock-for-stock merger and that the representations and
warranties given by OnTrak were reasonable (see "Terms of the Merger"); (vii)
the opinion of Smith Barney, Lam's financial advisor in connection with the
Merger, to the effect that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the Exchange Ratio was fair, from a
financial point of view, to Lam, and the financial analyses performed by Smith
Barney in connection therewith (see "--Opinion of Lam's Financial Advisor");
(viii) the intended treatment of the Merger as a tax-free reorganization under
the Code and the condition to Lam's obligation under the Merger Agreement that
Lam receive a legal opinion as to the tax-free nature of the Merger (see "The
Merger and Related Transactions --Certain Federal Income Tax Considerations"
and "Terms of the Merger--Conditions to the Merger"); and (ix) the intended
treatment of the Merger as a "pooling-of-interests" for financial reporting
and
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accounting purposes and the condition to Lam's obligation under the Merger
Agreement that Lam and OnTrak receive letters from their respective
independent auditors concurring with Lam and OnTrak managements' conclusions
that the Merger will qualify as a "pooling-of-interests" transaction under APB
Opinion No. 16. (See "Terms of the Merger--Conditions to the Merger").
The Lam Board also identified and considered a variety of potentially
negative factors in its deliberations concerning the Merger, including: (i)
risks associated with integrating OnTrak personnel; (ii) the potential for a
continued downturn in the semiconductor industry that would negatively impact
joint operations; (iii) risks associated with OnTrak's CMP polishing tool,
including the risk that development of the tool may not be completed in a
timely manner and may not be accepted by customers, possible delays in full-
scale introduction or shipment of the polishing tool and other factors that
could negatively impact Lam's or the combined company's financial and
operating results; (iv) the risk that the potential benefits sought in the
Merger might not be fully realized; (v) the possibility that the Merger might
not be consummated and the effect of public announcement of the
discontinuation of the Merger on Lam's sales and operating results, Lam's
ability to attract and retain key management, marketing and technical
personnel and the progress of certain development projects; (vi) the impact of
the issuance of Lam Common Stock in connection with the Merger on earnings per
share, book value and control dilution to the Lam stockholders; and (vii)
various other risks. The Lam Board believes that these risks are outweighed by
the potential benefits of the Merger.
The foregoing discussion of the factors considered by the Lam Board is not
intended to be exhaustive but is believed to include all material factors
considered by the Lam Board. In view of the wide variety of factors considered
in connection with its evaluation of the Merger, the Lam Board did not
quantify or assign any relative weights to the factors considered in reaching
its determination, although its individual members may have given different
weights to different factors.
ONTRAK'S REASONS FOR THE MERGER
The OnTrak Board believes that the terms of the Merger are fair to, and in
the best interests of, OnTrak and the OnTrak stockholders and has unanimously
approved the Merger Agreement and the related transactions. The OnTrak Board
unanimously recommends that the OnTrak stockholders approve and adopt the
Merger Agreement. The OnTrak Board considers a merger with Lam advantageous to
OnTrak for the following reasons: (i) the opportunity for OnTrak to broaden
distribution of its products and to improve product support through Lam's
global infrastructure of more than 40 regional sales, service and technical
support offices and to otherwise augment its presence in the industry by
merging with an industry leader; (ii) the ability of the combined entity to
provide semiconductor manufacturers with complementary etch, CVD and CMP
process solutions; (iii) the opportunity for OnTrak to draw upon Lam's
technical resources to assist in OnTrak's product development programs on an
ongoing basis, especially in completing development and introduction of
OnTrak's CMP polisher; (iv) the opportunity to achieve efficiencies in
manufacturing from better facilities' utilization and to achieve efficiencies
in administration from consolidation of infrastructure; and (v) the
opportunity for stockholders of OnTrak to participate, as holders of Lam
Common Stock, in the potential for growth in a company that would have a
broader product line and thereby reduce the risks associated with OnTrak's
dependence on a limited product line and efforts to develop and introduce a
CMP polishing product.
In the course of its deliberations during OnTrak Board meetings held on
March 9, March 14, March 18, March 21 and March 24, 1997, the OnTrak Board
reviewed with OnTrak management a number of additional factors relevant to the
Merger, including the strategic overview and prospects for OnTrak, its
products and its finances. The OnTrak Board also considered, among other
matters: (i) the Board's knowledge of the business, prospects, operations,
properties, assets, financial condition and operating results of OnTrak; (ii)
the results of the due diligence investigations by OnTrak management and
OnTrak's legal, accounting and financial advisors concerning the management,
business, prospects, operations, properties, assets and financial condition
and operating results of Lam, as well as the strong technology position of
Lam; (iii) the detailed financial analyses, pro forma and other information
with respect to the transaction presented by DMG and the opinion of DMG that
the Exchange Ratio pursuant to the Merger Agreement was fair from a financial
point of view to the holders of
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OnTrak Common Stock as of the date of such opinion (see "Opinion of OnTrak's
Financial Advisor"); (iv) the effect on stockholder value of OnTrak continuing
as an independent entity compared to the effect of a combination with Lam, in
light of the financial condition and prospects of OnTrak and the current
economic and industry environment and the potential for increased value in the
combined Lam/OnTrak enterprise; (v) current financial market conditions and
historical market prices, volatility and trading information with respect to
Lam Common Stock and OnTrak Common Stock; (vi) the consideration to be
received by OnTrak stockholders in the Merger assuming an Exchange Ratio of
0.83 and the premium in the market value of the Lam Common Stock to be issued
in exchange for each share of OnTrak Common Stock and the market value of the
OnTrak Common Stock, when considered over one year, 90 day, 60 day, 30 day and
10 day comparable periods, which the Board considered more meaningful than for
any single day; (vii) the terms and conditions of the Merger Agreement and the
related documents, which were the product of extensive arm's-length
negotiations, including the parties' representations, warranties and covenants
and the provision that gives OnTrak the ability to terminate the transaction
if (a) the average closing price for Lam stock falls below $30.00 per share
for a specified 10-day period prior to the OnTrak Special Meeting, (b) that
average price represents a decline of more than 15% from an industry index,
and (c) Lam does not adjust the Exchange Ratio to equal $24.90 divided by that
10-day average price; (viii) the opportunity for OnTrak stockholders to
participate, as holders of Lam Common Stock, in a larger, more diversified
company; (ix) the addition of two OnTrak directors to the Lam Board and the
effect of changes in management of Lam as a result of Mr. Bagley becoming
Chief Executive Officer upon closing of the Merger and the recent appointment
of a new Chief Financial Officer of Lam; (x) the anticipated effect of the
Merger on the interests of OnTrak's customers and employees; and (xi) the
expectation that the Merger will be tax-free to OnTrak's stockholders and will
be treated as a pooling-of-interests for accounting purposes. The OnTrak Board
also considered (i) Lam's anticipated near term operating and financial
results, including the anticipated effect of, and the circumstances
surrounding, the announcement by Lam of the anticipated operating loss for the
quarter ended March 31, 1997; (ii) the risk that operations of the two
companies would not be successfully integrated; (iii) the risks associated
with introduction of new products, including OnTrak's CMP polisher and Lam's
multi-chamber etch cluster tools, including the risk that new products may not
be accepted by customers, possible delays in full-scale commercial rollout of
new system and other factors that could negatively impact the combined
company's financial and operating results; (iv) the risk that key Lam and
OnTrak technical and management personnel might be lost prior to or after
consummation of the Merger; (v) the adverse effects on OnTrak's business,
operations and financial condition should it not be possible to consummate the
Merger following public announcement that the Merger Agreement had been
entered into; and (vi) other risks associated with Lam's and OnTrak's
businesses, including factors affecting quarterly revenues, dependence on new
products and processes, the rapid technological change experienced in the
industry, the highly competitive nature of the industry and other risks
described under "Risk Factors." The OnTrak Board believes these risks are
outweighed by the potential benefits of the Merger.
The foregoing discussion of the information and factors considered by the
OnTrak Board is not intended to be exhaustive but is believed to include all
material factors considered by the OnTrak Board. In view of the variety of
factors considered in connection with its evaluation of the Merger, the OnTrak
Board did not find it practicable to and did not quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the OnTrak Board may have
given different weights to different factors. In the course of the
deliberations, the OnTrak Board determined that the Merger is fair to and in
the best interests of OnTrak and its stockholders.
THE ONTRAK BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
ONTRAK COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
MATERIAL CONTACTS AND BOARD DELIBERATIONS
Recently, several strategic combinations have occurred in the semiconductor
capital equipment industry between companies with complementary product lines
or other significant synergies. Over the past several years, Lam has evaluated
potential business combinations, corporate acquisition opportunities and other
strategic transactions involving participants in the semiconductor capital
equipment industry.
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In November 1996, the Lam Board and Lam management determined to explore
further the feasibility of Lam entering the business of manufacturing and
selling semiconductor capital equipment for use in CMP. On November 27, 1996,
Lam management met with Smith Barney and requested that Smith Barney assist
Lam management in its assessment of the merits and possibility of entering
into a strategic alliance with or acquisition of three companies currently
engaged in the CMP business or developing CMP technology, including OnTrak.
From late November 1996 through February 1997, members of the Lam management
team and Smith Barney had conversations with certain of these parties
concerning the possibility of an acquisition by Lam. All such conversations
were exploratory in nature and did not progress beyond the preliminary stage.
During the latter part of December and continuing through early March, Lam
management and Smith Barney also entered into discussions with another company
not engaged in the CMP business ("Company A"), which had expressed an interest
in a possible strategic combination with Lam and conducted preliminary due
diligence based on publicly available information.
On January 14, 1997 and on February 20, 1997, Roger Emerick and James Bagley
met to discuss a possible distribution arrangement between Lam and OnTrak. On
the day before the February 20, 1997 meeting, Roger Emerick met with Smith
Barney to discuss their preliminary assessment of opportunities in the CMP
area and with Company A. At that time Roger Emerick mentioned Lam's interest
in a possible combination with OnTrak.
On February 25, 1997, Roger Emerick contacted James Bagley to advise him of
Lam's interest in a possible combination and to discuss the matter further. On
February 26, 1997, James Bagley contacted DMG and requested that DMG advise
OnTrak in connection with the possible combination with Lam.
On February 26, 1997, at the request of Lam management, Smith Barney
representatives met with senior management of OnTrak and representatives of
DMG to discuss Lam's interest in acquiring OnTrak.
On February 27, 1997, Lam management, along with representatives of Smith
Barney and Lam's legal advisors, Shartsis, Friese & Ginsburg LLP ("Shartsis")
and Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden, Arps"), updated the
Lam Board of Directors regarding the status of discussions with OnTrak, other
CMP companies and Company A. Lam management and financial advisors noted that
substantial additional diligence would be required, but that a combination
with either OnTrak or Company A appeared to merit further consideration. The
Lam Board of Directors authorized Lam management and its advisors to continue
preliminary discussions and a more thorough due diligence review with both
OnTrak and Company A. Although discussions initially continued with both
OnTrak and Company A, on March 12, 1997, Company A's financial advisor
contacted Smith Barney to indicate that, after further consideration, Company
A could not, at that time, proceed on a timely basis in providing to Lam
certain due diligence materials relating to Company A that would be necessary
to enter into a transaction. No confidentiality agreement was ever entered
into with Company A in connection with such discussions.
Also on February 27, 1997 and again on March 4, 1997, members of Lam's
senior management and Smith Barney met with James Bagley and certain other
members of OnTrak's senior management, as well as with representatives of DMG.
At these meetings, the management teams from Lam and OnTrak made technical
presentations, delivered financial, product and other information and
generally pursued due diligence. On February 27, 1997, Lam and OnTrak executed
a Confidentiality and Non-Disclosure Agreement, which was effective as of
February 25, 1997.
On March 6, 1997, a Lam Board meeting was held at Lam's offices. At this
meeting, Lam management and Smith Barney updated the Lam Board as to, among
other things, the status of discussions with OnTrak and the results of their
preliminary due diligence review of OnTrak and noted that additional meetings
were scheduled with the management and advisors of OnTrak to conduct
additional diligence and to explore further a possible combination.
On March 7, 1997, at the request of Lam management, representatives of Smith
Barney contacted DMG to discuss Lam's preliminary views regarding terms for a
possible combination between Lam and OnTrak.
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From March 7, 1997 through March 11, 1997, numerous discussions continued
between Lam and OnTrak and their respective financial advisors concerning
technical and other due diligence matters and the terms of the proposed merger
involving the two companies.
On March 9, 1997, an OnTrak Board meeting was held at the offices of DMG.
Representatives of DMG and OnTrak's legal advisors, Heller Ehrman White &
McAuliffe ("Heller Ehrman") were present. At this meeting, OnTrak management
and DMG reviewed with the OnTrak Board the status of discussions between
OnTrak and Lam regarding a possible combination and the proposed management
for the combined company, and the results of preliminary due diligence. DMG
presented preliminary financial analyses. At the conclusion of the meeting,
the OnTrak Board authorized OnTrak management to pursue further discussions
with Lam.
On March 12, 1997, Roger Emerick and James Bagley discussed the ratio at
which Lam Common Stock would be exchanged for OnTrak Common Stock and certain
management issues and other matters relating to a transaction, and agreed to
pursue discussions of the Exchange Ratio and remaining issues with their
respective advisors. On March 13, 1997, representatives of Lam, Smith Barney
and Shartsis met with representatives of OnTrak, DMG and Heller Ehrman, at
which meeting Lam and OnTrak reached an understanding regarding the Exchange
Ratio and certain other key issues, subject to completion of mutually
satisfactory documentation and resolution of additional key issues, and to
completion of satisfactory due diligence.
On March 14, March 18, and March 21, 1997, special meetings of the OnTrak
Board were held to review and discuss the status of the due diligence and
negotiations. A Special Committee of the OnTrak Board comprised of the outside
OnTrak Board members, Messrs. Child, Elkus and Hultquist, was formed to
provide a means for these directors directly to undertake, separately from the
management OnTrak Board members, inquiries of Lam and its advisors regarding
the transaction. The Special Committee was not formed to provide a
recommendation to the entire OnTrak Board regarding the proposed transaction.
Between March 14, 1997 and March 24, 1997, representatives of Lam and OnTrak
and their respective technical, legal and financial advisors met and conversed
by telephone to conduct due diligence investigations of each company and to
continue exploring the synergies between the two companies and the operational
issues associated with the proposed merger. In addition, members of the
Special Committee of the OnTrak Board met with representatives of Lam senior
management, Ernst & Young LLP (independent auditors for Lam), and members of
the Lam Board and audit committee. During this period, Lam's and OnTrak's
legal counsel and senior management had further discussions regarding the
terms of the Merger Agreement, including the termination rights relating to
the Merger Agreement, the conditions upon which break-up fees would be
payable, the terms of the OnTrak Walk Away Threshold, the representations,
warranties and covenants to be made by the parties, and the terms of the
Stockholder Agreements.
During this period, Lam management periodically updated members of the Lam
Board concerning the progress of discussions with OnTrak. OnTrak did not seek
a strategic combination with any other companies during this time period. On
March 21, 1997, preliminary drafts of the Merger Agreement and the Stockholder
Agreements were distributed to the Lam Board members for their consideration,
and management of Lam summarized for the Lam Directors the status of the
continuing negotiations.
On March 17, 1997 preliminary drafts of the Merger Agreement and Stockholder
Agreements were distributed to the OnTrak Board members for their
consideration. At the March 21, 1997 OnTrak Board meeting, DMG made a
financial presentation to the OnTrak Board regarding the Merger;
representatives of Price Waterhouse LLP discussed with the OnTrak Board the
scope of their due diligence, and counsel presented to the OnTrak Board
updated drafts of the Merger Agreement and reviewed with the OnTrak Board the
terms of the Merger Agreement and Stockholder Agreements. In addition,
presentations were made by members of OnTrak management, financial advisors
and counsel regarding due diligence. Management also summarized for the OnTrak
Board the status of the continuing negotiations.
Negotiations between Lam and OnTrak continued through the morning of March
24, 1997, culminating in Lam and OnTrak agreeing upon the form of definitive
Merger Agreement and the Stockholder Agreements,
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respectively, to be presented for review at separate meetings of the Lam Board
and the OnTrak Board scheduled for March 24, 1997.
On the morning of March 24, 1997, the OnTrak Board held a meeting to review,
with the advice and assistance of OnTrak's legal advisors and DMG, the
proposed Merger Agreement and the transactions contemplated thereby, and the
Stockholder Agreements. At the March 24, 1997 meeting of the OnTrak Board,
representatives of Price Waterhouse LLP reported to the OnTrak Board the
results of their due diligence, members of the Special Committee reported to
the OnTrak Board on their meeting with Lam representatives, counsel reviewed
with the OnTrak Board the definitive terms of the transaction, and DMG
delivered to the OnTrak Board its opinion to the effect that as of such date,
based upon and subject to certain matters stated therein, the Exchange Ratio
was fair from a financial point of view to the OnTrak stockholders. See "--
Opinion of OnTrak's Financial Advisor." After discussion, the members of the
OnTrak Board unanimously approved the Merger Agreement and related
transactions. See "The Merger and Related Transactions--OnTrak's Reasons for
the Merger."
On March 24, 1997, the Lam Board also held a meeting to review, with the
advice and assistance of Lam's legal and financial advisors, the proposed
Merger Agreement and the transactions contemplated thereby, including the
Merger and the Stockholder Agreements. At the meeting, legal counsel for Lam
advised the Lam Board and management on the terms of the Merger Agreement and
the results of the legal diligence of OnTrak. Smith Barney then made a
financial presentation in respect of the proposed Merger and rendered to the
Lam Board its opinion to the effect that, as of such date and based upon and
subject to certain matters stated in such opinion, the Exchange Ratio was
fair, from a financial point of view, to Lam. See "--Opinion of Lam's
Financial Advisor". Following a number of questions from, and discussions
among, the directors, the Lam Board unanimously approved the Merger Agreement
and related transactions, including the Share Issuance. See "The Merger and
Related Transactions--Lam's Reasons for the Merger."
Immediately following the conclusion of the two board meetings, the parties
thereto executed the Merger Agreement and the Stockholder Agreements. Lam and
OnTrak issued a joint press release announcing the Merger shortly after the
closing of Nasdaq on March 24, 1997.
OPINION OF LAM'S FINANCIAL ADVISOR
Smith Barney was retained by Lam to act as its financial advisor in
connection with the Merger. In connection with such engagement, Lam requested
that Smith Barney evaluate the fairness, from a financial point of view, to
Lam of the consideration to be paid by Lam in the Merger. On March 24, 1997,
at a meeting of the Board of Directors of Lam held to evaluate the proposed
Merger, Smith Barney delivered an oral opinion (which opinion was subsequently
confirmed by delivery of a written opinion dated March 24, 1997) to the Lam
Board to the effect that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the Exchange Ratio was fair, from a
financial point of view, to Lam.
In arriving at its opinion, Smith Barney reviewed the Merger Agreement and
held discussions with certain senior officers, directors and other
representatives and advisors of Lam and certain senior officers and other
representatives and advisors of OnTrak concerning the businesses, operations
and prospects of Lam and OnTrak. Smith Barney examined certain publicly
available business and financial information relating to Lam and OnTrak as
well as certain financial forecasts and other information and data for Lam and
OnTrak which were provided to or otherwise discussed with Smith Barney by the
respective managements of Lam and OnTrak, including information relating to
certain strategic implications and operational benefits anticipated to result
from the Merger. Smith Barney reviewed the financial terms of the Merger as
set forth in the Merger Agreement in relation to, among other things: current
and historical market prices and trading volumes of Lam Common Stock and
OnTrak Common Stock; the historical and projected earnings and other operating
data of Lam and OnTrak; and the capitalization and financial condition of Lam
and OnTrak. Smith Barney also considered, to the extent publicly available,
the financial terms of certain other similar transactions recently effected
which Smith Barney considered relevant in evaluating the Merger and analyzed
certain financial, stock market and other publicly available information
relating to the businesses of other companies whose operations Smith Barney
considered
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relevant in evaluating those of Lam and OnTrak. Smith Barney also evaluated
the potential pro forma financial impact of the Merger on Lam. In addition to
the foregoing, Smith Barney conducted such other analyses and examinations and
considered such other financial, economic and market criteria as Smith Barney
deemed appropriate in arriving at its opinion. Smith Barney noted that its
opinion was necessarily based upon information available, and financial, stock
market and other conditions and circumstances existing and disclosed, to Smith
Barney as of the date of its opinion.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Smith Barney. With respect to financial
forecasts and other information and data furnished to or otherwise reviewed by
or discussed with Smith Barney, the managements of Lam and OnTrak advised
Smith Barney that such forecasts and other information and data were prepared
on bases reflecting reasonable estimates and judgments as to the future
financial performance of Lam and OnTrak and the strategic implications and
operational benefits anticipated to result from the Merger. Smith Barney
assumed, with the consent of the Lam Board, that the Merger will be treated as
a pooling-of-interests in accordance with generally accepted accounting
principles and as a tax-free reorganization for federal income tax purposes.
Smith Barney's opinion, as set forth therein, relates to the relative values
of Lam and OnTrak. Smith Barney did not express any opinion as to what the
value of the Lam Common Stock actually will be when issued to OnTrak
stockholders pursuant to the Merger or the price at which the Lam Common Stock
will trade subsequent to the Merger. Smith Barney did not make and was not
provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Lam or OnTrak nor did Smith Barney
make any physical inspection of the properties or assets of Lam or OnTrak.
Smith Barney's opinion does not address the relative merits of the Merger as
compared with any alternative business strategies that might exist for Lam or
the effect of any other transaction in which Lam might engage. Although Smith
Barney evaluated the Exchange Ratio from a financial point of view, Smith
Barney was not asked to and did not recommend the specific consideration
payable in the Merger, which was determined through negotiation between Lam
and OnTrak. No other limitations were imposed by Lam on Smith Barney with
respect to the investigations made or procedures followed by Smith Barney in
rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY DATED MARCH 24, 1997,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX F AND IS INCORPORATED
HEREIN BY REFERENCE. HOLDERS OF LAM COMMON STOCK ARE URGED TO READ THIS
OPINION CAREFULLY IN ITS ENTIRETY. SMITH BARNEY'S OPINION IS DIRECTED TO THE
BOARD OF DIRECTORS OF LAM AND RELATES ONLY TO THE FAIRNESS OF THE EXCHANGE
RATIO FROM A FINANCIAL POINT OF VIEW TO LAM, DOES NOT ADDRESS ANY OTHER ASPECT
OF THE MERGER OR RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE LAM SPECIAL
MEETING. THE SUMMARY OF THE OPINION OF SMITH BARNEY SET FORTH IN THIS JOINT
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION.
In preparing its opinion to the Lam Board, Smith Barney performed a variety
of financial and comparative analyses, including those described below. The
summary of such analyses does not purport to be a complete description of the
analyses underlying Smith Barney's opinion. The preparation of a fairness
opinion is a complex analytic process involving various determinations as to
the most appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
processes underlying such analyses and its opinion. In its analyses, Smith
Barney made numerous assumptions with respect to Lam, OnTrak, industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Lam and OnTrak. The
estimates contained in such analyses and the valuation ranges resulting from
any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or
less favorable than those suggested by such analyses. In addition,
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analyses relating to the value of businesses or securities do not purport to
be appraisals or to reflect the prices at which businesses or securities
actually may be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty. Smith Barney's opinion and financial
analyses were only one of many factors considered by the Lam Board in its
evaluation of the Merger and should not be viewed as determinative of the
views of the Lam Board or management with respect to the Exchange Ratio or the
proposed Merger.
The following is a summary of the material financial analyses performed by
Smith Barney in connection with its written opinion dated March 24, 1997:
Selected Company Analysis. Using publicly available information, Smith
Barney analyzed, among other things, the market values and trading multiples
of Lam, OnTrak and selected publicly traded companies in the semiconductor
equipment industry, consisting of: (i) two CMP related companies: Integrated
Process Equipment Corporation ("IPEC"); and Speedfam International, Inc. (the
"CMP Companies"), (ii) seven cleaning related companies: CFM Technologies,
Inc.; FSI International, Inc.; Fusion Systems Corporation; Gasonics
International Corporation; Mattson Technology, Inc.; Semitool, Inc.; and
SubMicron Systems Corporation (the "Cleaning Companies"), (iii) six large
capitalization semiconductor equipment companies: Applied Materials, Inc.
("Applied Materials"); ASM Lithography Holding NV; KLA Instruments
Corporation; MEMC Electronic Materials, Inc.; Novellus Systems, Inc.
("Novellus"); and Tencor Instruments (the "Large Cap Semiconductor Equipment
Companies"), and (iv) small capitalization semiconductor equipment companies
(the "Small Cap Semiconductor Equipment Companies" and, together with the CMP
Companies, the Cleaning Companies and the Large Cap Semiconductor Equipment
Companies, the "Selected Companies"). With respect to the Selected Companies
analyzed, Smith Barney focused primarily on the CMP Companies, the operations
of which Smith Barney considered to be most similar to those of OnTrak. Smith
Barney compared market values as multiples of, among other things, estimated
calendar 1998 net income, and adjusted market values (equity market value,
plus total debt and the book value of preferred stock, less cash and cash
equivalents) as multiples of, among other things, latest 12 months revenues.
Smith Barney also compared the profit margins, historical revenue growth and
projected earnings per share ("EPS") growth of Lam, OnTrak and the Selected
Companies. All multiples were based on closing stock prices as of March 20,
1997. Applying a range of multiples for the CMP Companies of estimated
calendar 1998 net income and latest 12 months revenues of 14.5x to 18.4x and
1.6x to 2.2x, respectively, to corresponding financial data for OnTrak
resulted in an equity reference range for OnTrak of approximately $19.43 to
$24.42 per share (without giving effect to a change of control premium), as
compared to the equity value implied by the Exchange Ratio of approximately
$28.43 per share based on the closing stock price of Lam Common Stock on March
20, 1997.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Smith Barney analyzed the purchase price and implied
transaction value multiples paid or proposed to be paid in selected
transactions in the semiconductor equipment industry, consisting of
(acquiror/target): KLA Instruments Corporation/Tencor Instruments (the
"KLA/Tencor Transaction"); Millipore Corporation/Tylan General, Inc.; Applied
Materials, Inc./Orbot Instruments Ltd. (the "Applied Materials/Orbot
Transaction"); Applied Materials, Inc./Opal, Inc. (the "Applied Materials/Opal
Transaction"); Plasma & Materials Technologies, Inc./Electrotech Ltd.; Tylan
General, Inc./Span Instruments, Inc.; FSI International Inc./Semiconductor
Systems, Inc.; Integrated Process Equipment Corporation/GAARD Automation Inc.;
Teradyne, Inc./Megatest Corporation; Kulicke & Soffa Industries Inc./American
Fine Wire Corporation; IPEC/Athens Corp.; Tencor Instruments/Prometrix
Corporation; IPEC/Westech Systems Inc.; Trinity Capital Enterprise
Corporation/SubMicron Systems, Inc.; and Toray Industries, Inc. and Shimadzu
Corp./Therma-Wave, Inc. (collectively the "Selected Transactions"). Smith
Barney compared, among other things, the purchase prices in such transactions
as a multiple of estimated one-year forward net income and transaction values
as a multiple of latest 12 months revenues, and also compared the premiums
paid in the Selected Transactions and other selected transactions having
transaction values comparable to the Merger. All multiples for the Selected
Transactions were based on information available at the time of announcement
of the transaction. With respect to the Selected Transactions, Smith Barney
focused primarily on the KLA/Tencor Transaction, the Applied Materials/Orbot
Transaction and the Applied Materials/Opal Transaction, which Smith Barney
considered to be the most similar to the Merger. Applying a range of multiples
for the KLA/Tencor Transaction, the Applied Materials/Orbot Transaction and
the Applied
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Materials/Opal Transaction of estimated one-year forward net income and latest
12 months revenue of 16.7x to 18.9x and 2.3x to 3.1x, respectively, to
corresponding financial data for OnTrak, and a premium range of 30% to 50% to
the closing stock price of OnTrak on March 6, 1997, resulted in an equity
reference range for OnTrak of approximately $25.46 to $29.89 per share, as
compared to the equity value implied by the Exchange Ratio of approximately
$28.43 per share based on the closing stock price of Lam Common Stock on March
20, 1997.
No company, transaction or business used in the "Selected Company Analysis"
or "Selected Merger and Acquisition Transactions Analysis" as a comparison is
identical to Lam, OnTrak or the Merger. Accordingly, an analysis of the
results of the foregoing is not entirely mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the acquisition,
public trading or other values of the Selected Companies, Selected
Transactions or the business segment, company or transaction to which they are
being compared.
Contribution Analysis. Smith Barney analyzed the respective contributions of
Lam and OnTrak to the estimated revenue, earnings before interest and taxes
("EBIT"), pre-tax income and net income of the combined company for fiscal
years 1997, 1998 and 1999. This analysis indicated that (i) in fiscal year
1997, Lam would contribute approximately 93.6% of revenue, 92.6% of EBIT,
88.9% of pre-tax income, and 89.4% of net income, and OnTrak would contribute
approximately 6.4% of revenue, 7.4% of EBIT, 11.1% of pre-tax income and 10.6%
of net income, of the combined company, (ii) in fiscal year 1998, Lam would
contribute approximately 92.8% of revenue, 93.2% of EBIT, 92.0% of pre-tax
income and 92.2% of net income, and OnTrak would contribute approximately 7.2%
of revenue, 6.8% of EBIT, 8.0% of pre-tax income and 7.8% of net income, of
the combined company and (iii) in fiscal year 1999, Lam would contribute
approximately 88.7% of revenue, 78.9% of EBIT, 78.1% of pre-tax income and
78.6% of net income, and OnTrak would contribute approximately 11.3% of
revenue, 21.1% of EBIT, 21.9% of pre-tax income and 21.4% of net income, of
the combined company. Based on capitalizations of Lam and OnTrak as of
February 23, 1997 and March 3, 1997, respectively, and the Exchange Ratio,
stockholders of Lam and OnTrak would own approximately 81.4% and 18.6%,
respectively, of the combined company upon consummation of the Merger.
Discounted Cash Flow Analysis. Smith Barney performed a discounted cash flow
analysis of the projected free cash flow of OnTrak for the fiscal years 1998
through 2001. The stand-alone discounted cash flow analysis of OnTrak was
determined by (i) adding (x) the present value of projected free cash flows
over the four-year period from 1998 to 2001, and (y) the present value of
OnTrak's estimated terminal value in year 2001, and (ii) subtracting the
current net debt of OnTrak. The range of estimated terminal values for OnTrak
at the end of the four-year period was calculated by applying terminal value
multiples ranging from 13.0x to 15.0x to OnTrak's projected 2001 unlevered net
income, representing OnTrak's estimated value beyond the year 2001. The cash
flows and terminal values of OnTrak were discounted to present value using
discount rates ranging from 20% to 30%, with particular focus on a discount
rate of 25%. Utilizing such terminal multiples and a discount rate of 25%,
this analysis resulted in an equity reference range for OnTrak of
approximately $37.74 to $42.45 per share, as compared to the equity value
implied by the Exchange Ratio of approximately $28.43 per share based on the
closing stock price of Lam Common Stock on March 20, 1997.
Pro Forma Merger Analysis. Smith Barney analyzed certain pro forma effects
resulting from the Merger, including, among other things, the impact of the
Merger on the projected EPS of Lam for the fiscal years ended 1997 through
1999. The results of the pro forma merger analysis suggested that the Merger
could be accretive to Lam's EPS in fiscal year 1997 on a pro forma basis,
dilutive to Lam's EPS in fiscal year 1998 and accretive to Lam's EPS in fiscal
year 1999. The actual results achieved by the combined company may vary from
projected results and the variations may be material.
Other Factors and Comparative Analyses. In rendering its opinion, Smith
Barney considered certain other factors and conducted certain other
comparative analyses, including, among other things, a review of (i) Lam and
OnTrak's historical and projected financial results; (ii) the history of
trading prices and volume for Lam Common Stock and OnTrak Common Stock,
including the historical ratio of the daily closing prices of Lam Common Stock
to OnTrak Common Stock for the period September 20, 1995 through March 20,
1997;
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(iii) selected published analysts' reports on Lam and OnTrak, including
analysts' estimates as to the earnings growth potential of Lam and OnTrak; and
(iv) the premiums paid in selected transactions.
Pursuant to the terms of Smith Barney's engagement, Lam has agreed to pay
Smith Barney for its services in connection with the Merger an aggregate
financial advisory fee of $2.25 million. Lam has also agreed to reimburse
Smith Barney for travel and other reasonable out-of-pocket expenses incurred
by Smith Barney in performing its services, including the reasonable fees and
expenses of its outside legal counsel, and to indemnify Smith Barney and
related persons against certain liabilities, including liabilities under the
federal securities laws, arising out of Smith Barney's engagement.
Smith Barney has advised Lam that, in the ordinary course of business, Smith
Barney and its affiliates may actively trade or hold the securities of Lam and
OnTrak for their own account or for the account of customers and, accordingly,
may at any time hold a long or short position in such securities. Smith Barney
has in the past provided certain investment banking services to Lam unrelated
to the proposed Merger, for which services Smith Barney has received
compensation. In addition, Smith Barney and its affiliates (including
Travelers Group Inc. and its affiliates) may maintain relationships with Lam
and OnTrak.
Smith Barney is an internationally recognized investment banking firm and
was selected by Lam based on Smith Barney's experience, expertise and
familiarity with Lam and its business. Smith Barney regularly engages in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
OPINION OF ONTRAK'S FINANCIAL ADVISOR
OnTrak retained DMG to act as its financial advisor in connection with the
Merger. DMG was selected by the OnTrak Board to act as OnTrak's financial
advisor based on DMG's qualifications, expertise and reputation.
At the meeting of OnTrak's Board of Directors on March 21, 1997, DMG
rendered its oral opinion, confirmed in writing on March 24, 1997 (the "DMG
Opinion"), that, as of such date, based upon and subject to the various
considerations set forth in the DMG Opinion, the Exchange Ratio pursuant to
the Merger Agreement was fair from a financial point of view to the holders of
OnTrak Common Stock.
THE FULL TEXT OF THE DMG OPINION, WHICH SETS FORTH, AMONG OTHER THINGS,
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND LIMITATIONS ON
THE SCOPE OF THE REVIEW UNDERTAKEN BY DMG IN RENDERING THE DMG OPINION, IS
ATTACHED AS ANNEX G TO THIS JOINT PROXY STATEMENT/PROSPECTUS. ONTRAK
STOCKHOLDERS ARE URGED TO READ THE DMG OPINION CAREFULLY AND IN ITS ENTIRETY.
DMG DID NOT RECOMMEND TO ONTRAK THAT ANY SPECIFIC EXCHANGE RATIO CONSTITUTED
THE APPROPRIATE EXCHANGE RATIO FOR THE MERGER. THE DMG OPINION ADDRESSES ONLY
THE FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW TO THE
HOLDERS OF ONTRAK COMMON STOCK AS OF THE DATE OF THE DMG OPINION, AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE AT THE ONTRAK SPECIAL MEETING. THE SUMMARY OF THE DMG OPINION SET
FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE DMG OPINION.
In rendering the DMG Opinion, DMG, among other things: (i) analyzed certain
publicly available financial statements and other information of Lam and
OnTrak, respectively; (ii) analyzed certain internal financial statements and
other financial and operating data concerning OnTrak prepared by the
management of OnTrak; (iii) analyzed certain financial projections relating to
OnTrak prepared by the management of OnTrak; (iv) discussed the past and
current operations and financial condition and the prospects of OnTrak with
senior management of OnTrak; (v) analyzed certain internal financial
statements and other financial and operating data concerning Lam prepared by
the management of Lam; (vi) discussed the past and current operations and
financial condition and the prospects of Lam with senior managements of both
Lam and OnTrak; (vii) analyzed the pro forma impact of the Merger on the
earnings per share and consolidated capitalization of Lam; (viii) reviewed the
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reported prices and trading activity for the OnTrak Common Stock and the Lam
Common Stock, respectively; (ix) compared the financial performance of OnTrak
and the prices and trading activity of the OnTrak Common Stock with that of
certain other publicly-traded companies (which DMG deemed to be relevant) and
their securities; (x) compared the financial performance of Lam and the prices
and trading activity of the Lam Common Stock with that of certain other
publicly-traded companies (which DMG deemed to be relevant) and their
securities; (xi) reviewed the financial terms, to the extent publicly
available, of certain merger and acquisition transactions which DMG deemed to
be relevant; (xii) reviewed and discussed with the senior management of OnTrak
(1) the strategic rationale for the Merger and their assessment of the
synergies and other benefits expected to be derived from the Merger, and (2)
certain alternatives to the Merger; (xiii) participated in discussions and
negotiations among representatives of OnTrak and Lam and their financial and
legal advisors; (xiv) reviewed the Merger Agreement and Stockholder
Agreements, and (xv) performed such other analyses and considered such other
factors as it deemed appropriate.
In rendering the DMG Opinion, DMG assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of the DMG opinion. With respect to the
information furnished by Lam and OnTrak, and with respect to the information
discussed with the managements of Lam and OnTrak regarding their views of
future operations, DMG assumed that such information was reasonably prepared
and reflected the best currently available estimates and judgments of Lam's
and OnTrak's management as to the competitive, operating and regulatory
environments and related financial performance of Lam and OnTrak, as the case
may be, for the relevant periods. For purposes of the DMG opinion, DMG also
relied upon, without independent verification, the assessment by OnTrak's
management of the cost savings and other synergies as well as the strategic
and other benefits expected to be derived from the Merger. DMG also relied
upon, without independent verification, the assessment by OnTrak's management
of Lam's technology and competitive position. DMG did not make any independent
valuation or appraisal of the assets, liabilities or technology of Lam or
OnTrak, respectively, nor was DMG furnished with any such appraisals. DMG
relied upon OnTrak management's summary of certain due diligence inquiries
made regarding the charges announced with respect to Lam's third fiscal
quarter. DMG also assumed that the Merger will be accounted for as a "pooling-
of-interests" business combination in accordance with APB Opinion No. 16 and
the related interpretations of the AICPA and FASB and the rules and
regulations of the Commission and will be consummated in accordance with the
terms set forth in the Merger Agreement. The DMG Opinion is necessarily based
on economic, market and other conditions as in effect on, and the information
made available to DMG as of, the date of the DMG opinion.
The following is a summary of the analysis performed by DMG in preparation
of the DMG Opinion, and reviewed with the OnTrak Board at a meeting held on
March 21, 1997.
Historical Exchange Ratio Analysis: DMG reviewed the ratios of the daily
closing stock prices of OnTrak Common Stock to Lam Common Stock for each day
over various periods, starting from July 11, 1995 (the date of the initial
public offering of OnTrak Common Stock) and ending March 20, 1997 (the trading
date preceding DMG's presentation at the March 21, 1997 meeting of the OnTrak
Board) and computed the premiums represented by the Exchange Ratio over the
average of these ratios. The average of the ratios of the daily closing stock
prices of OnTrak Common Stock to Lam Common Stock for the various periods
ending on March 20, 1997 were 0.497 for the period since July 11, 1995; 0.561
for the previous year; 0.596 for the previous 180 days; 0.569 for the previous
90 days; 0.593 for the previous 60 days; 0.636 for the previous 30 days; 0.725
for the previous 10 days; and 0.839 for March 20, 1997. DMG observed that the
Exchange Ratio represented a premium/(discount) of 66.8%, 48.0%, 39.2%, 45.9%,
40.0%, 30.6%, 14.4% and (1.1%), respectively, over the aforementioned ratios
of the prices of OnTrak Common Stock and Lam Common Stock. DMG observed that
after March 7, 1997, OnTrak's stock experienced increased trading activity
and, therefore, DMG considered the closing OnTrak share price on March 7, 1997
of $22.88 as a representative share price in performing its analysis (the
"Representative Share Price"). The average of the ratios of the daily closing
stock prices of OnTrak Common Stock to Lam Common Stock for the various
periods ending on March 7, 1997 were 0.493 for the period since July 11, 1995;
0.562 for the previous year; 0.592 for the previous 180 days; 0.554 for the
previous
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90 days; 0.561 for the previous 60 days; 0.588 for the previous 30 days; 0.602
for the previous 10 days; and 0.622 for March 7, 1997. DMG observed that the
Exchange Ratio represented a premium of 68.4% , 47.8%, 40.3%, 49.8%, 47.8%,
41.3%, 37.8% and 33.3%, respectively, over the aforementioned ratios of the
prices of OnTrak and Lam Common Stock prices.
Selected Precedent Transactions: DMG reviewed 11 acquisition transactions
involving semiconductor equipment companies (the "Semiconductor Equipment
Transactions"), and 28 acquisition transactions involving semiconductor
companies (the "Semiconductor Transactions"). The Semiconductor Equipment
Transactions include three recent transactions in the yield management and
front-end processing sectors of the semiconductor capital equipment industry:
the acquisition of Opal Inc. ("Opal") by Applied Materials, the acquisition of
Orbot Instrument, Ltd. ("Orbot") by Applied Materials, and the acquisition of
Tencor Instruments ("Tencor") by KLA Instruments Corporation. DMG observed
exchange ratios implied by multiples of aggregate value to latest twelve
months revenue of 0.608, 0.755, 0.591, 0.771 and 0.706 times for the
Semiconductor Equipment Transactions, the Semiconductor Transactions, Opal,
Orbot and Tencor, respectively, and implied by calendar 1997 price-to-earnings
multiples of 0.203, 0.355, 0.138 and 0.253 times for the Semiconductor
Equipment Transactions, the Semiconductor Transactions, Opal and Tencor,
respectively, in each case compared to the Exchange Ratio of 0.830.
Premium Analysis: DMG reviewed 54 stock-for-stock acquisition transactions
involving companies in the technology sector since 1987, none of which was
deemed directly comparable to the Merger. Such analysis showed transaction
exchange ratios resulting in average premiums of approximately 26.0%, 29.9%,
34.5%, 37.4%, 35.0% and 30.7% over the average of the ratios of the closing
stock prices of the companies involved in such mergers over the one year, 90
day, 60 day, 30 day, 10 day and one day periods ending the day preceding the
public announcement of these transactions, respectively. Among the above
mentioned 54 stock-for-stock acquisition transactions were five transactions
in the semiconductor capital equipment industry, none of which were deemed
directly comparable to the Merger. DMG observed transaction exchange ratios
for these five transactions resulting in average premiums of approximately
20.2%, 44.7%, 46.3%, 46.5%, 37.6% and 30.2% over the average of the ratios of
the closing stock prices of the companies involved in the semiconductor
capital equipment mergers over the one year, 90 day, 60 day, 30 day, 10 day
and one day periods ending the day preceding the public announcement of these
transactions, respectively. DMG observed that the Exchange Ratio represented
average premiums of approximately 48.0%, 49.8%, 47.8%, 41.3%, 37.8% and 33.3%
over the average of the ratios of the daily closing stock prices of OnTrak
Common Stock to Lam Common Stock for the respective comparable periods ending
on March 7, 1997.
Pro Forma Analysis of the Merger: DMG analyzed certain pro forma effects of
the Merger on the earnings and capitalization of Lam. Such analysis was based
on analyst estimates as well as a sensitivity case for each of Lam and OnTrak,
both with and without assumed synergies. Based on such analysis, DMG observed
that, based on the Exchange Ratio and assuming that the Merger was treated as
a pooling-of-interests business combination for accounting purposes, before
taking into account any one-time restructuring charges, the Merger would
result (i) using the analyst estimates for both companies, in earnings per
share dilution for Lam stockholders of (11.3%) and (9.0%) for fiscal year 1998
and calendar year 1998, respectively, without the assumed synergies and
earnings per share accretion/(dilution) of (4.2%) and 1.1% for fiscal year
1998 and calendar year 1998, respectively, with the assumed synergies; (ii)
using the sensitivity case for Lam and analyst estimates for OnTrak, in
earnings per share dilution for Lam stockholders of (13.0%) and (10.2%) for
fiscal year 1998 and calendar year 1998, respectively, without the assumed
synergies and earnings per share dilution of (7.6%) and (1.4%) for fiscal year
1998 and calendar year 1998, respectively, with the assumed synergies; (iii)
using the analyst estimates for Lam and the sensitivity case for OnTrak, in
earnings per share dilution for Lam stockholders of (10.3%) and (6.0%) for
fiscal year 1998 and calendar year 1998, respectively, without the assumed
synergies and earnings per share accretion/(dilution) of (1.9%) and 5.9% for
fiscal year 1998 and calendar year 1998, respectively, with the assumed
synergies; and (iv) using the sensitivity case for both companies, in earnings
per share dilution for Lam stockholders of (12.4%) and (7.6%) for fiscal year
1998 and calendar year 1998, respectively, without the
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assumed synergies and earnings per share accretion/(dilution) of (6.1%) and
2.8% for fiscal year 1998 and calendar year 1998, respectively, with the
assumed synergies.
Contribution Analysis: DMG analyzed the pro forma contribution by each of
Lam and OnTrak to the revenue, gross profit, operating income and net income
of the combined company if the Merger were to be consummated. DMG observed
that, for calendar year 1996, estimated fiscal year 1997 and estimated fiscal
year 1998 based upon the analyst estimates for both companies, OnTrak would
contribute approximately 5.1%, 6.5% and 6.8% of the revenues, respectively;
6.2%, 5.4% and 6.3% of the gross profit, respectively; 4.3%, 11.3% and 6.8% of
the operating income, respectively; and 5.8%, 14.1% and 7.6% of the net
income, respectively, of the combined company. DMG observed that, for calendar
year 1996, estimated fiscal year 1997 and estimated fiscal year 1998, based
upon the analyst estimates for Lam and the sensitivity case for OnTrak, OnTrak
would contribute approximately 5.1%, 6.5% and 8.5% of the revenues,
respectively; 6.2%, 5.4% and 7.7% of the gross profit, respectively; 4.3%,
11.3% and 8.7% of the operating income, respectively; and 5.8%, 14.1% and 9.1%
of the net income, respectively, of the combined company. These figures
compared to the pro forma fully diluted ownership of the OnTrak stockholders
in the combined company of 18.6%.
Comparative Stock Performance: As part of its analysis, DMG reviewed the
recent stock price performance of Lam and OnTrak and compared such performance
with that of other companies involved in the semiconductor capital equipment
sector, including Applied Materials and Novellus. DMG observed that over the
period from July 11, 1995, the date of OnTrak's initial public offering, to
March 20, 1997, the market price of the OnTrak Common Stock decreased 1.7%,
compared with an increase of .2% for Novellus and decreases of 7.4% and 50.2%
for Applied Materials and Lam, respectively. DMG noted that over such period,
the OnTrak Common Stock underperformed relative to the common stock of
Novellus, and outperformed relative to the common stocks of Applied Materials
and Lam. DMG observed that over the period from January 2, 1996 to March 20,
1997, the market price of the OnTrak Common Stock increased 88.5%, compared
with increases of 39.1% and 10.3% for Novellus and Applied Materials,
respectively and a decrease of 24.3% for Lam. DMG noted that over such period,
the OnTrak Common Stock outperformed relative to the common stocks of
Novellus, Applied Materials and Lam. The information was presented to give the
OnTrak Board background information regarding the stock price performance for
OnTrak.
Potential Future Share Price Analysis: DMG computed equivalent per share
values for OnTrak assuming the merger with Lam was consummated at an exchange
ratio of 0.83. Such analysis was based on a range of earnings estimates for
calendar years 1998, 1999 and 2000 and two-year forward price-earnings
multiples of 12 times and 16 times. Equivalent share prices were then computed
of OnTrak as of the date of such analysis, one, and two years from the date of
the analysis, the latter two which were then discounted back to the present at
a discount rate of 20.0%, yielding a present value of $31.69 to $87.67 per
OnTrak share without synergies and $36.50 to $94.06 per OnTrak share with
synergies. DMG also computed a future share price of OnTrak on a standalone
basis with a range of OnTrak earnings estimates for calendar years 1998, 1999
and 2000 and assuming two-year forward multiples of 14 times to 18 times. To
reflect the higher perceived risk of OnTrak on a standalone basis, DMG
discounted these latter two potential future trading prices back to the
present at 30.0%, yielding a range of values from $21.75 to $84.89.
In connection with the review of the Merger by the OnTrak Board, DMG
performed a variety of financial and comparative analyses for the purposes of
the DMG Opinion. While the foregoing summary describes all material analyses
and factors reviewed by DMG with the OnTrak Board, it does not purport to be a
complete description of the presentations by DMG to the OnTrak Board or the
analyses performed by DMG in arriving at the DMG Opinion. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. DMG believes that its analyses must
be considered as a whole and that selecting portions of its analyses and of
the factors considered by it, without considering all analyses and factors,
could create a misleading view of the processes underlying the DMG Opinion. In
addition, DMG may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the range of valuation resulting from any
particular analysis described above should not be taken to be DMG's view of
the actual value of Lam or OnTrak. In performing its
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analyses, DMG made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Lam or OnTrak. Any estimates contained therein are not
necessarily indicative of future results or actual values, which may be
significantly more or less favorable than those suggested by such estimates.
Furthermore, the analyses performed by DMG are not necessarily indicative of
actual values or actual future results, which may be significantly more or
less favorable than suggested by such analyses. In addition, analyses relating
to the value of businesses or assets do not purport to be appraisals or to
necessarily reflect the prices at which businesses or assets may actually be
sold. The analyses performed were prepared solely as part of DMG's analyses of
the fairness of the Exchange Ratio, from a financial point of view, to the
holders of OnTrak Common Stock and were provided to the OnTrak Board in
connection with the delivery of the DMG Opinion.
DMG is an internationally recognized investment banking and advisory firm.
DMG, as part of its investment banking business, is continuously engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In the ordinary course of its
business, DMG or its affiliates may trade or hold positions, for its own
account or the accounts of customers, in equity, debt or other securities of
OnTrak.
OnTrak has agreed to pay DMG a fee for its financial advisory services in
connection with the Merger, including, among other things, rendering the DMG
Opinion and making the presentation referred to above. Pursuant to a letter of
agreement between OnTrak and DMG dated February 27, 1997, OnTrak has agreed to
pay DMG (i) an "advisory fee" of $75,000 in the event that a transaction is
not consummated; (ii) a fee of 10% of the termination fee in the event that
the Merger is not consummated and OnTrak receives such a termination fee from
Lam; and (iii) in the event the Merger is consummated, a transaction fee of
1.100% to 1.375% of the aggregate value of the Merger. The aggregate value of
the Merger will depend upon the closing share price of Lam Common Stock over
the ten trading days up to and including the day preceding the closing date of
the Merger. In addition, OnTrak has agreed to reimburse DMG for its reasonable
out-of-pocket expenses incurred in connection with its engagement, and to
indemnify DMG and certain related persons against certain liabilities and
expenses arising out of or in conjunction with its rendering of services under
its engagement, including certain liabilities under the federal securities
laws.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of
OnTrak Common Stock. This discussion does not deal with all income tax
considerations that may be relevant to particular OnTrak stockholders in light
of their particular circumstances, such as stockholders who are dealers in
securities, foreign persons, stockholders who acquired their shares in
connection with previous mergers involving OnTrak or an affiliate, or
stockholders who acquired their shares in connection with stock option or
stock purchase plans or in other compensatory transactions. In addition, the
following discussion does not address the tax consequences of transactions
effectuated prior to or after the Merger (whether or not such transactions are
in connection with the Merger), including without limitation transactions in
which shares of OnTrak Common Stock were or are acquired or shares of Lam
Common Stock were or are disposed of. Furthermore, no foreign, state or local
tax considerations are addressed herein. ACCORDINGLY, ONTRAK STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF
THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE MERGER.
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The Merger is intended to constitute a reorganization within the meaning of
Section 368(a) of the Code, with each of Lam, Merger Sub and OnTrak intended
to qualify as a party to the reorganization under Section 368(b) of the Code,
in which case the following tax consequences will result (subject to the
limitations and qualifications referred to herein):
(a) An OnTrak stockholder receiving only Lam Common Stock in the Merger
will not recognize gain or loss in the Merger;
(b) Cash paid to an OnTrak stockholder in lieu of a fractional share of
Lam Common Stock will be treated as having been received in payment in
exchange for the Lam Common Stock that otherwise would have been received
in the Merger, and the OnTrak stockholder will recognize gain or loss equal
to the difference between the cash received in lieu of such fractional
share and the OnTrak stockholder's basis in the OnTrak Common Stock
surrendered therefor;
(c) The aggregate tax basis of the Lam Common Stock received in the
Merger by an OnTrak stockholder will be the same as the aggregate tax basis
of OnTrak Common Stock surrendered in exchange therefor, increased by the
expenses of such stockholder related to the Merger paid by the stockholder,
and reduced by any basis allocable to a fractional share of Lam Common
Stock for which cash was received;
(d) The holding period of the Lam Common Stock received in the Merger by
an OnTrak stockholder will include the period during which such stockholder
held the OnTrak Common Stock surrendered in exchange therefor, provided
that the OnTrak Common Stock is held as a capital asset at the time of the
Merger; and
(e) None of Lam, Merger Sub or OnTrak will recognize gain or loss solely
as a result of the Merger.
The parties are not requesting a ruling from the Internal Revenue Service
("IRS") in connection with the Merger. Lam and OnTrak will have each received
an opinion from their respective legal counsel, Shartsis and Heller Ehrman,
respectively, to the effect that, for federal income tax purposes, the Merger
will qualify as a "reorganization" within the meaning of Section 368(a) of the
Code. These opinions, which are collectively referred to herein as the "Tax
Opinions," neither bind the IRS nor preclude the IRS from adopting a contrary
position. In addition, the Tax Opinions are subject to certain assumptions and
qualifications and are based on the truth and accuracy of certain
representations made by Lam, OnTrak and certain OnTrak stockholders, including
representations in certificates delivered to counsel by the respective
managements of OnTrak and Lam. Of particular importance are those assumptions
and representations relating to the "continuity of interest" requirement.
In order for the "continuity of interest" requirement to be met under
existing law, OnTrak stockholders must not, pursuant to a plan or intent
existing at or before the Effective Time, dispose of an amount of Lam Common
Stock to be received in the Merger (including pre-Merger dispositions of
OnTrak Common Stock in contemplation of the Merger) such that they do not
retain a meaningful continuing equity ownership in Lam. Generally, so long as
OnTrak stockholders do not plan to dispose of a number of shares of Lam Common
Stock that would reduce their ownership of Lam Common Stock to a number of
shares having a value, as of the Effective Time, of less than 50 percent of
the value of all of the formerly outstanding stock of OnTrak as of the same
date, the continuity of interest requirement will be satisfied. Management of
OnTrak and of Lam have represented that they know of no such plan or intention
that would result in the continuity of interest requirement not being
satisfied. In addition, certain major stockholders of OnTrak have represented
that any such stockholder does not have any present plan or intention to sell,
exchange, or otherwise dispose of or to engage in any other transaction which
would substantially eliminate the risk of loss or the opportunity for gain
from the holding of Lam Common Stock that such major stockholders are expected
to acquire in connection with the Merger. In this case, the major stockholders
from whom representations were received owned approximately 26.7% of the stock
of OnTrak as of the date the Agreement was signed. In addition, an OnTrak
stockholder owning 5.8% of OnTrak Common Stock as of such date, and who
currently holds 5.2% of such stock, has represented that he has no present
plan or intention to dispose of more than 50% of the shares he currently
holds. Other major stockholders, from whom no such representations have been
sought or received, owned 13.7% of the OnTrak Common Stock on such date. The
remaining 53.8% of OnTrak Common Stock was held in street name or by
stockholders
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owning less than 1% of OnTrak Common Stock. While the status of "public"
stockholders for continuity of interest purposes is not settled, recent case
law suggests that such stockholders are treated as a single large stockholder
which does not dispose of its shares, or, at worst, as if the public
stockholders disposed of their shares in the same ratio as the major
stockholders.
A successful IRS challenge to the "reorganization" status of the Merger (as
a result of a failure of the "continuity of interest" requirement or
otherwise) would result in an OnTrak stockholder recognizing gain or loss with
respect to each share of OnTrak Common Stock surrendered equal to the
difference between such stockholder's basis in such share and the fair market
value, as of the Effective Time of the Merger, of the Lam Common Stock
received in exchange therefor. In such event, a stockholder's aggregate basis
in the Lam Common Stock so received would equal such fair market value and his
or her holding period for such stock would begin the day after the Merger.
GOVERNMENTAL AND REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the Antitrust Division and the FTC and
specified waiting period requirements have been satisfied. All appropriate
parties filed the required HSR Act notification and report forms with the
Antitrust Division and the FTC with respect to the Merger. Lam received
notification of the early termination of the waiting period under the HSR Act
with respect to the Merger on April 15, 1997. Notwithstanding the early
termination of the waiting period under the HSR Act, there can be no assurance
that any governmental agency will approve or take any other required action
with respect to the Merger, and, if approvals are received or action is taken,
that such approvals or action will not be conditioned upon matters that would
cause the parties to abandon the Merger. In addition, there can be no
assurance that an action will not be brought challenging such approvals or
action, including a challenge by the FTC or the Antitrust Division, or, if
such a challenge is made, what the result of such a challenge would be.
In addition, state and Federal antitrust authorities may also bring legal
action under state or Federal antitrust laws at any time before or after the
Effective Time, notwithstanding that the HSR Act waiting periods have expired
or been terminated. Such action could include seeking to enjoin the
consummation of the Merger or seeking divestiture of certain assets of OnTrak
or Lam. Private parties may also seek to take legal action under the antitrust
laws under certain circumstances. There can be no assurance that a challenge
to the Merger on antitrust grounds will not be made or, if such a challenge is
made, with respect to the result thereof.
OnTrak and Lam are not aware of any material governmental approvals that may
be required for consummation of the Merger other than those as described above
and compliance with the federal securities laws and applicable securities and
"blue sky" laws of the state of New York. Should any other approval or action
be required, it is presently contemplated that such approval or action would
be sought. There can be no assurance, however, that any such approval or
action, if needed, could be obtained and would not be conditioned in a manner
that would cause the parties to abandon the Merger.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling-of-interests for financial
reporting purposes in accordance with generally accepted accounting
principles. Consummation of the Merger is conditioned upon receipt at the
closing by Lam and OnTrak of letters from their respective independent
auditors, Ernst & Young LLP and Price Waterhouse LLP, reaffirming those firms'
concurrence with Lam management's and OnTrak management's conclusions,
respectively, as to the appropriateness of pooling-of-interests accounting for
the Merger under APB Opinion No. 16, and the related interpretations of the
AICPA, the FASB and the rules and regulations of the Commission, if
consummated in accordance with the Merger Agreement. On March 24, 1997, Lam
received a letter from Ernst & Young LLP affirming that firm's concurrence
with Lam management's and OnTrak management's conclusions as to the
appropriateness of pooling-of-interests accounting for the Merger, if
consummated in accordance with the Merger Agreement. On March 24, 1997, OnTrak
received a letter from
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Price Waterhouse LLP affirming that firm's concurrence with OnTrak
management's conclusions that OnTrak qualifies for pooling-of-interests
accounting for the Merger, if consummated in accordance with the Merger
Agreement.
Pursuant to the Merger Agreement, on July 2, 1997, two business days prior
to the date of this Joint Proxy Statement/Prospectus, Price Waterhouse LLP
delivered to OnTrak a letter from Price Waterhouse LLP affirming that firm's
concurrence with OnTrak management's conclusions that OnTrak qualifies for
pooling-of-interests accounting for the Merger, if closed and consummated in
accordance with the Merger Agreement. Pursuant to the Merger Agreement, on
July 2, 1997, two business days prior to the date of this Joint Proxy
Statement/Prospectus, Ernst & Young LLP has delivered to Lam a letter
affirming of that firm's concurrence with Lam management's and OnTrak
management's conclusions, respectively, as to the appropriateness of pooling-
of-interests accounting for the Merger under APB Opinion No. 16 if closed and
consummated in accordance with the Merger Agreement.
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TERMS OF THE MERGER
The following discussion summarizes the material terms of the proposed
Merger and related transactions. The following is not, however, a complete
statement of all provisions of the Merger Agreement and related documents.
DETAILED TERMS OF AND CONDITIONS TO THE MERGER AND CERTAIN RELATED
TRANSACTIONS ARE CONTAINED IN THE MERGER AGREEMENT, A COPY OF WHICH IS
ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX A AND IS
INCORPORATED HEREIN BY REFERENCE. STATEMENTS MADE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION SET FORTH IN THE MERGER AGREEMENT.
EFFECTIVE TIME
The Merger will become effective upon the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware or at such later time as
may be agreed to in writing by Lam, OnTrak and Merger Sub and specified in the
Certificate of Merger. The Certificate of Merger will be filed as soon as
practicable on or after the Closing Date. The Closing will occur at the
offices of Shartsis, Friese & Ginsburg LLP on a date to be specified by the
parties, which will be no later than the third business day after the
satisfaction or waiver of the conditions to the Merger or such other date as
the parties agree. The Closing and the Effective Time are anticipated to be on
or about August 5, 1997.
MANNER AND BASIS OF CONVERTING SHARES
At the Effective Time, by virtue of the Merger and without any action on the
part of Merger Sub, OnTrak or the holders of OnTrak securities, each
outstanding share of OnTrak Common Stock, other than shares held in the
treasury of OnTrak or owned by Lam or any direct or indirect wholly-owned
subsidiary of Lam or OnTrak, will be cancelled and converted into the right to
receive 0.83 (the "Exchange Ratio") of a share of Lam Common Stock together
with the associated rights under Lam's Rights Agreement dated as of January
23, 1997, between Lam and ChaseMellon Shareholder Services, L.L.C.; provided
that if both (i) the average closing sale price of Lam Common Stock reported
on Nasdaq (the "Lam Closing Value") over a ten trading-day period ending eight
trading days before the date of the OnTrak Special Meeting (the "Closing
Calculation Period") is less than $30.00, and (ii) if the Lam Closing Value is
less than the OnTrak Walk Away Threshold (defined below), then Lam may at its
option (the "Lam Adjustment Option") fix the consideration at $24.90 of Lam
Common Stock by adjusting the Exchange Ratio upward to equal the quotient of
$24.90 divided by the Lam Closing Value. If both such conditions are met and
Lam does not exercise the Lam Adjustment Option, OnTrak may terminate the
Merger Agreement without penalty in accordance with the Merger Agreement.
Assuming that the Lam Closing Value is below $30.00, the OnTrak Walk Away
Threshold is triggered if the performance of the Lam Common Stock during the
period between March 24, 1997 and the calculation of the Lam Closing Value
falls more than 15% below the performance over that same period of an index
(the "Semiconductor Equipment Group Closing Index") of semiconductor equipment
companies consisting of: Applied Materials, Inc.; Novellus Systems, Inc.; KLA-
Tencor Corporation; Silicon Valley Group, Inc., and Ultratech Stepper, Inc.
For purposes of the comparison, each of the companies was assigned a reference
price (as set forth below) on March 24, 1997 equal to the average closing sale
price over the ten trading days ending March 21, 1997 (the "Reference
Prices"), and the closing values of each of the index companies will be
calculated over the Closing Calculation Period to determine if the
Semiconductor Equipment Group Closing Index has outperformed the Lam Common
Stock by more than 15% during this period.
<TABLE>
<CAPTION>
REFERENCE PRICE AS
COMPANY OF MARCH 24, 1997
------- ------------------
<S> <C>
Lam....................................................... $35.464
Applied Materials (NASDAQ: AMAT).......................... $49.631
Novellus Systems (NASDAQ: NVLS)........................... $76.356
KLA Instruments (NASDAQ: KLAC)............................ $38.825
Silicon Valley Group (NASDAQ: SVGI)....................... $20.194
Ultratech Stepper, Inc. (NASDAQ: UTEK).................... $23.269
</TABLE>
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The OnTrak Board has not made any determination as to what course of action
it would take in the event the OnTrak Walkaway Threshold is triggered. The
OnTrak Board would make its decision, consistent with the exercise of its
fiduciary duties, based on all material facts and circumstances existing at
such time, including, without limitation, recent developments in the
businesses of Lam and OnTrak as of such date, the OnTrak Board's view of the
impact that termination of the Merger Agreement would have on OnTrak, the
advice of its financial advisor and legal counsel and such other factors as
the OnTrak Board deems relevant at such time. The parties will promptly
announce any determination by OnTrak not to terminate the Merger Agreement
under the foregoing circumstances.
If the Lam Closing Value is less than $30.00 per share and is less than the
OnTrak Walk Away Threshold, and Lam elects not to adjust the Exchange Ratio
and OnTrak determines not to exercise its right to terminate the Merger
Agreement under such circumstances, whether OnTrak will recirculate proxy
materials to its shareholders prior to the OnTrak Special Meeting will be
determined by the OnTrak Board at such time. Such determination will be made
in light of the factors described above and taking into account that provision
for changing or revoking stockholder votes subsequent to mailing the proxy
card has been made.
The Exchange Ratio and the calculation of the OnTrak Walk Away Threshold
will be adjusted, respectively, to reflect the effect of any stock split,
reverse split, stock dividend, reorganization, recapitalization or other like
change with respect to Lam Common Stock, OnTrak Common Stock or the common
stock of any company in the Semiconductor Equipment Group Closing Index after
the date of the Merger Agreement. In addition, solely for the purpose of
calculating the OnTrak Walk Away Threshold, any company in the Semiconductor
Equipment Group Closing Index will be removed from the index if it is subject
to an Alternative Transaction during the Closing Calculation Period.
Each share of common stock of Merger Sub outstanding immediately prior to
the Effective Time will be converted into and exchanged for one share of
common stock of the Surviving Corporation.
No fractional shares will be issued by virtue of the Merger, but in lieu
thereof each holder of shares of OnTrak Common Stock who would otherwise be
entitled to a fraction of a share of Lam Common Stock will receive (after all
fractional shares to be received by such holder are aggregated) from Lam an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the average closing price of a share of Lam
Common Stock for the ten most recent trading days ending on the trading day
preceding the Effective Time, as reported on Nasdaq; provided that in no case
shall the amounts paid in exchange for all such fractional shares exceed 10%
of the value of the total Lam shares issued to the stockholders of OnTrak in
connection with the Merger.
At the Effective Time, Lam will assume all options to purchase OnTrak Common
Stock then outstanding under the OnTrak Stock Option Plans as described below
under "--Employee Benefits."
Promptly after the Effective Time, Lam, acting through the Exchange Agent,
will deliver to each OnTrak stockholder of record as of the Effective Time a
letter of transmittal with instructions to be used by such stockholder in
surrendering certificates which, prior to the Merger, represented shares of
OnTrak Common Stock. CERTIFICATES SHOULD NOT BE SURRENDERED BY THE HOLDERS OF
ONTRAK COMMON STOCK UNTIL SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL FROM
THE EXCHANGE AGENT. At the Effective Time, each then outstanding option or
right to purchase OnTrak Common Stock will be assumed by Lam without any
action on the part of the holder thereof. OPTION AND STOCK PURCHASE AGREEMENTS
NEED NOT BE SURRENDERED.
STOCK OWNERSHIP FOLLOWING THE MERGER
Based on the capitalization of OnTrak as of the close of business on March
31, 1997, and an Exchange Ratio of 0.83 of a share of Lam Common Stock for
each share of OnTrak Common Stock, an aggregate of approximately 6,422,165
shares of Lam Common Stock will be issued to OnTrak stockholders in the
Merger. At
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the Effective Time, Lam will assume all options under the OnTrak Stock Option
Plans and all purchase rights outstanding under the OnTrak 1995 Employee Stock
Purchase Plan for the offering period that began February 1, 1997 exercisable
for up to approximately 1,920,000 additional shares of Lam Common Stock. Based
on the number of shares of Lam Common Stock issued and outstanding as of March
31, 1997, and after giving effect to the issuance of Lam Common Stock as
described in the previous two sentences, the former holders of OnTrak Common
Stock would hold, and have voting power with respect to approximately 17.3% of
Lam's total issued and outstanding shares immediately after the Effective
Time, and holders of former OnTrak options and rights would hold options and
rights to acquire approximately 5.2% of Lam's total issued and outstanding
shares of Lam Common Stock immediately after the Effective Time (assuming the
exercise of only such options and rights). The foregoing numbers of shares and
percentages are subject to change in the event that the capitalization of
either OnTrak or Lam changes subsequent to March 31, 1997, and prior to the
Effective Time, and there can be no assurance as to the actual capitalization
of OnTrak or Lam at the Effective Time or of Lam at any time following the
Effective Time.
CONDUCT FOLLOWING THE MERGER
Pursuant to the Merger, Merger Sub will cease to exist as a corporation and
will be merged with and into OnTrak. All property, rights, privileges, powers
and franchises of OnTrak and Merger Sub will vest in the Surviving
Corporation, all debts, liabilities and duties of OnTrak and Merger Sub will
become the debts, liabilities and duties of the Surviving Corporation, and the
Surviving Corporation will be a wholly-owned subsidiary of Lam.
Pursuant to the Merger Agreement, the Certificate of Incorporation of Merger
Sub in effect immediately prior to the Effective Time will become the
Certificate of Incorporation of the Surviving Corporation and the Bylaws of
Merger Sub will become the Bylaws of the Surviving Corporation. The directors
of Merger Sub at the Effective Time (and such other persons as Lam and OnTrak
may approve) will become the initial directors of the Surviving Corporation.
The officers of OnTrak immediately prior to the Effective Time will become the
initial officers of the Surviving Corporation.
Pursuant to the Merger Agreement, an Office of the Chairman will be created
at Lam and will include Roger D. Emerick and James W. Bagley. Mr. Emerick will
be the Chairman of the Lam Board, and, beginning on the business day following
the Effective Time, Mr. Bagley will be the Chief Executive Officer of Lam. The
Lam Board will be increased by two directors following the Merger, and Mr.
Bagley and Richard J. Elkus, Jr. will be appointed to fill the resulting
vacancies on the business day following the Effective Time. In addition, the
Lam Board will appoint Mr. Elkus, Jr. to its Audit Committee.
CONDUCT OF LAM'S BUSINESS AND ONTRAK'S BUSINESS PRIOR TO THE MERGER
Pursuant to the Merger Agreement, until the earlier of the termination of
the Merger Agreement or the Effective Time, each of Lam and OnTrak agrees
(except to the extent expressly contemplated by the Merger Agreement or
consented to in writing by the other party) (i) to carry on its and its
subsidiaries' business in the usual, regular and ordinary course in
substantially the same manner as previously conducted, (ii) to pay and cause
its subsidiaries to pay debts and taxes when due, subject to good faith
disputes over such debts or taxes, (iii) to pay or perform other obligations
when due, and (iv) to use all reasonable efforts consistent with past practice
and policies to preserve intact its and its subsidiaries' present business
organizations, use reasonable efforts consistent with past practice to keep
available the services of its and its subsidiaries' present officers and key
employees and use its reasonable efforts consistent with past practice to
preserve its and its subsidiaries' relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with
it or its subsidiaries. In addition, each of Lam and OnTrak will use its best
efforts promptly to notify the other of any event that is not in the ordinary
course of business or that would have a material adverse effect on it. Lam has
also agreed that it will not grant options to purchase more than 500,000
shares of Lam Common Stock under the Lam stock option plans between the date
of the Merger Agreement and the Effective Time.
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In addition, until the earlier of the termination of the Merger Agreement or
the Effective Time, except as expressly contemplated by the Merger Agreement
or as previously disclosed, neither OnTrak nor Lam will do or permit any of
its subsidiaries to do any of the following, without the prior written consent
of the other party:
(a) Adopt or propose any change or amendment to its Certificate of
Incorporation or Bylaws that would have an adverse impact on the
transactions contemplated by the Merger Agreement or that would modify the
terms or provisions of the capital stock of Lam or OnTrak other than the
Certificate of Incorporation Amendments;
(b) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock, or issue
or authorize the issuance of any other securities in respect of, in lieu of
or in substitution for any of its capital stock, or repurchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except
from former employees, directors and consultants in accordance with
existing agreements providing for repurchases of shares in connection with
terminations of service to it or its subsidiaries;
(c) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability or vesting of options or other rights granted
under its employee or director stock plans or reprice options granted under
any of such plans; provided that Lam may take all action reasonably
necessary to implement at the time of the Lam Special Meeting, the Lam 1997
Stock Plan and to reserve up to 3,000,000 shares of Lam Common Stock for
issuance pursuant to such plan; or
(d) Take any action which to the knowledge of such party would prevent
Lam from accounting for the Merger as a pooling-of-interests.
The Merger Agreement further provides that, during the period from the date
of the Merger Agreement until the earlier of the termination of the Merger
Agreement or the Effective Time, OnTrak will not take or permit any of its
subsidiaries to take any of the following actions, except as previously
disclosed;
(a) Enter into any material contract or commitment outside the ordinary
course of business, or violate, amend or otherwise modify or waive any term
of OnTrak's material contracts other than modifications not adverse to
OnTrak and its subsidiaries, or enter into or renew any distribution or
representation agreement without Lam's written consent, which shall not be
unreasonably withheld;
(b) Issue, deliver or sell or authorize or propose the issuance, delivery
or sale of, or purchase or propose the purchase of, any shares of OnTrak's
capital stock or securities convertible into, subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating OnTrak to issue any such shares or other convertible
securities, other than the issuance of shares of OnTrak Common Stock
pursuant to the exercise of stock options, warrants or other rights
outstanding as of the date of the Merger Agreement; provided, however, that
OnTrak may, in the ordinary course of business consistent with past
practice, grant options to purchase no more than 200,000 shares of OnTrak
Common Stock under the OnTrak Stock Option Plans (but not to exceed 100,000
shares in any sixty day period after the date of the Merger Agreement);
(c) Transfer or license to any person or entity, or otherwise extend,
amend or modify in any material respect, any rights to OnTrak's
intellectual property other than in the ordinary course of business
consistent with past practice;
(d) Enter into or amend any agreement pursuant to which any other party
is granted exclusive marketing, distribution or other rights with respect
to any of OnTrak's business, products or technology;
(e) Sell, lease, license or otherwise dispose of or encumber any of
OnTrak's properties or assets that are material, individually or in the
aggregate, to OnTrak's and its subsidiaries' business, taken as a whole;
(f) Incur any indebtedness for borrowed money (other than ordinary course
trade payables or pursuant to existing credit facilities in the ordinary
course of business) or guarantee any such indebtedness, or issue, sell or
guarantee any debt securities or warrants or rights to acquire debt
securities of others;
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(g) Enter into any operating lease, except in the ordinary course of
business consistent with past practice;
(h) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction of liabilities reflected or
reserved against in OnTrak's consolidated financial statements filed with
the Commission or in the ordinary course of business and consistent with
past practice;
(i) Make any capital expenditures in any calendar month except those made
in the ordinary course of business and consistent with past practice which,
when added to all other capital expenditures made by OnTrak and its
subsidiaries in that month, do not exceed $250,000 in the aggregate;
(j) Materially reduce the amount of any material insurance coverage
provided by existing insurance policies;
(k) Adopt or amend any employee benefit or stock purchase or option plan,
or enter into or amend any employment contract, pay any special bonus or
special remuneration to any employee or director, or increase the salaries
or wage rates of OnTrak's officers or employees except for reasonable
salary increases to non-officer employees in accordance with OnTrak's
written compensation plan and consistent with past practices;
(l) Grant any severance or termination pay to any director, officer or
other employee, except payments made pursuant to standard written
agreements outstanding on the date of the Merger Agreement and disclosed to
Lam, or adopt any new severance plan;
(m) Waive, release, assign, settle or compromise any material claim or
litigation, or commence a lawsuit other than (i) for the routine collection
of bills, (ii) in such cases where OnTrak in good faith determines that
failure to commence suit would result in the material impairment of a
valuable aspect of its business, provided that it consults with Lam prior
to the filing of such a suit, or (iii) for a breach of the Merger
Agreement;
(n) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets of,
or by any other manner, any business or any business organization or
division thereof, or otherwise acquire or agree to acquire any material
assets or enter into any joint ventures, strategic partnerships or
alliances;
(o) Other than in the ordinary course of business, make or change any
material election in respect of taxes, adopt or change any accounting
method in respect of taxes, enter into any closing agreement, settle any
claim or assessment in respect of taxes, or consent to any extension or
waiver of the limitation period applicable to any claim or assessment in
respect of taxes;
(p) Revalue any of OnTrak's assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business; or
(q) Take or agree in writing or otherwise to take, any of the actions
described in paragraphs (a) through (p) above, or any action which would
make any of its representations or warranties contained in the Merger
Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants thereunder.
NO SOLICITATION
Under the terms of the Merger Agreement, until the earlier of the
termination of the Merger Agreement or the Effective Time, OnTrak has agreed
that it, its subsidiaries, and the officers and directors of it and its
subsidiaries will not authorize or permit its or its subsidiaries' employees,
agents and representatives, directly or indirectly, to initiate, solicit,
encourage or otherwise facilitate (including by furnishing information) any
Acquisition Proposal. For the purposes of the Merger Agreement, an
"Acquisition Proposal" is any inquiry or
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expression of interest or the making of any proposal or offer with respect to
a merger, reorganization, share exchange, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
OnTrak or any of its subsidiaries, or any purchase or sale of all or any
significant part of the assets or any of the equity securities of OnTrak or
any of its subsidiaries, that could reasonably be expected to interfere with
the completion of the Merger or the other transactions contemplated by the
Merger Agreement.
In addition, OnTrak has agreed that it, its subsidiaries and the officers or
directors of it or any of its subsidiaries will not and will not permit its or
its subsidiaries' employees, agents and representatives, directly or
indirectly, to have any discussion with or provide any confidential
information relating to an Acquisition Proposal to any person or entity,
engage in any negotiations concerning an Acquisition Proposal, or otherwise
facilitate any effort to make, implement or accept an Acquisition Proposal.
Nothing in the Merger Agreement, however, will prevent OnTrak or the OnTrak
Board from (i) complying with Rule 14e-2 promulgated under the Exchange Act,
with regard to an Acquisition Proposal, (ii) engaging in any discussion or
negotiations with, or providing any information to, any person or entity in
response to an unsolicited bona fide written Acquisition Proposal, or (iii)
recommending such an unsolicited bona fide written Acquisition Proposal to the
stockholders of OnTrak or withdrawing or modifying its recommendation in favor
of the Merger Agreement and the Merger (so long as OnTrak shall have entered a
definitive agreement relating to a Superior Proposal (defined below) and paid
to Lam a termination fee of $8.4 million as described in "Fees, Expenses and
Break Up Fees" below); provided, in the case of (ii) or (iii), that (a) the
OnTrak Board concludes in good faith that such Acquisition Proposal is
reasonably capable of being completed and would result in a transaction more
favorable to OnTrak's stockholders than the Merger (any such more favorable
Acquisition Proposal being a "Superior Proposal"), (b) the OnTrak Board
concludes in good faith that such action is necessary for the OnTrak Board to
discharge its fiduciary duties under applicable law, (c) before providing any
information to any person or entity in connection with an Acquisition
Proposal, the OnTrak Board receives from such person or entity an executed
confidentiality agreement in substantially the same form as that executed by
Lam and OnTrak, and (d) before providing any information to such party or
entering discussions with them, the OnTrak Board notifies Lam of such
inquiries, proposals or offers, their terms, and the name of the person or
entity initiating them. OnTrak has agreed to keep Lam informed of the status
and terms of any Acquisition Proposal and any related discussions.
Alternative Transactions Involving Lam
Under the Merger Agreement, Lam must recommend the Merger to its
stockholders in all circumstances. Subject to that requirement, Lam may take
and disclose to its stockholders a position contemplated by Rule 14e-2 of the
Exchange Act and may make any disclosure to its stockholders if the Lam Board
determines in good faith that failure to make such disclosure would be
inconsistent with its duties to Lam or Lam's stockholders under applicable
law.
Lam has agreed that it will not and will not permit any of its subsidiaries
to authorize or enter into an agreement relating to an Alternative Transaction
involving Lam until two days after the Effective Time. For purposes of the
Merger Agreement, an "Alternative Transaction" involving an entity is (i) a
transaction or series of transactions pursuant to which any person or group
other than Lam, OnTrak or Merger Sub, or any affiliate thereof (a "Third
Party") acquires or would acquire shares (or securities exercisable for or
convertible into shares) representing more than twenty percent (20%) of the
outstanding shares of such party's common stock, pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger, consolidation, share exchange or
other business combination involving such party or any of its subsidiaries if,
on consummation of such transaction, such Third Party (or its stockholders)
owns or would own more than twenty percent (20%) of the outstanding equity
securities of such party or any of its subsidiaries or the entity surviving
such merger or business combination or resulting from such consolidation,
(iii) any other transaction or series of transactions pursuant to which any
Third Party acquires or would acquire control of assets of such party or any
of its subsidiaries (including, for this purpose, outstanding equity
securities of subsidiaries of such party) having a fair market value equal to
more than twenty percent (20%) of the fair market value of all the
consolidated assets of such party immediately prior to such transaction or
series of transactions, or (iv) any transaction or series of transactions
pursuant to which any Third Party acquires or would acquire control of such
party's Board of Directors or by
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which nominees of any Third Party are (or would be) elected or appointed to a
majority of the seats on such party's Board of Directors.
Lam has agreed to notify OnTrak immediately of any proposals received by Lam
relating to an Alternative Transaction involving Lam, and to keep OnTrak
informed of the status and terms of any such proposals and related
discussions, and will consult with OnTrak with respect thereto.
FEES, EXPENSES AND BREAK UP FEES
Except as set forth below, all fees and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby will be paid by
the party that incurs them.
Lam and OnTrak will share equally the filing fees paid in connection with
any filing required under the HSR Act, the filing of this Joint Proxy
Statement/Prospectus and the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part, and the printing and mailing of this Joint
Proxy Statement/Prospectus.
Lam has agreed to pay OnTrak a termination fee of $8.4 million in cash, if
(i) either Lam or OnTrak terminates the Merger Agreement because the Lam
Special Meeting is not completed (and a vote of the Lam stockholders recorded)
on or before August 31, 1997, and at the time of such termination an
Alternative Transaction involving Lam has been announced and has not been
unconditionally withdrawn and abandoned, (ii) either Lam or OnTrak terminates
the Merger Agreement because the Lam stockholders fail to approve the issuance
of Lam Common Stock in connection with the Merger, or (iii) OnTrak terminates
the Merger Agreement because of a material breach of the Merger Agreement by
Lam that has not been cured within 30 days after Lam receives notice of such
alleged breach, and at the time of such breach, an Alternative Transaction
involving Lam has been announced and not unconditionally withdrawn and
abandoned.
OnTrak has agreed to pay Lam a termination fee of $8.4 million in cash, if
(i) either Lam or OnTrak terminates the Merger Agreement because the OnTrak
Special Meeting is not completed (and a vote of the OnTrak stockholders
recorded) on or before August 31, 1997, and at the time of such termination an
Alternative Transaction involving OnTrak has been announced and has not been
unconditionally abandoned, (ii) either Lam or OnTrak terminates the Merger
Agreement because the OnTrak stockholders fail to approve the Merger and the
Merger Agreement at the OnTrak Special Meeting, (iii) Lam terminates the
Merger Agreement because of a material breach of the Merger Agreement by
OnTrak that has not been cured within 30 days after OnTrak receives notice of
such alleged breach, and at the time of such breach, an Alternative
Transaction involving OnTrak has been announced and not unconditionally
abandoned, (iv) Lam terminates the Merger Agreement following: (y) the
withdrawal or modification in a manner adverse to Lam (or public announcement
of an intention to so withdraw or modify) by OnTrak's Board of Directors of
its recommendation of the Merger Agreement or the Merger, or (z) the failure
of OnTrak's Board of Directors to recommend against acceptance of a competing
tender offer for any of the outstanding shares of OnTrak capital stock within
the ten day time period prescribed by Rule 14e-2 under the Exchange Act, or
(v) either party terminates the Merger Agreement following the acceptance by
OnTrak's Board of Directors of a Superior Proposal.
CONDITIONS TO THE MERGER
The respective obligations of OnTrak, Lam and Merger Sub to effect the
Merger are subject to the satisfaction or waiver in writing at or prior to the
Effective Time of the following conditions: (a) the holders of OnTrak Common
Stock shall have duly approved the Merger Agreement and the Merger, and the
holders of Lam Common Stock shall have approved the Share Issuance; (b) the
Commission shall have declared effective the Registration Statement of which
this Joint Proxy Statement/Prospectus is a part, and the Registration
Statement shall not be the subject of any stop order suspending such
effectiveness or proceedings seeking a stop order; (c) no statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or enforced by any court or other governmental
authority prohibiting the consummation of the Merger or otherwise making it
illegal; (d) the waiting period applicable to consummation of the Merger under
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the HSR Act shall have expired or been terminated, and all similar
governmental requirements the failure with which to comply would be reasonably
likely to have a material adverse effect on Lam or OnTrak shall have been
complied with (other than the filing of the Certificate of Merger); (e) Lam
and OnTrak shall have received substantially identical written opinions of
Shartsis, legal counsel to Lam, and Heller Ehrman, legal counsel to OnTrak, in
form and substance reasonably satisfactory to them to the effect that the
Merger will constitute a reorganization within the meaning of Section 368(a)
of the Code, and such opinions shall not have been withdrawn; (f) a
Notification Form for Listing of Additional Shares with respect to the shares
of Lam Common Stock issuable in the Merger and on exercise of the OnTrak Stock
Options assumed by Lam shall have been filed with Nasdaq; and (g) at the
Effective Time, each of Lam and OnTrak shall have received a letter from its
independent accountants, dated as of the Effective Time, in form and substance
reasonably satisfactory to it, affirming the firm's concurrence with Lam and
OnTrak management's conclusions that the Merger qualifies for pooling-of-
interests accounting under APB Opinion No. 16, if closed and consummated in
accordance with the Merger Agreement.
In addition, the obligations of OnTrak to consummate and effect the Merger
are subject to the satisfaction or waiver in writing at or prior to the
Effective Time, of each of the following conditions, any of which may be
waived in writing by OnTrak: (a) the representations and warranties of Lam and
Merger Sub contained in the Merger Agreement shall be true and correct; (b)
Lam and Merger Sub shall have performed or complied in all material respects
with all covenants, obligations, conditions and agreements required by the
Merger Agreement to be performed or complied with by them on or prior to the
Effective Time; and (c) there shall have been no events or changes with
respect to Lam or its subsidiaries having, or which could reasonably be
expected to have, a material adverse effect on Lam and its subsidiaries, and
at the Closing Lam shall have delivered to OnTrak a certificate to that
effect.
In addition, the obligations of Lam and Merger Sub to consummate and effect
the Merger are subject to the satisfaction or waiver in writing at or prior to
the Effective Time, of each of the following conditions, any of which may be
waived in writing by Lam: (a) the representations and warranties of OnTrak
contained in the Merger Agreement shall be true and correct; (b) OnTrak shall
have performed or complied in all material respects with all agreements,
covenants, obligations and conditions required by the Merger Agreement to be
performed or complied with by it on or prior to the Effective Time; (c) there
shall have been no events or changes with respect to OnTrak or its
subsidiaries having, or which could reasonably be expected to have, a material
adverse effect on OnTrak or the Surviving Corporation, and at the Closing
OnTrak shall have delivered to Lam a certificate to that effect; and (d) James
W. Bagley shall have executed and delivered to Lam an employment agreement
relating to his employment by Lam on terms satisfactory to Lam in Lam's
discretion.
Currently, both Lam and OnTrak anticipate that they will satisfy all
conditions to the Merger at or prior to consummation of the Merger.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement provides that it may be terminated at any time prior to
the Effective Time, whether before or after approval of the Merger by the
stockholders of Lam and OnTrak: (a) by mutual written consent duly authorized
by the Boards of Directors of Lam and OnTrak; (b) by either Lam or OnTrak if
the Effective Time shall not have occurred by August 31, 1997 (provided,
however, that such right to terminate will not be available to any party that
breached in any material respect its obligations under the Merger Agreement in
a manner that proximately contributed to the failure to consummate the Merger
by such date); (c) by either Lam or OnTrak if a statute, rule, regulation or
executive order shall have been enacted, entered or promulgated prohibiting
the consummation of the Merger substantially on the terms contemplated by the
Merger Agreement or a court of competent jurisdiction or other governmental
entity shall have issued a final and non-appealable order, decree, ruling or
injunction, or taken any other final and non-appealable action that
permanently restrains, enjoins or otherwise prohibits the Merger substantially
on the terms contemplated by the Merger Agreement (provided that the party
exercising such right to terminate has used its reasonable best efforts to
remove such order, decree, ruling or injunction); (d) by either OnTrak or Lam
if the stockholders of OnTrak or Lam have not
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approved the Merger and Merger Agreement (in the case of OnTrak stockholders)
or the Share Issuance (in the case of the Lam stockholders) at their
respective stockholders meetings (provided that such right to terminate will
not be available to any party that breached in any material respect its
obligations under the Merger Agreement in a manner that proximately
contributed to the failure to obtain such stockholder approval); (e) by Lam if
the OnTrak Board withdraws or modifies in a manner adverse to Lam (or publicly
announces its intention to so withdraw or modify) its recommendation of the
Merger Agreement or the Merger, or fails within the ten day time period
prescribed by Rule 14e-2 under the Exchange Act to recommend against
acceptance of a competing tender offer for any of the outstanding shares of
OnTrak capital stock (including by taking no position with respect to
acceptance of such tender offer); (f) by either Lam or OnTrak if the OnTrak
Board determines in good faith than an Acquisition Proposal is reasonably
capable of being completed and would result in a transaction more favorable to
OnTrak's stockholders than the Merger (provided that such right to terminate
shall not be available to OnTrak unless (i) four days have elapsed since
OnTrak delivered written notice of such termination to Lam and during such
four day period OnTrak has informed Lam of the terms of the Acquisition
Proposal and the identity of the person or entity making such proposal and
fully cooperated with Lam (consistent with its legal obligations to OnTrak and
the OnTrak stockholders) with the intent of enabling Lam to agree to modify
the terms of the Merger Agreement so that the Merger may be effected, (ii) at
the end of such four day period the OnTrak Board continues reasonably to
believe that the Acquisition Proposal is reasonably capable of being completed
and would result in a transaction more favorable to OnTrak's stockholders than
the Merger, (iii) OnTrak pays Lam a $8.4 million termination fee, and (iv)
simultaneously with such termination OnTrak enters into a definitive agreement
to effect the Acquisition Proposal); (g) by Lam or OnTrak if the other party
has materially breached any of its representations, warranties, covenants or
agreements in the Merger Agreement and such breach has not been cured within
30 days after notice thereof has been received by the party allegedly in
breach; or (h) by OnTrak if the conditions giving rise to the Lam Adjustment
Option are met, Lam does not elect to adjust the Exchange Ratio, and OnTrak
delivers a written notice of termination to Lam before the close of business
on the third trading day prior to the scheduled OnTrak Special Meeting.
AFFILIATE AGREEMENTS
The following is a brief summary of material terms of the Affiliate
Agreements, copies of forms of which are attached as Annex B-1 and Annex B-2
to this Joint Proxy Statement/Prospectus and incorporated herein by this
reference. This summary is qualified in its entirety by reference to the
Affiliate Agreements. Stockholders of Lam and OnTrak are urged to read the
Affiliate Agreements in their entirety for a more complete description of the
rights and obligations of the parties thereunder.
"Affiliates" (within the meaning of Rule 145 under the Securities Act) of
OnTrak have entered into an agreement that prohibits: (i) the sale, transfer
or other disposition of Lam Common Stock received by such person in the Merger
unless (a) such transaction is permitted under Rule 145 under the Securities
Act, (b) counsel reasonably satisfactory to Lam shall have advised Lam in a
written opinion letter satisfactory to Lam and Lam's legal counsel and on
which Lam and its legal counsel may rely that no registration under the
Securities Act would be required in connection with the proposed sale,
transfer or other disposition, (c) such sale, transfer or other disposition is
effected pursuant to an effective registration statement under the Securities
Act, or (d) an authorized representative of the Commission shall have rendered
written advice to such person (with a copy delivered to Lam) to the effect
that the Commission would take no action, or that the Commission staff would
not recommend that the Commission take action, with respect to the proposed
disposition; and (ii) the sale, transfer, exchange, pledge or other
disposition of Lam Common Stock or any other securities of Lam during the
period commencing 30 days prior to the Effective Time and ending on the date
on which financial results covering at least 30 days' combined operations of
OnTrak and Lam are publicly announced by Lam, subject to certain exceptions.
Such agreement is intended to comply with the requirements of applicable
federal securities and tax laws and to help ensure that the Merger will be
treated as a pooling-of-interests for accounting and financial reporting
purposes. Affiliates of Lam have entered into a substantially similar
agreement.
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STOCKHOLDER AGREEMENTS
The following is a brief summary of material terms of the Stockholder
Agreements, copies of forms of which are attached as Annex C-1 and Annex C-2
to this Joint Proxy Statement/Prospectus and incorporated herein by this
reference. This summary is qualified in its entirety by reference to the
Stockholder Agreements. Stockholders of Lam and OnTrak are urged to read the
Stockholder Agreements in their entirety for a more complete description of
the rights and obligations of the parties thereunder.
Each of James W. Bagley, Jerauld J. Cutini, Wilbur C. Krusell, Patrick C.
O'Connor (the foregoing collectively being referred to as the "Individual
Stockholders"), Advent VII L.P., Advent Atlantic and Pacific II L.P., Advent
New York L.P., TA Venture Investors Limited Partnership, Advent Industrial II
L.P., and Chestnut Capital International III L.P. (the foregoing limited
partnerships being referred to collectively as the "Advent Stockholders") has
entered into a Stockholders Agreement with Lam. The Individual Stockholders
and the Advent Stockholders beneficially own as of March 31, 1997 an aggregate
of 2,002,436 of the outstanding shares of OnTrak Common Stock, representing
approximately 26% of the votes entitled to be cast by holders of OnTrak Common
Stock issued and outstanding as of March 31, 1997.
Pursuant to their respective Stockholder Agreements, each of the Individual
Stockholders has agreed to vote in favor of adoption of the Merger Agreement,
and each of the Advent Stockholders has agreed to vote in favor of approval of
the Merger Agreement through August 31, 1997. Each of the Individual
Stockholders and the Advent Stockholders has further agreed not to initiate,
solicit, encourage or facilitate any action that is reasonably likely to lead
to any Acquisition Proposal or any inquiry with respect thereto, and not to
engage in negotiations with or provide any information to any person relating
to an unsolicited Acquisition Proposal for OnTrak or an affiliate of OnTrak.
Each of the Individual Stockholders and Advent Stockholders has appointed Lam
and Roger D. Emerick and Richard H. Lovgren or any of them such stockholder's
proxy and attorney-in-fact to vote the shares of OnTrak Common Stock
beneficially owned by such stockholder in favor of the Merger.
NEW BAGLEY EMPLOYMENT AGREEMENT
Mr. Bagley's execution and delivery of the New Bagley Employment Agreement
is a condition to the obligations of Lam and Merger Sub to consummate the
Merger. See "--Conditions to the Merger." Pursuant to the New Bagley
Employment Agreement, Mr. Bagley will serve as Chief Executive Officer of Lam
for a five-year term following the Merger. He will receive a base salary of
$100,000 per year. In lieu of additional base salary, participation in Lam's
performance bonus plan or other base compensation, and subject to stockholder
approval of the Lam 1997 Stock Plan, Mr. Bagley will receive a grant of
options (the "Base Options") to purchase 225,000 shares of Lam Common Stock
with an exercise price equal to the closing price of Lam Common Stock on the
first business day after the Merger is consummated, such options to vest
ratably over a five year period and have a term of ten years from the date of
grant. Mr. Bagley will also receive options (the "Incentive Options") to
purchase an additional 250,000 shares of Lam Common Stock on the same terms
and conditions as the Base Options. In the event Mr. Bagley's employment is
terminated by Lam without cause or by Mr. Bagley for good reason, (i) the
Incentive Options will immediately vest in full, (ii) that portion of the Base
Options that would have vested in the year following the date of Mr. Bagley's
termination will immediately vest, and (iii) Mr. Bagley will receive a cash
severance payment in the amount of $100,000; provided, that if such
termination occurs within the first year of employment, Mr. Bagley will
instead receive the benefit of two years of additional vesting with respect to
the Base Options, and the amount of the cash severance payment will be
$200,000. In either such case, the accelerated options would remain
exercisable for a period of two years following the date of termination. The
New Bagley Employment Agreement provides, in addition, that the Incentive
Options would also vest and become exercisable in the event of a subsequent
change in control of Lam. The New Bagley Employment Agreement also provides
for a tax gross up to offset the effects of any excise tax imposed under the
"golden parachute" provisions of the Code.
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EMPLOYEE BENEFITS
At the Effective Time, Lam will assume each outstanding option to purchase
shares of OnTrak Common Stock under the OnTrak Stock Plans, whether such
option is vested or unvested. Each OnTrak stock option assumed by Lam will
continue to have and be subject to substantially the same terms and conditions
as applied under the OnTrak Stock Plans and related documents, except that (i)
each such OnTrak stock option will be exercisable for that number of whole
shares of Lam Common Stock equal to the product of the number of shares of
OnTrak Common Stock that were issuable on exercise of such option immediately
prior to the Effective Time, multiplied by the Exchange Ratio, and rounded
down to the nearest whole number of shares of Lam Common Stock, and (ii) the
per share exercise price for the shares of Lam Common Stock issuable on
exercise of such OnTrak stock option will equal the quotient determined by
dividing the exercise price per share of OnTrak Common Stock at which such
option was exercisable immediately prior to the Effective Time by the Exchange
Ratio, rounded up to the nearest whole cent. The vesting of the OnTrak stock
options will not accelerate by reason of the Merger except for certain options
held by Mr. Bagley (described below under "Interests of Certain Persons"). The
parties intend that the OnTrak stock options assumed by Lam will thereafter
continue to qualify as incentive stock options under Section 422 of the Code,
to the extent such options qualified as such immediately prior to the
Effective Time.
Conditional on consummation of the Merger, and to the extent permitted by
the terms of the OnTrak 1995 Employee Stock Purchase Plan (the "OnTrak
Purchase Plan") and the Lam Amended 1984 Employee Stock Purchase Plan (the
"Lam Purchase Plan"), OnTrak will take such action as is necessary to (i)
preclude the granting of additional purchase rights under the OnTrak Purchase
Plan on or after the date of the Merger Agreement (including but not limited
to the commencement of any new "offering period"), and (ii) convert each right
to purchase shares of OnTrak Common Stock granted under the OnTrak Purchase
Plan pursuant to the two-year offering period commencing on February 1, 1997,
into a right to purchase, on substantially the same terms provided under the
OnTrak Purchase Plan, whole shares of Lam Common Stock, except at a price
equal to 85% of the lesser of (i) the closing sale price of a share of OnTrak
Common Stock on Nasdaq on February 1, 1997, divided by the Exchange Ratio,
rounded up to the nearest whole cent, and (ii) the closing sale price of a
share of Lam Common Stock on the last day of each applicable six-month
purchase period during the offering period that began on February 1, 1997.
Subject to the consummation of the Merger, no additional enrollments in the
OnTrak Purchase Plan will be accepted by OnTrak from and after the date of the
Merger Agreement, and no participant in the OnTrak Purchase Plan will be
permitted to increase his or her level of participation in such plan. Rights
to acquire Lam Common Stock acquired by OnTrak employees after the Closing
will count against all purchase limitations applicable to individual
participants (including dollar value limitations, number of share limitations,
etc.) contained in the Lam Purchase Plan (or any similar plan adopted by Lam)
for all purposes, and Lam will be permitted to amend the Lam Purchase Plan in
any respect to reflect this limitation. The parties have agreed that in no
event will they be required to take any action which would preclude either the
OnTrak Purchase Plan or the Lam Purchase Plan to qualify for treatment under
Section 423 of the Code or cause any other material negative tax consequences
to Lam.
No later than three business days after the Closing Date, Lam will file a
registration statement on Form S-8 under the Securities Act covering the
shares of Lam Common Stock issuable pursuant to outstanding options and rights
to purchase OnTrak Common Stock assumed by Lam pursuant to the Merger.
Employees of OnTrak who become employees of the Surviving Corporation at the
Effective Time will be credited with years of service at OnTrak for purposes
of determining eligibility, vesting and benefit accrual under all benefit
plans of Lam, except that with respect to retirement benefits under plans
maintained by Lam, such years of service will be credited for purposes of
determining eligibility and vesting but not for purposes of benefit accrual.
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INTERESTS OF CERTAIN PERSONS
In considering the recommendations of the Lam Board and the OnTrak Board
with respect to the Merger, stockholders of Lam and OnTrak should be aware
that certain officers and directors of Lam and OnTrak have interests in the
Merger in addition to those of the stockholders generally, including those
referred to below. The OnTrak Board and the Lam Board were aware of these
interests and considered them in their respective deliberations concerning the
Merger.
From and after the Effective Time, Lam and the Surviving Corporation will
defend, exculpate, indemnify and reimburse expenses for acts or omissions
occurring prior to the Effective Time by the current or former directors,
officers, employees or agents of OnTrak, on the same terms provided as of the
date of the Merger Agreement in the Certificate of Incorporation and Bylaws of
OnTrak and in any indemnification agreement existing on such date, subject to
limitations of applicable law. If any of such indemnified parties is involved
in any actual or threatened action, suit, claim, proceeding or investigation
in connection with any matter relating to the Merger Agreement or related
transactions occurring at or before the Effective Time, OnTrak and, after the
Effective Time, the Surviving Corporation and Lam will advance to such
indemnified party, as incurred, expenses incurred in connection with such
action or claim, provided that the indemnified party undertakes to repay such
advances if it is ultimately determined by independent legal counsel that such
party was not entitled to such indemnification.
For six years after the Effective Time, Lam will, or will cause the
Surviving Corporation to, maintain in effect OnTrak's current directors' and
officers' liability insurance (or policies with substantially the same
coverage with terms and conditions no less advantageous) covering the persons
covered by OnTrak's directors' and officers' liability insurance policy as of
the date of the Merger Agreement (provided that Lam will not be obligated to
spend in any year an amount in excess of 300% of the annual premiums paid by
OnTrak for such insurance as of the date of the Merger Agreement). If Lam or
the Surviving Corporation consolidates with or merges into any other entity
and is not the surviving entity in such transaction or transfers all or
substantially all of its properties or assets to any person, then provision
will be made to honor the indemnification obligations of Lam and the Surviving
Corporation under the Merger Agreement.
In connection with his employment as Chairman and Chief Executive Officer of
OnTrak, Mr. Bagley entered into an employment agreement with OnTrak dated May
17, 1996 (the "Existing Bagley Employment Agreement"), pursuant to which
unvested options held by Mr. Bagley to purchase 300,000 shares of OnTrak
Common Stock at an exercise price of $17.25 per share will accelerate and
become exercisable in full shortly prior to the consummation of the Merger.
Mr. Bagley also holds vested options to purchase an additional 500,000 shares
of OnTrak Common Stock at the same exercise price. As with all other options
to acquire OnTrak Common Stock to be assumed by Lam in the Merger, the number
of shares subject to Mr. Bagley's options and the exercise price thereof will
be adjusted, based on the Exchange Ratio, as described in "Terms of the
Merger--Employee Benefits." Based on an Exchange Ratio of 0.83 and the $35.75
per share closing price of Lam Common Stock as reported on Nasdaq on June 25,
1997, the most recent practicable date prior to the printing of this Joint
Proxy Statement/Prospectus, Mr. Bagley's options would have an aggregate value
of $9.9 million. The Existing Bagley Employment Agreement also provides that
if Mr. Bagley chooses to exercise his options prior to the closing of the
Merger, he may request OnTrak to loan him up to $4 million for a period of up
to seven months at a rate of interest equal to the lowest rate that will not
give rise to imputed interest under the Code (adjusted monthly and, for the
month of June, 6.23% per annum) in payment of the exercise price of the
options. It is Mr. Bagley's intent not to exercise the options prior to the
closing of the Merger. In addition, the Existing Bagley Employment Agreement
provides that Mr. Bagley will receive a cash bonus in the amount of $250,000
upon consummation of the Merger. The Existing Bagley Employment Agreement
provides for a severance payment in the amount of $750,000 if Mr. Bagley's
employment is terminated without cause. However, this provision will be
superseded by the severance provisions of the New Bagley Employment Agreement.
If Mr. Bagley becomes subject to the excise tax on "golden parachute" payments
imposed under Section 4999 of the Code, OnTrak will provide Mr. Bagley with an
additional cash payment in an amount sufficient to offset the effects of the
excise tax.
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In addition, it is a condition to the consummation of the Merger that Mr.
Bagley enter into the New Bagley Employment Agreement. See "Terms of the
Merger--New Bagley Employment Agreement."
In connection with his employment as Chairman and Chief Executive Officer of
Lam, Roger D. Emerick entered into an employment agreement with Lam, dated
July 1, 1996 (the "Emerick Employment Agreement"), pursuant to which, upon the
hiring of a successor to Mr. Emerick as Chief Executive Officer of Lam, Mr.
Emerick would become a consultant to Lam for the period ending June 30, 2002.
During the consulting period, Mr. Emerick would receive an annual consulting
fee of $400,000. However, pursuant to an amendment to the Emerick Employment
Agreement, dated as of June 26, 1997, Mr. Emerick will instead remain a full-
time employee of Lam, with such strategic, senior level duties and
responsibilities as the Lam Board may assign to him from time to time and will
continue to receive his current compensation and benefits. Upon termination of
his employment with Lam, Mr. Emerick will become a consultant to Lam as
provided in the Emerick Employment Agreement.
Richard J. Elkus, Jr., currently a member of the OnTrak Board, along with
Mr. Bagley will be appointed to the Lam Board on the business day following
the Effective Time.
Except as noted above, no officer or director of Lam or OnTrak has any
interest in the Merger that is in addition to his interest as a stockholder of
Lam or OnTrak.
APPRAISAL RIGHTS
Section 262 of the DGCL provides appraisal rights to stockholders of
Delaware corporations in certain situations. Section 262 appraisal rights are
not available, however, to stockholders of a corporation, such as OnTrak, (a)
whose securities are listed on a national securities exchange or designated as
national market system securities on an interdealer quotation system by the
National Association of Securities Dealers, Inc. (the "NASD"), and (b) whose
stockholders are not required to accept in exchange for their stock anything
other than stock of another corporation listed on a national securities
exchange or on an interdealer quotation system by the NASD, and cash in lieu
of fractional shares. Since the OnTrak Common Stock is traded on Nasdaq, and
because the OnTrak stockholders are being offered stock of Lam, which is also
traded on Nasdaq, and cash in lieu of fractional shares, OnTrak stockholders
will not have appraisal rights with respect to the Merger. The DGCL does not
provide appraisal rights to stockholders of a corporation, such as Lam, that
issues shares in connection with a Merger but is not itself a constituent
corporation in the merger.
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<PAGE>
COMPARISON OF CAPITAL STOCK AND STOCKHOLDER RIGHTS
After consummation of the Merger, the holders of OnTrak Common Stock who
receive Lam Common Stock under the terms of the Merger Agreement will become
stockholders of Lam. As stockholders of OnTrak, their rights are presently
governed by Delaware law and by the OnTrak Certificate of Incorporation (the
"Ontrak Certificate") and the OnTrak Bylaws (the "OnTrak Bylaws"). As
stockholders of Lam, their rights will be governed by Delaware law and by the
Lam Certificate of Incorporation (the "Lam Certificate") and the Lam Amended
and Restated Bylaws (the "Lam Bylaws"). The following is a summary of material
differences between the rights of holders of OnTrak Common Stock and the
rights of holders of Lam Common Stock. As each of OnTrak and Lam is organized
under the laws of Delaware, these differences arise principally from
provisions of the certificate of incorporation and bylaws of each of OnTrak
and Lam.
The following summaries do not purport to be complete statements of the
rights of OnTrak stockholders under the OnTrak Certificate and the OnTrak
Bylaws as compared with the rights of Lam stockholders under the Lam
Certificate and the Lam Bylaws or a complete description of the specific
provisions referred to herein. The identification of specific differences is
not meant to indicate that other equal or more significant differences do not
exist. These summaries are qualified in their entirety by reference to
Delaware law, the DGCL and the governing corporate instruments of OnTrak and
Lam, to which stockholders are referred.
DESCRIPTION OF LAM CAPITAL STOCK
The authorized capital stock of Lam consists of 90,000,000 shares of Common
Stock, $0.001 par value per share, and 5,000,000 shares of Preferred Stock,
$0.001 par value per share. The summary of the terms of the stock of Lam set
forth below does not purport to be complete and is subject to and qualified in
its entirety by reference to the Lam Certificate and the Lam Bylaws.
Lam Common Stock
As of the Lam Record Date, there were approximately 30,884,205 shares of Lam
Common Stock issued and outstanding. Lam Common Stock is listed on Nasdaq
under the symbol "LRCX." The outstanding Lam Common Stock is held of record by
approximately 1,081 stockholders. In addition, stock options to purchase an
aggregate of 3,248,829 shares of Lam Common Stock were outstanding as of the
Lam Record Date. Stockholders of Lam Common Stock are entitled to one vote per
share on all matters to be voted upon by the stockholders. The stockholders
are entitled to cumulate votes in connection with the election of directors.
Subject to the preferences that may be applicable to outstanding Preferred
Stock, if any, the holders of Lam Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Lam Board
out of funds legally available therefor. In the event of a liquidation,
dissolution or winding up of Lam, the holders of Lam Common Stock are entitled
to share ratably in all assets remaining after payment of liabilities, subject
to the preferences that may be applicable to outstanding Preferred Stock, if
any. The Lam Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Lam Common Stock. All outstanding shares of Lam Common Stock
are fully paid and non-assessable, and the shares of Lam Common Stock to be
outstanding upon completion of the Merger will be fully paid and non-
assessable.
Preferred Stock
Lam has 5,000,000 shares of Preferred Stock authorized, of which, as of the
Record Date, no shares are outstanding. Under the Lam Rights Plan, Lam has
reserved 100,000 shares of the Preferred Stock. The Lam Board has the
authority to issue these shares of Preferred Stock in one or more series and
to fix the rights, preferences, privileges and restrictions granted to or
imposed upon any unissued and undesignated shares of Preferred Stock and to
fix the number of shares constituting any series and the designations of such
series, without any further vote or action by the stockholders. Although it
presently has no intention to do so, the Lam Board, without stockholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power or other rights of the holders of Lam
Common Stock. The issuance of Preferred
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<PAGE>
Stock may also have the effect of delaying, deferring or preventing a change
in control of Lam and negating Lam's ability to apply the pooling-of-interests
method of accounting to the Merger.
Shareholder Rights Plan
The Lam Board adopted a Shareholder Rights Plan (the "Rights Plan") on
January 23, 1997 that is designed to deter hostile takeover attempts,
including the accumulation of shares in the open market or through private
transactions, and to prevent an acquiror from gaining control of Lam without
offering a fair price to all of Lam's stockholders. Under the Rights Plan,
rights were distributed as a dividend at the rate of one right (the "Lam
Right") for each share of Lam Common Stock, held by stockholders of record as
of the close of business on January 31, 1997. The Lam Rights will expire on
January 31, 2007. Under the Rights Plan, each Lam Right initially entitles
stockholders to buy one unit of a share of preferred stock for $250. The Lam
Rights will be exercisable only if a person or group (other than stockholders
currently owning 15 percent of Lam's common stock) acquires beneficial
ownership of 15 percent or more of the Lam Common Stock or commences a tender
or exchange offer upon consummation of which such person or group would
beneficially own 15 percent or more of the Lam Common Stock.
If any person becomes the beneficial owner of 15 percent or more of Lam
Common Stock, other than pursuant to a tender or exchange offer for all
outstanding shares of Lam approved by a majority of the independent directors
not affiliated with such person, then each Lam Right not owned by such person
or related parties will entitle its holder to purchase, at the Lam Right's
then current exercise price, shares of Lam Common Stock (or, in certain
circumstances as determined by the Lam Board, cash, other property or other
securities) having a value of twice the Lam Right's then current exercise
price. In addition, if after any person has become a 15 percent stockholder,
Lam is involved in a merger or other business combination transaction with
another person in which Lam does not survive or in which its common stock is
changed or exchanged, or if Lam sells 50 percent or more of its assets or
earning power to another person, each Lam Right will entitle its holder to
purchase, at the Lam Right's then current exercise price, shares of common
stock of such other person having a value of twice the Lam Right's then
current exercise price.
Lam is generally entitled to redeem the Lam Rights at $0.001 per Lam Right
at any time until ten business days (subject to extension) following a public
announcement that a 15 percent position has been acquired.
Transfer Agent and Registrar
The Transfer Agent and Registrar of the Lam Common Stock is ChaseMellon
Shareholder Services L.L.C. Its telephone number is (800) 356-2017.
DESCRIPTION OF ONTRAK CAPITAL STOCK
The authorized capital stock of OnTrak consists of 30,000,000 shares of
Common Stock, $0.0001 par value per share and 3,000,000 shares of Preferred
Stock, $0.0001 par value per share. The summary of the terms of the stock of
OnTrak set forth below does not purport to be complete and is subject to and
qualified in its entirety by reference to the OnTrak Certificate and the
OnTrak Bylaws.
OnTrak Common Stock
As of the OnTrak Record Date, there were approximately 7,763,177 shares of
OnTrak Common Stock outstanding held of record by approximately 165
stockholders. OnTrak Common Stock is listed on Nasdaq under the symbol "ONTK".
The holders of OnTrak Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Holders of OnTrak Common Stock
are not entitled to cumulative voting for the election of directors.
The holders of OnTrak Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the OnTrak Board
out of funds legally available therefor. In the event of a
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<PAGE>
liquidation, dissolution or winding up of OnTrak, the holders of OnTrak Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities. The OnTrak Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the OnTrak Common Stock. All outstanding shares of OnTrak Common
Stock are fully paid and non-assessable.
Preferred Stock
OnTrak has 3,000,000 shares of Preferred Stock authorized, of which, as of
the OnTrak Record Date, no shares were outstanding. The OnTrak Board has the
authority to issue these shares of Preferred Stock in one or more series and
to fix the rights, preferences, privileges and restrictions granted to or
imposed upon any unissued and undesignated shares of Preferred Stock and to
fix the number of shares constituting any series and the designations of such
series, without any further vote or action by the stockholders. Although it
presently has no intention to do so, the OnTrak Board, without stockholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power or other rights of the holders of
OnTrak Common Stock and the issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of OnTrak.
Transfer Agent and Registrar
The Transfer Agent and Registrar of the OnTrak Common Stock is Boston
EquiServe, LP and its telephone number is (617) 575-2000.
COMPARISON OF STOCKHOLDER RIGHTS
Size of the Board of Directors
The OnTrak Bylaws provide the OnTrak Board the authority to set the exact
number of directors within the range of four to seven and specify that the
initial number of directors will be five. The Lam Bylaws authorize the Lam
Board to set the exact number of directors within the range of four to seven
and specify that the exact number of directors will be five until changed by
the Lam Board or the Lam stockholders. Pursuant to the Merger, the Merger
Agreement and the transactions contemplated thereby, the Lam Board intends to
increase the number of directors to seven following the consummation of the
Merger. The Lam Bylaws also provide that the indefinite number of directors
may be changed or a definite number may be fixed by a duly adopted amendment
to the Lam Certificate or by an amendment to the Lam Bylaws adopted by the
vote of a majority of stockholders entitled to vote.
Cumulative Voting
Cumulative voting, when authorized by a company's certificate of
incorporation pursuant to Delaware law, entitles each stockholder to cast a
number of votes that is equal to the number of voting shares held by such
stockholder multiplied by the total number of directors to be elected, and to
cast all such votes for one nominee or distribute such votes among up to as
many candidates as there are positions to be filled. The OnTrak Certificate
does not allow cumulative voting. The Lam Certificate and the Lam Bylaws
currently provide for cumulative voting in the election of directors. The Lam
Board is proposing to amend the Lam Certificate to eliminate cumulative
voting. See "Additional Matters Being Submitted to a Vote of Only Lam
Stockholders--Proposal Four--Amendment to Certificate of Incorporation--
Elimination of Cumulative Voting."
Power to Call Special Stockholders Meetings; Advance Notice of Stockholder
Business and Nominees
Under Delaware law, a special meeting of stockholders may be called by the
board of directors or by any other person authorized to do so in the
certificate of incorporation or the bylaws. Pursuant to the OnTrak Bylaws,
special meetings may be called by stockholders holding in the aggregate of not
less than 10% of the voting stock, the Board of Directors, Chairman,
President, Vice President or by the Chief Financial Officer. Pursuant to the
Lam Bylaws, special meetings may be called only by the Board of Directors, the
Chairman or the President. The
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<PAGE>
Lam Bylaws further require timely advance notice in proper written form of
stockholder nominees for election as director or stockholder business to be
brought before a meeting of stockholders, and require that the chairman of the
meeting refuse to acknowledge the nomination of any person or the proposal of
any business not made in compliance with the procedures set forth in the Lam
Bylaws.
Removal of Directors
The OnTrak Bylaws provide that directors may be removed, with or without
cause, by the holders of a majority of the outstanding shares entitled to
vote. The Lam Bylaws provide that directors may be removed with or without
cause with the approval of a majority of the outstanding shares entitled to
vote; provided, however, that so long as the stockholders are entitled to
cumulative voting, if less than the entire board is to be removed, no director
may be removed without cause if the votes cast against his or her removal
would be sufficient to elect him or her if then cumulatively voted at an
election of the entire Board. The Lam Board intends to eliminate the foregoing
proviso in the event that the proposal to eliminate cumulative voting is
adopted at the Lam Special Meeting. See "Additional Matters Being Submitted to
a Vote of Only Lam Stockholders--Proposal Four Amendment to Certificate of
Incorporation--Elimination of Cumulative Voting."
Filling Vacancies on the Board of Directors
The OnTrak Bylaws provide that a majority of directors shall have the power
to fill any vacancy on the Board of Directors. The Lam Bylaws allow a vacancy
on the Board of Directors created by a resignation or increase in the
authorized number of directors to be filled by a majority of the directors
then in office. A vacancy created by the removal of a director by a vote of
the stockholders may be filled only by a majority of the outstanding shares
entitled to vote.
Indemnification and Limitation of Liability
The OnTrak Bylaws provide that OnTrak shall indemnify and hold harmless to
the fullest extent permitted by law its directors and officers for liability
incurred by reason of their positions as agents of OnTrak. The OnTrak Bylaws
further authorize OnTrak to advance defense expenses to such officer or
director, subject to receipt by OnTrak of an undertaking to repay such
expenses.
The Lam Bylaws provide that Lam shall indemnify each of its officers and
directors to the maximum extent permitted by Delaware law for expenses and
liability incurred by reason of the fact that such person is or was an agent
of Lam. The Lam Bylaws also authorize Lam to similarly indemnify other of its
employees or agents.
Under Delaware law, an indemnity provision may not eliminate or limit
director monetary liability for: (a) breaches of the director's duty of
loyalty to the corporation or its stockholders; (b) acts or omissions not in
good faith or involving intentional misconduct or knowing violations of law;
(c) the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or (d) transactions in which the director received an improper
personal benefit. Limitation of liability provisions also may not limit a
director's liability for violation of, or otherwise relieve a company or its
directors from, the necessity of complying with, Federal or state securities
laws, or affect the availability of non-monetary remedies such as injunctive
relief or rescission.
A provision of Delaware law states that the indemnification provided by
statute shall not be deemed exclusive of any other rights under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
Stockholder Action by Written Consent
The OnTrak Bylaws provide that any action required or permitted to be taken
at any annual or special meeting of stockholders of OnTrak, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by stockholders
representing not less than
72
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the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
The Lam Bylaws contain a substantially similar provision allowing its
stockholders to take any action by written consent. The Lam Board is proposing
to amend the Lam Certificate to eliminate this provision. See "Additional
Matters Being Submitted to a Vote of Only Lam Stockholders--Proposal Three--
Amendment to Certificate of Incorporation--Elimination of Action by Written
Consent."
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LAM RESEARCH CORPORATION
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited Pro Forma Combined Condensed Financial Statements
assume a business combination between Lam and OnTrak accounted for on a
pooling-of-interests basis and are based on each company's respective
historical consolidated financial statements and notes thereto, which are
incorporated herein by reference. The unaudited Pro Forma Combined Condensed
Balance Sheet combines Lam's and OnTrak's consolidated condensed balance
sheets at March 31, 1997, giving effect to the Merger as if it had occurred on
that date. The unaudited Pro Forma Combined Condensed Statements of Operations
combine Lam's and OnTrak's historical results for the nine months ended March
31, 1997 and 1996 and the fiscal years ended June 30, 1996, 1995, and 1994,
giving effect to the Merger as if it had occurred at the beginning of the
earliest period presented.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated at the beginning of the
earliest period presented, nor is it necessarily indicative of future
operating results or financial position.
These Pro Forma Combined Condensed Financial Statements should be read in
conjunction with the Lam and OnTrak historical consolidated financial
statements, including the notes thereto, incorporated by reference in this
Joint Proxy Statement/Prospectus.
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LAM RESEARCH CORPORATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
LAM ONTRAK COMBINED
-------- ------- ---------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.......................... $ 9,344 $14,880 $ 24,224
Short-term investments............................. 153,866 17,518 171,384
Accounts receivable less allowance for doubtful
accounts.......................................... 207,984 14,101 222,085
Inventories........................................ 233,075 8,570 241,645
Prepaid expenses and other assets.................. 40,222 726 40,948
Deferred income taxes.............................. 53,140 1,579 54,719
-------- ------- --------
Total current assets........................... 697,631 57,374 755,005
Equipment and leasehold improvements, net.......... 191,777 10,219 201,996
Other assets....................................... 33,053 -- 33,053
-------- ------- --------
$922,461 $67,593 $990,054
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable............................. $100,916 $ 4,113 $105,029
Accrued expenses and other liabilities............. 147,892 6,917 166,809
Line of credit borrowings.......................... 15,000 -- 15,000
Current portion of long-term debt and capital lease
obligations....................................... 13,843 283 14,126
-------- ------- --------
Total current liabilities...................... 277,651 11,313 300,964
Long-term debt and capital lease obligations, less
current portion................................... 57,294 965 58,259
Commitments and contingencies
Common stock....................................... 31 1 37
Additional paid-in capital......................... 307,565 47,414 354,974
Retained earnings.................................. 279,920 7,900 275,820
-------- ------- --------
Total stockholders' equity..................... 587,516 55,315 630,831
-------- ------- --------
$922,461 $67,593 $990,054
======== ======= ========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
75
<PAGE>
LAM RESEARCH CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
LAM ONTRAK COMBINED
-------- ------- ---------
<S> <C> <C> <C>
Net sales......................................... $727,784 $50,859 $778,643
Royalty income.................................... 11,933 -- 11,933
-------- ------- --------
Total revenue..................................... 739,717 50,859 790,576
Costs and expenses:
Cost of goods sold.............................. 525,045 24,427 549,472
Research and development........................ 124,216 15,265 139,481
Selling, general and administrative............. 142,664 8,541 151,205
Restructuring charge............................ 9,021 -- 9,021
-------- ------- --------
800,946 48,233 849,179
-------- ------- --------
Operating income (loss)........................... (61,229) 2,626 (58,603)
Other income (expense), net....................... (1,217) 1,072 (145)
-------- ------- --------
Income (loss) before income taxes................. (62,446) 3,698 (58,748)
Income tax expense (benefit)...................... (30,770) 1,222 (29,548)
-------- ------- --------
Net income (loss)................................. $(31,676) $ 2,476 $(29,200)
======== ======= ========
Net income (loss) per share
Primary......................................... $ (1.04) $ 0.31 $ (0.79)
======== ======= ========
Fully diluted................................... $ (1.04) $ (0.79)
======== ========
Number of shares used in per share calculations
Primary......................................... 30,500 8,050 36,781
======== ======= ========
Fully diluted................................... 30,500 36,781
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
76
<PAGE>
LAM RESEARCH CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
LAM ONTRAK COMBINED
-------- ------- ---------
<S> <C> <C> <C>
Net sales......................................... $884,277 $38,995 $923,272
Royalty income.................................... 16,123 -- 16,123
-------- ------- --------
Total revenue..................................... 900,400 38,995 939,395
Costs and expenses:
Cost of goods sold.............................. 461,883 18,519 480,402
Research and development........................ 121,898 9,739 131,637
Selling, general and administrative............. 163,516 6,701 170,217
-------- ------- --------
747,297 34,959 782,256
-------- ------- --------
Operating income.................................. 153,103 4,036 157,139
Other income (expense), net....................... (2,239) 1,080 (1,159)
-------- ------- --------
Income before income taxes........................ 150,864 5,116 155,980
Income tax expense................................ 48,269 1,797 50,066
-------- ------- --------
Net income........................................ $102,595 $ 3,319 $105,914
======== ======= ========
Net income per share
Primary......................................... $ 3.63 $ 0.41 $ 3.02
======== ======= ========
Fully diluted................................... $ 3.40 $ 2.88
======== ========
Number of shares used in per share calculations
Primary......................................... 28,300 8,134 35,051
======== ======= ========
Fully diluted................................... 30,950 37,701
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
77
<PAGE>
LAM RESEARCH CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
LAM ONTRAK COMBINED
---------- ------- ----------
<S> <C> <C> <C>
Net sales................. $1,254,070 $55,829 $1,309,899
Royalty income............ 22,814 -- 22,814
---------- ------- ----------
Total revenue............. 1,276,884 55,829 1,332,713
Costs and expenses:
Cost of goods sold...... 663,181 26,334 689,515
Research and
development............ 173,013 13,886 186,899
Selling, general and
administrative......... 227,755 9,689 237,444
---------- ------- ----------
1,063,949 49,909 1,113,858
---------- ------- ----------
Operating income.......... 212,935 5,920 218,855
Other income (expense),
net...................... (3,898) 1,442 (2,456)
---------- ------- ----------
Income before income
taxes.................... 209,037 7,362 216,399
Income tax expense........ 67,946 2,575 70,521
---------- ------- ----------
Net income................ $ 141,091 $ 4,787 $ 145,878
========== ======= ==========
Net income per share
Primary................. $ 4.92 $ 0.59 $ 4.11
========== ======= ==========
Fully diluted........... $ 4.67 $ 3.95
========== ==========
Number of shares used in
per share calculations
Primary................. 28,700 8,167 35,479
========== ======= ==========
Fully diluted........... 30,940 37,719
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
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LAM RESEARCH CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
LAM ONTRAK COMBINED
-------- ------- ---------
<S> <C> <C> <C>
Net sales.......................................... $798,209 $26,024 $824,233
Royalty income..................................... 12,348 -- 12,348
-------- ------- --------
Total revenue...................................... 810,557 26,024 836,581
Costs and expenses:
Cost of goods sold............................... 418,818 10,889 429,707
Research and development......................... 127,840 6,828 134,668
Selling, general and administrative.............. 145,507 5,504 151,011
Charge for past royalties........................ -- 1,250 1,250
-------- ------- --------
692,165 24,471 716,636
-------- ------- --------
Operating income................................... 118,392 1,553 119,945
Other income (expense), net........................ 9,052 (27) 9,025
-------- ------- --------
Income before income taxes......................... 127,444 1,526 128,970
Income tax expense................................. 38,233 458 38,691
-------- ------- --------
Net income......................................... $ 89,211 $ 1,068 $ 90,279
======== ======= ========
Net income per share
Primary.......................................... $ 3.27 $ 0.17 $ 2.79
======== ======= ========
Fully diluted.................................... $ 3.06 $ 2.65
======== ========
Number of shares used in per share calculations
Primary.......................................... 27,300 6,134 32,391
======== ======= ========
Fully diluted.................................... 30,300 35,391
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
79
<PAGE>
LAM RESEARCH CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
LAM ONTRAK COMBINED
-------- ------- ---------
<S> <C> <C> <C>
Net sales........................................ $484,892 $11,497 $496,389
Royalty income................................... 8,803 -- 8,803
-------- ------- --------
Total revenue.................................... 493,695 11,497 505,192
Costs and expenses:
Cost of goods sold............................. 266,031 4,776 270,807
Research and development....................... 76,328 1,991 78,319
Selling, general and administrative............ 91,130 2,333 93,463
-------- ------- --------
433,489 9,100 442,589
-------- ------- --------
Operating income................................. 60,206 2,397 62,603
Other expense, net............................... (3,049) (48) (3,097)
-------- ------- --------
Income before income taxes....................... 57,157 2,349 59,506
Income tax expense............................... 19,401 836 20,237
-------- ------- --------
Net income....................................... $ 37,756 $ 1,513 $ 39,269
======== ======= ========
Net income per share
Primary........................................ $ 1.55 $ 0.24 $ 1.33
======== ======= ========
Fully diluted.................................. $ 1.51 $ 1.31
======== ========
Number of shares used in per share calculations
Primary........................................ 24,300 6,344 29,566
======== ======= ========
Fully diluted.................................. 27,000 32,266
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
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<PAGE>
LAM RESEARCH CORPORATION
NOTES TO PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRO FORMA PRESENTATION. The Unaudited Pro Forma Combined
Condensed Statements of Operations combine the historical statements of
operations of Lam and OnTrak for the nine months ended March 31, 1997 and 1996
and the fiscal years ended June 30, 1996, 1995 and 1994.
The Unaudited Pro Forma Combined Condensed Financial Statements reflect the
issuance of 6,422,165 shares of Lam Common Stock in exchange for an aggregate
of 7,737,549 shares of OnTrak Common Stock outstanding as of March 31, 1997 in
conjunction with the Merger based on an Exchange Ratio of 0.83 of a share of
Lam Common Stock for each outstanding share of OnTrak Common Stock.
The following table provides the pro forma share issuance in connection with
the Merger:
<TABLE>
<S> <C>
Number of shares of OnTrak Common Stock outstanding at March 31,
1997........................................................... 7,737,549
Exchange Ratio.................................................. 0.83:1.00
----------
Number of shares of Lam Common Stock exchanged.................. 6,422,165
Number of shares of Lam Common Stock outstanding at March 31,
1997........................................................... 30,664,502
----------
Number of shares of Lam Common Stock outstanding after
completion of the Merger....................................... 37,086,667
==========
</TABLE>
The actual number of shares of Lam Common Stock to be exchanged for all the
outstanding OnTrak Common Stock will be determined based on the final Exchange
Ratio and the capitalization of OnTrak at the Effective Time. In addition, up
to 1,920,000 shares of Lam Common Stock will be reserved for issuance upon
exercise of OnTrak options and rights assumed by Lam in the Merger.
2. PRO FORMA NET INCOME (LOSS) PER SHARE. The Pro Forma Combined Condensed
Statements of Operations for Lam have been prepared as if the Merger was
completed at the beginning of the earliest period presented. The pro forma
combined net income (loss) per share is based on the combined weighted average
number of common and dilutive common equivalent shares, using the treasury
stock method, of Lam and OnTrak Common Stock for each period, assuming an
Exchange Ratio of 0.83 of a share of Lam Common Stock for each share of OnTrak
Common Stock. The actual number of shares to be issued will be determined
based on the final Exchange Ratio and the capitalization of OnTrak at the
Effective Time.
3. MERGER COSTS. Lam and OnTrak estimate that they will incur costs
associated with the Merger of approximately $12 million, consisting primarily
of fees paid to investment bankers, legal and accounting fees, financial
printing costs and other Merger related costs. This is a preliminary estimate
and is subject to change. These non-recurring costs will be charged to
operations in the fiscal quarter in which the Merger is consummated, currently
expected to be the quarter ending September 30, 1997. The Pro Forma Combined
Condensed Balance Sheet gives effect to such non-recurring costs as if they
had been incurred as of March 31, 1997, but the Pro Forma Combined Condensed
Statements of Operations do not give effect to such non-recurring costs. There
were no other pro forma adjustments.
4. CONFORMING ADJUSTMENTS. No adjustments were required to conform the
accounting policies of Lam and OnTrak. Certain amounts for OnTrak have been
reclassified to conform to Lam's financial statement presentation.
THE LAM BOARD UNANIMOUSLY RECOMMENDS THAT LAM STOCKHOLDERS VOTE "FOR" THE
SHARE ISSUANCE.
THE ONTRAK BOARD UNANIMOUSLY RECOMMENDS THAT ONTRAK STOCKHOLDERS VOTE "FOR"
THE PROPOSAL TO APPROVE AND ADOPT THE MERGER, THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
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ADDITIONAL MATTERS BEING SUBMITTED TO A
VOTE OF ONLY LAM STOCKHOLDERS
PROPOSAL TWO--APPROVAL AND ADOPTION OF THE LAM 1997 STOCK PLAN
The Lam Board has adopted, subject to stockholder approval, the Lam 1997
Stock Plan, which provides for the grant of stock options, restricted stock,
deferred stock and performance share awards to officers, directors, employees,
consultants and advisors of Lam and its subsidiaries. There will initially be
three million shares of Lam Common Stock reserved for issuance pursuant to
awards under the Lam 1997 Stock Plan. However, the number of shares so
reserved will automatically be increased each calendar quarter if and to the
extent necessary to provide that the ratio of (a) the number of shares
reserved for issuance under all of Lam's stock-based incentive plans to (b)
the total number of shares of Lam Common Stock outstanding (including shares
described in clause (a)) will be equal to 18.5%; provided, that the number of
shares reserved for issuance under the Lam 1997 Stock Plan will in no event
exceed five million shares, as adjusted to take into account changes in the
capitalization of Lam as described in "Securities Subject to the Plan."
Assuming that stockholders approve both the Share Issuance and the proposal to
approve the Lam 1997 Stock Plan, an aggregate of approximately 8,843,361
shares of Lam Common Stock will be reserved and available for issuance
pursuant to outstanding and future awards under all of Lam's stock incentive
plans (including options to purchase OnTrak Common Stock to be assumed by Lam
in the Merger), equal to approximately 19.2% of the total number of Lam shares
that would be outstanding on a fully-diluted basis as of the closing of the
Merger.
The Lam Board has adopted the Lam 1997 Stock Plan as part of its policy to
further the long-term growth in earnings of Lam by providing incentives to
those officers, directors, employees, consultants and advisors who are or will
be responsible for such growth; to facilitate the ownership of Lam's stock by
such individuals, thereby increasing the identity of their interests with
those of Lam's stockholders; and to assist Lam in attracting and retaining
officers, directors, employees, consultants and advisors with experience and
ability. The Lam Board has determined that the approximately 215,027 shares of
Lam Common Stock currently remaining available for issuance pursuant to future
awards under the Lam 1991 Stock Option Plan are insufficient to provide for
the continued proper compensation and incentivization of Lam's officers,
directors, employees, consultants and advisors. Specifically, additional
shares will be required to provide for the grant of options to Mr. Bagley
under the New Bagley Employment Agreement. See "Terms of the Merger--New
Bagley Employment Agreement." In addition, the Lam Board believes that the
various types of awards provided for under the Lam 1997 Stock Plan will permit
a more flexible approach to stock-based incentive compensation. Accordingly,
the Lam Board has adopted the Lam 1997 Stock Plan to address these issues. The
Lam Board believes that the Lam 1997 Stock Plan reflects the best interests of
Lam and recommends its approval by stockholders.
The following is a brief summary of the material terms of the Lam 1997 Stock
Plan, a copy of which is attached as Annex D to this Joint Proxy
Statement/Prospectus and incorporated herein by this reference. This summary
is qualified in its entirety by reference to the full text of the Lam 1997
Stock Plan. Stockholders of Lam and OnTrak are urged to read the Lam 1997
Stock Plan in its entirety for a more complete description of the rights and
obligations of the parties thereunder.
The Lam 1997 Stock Plan
The Lam 1997 Stock Plan provides for the grant of stock options (including
both "incentive stock options" within the meaning of Section 422 of the Code
("ISOs") and options not intended to qualify as ISOs ("nonqualified options"
or "NSOs")), and restricted stock, deferred stock and performance share awards
("restricted awards") to officers, directors, employees, consultants and
advisors of Lam and its subsidiaries. On June 25, 1997, the closing market
price of Lam Common Stock as reported on Nasdaq was $35.75 per share.
Plan Administration
The Lam 1997 Stock Plan will be administered by the Lam Board and/or a
committee thereof consisting solely of two or more non-employee directors of
Lam who qualify as "outside directors" for purposes of Section 162(m) of the
Code and "Non-Employee Directors" for purposes of Rule 16b-3 under the
Exchange Act (such
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Board or committee sometimes referred to herein as the "plan administrator").
The Lam 1997 Stock Plan provides that no member of the Board or committee will
be liable for any action or determination taken or made in good faith with
respect to the Lam 1997 Stock Plan or any option or restricted award granted
thereunder.
Subject to the terms of the Lam 1997 Stock Plan, the plan administrator has
the right to grant awards to eligible recipients and to determine the terms
and conditions of the award agreements evidencing the grant of such awards,
including the vesting schedule and exercise price of such awards, and the
effect, if any, of a change in control of Lam on such awards.
Securities Subject to the Plan
There will initially be three million treasury or authorized but unissued
shares of Lam Common Stock reserved for issuance pursuant to awards under the
Lam 1997 Stock Plan. However, the number of shares so reserved will
automatically be increased each calendar quarter if and to the extent
necessary to provide that the ratio of (a) the number of shares reserved for
issuance under all of Lam's stock-based incentive plans to (b) the total
number of shares of Lam Common Stock outstanding on a fully-diluted basis will
be equal to 18.5%; provided, that the number of shares reserved for issuance
under the Lam 1997 Stock Plan will in no event exceed five million shares, as
adjusted to take into account changes in the capitalization of Lam as
described below. The aggregate number of shares of Lam Common Stock as to
which options and restricted awards may be granted to any individual during
any calendar year may not, subject to adjustment as set forth herein, exceed
20% of the shares reserved for issuance under the Lam 1997 Stock Plan.
The Lam 1997 Stock Plan provides that, in the event of changes in the Common
Stock by reason of a merger, reorganization, recapitalization, common stock
dividend, stock split or similar change, the plan administrator will make
appropriate adjustments in the aggregate number of shares available for
issuance under the Lam 1997 Stock Plan, the purchase price to be paid and/or
the number of shares issuable upon the exercise thereafter of any option
previously granted and in the purchase price to be paid and/or the number of
shares issuable pursuant to restricted awards. The plan administrator will
have the discretion to make other appropriate adjustments.
Eligibility
Discretionary grants of options and restricted awards may be made to any
officer, director, employee, consultant or advisor of Lam or its direct and
indirect subsidiaries, who is determined by the plan administrator to be in a
position to contribute to the long-term growth in earnings of Lam.
In addition, each non-employee director of Lam will automatically be granted
a non-qualified option to purchase 6,000 shares of Lam Common Stock on the
first business day of January of each calendar year ("Annual Director
Options").
ISO Limitation
The aggregate fair market value (determined as of the date of grant) of the
shares granted to any employee under the Lam 1997 Stock Plan or any other
option plan of Lam or its subsidiaries that may become exercisable for the
first time in any calendar year is limited, with respect to ISOs, to $100,000.
This restriction does not apply to NSOs or restricted awards.
Exercise of Options
Options will vest and become exercisable according to a schedule established
by the plan administrator, except that Annual Director Options will be vested
in full as of the date of grant. In the case of options exercisable by
installment, options not exercised during any one year may be accumulated and
exercised at prescribed times during the remaining years of the option.
Options that are not exercised within ten years from the date of grant will
expire without value. Except as otherwise determined by the plan administrator
in accordance with Rule 16b-3, options are exercisable during the optionee's
lifetime only by the optionee.
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The section entitled "Death--Termination of Employment--Restrictions on
Transfer" below describes the provisions that relate to the exercise of an
option following termination of employment or service, including upon death,
disability or retirement.
Subject to the limitations set forth below, the purchase price of Lam Common
Stock pursuant to the exercise of an option will be as determined by the plan
administrator and may be adjusted in accordance with the adjustment provisions
described in "Securities Subject to the Plan." The purchase price of NSOs and
ISOs may not be less than 100% of the fair market value of Lam Common Stock on
the date of grant. The purchase price of Annual Director Options will be equal
to the fair market value of Lam Common Stock on the date of grant. Any re-
pricing of stock options granted under the Lam 1997 Stock Plan will be limited
in the aggregate to 10% of the shares reserved for issuance under the Lam 1997
Stock Plan. Upon the exercise of any option, the purchase price must be fully
paid in cash or by check, or, at the discretion of the plan administrator
(except with respect to Annual Director Options), by delivery of Common Stock
equal in market value to the exercise price, by delivery of restricted awards
equal in market value to the exercise price, by means of a loan from Lam, by
means of any cashless exercise procedure approved by the plan administrator,
or by a combination of cash, common stock of Lam, restricted awards, loans, or
use of a cashless exercise procedure. If restricted awards are used to pay the
exercise price, certain of the shares acquired upon exercise will also be
subject to restriction.
Restricted Awards
A restricted stock award is an award of Lam Common Stock that may not be
sold, assigned, transferred, pledged, hypothecated or otherwise disposed of
for a period ("restricted period") of ten years, or such shorter period as the
plan administrator may determine, from the date on which the award is granted.
The plan administrator may also impose such other restrictions and conditions
on an award as it deems appropriate. The plan administrator may provide that
the foregoing restrictions will lapse with respect to specified percentages of
the awarded shares on successive anniversaries of the date of the award. In
addition, the plan administrator has the authority to cancel all or any
portion of any outstanding restrictions prior to the expiration of the
restricted period. Deferred stock is the right to receive Lam Common Stock at
the end of a specified deferral period. Performance shares are shares of Lam
Common Stock subject to restrictions based upon the attainment of performance
objectives.
Upon the award of any restricted stock or performance shares, the
participant will have the rights of a stockholder with respect to the shares,
including dividend rights, subject to the conditions and restrictions
generally applicable to restricted stock or specifically set forth in the
award agreement for the participant's restricted stock or performance shares.
Upon an award of deferred stock, the participant will not have any rights of a
stockholder, other than the right to receive dividends, during the specified
deferral period.
Recipients of restricted stock, deferred stock, or performance shares will
enter into an award agreement with Lam, in such form as the plan administrator
determines, which states the restrictions to which the shares are subject and
the date or dates on which such restrictions will lapse; provided, that the
restricted period will not be less than (i) three years in the case of
restrictions based solely on continued employment with Lam and (ii) one year
in the case of restrictions based on the achievement of performance-related
goals. The plan administrator may permit such restrictions to lapse in
installments within the restricted period or may accelerate or waive such
restrictions at any time based on the achievement of performance-related
goals, the participant's termination of employment or service, or the
occurrence of a change in control of Lam.
The vesting of restricted awards may be made subject to the achievement of
performance goals specified by the plan administrator at the time of grant.
Such goals may be based on earnings, earnings per share, revenue growth and
return on equity.
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Death--Termination of Employment--Restrictions on Transfer
The plan administrator will provide in the award agreements whether and to
what extent awards will be exercisable upon termination of employment or
service for any reason, including upon death, disability or retirement, of any
participant in the Lam 1997 Stock Plan. Except in the event of death or
disability, Annual Director Options will terminate as of the date the optionee
terminates service as a director of Lam.
In no event may any option be exercisable more than ten years from the date
it is granted.
Except as otherwise determined by the plan administrator in accordance with
Rule 16b-3, options are not transferable.
Amendment; Termination
The Lam Board may amend or terminate the Lam 1997 Stock Plan at any time,
except that stockholder approval is required for any amendment to (i) increase
the maximum number of shares of stock which may be issued under the Lam 1997
Stock Plan (except for adjustments as described in "Securities Subject to the
Plan"), (ii) change the class of individuals eligible to participate in the
Lam 1997 Stock Plan, (iii) extend the term of the Lam 1997 Stock Plan or the
period during which any option or restricted award may be granted or any
option may be exercised, or (iv) change the material terms of grants of Annual
Director Options, in each case only to the extent required by Section 162(m)
of the Code or other applicable law, rule or regulation with respect to the
material amendment of any employee benefit plan maintained by Lam. Termination
or amendment of the Lam 1997 Stock Plan will not, without the consent of any
participant, adversely affect previously granted options or restricted awards,
which will continue in effect in accordance with their terms.
Payment of Taxes
Participants are required, no later than the date as of which the value of
an award may first be included in the gross income of the participant for
Federal income tax purposes, to pay to Lam, or make arrangements satisfactory
to the plan administrator regarding payment of, any Federal, state, or local
taxes of any kind required by law to be withheld with respect to the award.
The obligations of Lam under the Lam 1997 Stock Plan are conditional on the
making of such payments or arrangements, and Lam will have the right, to the
extent permitted by law, to deduct any such taxes from any payment of any kind
otherwise due to the participant.
Certain Federal Income Tax Effects
The following discussion is for general information only and is based on the
Federal income tax law now in effect, which is subject to change, possibly
retroactively. This summary does not discuss all aspects of Federal income
taxation which may be important to particular holders of the Common Stock in
light of their individual investment circumstances or to certain types of
holders subject to special tax rules, nor does it address specific state,
local or foreign tax consequences. This summary assumes that the Common Stock
acquired upon exercise of an option or vesting of a restricted award will be
held as a "capital asset" (generally property held for investment) under the
Code.
Nonqualified Stock Options
A participant will generally not be subject to Federal income tax upon the
grant of an NSO. Rather, at the time of exercise of such NSO, the participant
will recognize ordinary income for Federal income tax purposes in an amount
equal to the excess of the fair market value of the shares purchased over the
exercise price. Lam will generally be entitled to a tax deduction at such time
and in the same amount as the participant recognizes ordinary income.
A participant will recognize a capital gain or capital loss upon a sale or
exchange of stock acquired upon exercise of an NSO in an amount equal to the
difference between the fair market value of such stock on the date
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it was acquired and the amount realized in the sale or exchange. Such gain or
loss will be long-term if the stock has been held for more than one year.
Incentive Stock Options
A participant will not be subject to tax upon the grant of an ISO or upon
its timely exercise. Exercise of an ISO will be timely if made during its term
and if the participant remains an employee of Lam or a subsidiary at all times
during the period beginning on the date of grant of the ISO and ending on the
date three months before the date of exercise (or one year before the date of
exercise in the case of a disabled employee). Exercise of an ISO will also be
timely if made by the legal representative of a participant who dies (i) while
in the employ of Lam or a subsidiary or (ii) within three months after
termination of employment (or one year in the case of a disabled employee).
The tax consequences of an untimely exercise of an ISO will be determined in
accordance with the rules applicable to NSOs. (See "Certain Federal Income Tax
Effects--Nonqualified Stock Options.")
If stock acquired pursuant to a timely exercised ISO is later disposed of,
the participant will, except as noted below with respect to a "disqualifying
disposition," recognize long-term capital gain or loss equal to the difference
between the amount realized upon such sale and the option price. Under these
circumstances, Lam will not be entitled to any deduction for Federal income
tax purposes in connection with either the exercise of the ISO or the sale of
such stock by the participant.
If, however, a participant disposes of stock acquired pursuant to the
exercise of an ISO prior to the expiration of two years from the date of grant
of the ISO or within one year from the date such stock is transferred to him
upon exercise (a "disqualifying disposition"), generally (i) the participant
will realize ordinary income at the time of the disposition in an amount equal
to the excess, if any, of the fair market value of the stock at the time of
exercise (or, if less, the amount realized on such disqualifying disposition)
over the option exercise price, and (ii) any additional gain realized by the
participant will be subject to tax as short-term or long-term capital gain. In
such case, Lam may claim a deduction for Federal income tax purposes at the
time of such disqualifying disposition for the amount taxable to the
participant as ordinary income. Any capital gain recognized by the participant
will be long-term capital gain if the participant's holding period for the
stock at the time of disposition is more than one year.
The amount by which the fair market value of the stock on the exercise date
of an ISO exceeds the option price will be an item of adjustment for purposes
of the "alternative minimum tax" imposed by Section 55 of the Code.
Exercise with Shares
According to a published ruling of the Internal Revenue Service, a
participant who pays the option price upon exercise of an NSO, in whole or in
part, by delivering shares of stock already owned by the participant will
recognize no gain or loss for Federal income tax purposes on the shares
surrendered, but otherwise will be subject to tax according to the rules
described above for NSOs. (See "Certain Federal Income Tax Effects--
Nonqualified Stock Options.") With respect to shares acquired upon exercise
which are equal in number to the shares surrendered, (i) such shares will be
treated as exchanged for the shares surrendered in a non-taxable transaction,
(ii) the basis of such shares will be equal to the basis of the shares
surrendered, and (iii) the holding period of the shares acquired will include
the holding period of the shares surrendered. With respect to the additional
shares received upon exercise, (a) a participant will recognize ordinary
income in an amount equal to the fair market value of such shares on the date
of receipt, (b) the basis of such additional shares will be equal to the
amount of income recognized, and (c) the holding period for such additional
shares will commence on the date of receipt.
The Treasury Department has issued proposed regulations that, if adopted in
their current form, would appear to provide for the following rules with
respect to the exercise of an ISO by surrender of previously owned shares of
stock. If the shares surrendered in payment of the exercise price of an ISO
are "statutory option stock"
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(including stock acquired pursuant to the exercise of an ISO) and if the
surrender constitutes a "disqualifying disposition" (as would be the case, for
example, if, in satisfaction of the option exercise price, Lam withholds
shares which would otherwise be delivered to the participant), any gain
realized on such transfer will be taxable to the optionee, as discussed above.
Otherwise, when shares of stock are surrendered upon exercise of an ISO, in
general, (i) no gain or loss will be recognized as a result of the exchange,
(ii) the number of shares received that is equal in number to the shares
surrendered will have a basis equal to the basis of the shares surrendered and
(except for purposes of determining whether a disposition will be a
disqualifying disposition) will have a holding period that includes the
holding period of the shares exchanged, and (iii) any additional shares
received will have a zero basis and will have a holding period that begins on
the date of the exchange. If any of the shares received are disposed of within
two years of the date of grant of the ISO or within one year after exercise,
the shares with the lowest basis will be deemed to be disposed of first, and
such disposition will be a disqualifying disposition giving rise to ordinary
income as discussed above.
Restricted Awards
In the case of a restricted award, a participant generally will not be
subject to tax upon the grant of such an award, but, rather, the participant
will recognize ordinary income in an amount equal to (i) the fair market value
of the stock at the time the shares become transferable or are otherwise no
longer subject to a substantial risk of forfeiture (as defined in the Code),
minus (ii) the price, if any, paid by the participant to purchase such stock.
Lam will be entitled to a deduction at the time when, and in the amount that,
the participant recognizes ordinary income. However, a participant may elect
(not later than 30 days after acquiring such shares) to recognize ordinary
income at the time the restricted shares are awarded in an amount equal to
their fair market value at that time, notwithstanding the fact that such
shares are subject to restrictions and a substantial risk of forfeiture. If
such an election is made, no additional taxable income will be recognized by
the participant at the time the restrictions lapse. Lam will be entitled to a
tax deduction at the time when, and to the extent that, income is recognized
by the participant. Nevertheless, if shares in respect of which such election
was made are later forfeited, no tax deduction is allowable to the participant
for the forfeited shares, and Lam will be deemed to recognize ordinary income
equal to the amount of the deduction allowed to Lam at the time of the
election in respect of such forfeited shares.
New Plan Benefits
The Lam Stock Committee has approved a grant to Mr. Bagley under the Lam
1997 Stock Plan of non-qualified options to purchase a total of 475,000 shares
of Lam Common Stock at an exercise price equal to the closing price of Lam
Common Stock on the date of the consummation of the Merger. This grant is
subject to stockholder approval of the Lam 1997 Stock Plan and consummation of
the Merger. See "Terms of the Merger--New Bagley Employment Agreement."
No other grants have yet been made under the Lam 1997 Stock Plan.
Accordingly, it is not possible to determine at this time the other awards
that will be granted under the Lam 1997 Stock Plan. For informational
purposes, the table below sets forth the number of options awarded under the
Lam 1991 Stock Option Plan during fiscal year 1997 through March 31, 1997 to
Lam's most senior executive officers, all current executive officers as a
group (the "Executive Group"), all current directors who are not executive
officers as a group (the "Non-Executive Director Group") and all employees,
including all current officers who are not executive officers, as a group (the
"Employee Group").
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Lam 1991 Stock Option Plan Benefits
(Nine months ended March 31, 1997)
<TABLE>
<CAPTION>
Name and Position Options Granted
----------------- ---------------
<S> <C>
Roger D. Emerick................................................ 15,000
Chairman of the Board and Chief Executive Officer
Hsiu-Sheng (Way) Tu............................................. 20,000
President
Henk J. Evenhuis................................................ 5,000
Executive Vice President, Finance and Chief Financial Officer
Raymond L. Degner............................................... 5,000
Senior Vice President
Thomas O. Yep................................................... 8,000
Senior Vice President
Executive Group................................................. 97,000
Non-Executive Director Group.................................... 24,000
Employee Group (excluding executives)........................... 658,465
</TABLE>
Reason for Authorization
The Lam 1997 Stock Plan is being submitted for stockholder approval pursuant
to Sections 162(m) and 422 of the Code and the rules of Nasdaq. It is intended
that awards granted under the Lam 1997 Stock Plan may constitute "qualified
performance based compensation" for purposes of Section 162(m) of the Code.
Vote Required
The affirmative vote of a majority of the votes present in person or by
proxy and entitled to vote at the Lam Special Meeting is required to approve
and adopt the Lam 1997 Stock Plan. Approval of the Lam 1997 Stock Plan is not
conditioned on approval of the Share Issuance. If the Lam stockholders do not
approve the Lam 1997 Stock Plan, the Lam Board will consider whether to adopt
some alternative arrangement based on its assessment of Lam's needs.
THE LAM BOARD HAS DETERMINED THAT THE LAM 1997 STOCK PLAN IS IN THE BEST
INTERESTS OF LAM AND ITS STOCKHOLDERS AND HAS APPROVED THE LAM 1997 STOCK
PLAN. THE LAM BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL OF
THE LAM 1997 STOCK PLAN.
PROPOSALS THREE AND FOUR--THE CERTIFICATE OF INCORPORATION AMENDMENTS
General Discussion of Anti-Takeover Provisions
Delaware law permits a corporation to adopt certain measures designed to
make the corporation less vulnerable to a hostile takeover bid. While Lam is
not aware of any proposed attempt to acquire control of Lam, takeover attempts
have become increasingly common in recent years, including among technology
companies. Takeover attempts which have not been negotiated and approved by
the Lam Board can seriously disrupt business, distract management, and cause
great expense. Such attempts may take place at inopportune times and may
involve terms which are less favorable to all the stockholders than would be
available in a transaction negotiated and approved by the Lam Board. On the
other hand, Board-approved transactions can be carefully planned and
undertaken at an opportune time in order to obtain maximum value for Lam and
all its stockholders with due consideration given to matters such as the
recognition or postponement of gain or loss for tax purposes, the management
and business of the acquiring corporation and the maximum strategic deployment
of Lam's assets. In addition, in the case of a proposal which is presented to
the Lam Board, there is a greater opportunity
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for the Lam Board to analyze the proposal thoroughly, to develop and evaluate
alternatives and to present its recommendations to the stockholders in the
most effective manner.
The Lam Board recognizes that takeover attempts which have not been
negotiated and approved by the Lam Board do not always have the unfavorable
consequences or effects described above. Hostile tender offers and takeover
attempts may be made at times and under circumstances which are beneficial to
and in the interest of stockholders. Tender offers or takeover attempts do not
all have features of the type described above which may be to the disadvantage
of stockholders. Further, it is not necessarily the case that a hostile offer
will be less advantageous than a Board-approved transaction. However, the Lam
Board believes that the potential disadvantages of hostile takeover attempts
are sufficiently great that prudent steps to reduce the likelihood of such
attempts and to encourage acquirors to negotiate directly with the Lam Board
are in the best interests of Lam and its stockholders.
Possible Disadvantages of Takeover Defenses. By increasing the probability
that any person or group seeking control of Lam would be forced to negotiate
directly with the Lam Board, the proposed takeover defenses could discourage
takeover bids by means of a hostile tender offer, proxy contest, or otherwise
without the approval of the Lam Board. The principal disadvantages to the
stockholders which result from discouraging such hostile takeover bids would
be to (i) reduce the likelihood that any acquiror would make a hostile tender
offer for the outstanding shares of stock of Lam at a premium over the market
rate, and (ii) increase the difficulty of removing the existing members of the
Lam Board and management even if in a particular case removal would be
beneficial to stockholders generally.
The Lam Board has investigated various defensive measures to protect Lam and
its stockholders from hostile acquisitions at inadequate prices or on unfair
terms. Following discussion of the various measures available, the Lam Board
proposes to amend the Lam Certificate to include certain defensive measures.
These various measures have the principal purpose and effect of making it more
difficult for an entity to effect an acquisition of Lam without the
cooperation of the Lam Board.
It should be noted, however, that the Lam Board has a fiduciary duty to the
stockholders to negotiate for the best interests of the stockholders and not
for their own interests. Further, while the proposed takeover defenses may
discourage hostile takeover attempts, these provisions would not prevent a
hostile acquisition of Lam or a proxy contest for control of the Lam Board.
The Lam Shareholder Rights Plan and Bylaw Amendments. On January 23, 1997,
the Lam Board adopted the Lam Rights Plan that is also designed to deter
hostile takeover attempts, including the accumulation of shares in the open
market or through private transactions, and to prevent an acquiror from
gaining control of Lam without offering a fair price to all of Lam's
stockholders. Details of the Lam Rights Plan were outlined in a letter mailed
to all Lam stockholders in February 1997. Under the Lam Rights Plan, rights
were distributed as a dividend at the rate of one Lam Right for each share of
common stock, par value $0.001 per share, of Lam held by stockholders of
record as of the close of business on January 31, 1997. The Lam Rights will
expire on January 31, 2007. Under the Lam Rights Plan, each Lam Right
initially entitles stockholders to buy one unit of a share of Preferred Stock
for $250. The Lam Rights will be exercisable only if a person or group (other
than stockholders currently owning 15 percent of the Lam Common Stock)
acquires beneficial ownership of 15 percent or more of Lam Common Stock or
commences a tender or exchange offer upon consummation of which such person or
group would beneficially own 15 percent or more of Lam Common Stock.
If any person becomes the beneficial owner of 15 percent or more of the Lam
Common Stock, other than pursuant to a tender or exchange offer for all
outstanding shares of Lam approved by a majority of the independent directors
not affiliated with such person, then each Lam Right not owned by such person
or related parties will entitle its holder to purchase, at the right's then
current exercise price, shares of the Lam Common Stock (or, in certain
circumstances as determined by the Lam Board, cash, other property or other
securities) having a value of twice the Lam Right's then current exercise
price. In addition, if after any person has become a 15 percent stockholder,
Lam is involved in a merger or other business combination transaction with
another
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person in which Lam does not survive or in which its common stock is changed
or exchanged, or if Lam sells 50 percent or more of its assets or earning
power to another person, each Lam Right will entitle its holder to purchase,
at the Lam Right's then current exercise price, shares of common stock of such
other person having a value of twice the Lam Right's then current exercise
price.
Lam is generally entitled to redeem the Lam Rights at $0.001 per Lam Right
at any time until ten business days (subject to extension) following a public
announcement that a 15 percent position has been acquired.
In connection with adoption of the Shareholder Rights Plan, the Lam Board
also adopted a number of amendments to the Lam Bylaws, including amendments
requiring advance notice of stockholder nominations of directors, stockholder
proposals and of a stockholder's intention to cumulate votes and eliminating
the right of stockholders to call special meetings of stockholders.
The Lam Board has also considered and proposes to adopt the following
amendments to the Lam Certificate.
PROPOSAL THREE--AMENDMENT TO CERTIFICATE OF INCORPORATION--ELIMINATION OF
STOCKHOLDER WRITTEN CONSENT
Elimination of Stockholder Actions by Written Consent. The Lam Board has
proposed and recommends to stockholders that they adopt an amendment to the
Lam Certificate to add a new provision to prohibit stockholder action by
written consent (the "Written Consent Amendment"). The text of the new Article
THIRTEENTH of the Lam Certificate is set forth in Annex E to this Proxy
Statement. Unless otherwise provided in the Lam Certificate, Delaware law
permits any action required or permitted to be taken by stockholders to be
taken without a meeting, without prior notice and without stockholder vote if
a written consent setting forth the action to be taken is signed by the
holders of shares of outstanding stock having the number of votes necessary to
authorize such action at a meeting of stockholders. Currently, the Lam
Certificate does not contain any provisions regarding stockholder consent
actions and the Lam Bylaws provide that action may be taken by written
consent. Consequently, unless the Written Consent Amendment is approved,
persons holding a majority interest in Lam could take significant corporate
action without giving other stockholders notice or the opportunity to vote. If
the Written Consent Amendment is approved, the Lam Board intends to amend the
Lam Bylaws to eliminate stockholder action by written consent.
Potential Effects of the Written Consent Proposal. The Written Consent
Amendment, by prohibiting stockholder action by written consent, would require
that notice of and the opportunity to participate in any proposed stockholder
action be given to all stockholders of Lam who are entitled to vote on that
particular matter. Such notice would enable the stockholders to take action,
including judicial action, in order to protect their interests. In addition,
the elimination of stockholder action by written consent may prevent untimely
action in a context where stockholders might not have the full benefit of the
knowledge, advice or participation of Lam's management and the Lam Board. In
the event of a proposed acquisition of Lam, for example, the interests of
stockholders may best be served by a transaction that results from
negotiations based on careful consideration of the proposed terms. Although
there can be no certainty as to the result of any particular negotiations,
adoption of the Written Consent Amendment may tend to promote negotiations
concerning any proposed acquisition of Lam by giving the Lam Board greater
bargaining power.
Reasons for Elimination of Stockholder Action by Written Consent. The
provisions prohibiting stockholder action by written consent would ensure that
all stockholders of Lam get the opportunity to prevent the holders of a
majority of the voting power of Lam from using the written consent procedure
to take stockholder action. Persons attempting unfriendly takeovers of
corporations have attempted to use written consent procedures to deal directly
with stockholders and avoid negotiations with the boards of directors of such
companies. By eliminating the use of the written consent procedure, Lam
intends to encourage persons seeking to acquire control of Lam to initiate
such an acquisition through arms-length negotiations with Lam's management and
the Lam Board.
Possible Disadvantages of Elimination of Stockholder Actions by Written
Consent. A provision restricting stockholder action by written consent may
have the effect of delaying consideration of a stockholder proposal until the
next annual meeting unless a special meeting is called by the Lam Board.
Because elimination of the
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procedures for stockholders to act by written consent could make more
difficult an attempt to obtain control of Lam, such action could have the
effect of discouraging a third party from making a tender offer or otherwise
attempting to obtain control of Lam. Because tender offers for control usually
involve a purchase price higher than the prevailing market price, the
provisions restricting stockholder action by written consent may have the
effect of preventing or delaying a bid for Lam's shares which could be
beneficial to Lam and its stockholders. Elimination of the written consent
procedure also means that a meeting of stockholders would be required in order
for Lam's stockholders to replace the Lam Board. A special meeting may only be
called by the Lam Board, the Chairman or the President. This provision thus
will make the removal of directors more difficult. In addition, it may
lengthen the amount of time required to take stockholder actions since certain
actions by written consent are not subject to the minimum notice requirement
of a stockholders' meeting.
THE LAM BOARD UNANIMOUSLY RECOMMENDS THAT LAM STOCKHOLDERS VOTE "FOR" THE
AMENDMENT OF THE LAM CERTIFICATE TO ELIMINATE STOCKHOLDER ACTION BY WRITTEN
CONSENT.
PROPOSAL FOUR--AMENDMENT TO CERTIFICATE OF INCORPORATION--ELIMINATION OF
CUMULATIVE VOTING
Elimination of Cumulative Voting. The Lam Board has also proposed and
recommends to stockholders that they adopt an amendment to Article ELEVENTH of
the Lam Certificate to eliminate cumulative voting in the election of
directors (the "Cumulative Voting Amendment"). Under the existing provisions
of the Lam Certificate, stockholders of Lam are entitled to cumulative voting
in the election of directors. Cumulative voting entitles each stockholder to
cast a number of votes that is equal to the number of voting shares held by
such stockholder multiplied by the total number of directors to be elected,
and to cast all such votes for one nominee or distribute such votes among up
to as many candidates as there are positions to be filled. For example, in
each election of directors under cumulative voting rules where five directors
are to be elected, a stockholder or group holding greater than 20% of the
voting shares is guaranteed the ability to elect one director. Without
cumulative voting, a stockholder or group of stockholders must hold a majority
of the voting shares to cause the election of one or more nominees. Cumulative
voting may enable a minority stockholder or group of stockholders to elect at
least one representative to the Lam Board. If the Cumulative Voting Amendment
is adopted, in all future elections of the Lam Board, commencing with the
Annual Meeting to be held in 1997, the holders of a majority of the shares
actually voted (assuming that a quorum is present) will be guaranteed the
right to elect all of the directors being elected at that time. If the
Cumulative Voting Amendment is approved, the Lam Board intends to amend the
Lam Bylaws to eliminate cumulative voting and make certain other conforming
changes consistent with the elimination of cumulative voting.
Reasons for Elimination of Cumulative Voting. The Lam Board believes that
each director elected to the Lam Board should represent the interests of all
stockholders. The elimination of cumulative voting should help ensure that
each director acts in the best interests of all stockholders, because
stockholders holding a majority of the voting shares will have the power to
elect every director to be elected at any annual meeting. The election of the
Lam Board by holders of a majority of the voting stock is not a departure from
the manner in which Lam's directors have been elected in the past. Even though
Lam has always permitted cumulative voting, such voting has not been used in
the election of a director to Lam's Board.
Possible Disadvantages of Elimination of Cumulative Voting. The elimination
of cumulative voting will make it more difficult for a minority stockholder or
group of stockholders to elect a representative to the Lam Board. In addition,
it should be noted that the elimination of cumulative voting may also have
certain anti-takeover effects. It may, under certain circumstances, discourage
or render more difficult a merger, tender offer proxy contest or acquisition
of large blocks of Lam's shares by persons who would make such acquisition
without assurance of the ability to place a representative on the Lam's Board,
deter or delay the assumption of control by a holder of a large block of Lam's
shares, or render more difficult the replacement of incumbent directors and
management.
THE LAM BOARD UNANIMOUSLY RECOMMENDS THAT LAM STOCKHOLDERS VOTE "FOR" THE
AMENDMENT OF THE LAM CERTIFICATE TO ELIMINATE CUMULATIVE VOTING.
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LEGAL MATTERS
The validity of the shares of Lam Common Stock to be issued in connection
with the Merger and offered hereby, the federal income tax consequences of the
Merger and certain other matters relating to the Merger and the transactions
contemplated thereby will be passed upon for Lam by Shartsis. Certain legal
matters with respect to the Merger Agreement, the Federal income tax
consequences of the Merger and certain other legal matters relating to the
Merger and the transactions contemplated thereby will be passed upon for
OnTrak by Heller Ehrman.
EXPERTS
The consolidated financial statements of Lam Research Corporation as of June
30, 1996 and 1995, and for each of the three years in the period ended June
30, 1996, incorporated by reference in Lam Research Corporation's Annual
Report on Form 10-K for the year ended June 30, 1996, and incorporated by
reference in this Joint Proxy Statement/Prospectus, which is referred to and
made a part of the Registration Statement, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon incorporated
by reference therein and incorporated by reference herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of OnTrak and subsidiaries as of June
30, 1996 and 1995, and for each of the three years in the period ended June
30, 1996, incorporated in this Joint Proxy Statement/Prospectus by reference
to the Annual Report on Form 10-K have been so incorporated in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
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<PAGE>
ANNEX A
AGREEMENT AND PLAN OF
MERGER
BY AND AMONG
LAM RESEARCH CORPORATION,
OMEGA ACQUISITION CORPORATION
AND
ONTRAK SYSTEMS, INC.
DATED AS OF MARCH 24, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
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ARTICLE 1
<C> <S> <C>
THE MERGER
1.1 The Merger...................................................... 1
1.2 Closing; Effective Time......................................... 1
1.3 Effects of the Merger........................................... 2
1.4 Certificate of Incorporation; Bylaws............................ 2
1.5 Directors and Officers of the Surviving Corporation............. 2
1.6 Effects on Capital Stock........................................ 2
1.7 Exchange of Certificates........................................ 4
1.8 No Further Ownership Rights in OSI Common Stock................. 5
1.9 Lost, Stolen or Destroyed OSI Certificates...................... 5
1.10 Tax and Accounting Consequences................................. 6
1.11 Taking of Necessary Action; Further Action...................... 6
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF OSI
2.1 Organization; Subsidiaries...................................... 6
2.2 Capital Structure............................................... 6
2.3 Authority; Absence of Conflicts; Consents....................... 7
2.4 SEC Documents; Financial Statements; Undisclosed Liabilities.... 8
2.5 Absence of Changes.............................................. 9
2.6 Litigation...................................................... 10
2.7 Restrictions on Business Activities............................. 10
2.8 Compliance With Laws............................................ 10
2.9 Governmental Authorization...................................... 11
2.10 Intellectual Property........................................... 11
2.11 Environmental Matters........................................... 13
2.12 Taxes........................................................... 14
2.13 Employee Benefit Plans.......................................... 15
2.14 Employee Matters................................................ 17
2.15 Interested Party Transactions................................... 18
2.16 Insurance....................................................... 18
2.17 Pooling of Interests............................................ 18
2.18 Brokers' and Finders' Fees...................................... 18
2.19 Registration Statement; Joint Proxy Statement/Prospectus........ 18
2.20 Opinion of Financial Advisor.................................... 19
2.21 Title to Property............................................... 19
2.22 Section 203 of the Delaware Law Not Applicable.................. 19
2.23 Lack of Ownership of LRC Common Stock........................... 19
2.24 Agreements, Contracts and Commitments........................... 19
2.25 Representations Complete........................................ 20
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF LRC AND MERGER SUB
3.1 Organization; Subsidiaries...................................... 20
3.2 Capital Structure............................................... 21
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE(S)
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<C> <S> <C>
3.3 Authority; Absence of Conflicts; Consents...................... 21
3.4 SEC Documents; Financial Statements; Undisclosed Liabilities... 22
3.5 Absence of Changes............................................. 23
3.6 Litigation..................................................... 24
3.7 Restrictions on Business Activities............................ 25
3.8 Compliance With Laws........................................... 25
3.9 Governmental Authorization..................................... 25
3.10 Intellectual Property.......................................... 25
3.11 Environmental Matters.......................................... 26
3.12 Employee Benefit Plans......................................... 26
3.13 Employee Matters............................................... 26
3.14 Pooling of Interests........................................... 26
3.15 Brokers' and Finders' Fees..................................... 26
3.16 Registration Statement; Joint Proxy Statement/Prospectus....... 26
3.17 Opinion of Financial Advisor................................... 27
3.18 Interim Operations of Merger Sub............................... 27
3.19 Agreements, Contracts and Commitments.......................... 27
3.20 Lack of Ownership of OSI Common Stock.......................... 27
3.21 Interested Party Transactions.................................. 27
3.22 Representations Complete....................................... 27
ARTICLE 4
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of OSI and LRC............................. 28
4.2 Conduct of Business of OSI..................................... 28
4.3 Acquisition Proposals.......................................... 30
Organization of Merger Sub; Authorization of Shares, the Merger
4.4 and this Agreement............................................. 31
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Stockholder Approvals.......................................... 31
5.2 Board of Directors and Officers of LRC......................... 32
5.3 Cooperation.................................................... 32
5.4 Access to Information.......................................... 33
5.5 Public Disclosure.............................................. 33
5.6 Consents....................................................... 33
5.7 Pooling Accounting............................................. 34
5.8 Affiliate Agreements........................................... 34
5.9 Voting Agreement............................................... 34
5.10 Employee Benefit Plans......................................... 35
5.11 Consents of LRC's and OSI's Accountants........................ 36
5.12 Form S-8....................................................... 36
5.13 Indemnification................................................ 36
5.14 Employment Agreements.......................................... 37
5.15 Pooling Letters................................................ 37
5.16 Reasonable Best Efforts and Further Assurances................. 37
5.17 Additional Reports............................................. 37
</TABLE>
A-ii
<PAGE>
ARTICLE 6
<TABLE>
<CAPTION>
PAGE(S)
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<C> <S> <C>
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger...... 38
6.2 Additional Conditions to Obligations of OSI....................... 39
6.3 Additional Conditions to the Obligations of LRC and Merger Sub.... 39
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination....................................................... 40
7.2 Expenses and Termination Fees..................................... 41
7.3 Amendment......................................................... 42
7.4 Extension; Waiver................................................. 42
ARTICLE 8
GENERAL PROVISIONS
8.1 No Survival of Representations and Warranties..................... 42
8.2 Expenses.......................................................... 42
8.3 Notices........................................................... 42
8.4 Interpretation.................................................... 43
8.5 Counterparts...................................................... 43
8.6 Entire Agreement; Nonassignability; Parties in Interest........... 43
8.7 Severability...................................................... 44
8.8 Enforcement....................................................... 44
8.9 Remedies Cumulative............................................... 44
8.10 Governing Law..................................................... 44
8.11 Rules of Construction............................................. 44
EXHIBITS
A --Certificate of Merger
B --Form of Stockholders Agreement
C-1 --Representation Letter of LRC
C-2 --Representation Letter of OSI
D --Form of Representation Letter
E-1 --Form of OSI Affiliate Agreement
E-2 --Form of LRC Affiliate Agreement
</TABLE>
A-iii
<PAGE>
DEFINITIONS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
1997 Equity Incentive Plan.............................................. 40
Acquisition Proposal.................................................... 43
Agreement............................................................... 1
Alternative Transaction................................................. 59
Base Prices............................................................. 4
Certificate of Merger................................................... 2
Charter Amendments...................................................... 40
Claim................................................................... 52
Closing................................................................. 2
Closing Calculation Period.............................................. 3
Closing Date............................................................ 2
COBRA................................................................... 22
Code.................................................................... 1
Confidentiality Agreement............................................... 47
Delaware Law............................................................ 2
Delinquent Party........................................................ 59
Effective Time.......................................................... 2
Environmental Laws...................................................... 19
ERISA................................................................... 21
ERISA Affiliate......................................................... 21
Exchange Act............................................................ 12
Exchange Agent.......................................................... 6
Exchange Ratio.......................................................... 3
GAAP.................................................................... 12
Government Claims....................................................... 35
Governmental Entity..................................................... 11
HSR Act................................................................. 12
Indemnified Parties..................................................... 51
Intellectual Property................................................... 15
IPO Date................................................................ 12
Joint Proxy Statement................................................... 26
Licenses................................................................ 16
Litigation.............................................................. 34
LRC..................................................................... 1
LRC Adjustment Option................................................... 3
LRC Authorizations...................................................... 35
LRC Balance Sheet....................................................... 32
LRC Certificates........................................................ 5
LRC Closing Value....................................................... 3
LRC Common Stock........................................................ 1
LRC Disclosure Letter................................................... 29
LRC Employee Plans...................................................... 37
LRC Financial Statements................................................ 32
LRC Intellectual Property Rights Agreements............................. 36
LRC Material Contracts.................................................. 38
LRC Preferred Stock..................................................... 29
LRC Purchase Plan....................................................... 29
LRC Reference Price..................................................... 3
LRC Restricted Stock Plan............................................... 29
</TABLE>
A-iv
<PAGE>
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
LRC SEC Documents....................................................... 32
LRC Stock Option Plans.................................................. 29
LRC Stock Plans......................................................... 29
LRC Stockholders Meeting................................................ 26
Material Adverse Effect................................................. 9
Merger.................................................................. 1
Merger Sub.............................................................. 1
Merger Sub Common Stock................................................. 5
Multiemployer plan...................................................... 23
OSI..................................................................... 1
OSI Authorizations...................................................... 15
OSI Balance Sheet....................................................... 12
OSI Certificates........................................................ 5
OSI Common Stock........................................................ 1
OSI Contract............................................................ 28
OSI Disclosure Letter................................................... 8
OSI Employee Plans...................................................... 22
OSI Financial Statements................................................ 12
OSI Preferred Stock..................................................... 9
OSI Purchase Plan....................................................... 5
OSI SEC Documents....................................................... 12
OSI Stock Option Plans.................................................. 5
OSI Stock Options....................................................... 49
OSI Stock Plans......................................................... 5
OSI Stockholders Meeting................................................ 26
Person.................................................................. 43
Proxy Statement......................................................... 26
Registration Statement.................................................. 25
SEC..................................................................... 11
Securities Act.......................................................... 12
Semiconductor Equipment Group Closing Index............................. 4
Share Issuance.......................................................... 45
Superior Proposal....................................................... 43
Surviving Corporation................................................... 2
Target.................................................................. 59
Tax..................................................................... 21
Tax authority........................................................... 21
Tax Return.............................................................. 21
Taxable................................................................. 21
Taxes................................................................... 21
Third Party............................................................. 59
Used in the Business.................................................... 15
Voting Agreements....................................................... 1
</TABLE>
A-v
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered into
as of March 24, 1997 by and among Lam Research Corporation, a Delaware
corporation ("LRC"), Omega Acquisition Corporation, a Delaware corporation
("Merger Sub") and a wholly owned subsidiary of LRC, and OnTrak Systems, Inc.,
a Delaware corporation ("OSI").
RECITALS
WHEREAS, the respective Boards of Directors of LRC, Merger Sub and OSI have
approved and declared advisable the merger of Merger Sub with and into OSI
(the "Merger"), upon the terms and subject to the conditions set forth herein,
and have determined that the Merger and the other transactions contemplated
hereby are consistent with, and in furtherance of, their respective long-term
business strategies and goals;
WHEREAS, pursuant to the Merger, among other things, the outstanding shares
of OSI Common Stock, $.0001 par value ("OSI Common Stock"), shall be converted
into shares of LRC Common Stock, $.001 par value ("LRC Common Stock"), at the
rate set forth herein;
WHEREAS, OSI, LRC and Merger Sub desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for financial accounting purposes, it is intended that the Merger
will be accounted for as a pooling of interests transaction; and
WHEREAS, concurrent with the execution of this Agreement and as an
inducement to LRC and Merger Sub to enter into this Agreement, certain
stockholders, officers or directors of OSI have on the date hereof entered
into agreements in substantially the form of Exhibit B hereto (the "Voting
Agreements") to vote the shares of OSI Common Stock owned by such persons to
approve the Merger.
NOW, THEREFORE, in consideration of the mutual covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the provisions
of the Certificate of Merger attached hereto as Exhibit A (the "Certificate of
Merger") and the applicable provisions of the Delaware General Corporation Law
("Delaware Law"), Merger Sub shall be merged with and into OSI, the separate
corporate existence of Merger Sub shall cease and OSI shall continue as the
surviving corporation. OSI as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the Merger and the other
transactions contemplated hereby (the "Closing") will take place at 10:00
a.m., local time, on a date to be specified by the parties (the "Closing
Date"), which shall be no later than the third business day after satisfaction
or waiver of the conditions set forth in Article 6, unless another time or
date is agreed to by the parties hereto. The Closing shall take place at the
offices of Shartsis, Friese & Ginsburg LLP, One Maritime Plaza, 18th Floor,
San Francisco, California, or at such other location as the parties hereto
mutually agree. As soon as practical on or after the Closing Date, the
A-1
<PAGE>
parties hereto shall cause the Merger to be consummated by filing the
Certificate of Merger with the Secretary of State of the State of Delaware, in
accordance with the relevant provisions of Delaware Law (the time of such
filing, or such later time as may be agreed in writing by the parties and
specified in the Certificate of Merger, being the "Effective Time").
1.3 Effects of the Merger. The effects of the Merger shall be as provided in
this Agreement and the applicable provisions of Delaware Law. Without limiting
the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of OSI and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of OSI and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of Merger Sub,
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law; provided, however, that
Article 1 of the Certificate of Incorporation of the Surviving Corporation
shall be amended to read as follows: "The name of the corporation is OnTrak
Systems, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation immediately
after the Effective Time until thereafter amended.
1.5 Directors and Officers of the Surviving Corporation. The directors of
Merger Sub at the Effective Time (and such other persons as shall be mutually
agreed) shall be the initial directors of the Surviving Corporation, until
their respective successors are duly elected or appointed and qualified. The
officers of OSI immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, until their respective successors are
duly elected or appointed.
1.6 Effects on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, OSI or the holders of
any of the securities of Merger Sub or OSI:
(a) Conversion of OSI Common Stock. Subject to Section 1.6(e), each share
of OSI Common Stock issued and outstanding immediately prior to the
Effective Time (other than any shares of OSI Common Stock to be canceled
pursuant to Section 1.6(b)) shall be converted into .83 (the "Exchange
Ratio") of a fully paid and nonassessable share of LRC Common Stock,
together with the associated rights under LRC's Rights Agreement dated as
of January 23, 1997 between LRC and Chase Mellon Shareholder Services,
L.L.C. Notwithstanding the foregoing, if the average of the daily closing
sale prices per share of LRC Common Stock reported on the Nasdaq National
Market (the "LRC Closing Value") on the ten trading days ending with the
eighth trading day preceding the OSI Stockholders Meeting (the "Closing
Calculation Period") is less than $30.00 per share, and if the LRC Closing
Value is less than the OSI Walk Away Threshold (as hereinafter defined),
LRC shall have the option (but not the obligation), exercisable by notice
to OSI prior to the close of business on the fifth trading day prior to the
OSI Stockholders Meeting, to adjust the Exchange Ratio (the "LRC Adjustment
Option") so that it equals $24.90 divided by the LRC Closing Value. The OSI
Walk Away Threshold shall be computed as the product of (i) 0.85 multiplied
by (ii) the product of the "LRC Reference Price" (defined below) multiplied
by a fraction, the numerator of which is the Semiconductor Equipment Group
Closing Index (as defined below), and the denominator of which is 100,
illustrated as follows:
<TABLE>
<S> <C> <C> <C> <C>
Semiconductor Equipment
0.85 X LRC Reference Price X Group Closing Index
-----------------------
100
</TABLE>
where:
(1) the "Semiconductor Equipment Group Closing Index" shall be
determined as follows:
A-2
<PAGE>
(x) The average of the daily closing sale prices per share (the
"Base Prices") on the ten trading days ended with the trading day
preceding the date of this Agreement, as reported on the national
securities exchange set forth below next to its name, for the common
stock of each of the following semiconductor equipment companies is
agreed to be as follows:
<TABLE>
<S> <C> <C>
Applied Materials, Inc. Nasdaq National Market $49.631
Novellus Systems, Inc. Nasdaq National Market $76.356
KLA Instruments
Corporation Nasdaq National Market $38.825
Silicon Valley Group,
Inc. Nasdaq National Market $20.194
Ultratech Stepper, Inc. Nasdaq National Market $23.269
</TABLE>
(y) The average of the daily closing sale prices per share on the
respective securities exchange set forth above for the common stock
of each such company shall be calculated for the Closing Calculation
Period and the percentage change (positive or negative) for each
such company's common stock from its respective Base Price shall be
determined.
(z) The arithmetic sum (positive or negative) of such percentage
changes shall be divided by five (or such other number of companies
as may then be included in the index), and that quotient (positive
or negative) shall be increased by 100, and as so increased, shall
be the Semiconductor Equipment Group Closing Index.
For purposes of calculating the OSI Walk Away Threshold only, if from
the date of this Agreement through the end of the Closing Calculation
Period there occurs any change in the LRC Common Stock (not including
the Merger) or the common stock of any company in the Semiconductor
Equipment Group Closing Index by reason of stock dividends, stock
splits, stock combinations, reorganization or recapitalization or other
like change, the prices per share used in calculating the LRC Closing
Value or the Semiconductor Equipment Group Closing Index, as the case
may be, shall be adjusted appropriately to fully reflect such event.
Furthermore, if at the time of the Closing Calculation Period an
Alternative Transaction (defined in Article 7) involving any of the
semiconductor equipment companies listed in clause (1)(x) above shall
have been announced which shall not have been absolutely and
unconditionally withdrawn and abandoned, then such company and its
stock price shall be removed from the calculation of the Semiconductor
Equipment Group Closing Index for all purposes.
(2) The LRC Reference Price is $35.464, which is the average of the
daily closing sale price per share of LRC Common Stock on the Nasdaq
National Market on the ten trading days ended with the trading day
preceding the date of this Agreement.
As of the Effective Time, all such shares of OSI Common Stock shall no
longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each holder of a certificate or certificates
which immediately prior to the Effective Time represented outstanding
shares of OSI Common Stock (the "OSI Certificates") shall cease to have any
rights with respect thereto, except the right to receive (i) the number of
whole shares of LRC Common Stock into which such shares have been converted
(the "LRC Certificates"), and (ii) cash in lieu of fractional shares of LRC
Common Stock in accordance with Section 1.6(e), without interest.
(b) Cancellation of OSI Common Stock Owned by LRC or OSI. All shares of
OSI Common Stock that are owned by OSI as treasury stock and each share of
OSI Common Stock owned by LRC or any direct or indirect wholly owned
subsidiary of LRC or of OSI immediately prior to the Effective Time shall
be automatically canceled and extinguished, and no consideration shall be
delivered in exchange therefor.
(c) Capital Stock of Merger Sub. Each share of Common Stock, $.01 par
value, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly
issued, fully paid and nonassessable share of common stock of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of
any such shares shall evidence ownership of such shares of capital stock of
the Surviving Corporation.
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(d) OSI Stock Option and Employee Stock Purchase Plans. At the Effective
Time, all options to purchase OSI Common Stock issued under the OSI 1992
Stock Option Plan, the OSI 1995 Director Stock Option Plan, or the OSI 1996
Equity Incentive Plan (collectively, the "OSI Stock Option Plans")
outstanding immediately prior to the Effective Time shall be assumed by LRC
in accordance with Section 5.10, and all rights to purchase OSI Common
Stock issued under the OSI 1995 Employee Stock Purchase Plan (the "OSI
Purchase Plan," and, together with the OSI Stock Option Plans, the "OSI
Stock Plans") for the "offering period" beginning February 1, 1997, shall
be assumed by LRC, as provided in Section 5.10 and to the extent permitted
under the OSI Purchase Plan and the LRC Purchase Plan (as defined in
Section 3.2(a)).
(e) Fractional Shares. No fraction of a share of LRC Common Stock will be
issued in exchange for OSI Certificates, no dividend or distribution of LRC
shall relate to such fractional share interests and such fractional share
interests will not entitle the owner thereof to vote or to any rights of a
stockholder of LRC. In lieu of fractional shares of LRC Common Stock, each
holder of shares of OSI Common Stock who would otherwise be entitled to a
fraction of a share of LRC Common Stock (after aggregating all fractional
shares of LRC Common Stock to be received by such holder) shall receive
from LRC an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the average of the closing
price of a share of LRC Common Stock for the ten most recent days that LRC
Common Stock has traded ending on the trading day immediately prior to the
Effective Time, as reported on the Nasdaq National Market; provided that in
no case shall the amounts paid in exchange for all such fractional shares
exceed 10% of the value of the total LRC shares issued to the stockholders
of OSI in connection with the Merger, determined using the average of the
closing price of a share of LRC Common Stock for the ten most recent days
that LRC Common Stock has traded ending on the trading day immediately
prior to the Effective Time, as reported on the Nasdaq National Market.
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted
to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible
into LRC Common Stock or OSI Common Stock), reorganization,
recapitalization or other like change with respect to LRC Common Stock or
OSI Common Stock occurring after the date hereof and prior to the Effective
Time.
1.7 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, LRC shall enter into an
agreement with a bank or trust company to act as exchange agent for the Merger
(the "Exchange Agent") as may be designated by LRC and approved by OSI, such
approval not to be unreasonably withheld.
(b) LRC to Provide Common Stock and Cash. Promptly after the Effective Time,
LRC shall make available to the Exchange Agent for the benefit of the holders
of OSI Common Stock: (i) LRC Certificates representing the number of whole
shares of LRC Common Stock issuable pursuant to Section 1.6(a) in exchange for
shares of OSI Common Stock outstanding immediately prior to the Effective
Time; and (ii) sufficient funds to permit payment in lieu of fractional shares
pursuant to Section 1.6(e).
(c) Exchange Procedures. The Exchange Agent shall mail to each holder of
record of an OSI Certificate or Certificates, whose shares were converted into
the right to receive shares of LRC Common Stock (and cash in lieu of
fractional shares) pursuant to Section 1.6 promptly after the Effective Time
(and in any event no later than three business days after the later to occur
of the Effective Time and receipt by LRC of a complete list from OSI of the
names and addresses of its holders of record): (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the OSI Certificates shall pass, only upon receipt of the OSI
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as LRC may reasonably specify); and (ii) instructions for use
in effecting the surrender of the OSI Certificates in exchange for LRC
Certificates (and cash in lieu of fractional shares). Upon surrender of an OSI
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by LRC, together with such letter of
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transmittal, duly completed and validly executed, and such other documents as
may be reasonably required by the Exchange Agent, the holder of such OSI
Certificate shall be entitled to receive in exchange therefor a LRC
Certificate representing the number of whole shares of LRC Common Stock and
payment of cash in lieu of fractional shares which such holder has the right
to receive pursuant to Section 1.6, and the OSI Certificate so surrendered
shall forthwith be canceled. Until so surrendered, each outstanding OSI
Certificate that, prior to the Effective Time, represented shares of OSI
Common Stock will be deemed from and after the Effective Time, for all
corporate purposes other than the payment of dividends and distributions, to
evidence the ownership of the number of full shares of LRC Common Stock into
which such shares of OSI Common Stock shall have been so converted and the
right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.6. Notwithstanding any other provision of
this Agreement, no interest will be paid or will accrue on any cash payable to
holders of OSI Certificates pursuant to the provisions of this Article 1.
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions with respect to LRC Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered OSI Certificate
with respect to the shares of LRC Common Stock represented thereby until the
holder of record of such OSI Certificate shall surrender such OSI Certificate.
Subject to the effect of applicable escheat or similar laws, following
surrender of any such OSI Certificate, there shall be paid to the record
holder of the LRC Certificates issued in exchange therefor, without interest,
at the time of such surrender, the amount of any such dividends or other
distributions with a record date after the Effective Time theretofore payable
(but for the provisions of this Section 1.7(d)) with respect to such shares of
LRC Common Stock.
(e) Transfers of Ownership. If any LRC Certificate is to be issued in a name
other than that in which the OSI Certificate surrendered in exchange therefor
is registered, it will be a condition of the issuance thereof that the OSI
Certificate so surrendered will be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange will have paid
to LRC or any agent designated by it any transfer or other taxes required by
reason of the issuance of a LRC Certificate for shares of LRC Common Stock in
any name other than that of the registered holder of the OSI Certificate
surrendered, or established to the satisfaction of LRC or any agent designated
by it that such tax has been paid or is not payable.
(f) Termination of Exchange Agent Funding. Any portion of funds (including
any interest earned thereon) or LRC Certificates held by the Exchange Agent
which have not been delivered to holders of OSI Certificates pursuant to this
Article 1 within six months after the Effective Time shall promptly be paid or
delivered, as appropriate, to LRC, and thereafter holders of OSI Certificates
who have not theretofore complied with the exchange procedures outlined in
this Section 1.7 shall thereafter look only to LRC for their claim for shares
of LRC Stock, any cash in lieu of fractional shares of LRC Common Stock and
any dividends or distributions (with a record date after the Effective Time)
with respect to LRC Common Stock.
(g) No Liability. Notwithstanding anything to the contrary in this Section
1.7, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to any person in respect of any shares of LRC Common Stock or
cash delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
1.8 No Further Ownership Rights in OSI Common Stock. All shares of LRC
Common Stock issued upon the surrender for exchange of OSI Certificates in
accordance with the terms hereof (including any cash paid in lieu of
fractional shares) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of OSI Common Stock
theretofore represented by such OSI Certificate, and there shall be no further
registration of transfers on the records of the Surviving Corporation of
shares of OSI Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, OSI Certificates are presented
to the Surviving Corporation or the Exchange Agent for any reason, they shall
be canceled and exchanged as provided in this Article 1.
1.9 Lost, Stolen or Destroyed OSI Certificates. In the event any OSI
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed OSI
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Certificates, upon the making of an affidavit of that fact by the holder
thereof, such shares of LRC Common Stock (and cash in lieu of fractional
shares) as may be required pursuant to Section 1.6; provided, however, that
LRC or the Surviving Corporation may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed OSI Certificates to deliver a bond in such sum as it may reasonably
direct as indemnity against any claim that may be made against LRC, the
Surviving Corporation or the Exchange Agent with respect to the OSI
Certificates alleged to have been lost, stolen or destroyed.
1.10 Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall (i) constitute a reorganization within the meaning of
Section 368(a) of the Code and (ii) qualify for accounting treatment as a
pooling of interests, and that this Agreement constitutes a plan of
reorganization as defined in the Treasury Regulations under Section 368 of the
Code.
1.11 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges,
powers and franchises of OSI and Merger Sub, the officers and directors of the
Surviving Corporation shall be fully authorized in the name of either or both
of OSI or Merger Sub or otherwise to take, and LRC and OSI shall cause such
officers and directors to take, all such lawful and necessary action, so long
as such action is not inconsistent with this Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF OSI
OSI represents and warrants to LRC and Merger Sub that the statements
contained in this Article 2 are true and correct, except as disclosed in
writing in the disclosure letter supplied by OSI to LRC and Merger Sub as of
the date hereof and certified by a duly authorized officer of OSI (the "OSI
Disclosure Letter"). The OSI Disclosure Letter shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this
Article 2, and the disclosure in any paragraph shall qualify only the
corresponding paragraph in this Article 2.
2.1 Organization; Subsidiaries. Each of OSI and its subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each of OSI and its subsidiaries has
the corporate power to own its properties and to carry on its business as now
being conducted and as proposed to be conducted, and is duly qualified to do
business and in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on OSI.
As used in this Agreement, a "Material Adverse Effect" on an entity means any
state of facts, event, change or effect that is materially adverse to the
business, financial condition, properties, assets (including intangible
assets), liabilities (contingent or otherwise), operations or results of
operations of such entity and its subsidiaries, taken as a whole. OSI has made
available to LRC true and complete copies of OSI's Certificate of
Incorporation and Bylaws and similar governing instruments of its
subsidiaries, each as amended to date. Neither OSI nor any of its subsidiaries
is in violation of any of the provisions of its Certificate of Incorporation
or Bylaws or equivalent organizational documents, and each such document is in
full force and effect on the date hereof. OSI does not own, directly or
indirectly, any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, limited liability company, joint venture or other
business association or entity. OSI does not conduct any part of its business
operations through any subsidiaries or through any other entity in which OSI
has an equity investment.
2.2 Capital Structure.
(a) The authorized capital stock of OSI consists of 30,000,000 shares of OSI
Common Stock, $.0001 par value, and 3,000,000 shares of Preferred Stock,
$.0001 par value ("OSI Preferred Stock"). As of March 14, 1997, (i) 7,647,962
shares of OSI Common Stock were issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable; (ii) no shares of
OSI Preferred Stock were issued and outstanding;
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(iii) no shares of OSI Common Stock or OSI Preferred Stock were held in the
treasury of OSI or by subsidiaries of OSI; and (iv) 3,500,599 shares of OSI
Common Stock were reserved for future issuance pursuant to the OSI Stock
Plans, including (A) 1,234,431 shares reserved for issuance under the 1992
Stock Option Plan, 1,148,421 of which were subject to or reserved for
outstanding options and 86,010 of which were reserved for future option
grants; (B) 125,000 shares reserved for issuance under the 1995 Director Stock
Option Plan, 55,000 of which were subject to or reserved for outstanding
options and 70,000 of which were reserved for future option grants; (C)
2,000,000 shares reserved for issuance under the 1996 Equity Incentive Plan,
800,000 of which were subject to or reserved for outstanding options and
1,200,000 of which were reserved for future issuance; (D) 141,168 shares
reserved for future issuance under the OSI Purchase Plan; and (E) 98,000
shares reserved for issuance pursuant to exercise of warrants, the material
terms of which warrants are described in the OSI Disclosure Letter. No change
in such capitalization has occurred since such date other than the exercise
and termination of outstanding stock options and the accrual of rights under
the OSI Purchase Plan, all in the ordinary course. All shares of OSI Common
Stock subject to issuance as specified above, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be duly authorized, validly issued, fully paid and nonassessable. The
terms of the OSI Stock Option Plans permit the assumption or substitution of
options to purchase LRC Common Stock as provided in this Agreement, without
the consent or approval of the holders of such securities, the OSI
stockholders, or otherwise and without any acceleration of the exercise
schedule or vesting provisions in effect for those options. The terms of the
OSI Purchase Plan permit the conversion of participants' rights thereunder to
purchase OSI Common Stock into rights to purchase LRC Common Stock, as
described in Section 5.10(b), without the consent or approval of such
participants or the OSI stockholders, or otherwise and without any
acceleration of the exercise schedule in effect for such rights. The current
two-year "offering period" under the OSI Purchase Plan commenced on February
1, 1997 and, except for the purchase rights granted on such commencement date
to participants in the current offering period, there are no other purchase
rights or options outstanding under the OSI Purchase Plan. True and complete
copies of all agreements and instruments relating to or issued under the OSI
Stock Option Plans or OSI Purchase Plan have been made available to LRC and
such agreements and instruments have not been amended, modified or
supplemented, and there are no agreements to amend, modify or supplement such
agreements or instruments in any case from the form made available to LRC.
(b) OSI owns beneficially and of record, directly or through a subsidiary,
all outstanding shares of capital stock of each of its subsidiaries free and
clear of any security interest, claim, lien, pledge, right, voting trust or
proxy or other encumbrance or restriction whatsoever. There are no
obligations, contingent or otherwise, of OSI or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of OSI Common Stock or the
capital stock of any OSI subsidiary or make any investment (in the form of a
loan, capital contribution or otherwise), in any such subsidiary or any other
entity other than guarantees of bank obligations of such subsidiaries entered
into in the ordinary course of business.
(c) Except as set forth in Section 2.2(a) or (b), there are no equity
securities of any class of OSI or its subsidiaries, or any security
exchangeable into or exercisable for such equity securities, issued, reserved
for issuance or outstanding. Except as set forth in Section 2.2(a) or (b),
there are no options, warrants, equity securities, calls, rights, commitments
or agreements of any character to which OSI or any of its subsidiaries is a
party or by which any of them is bound obligating OSI or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of OSI or any of its subsidiaries or
obligating OSI or any of its subsidiaries to grant, extend, accelerate the
vesting of or enter into any such option, warrant, equity security, call,
right, commitment or agreement, and to the knowledge of OSI, except for the
Voting Agreements and related proxies contemplated by this Agreement, there
are no voting trusts, proxies or other agreements or understandings with
respect to the capital shares of OSI or its subsidiaries.
2.3 Authority; Absence of Conflicts; Consents. (a) OSI has all requisite
corporate power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
of OSI, subject only to the approval of the Merger
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by OSI's stockholders. A vote of the holders of a majority of the outstanding
shares of the OSI Common Stock is the only approval required for the OSI
stockholders to adopt this Agreement and the transactions contemplated hereby.
The Board of Directors of OSI has, prior to the date hereof, unanimously (x)
approved this Agreement and the Merger, (y) determined that the Merger is in
the best interests of the stockholders of OSI and is on terms that are fair to
such stockholders and (z) determined to recommend that the stockholders of OSI
approve this Agreement and consummation of the Merger. This Agreement has been
duly and validly executed and delivered by OSI and, assuming this Agreement
constitutes a valid and binding agreement of the other parties hereto,
constitutes a valid and binding obligation of OSI enforceable against OSI in
accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, or by principles governing the
availability of equitable remedies). The execution and delivery of this
Agreement by OSI does not, and the performance of this Agreement by OSI will
not, (i) conflict with or violate the Certificate of Incorporation or Bylaws
of OSI or the equivalent organizational documents of any of its subsidiaries,
(ii) subject to obtaining the adoption by OSI's stockholders of this Agreement
as contemplated in Section 6.1(a) and compliance with the requirements set
forth in Section 2.3(b) below, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to OSI or any of its
subsidiaries or by which its or any of their respective properties is bound,
or (iii) result in any breach of or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, or impair
the rights of OSI or its subsidiaries or alter the rights or obligations of
any third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of OSI or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which OSI or any of its subsidiaries is a party or by which OSI or any of
its subsidiaries or its or any of their respective properties are bound or
affected, except, with respect to clauses (ii) and (iii) above, for any such
conflicts, violations, defaults or other occurrences that would not have a
Material Adverse Effect on OSI. The OSI Disclosure Letter lists all material
consents, waivers and approvals under any of OSI's or its subsidiaries'
agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby,
except for those the absence of which in aggregate would not have a Material
Adverse Effect on OSI.
(b) No consent, approval, order or authorization of, or registration
declaration or filing with any court, administrative agency or commission or
other governmental or regulatory body or authority or instrumentality
("Governmental Entity") is required by or with respect to OSI or its
subsidiaries in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby, except for (i)
the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware, (ii) the filing of the Joint Proxy Statement (as defined in
Section 2.19) with the Securities and Exchange Commission (the "SEC") in
accordance with the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (iii) the filing of a Current Report on Form 8-K with the SEC, (iv) the
filing with the United States Department of Justice and the Federal Trade
Commission of such forms as may be required by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), (v) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws and the laws of
any foreign country, and (vi) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
Material Adverse Effect on OSI or LRC or have a material adverse effect on the
ability of the parties to consummate the transactions contemplated by this
Agreement.
2.4 SEC Documents; Financial Statements; Undisclosed Liabilities.
(a) OSI has filed all forms, reports and documents required to be filed with
the SEC since effectiveness of the registration statement filed in connection
with its initial public offering (the "IPO Date"), and has made available to
LRC such forms, reports and documents in the form filed with the SEC. All such
required forms, reports and documents (including those that OSI may file
subsequent to the date hereof until the Closing) are referred to herein as the
"OSI SEC Documents." As of their respective dates, the OSI SEC Documents (i)
were prepared in accordance with the requirements of the Securities Act of
1933, as amended (the "Securities Act")
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or the Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such OSI SEC Documents, and (ii) did not at the
time they were filed (and if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. None of
OSI's subsidiaries is required to file any forms, reports or other documents
with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in OSI SEC Documents (the "OSI Financial
Statements"), including any OSI SEC Documents filed after the date hereof
until the Closing, (x) complied as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, (y) was prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may be
permitted by the SEC on Form 10-Q under the Exchange Act) and (z) fairly
presented the consolidated financial position of OSI and its subsidiaries as
at the respective dates thereof and the consolidated results of its operations
and cash flows for the periods indicated, consistent with the books and
records of OSI, except that the unaudited interim financial statements were or
are subject to normal and recurring year-end adjustments which were not, or
are not expected to be, material in amount. The balance sheet of OSI contained
in OSI's Form 10-Q for the quarter ended December 31, 1996 is hereinafter
referred to as the "OSI Balance Sheet." Neither OSI nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise),
whether or not of a nature required to be disclosed on a balance sheet or in
the related notes to the consolidated financial statements prepared in
accordance with GAAP, which individually or in the aggregate are or would be
reasonably likely to have a Material Adverse Effect on OSI other than (i)
liabilities reflected in the OSI Balance Sheet, and (ii) normal or recurring
liabilities incurred since December 31, 1996 in the ordinary course of
business consistent with past practice. The inventories shown on the OSI
Balance Sheet are (and on OSI balance sheets included in future OSI SEC
Documents except as disclosed therein will be) of a quantity and quality
useable and saleable in accordance with good business practices and represent
a distribution of the types of inventories utilized in the business of OSI in
accordance with good business practices. The amounts shown for inventories on
the OSI Balance Sheet have been (and on OSI balance sheets included in future
OSI SEC Documents except as disclosed therein will be) determined in
accordance with generally accepted accounting principles on a first-in, first-
out basis and are stated at lower of cost or market.
(c) OSI has heretofore made available to LRC a complete and correct copy of
any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by OSI with the SEC pursuant to
the Securities Act or the Exchange Act.
2.5 Absence of Changes. Since December 31, 1996, the business of OSI and its
subsidiaries has been operated in the ordinary course consistent with past
practices, and:
(a) there has not been any material adverse change in the business,
condition, assets, liabilities, operations or financial performance of OSI
and its subsidiaries taken as a whole, and no event has occurred (whether
or not covered by insurance) that would reasonably be expected to have a
Material Adverse Effect on OSI;
(b) none of OSI or its subsidiaries has (i) declared, accrued, set aside
or paid any dividend or made any other distribution in respect of any
shares of capital stock, or (ii) repurchased, redeemed or otherwise
reacquired any shares of capital stock or other securities;
(c) there has been no amendment to the Certificate of Incorporation,
Bylaws or other charter or organizational documents of OSI or its
subsidiaries, and none of OSI or its subsidiaries has effected or been a
party to any merger, consolidation, share exchange, business combination,
recapitalization, reclassification of shares, stock split, reverse stock
split or similar transaction;
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(d) none of OSI or its subsidiaries has made any capital expenditure in
any calendar month which, when added to all other capital expenditures made
on behalf of OSI or its subsidiaries in such calendar month results in such
capital expenditures exceeding $250,000 in the aggregate;
(e) none of OSI or its subsidiaries has entered any material agreement
other than in the ordinary course of business and as made available to LRC,
nor has there occurred any amendment or termination of, or default under,
any material agreement to which OSI or any of its subsidiaries is a party
or by which it is bound which would result in a Material Adverse Effect on
OSI;
(f) none of OSI or its subsidiaries has written off as uncollectible, or
established any extraordinary reserve with respect to, any material amount
of accounts receivable or other indebtedness;
(g) none of OSI or its subsidiaries has incurred or guaranteed any
indebtedness for borrowed money, or made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any lien, claim
or encumbrance except for encumbrances of assets made in the ordinary
course of business and consistent with past practices;
(h) none of OSI or its subsidiaries has (i) established or adopted any
employee benefit plan, (ii) caused or permitted any employee benefit plan
or rights or agreements granted thereunder to be amended in any material
respect, or (iii) except for bonus, profit-sharing and similar payments
made in the ordinary course of business and consistent with past practices,
paid any bonus or made any profit-sharing or similar payment to, materially
increased the amount of commissions payable to, or materially increased the
amount of the wages, salary, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees;
(i) none of OSI or its subsidiaries has changed any of its methods of
accounting or accounting practices in any material respect;
(j) none of OSI or its subsidiaries has made any material Tax (as defined
in Section 2.12) election;
(k) none of OSI or its subsidiaries has commenced, settled or received a
notice or threat of any lawsuit or proceeding (including without limitation
any claim involving Intellectual Property) or governmental investigation of
OSI or its subsidiaries;
(l) none of OSI or its subsidiaries has agreed or committed to take any
of the actions referred to in clauses (a) through (k) above.
2.6 Litigation. There is no private or governmental action, suit, claim or
proceeding of any nature pending or to OSI's knowledge threatened against OSI
or its subsidiaries, their properties or any of their officers or directors,
in their respective capacities as such (i) involving OSI Intellectual Property
rights or in which injunctive or other equitable relief or damages in excess
of $250,000 are requested against OSI or its subsidiaries or which could
otherwise result in a Material Adverse Effect on OSI or (ii) which in any
manner challenges or seeks to (or is reasonably likely to) prevent, enjoin,
alter or delay any of the transactions contemplated by this Agreement. To
OSI's knowledge, there is no investigation or review pending or threatened
against OSI or its subsidiaries, their properties or any of their officers or
directors (in their capacities as such) by or before any Governmental Entity.
Section 2.6 of the OSI Disclosure Letter sets forth, with respect to any
pending or threatened action, suit, claim, proceeding, investigation or
review, the forum, the parties thereto, the subject matter thereof and the
amount of damages claimed or other remedy requested.
2.7 Restrictions on Business Activities. There is no material agreement,
judgment, injunction, order or decree binding upon OSI or any of its
subsidiaries which has the effect of prohibiting or impairing any current or
future business practice of OSI or any of its subsidiaries, any acquisition of
property (tangible or intangible) by OSI or any of its subsidiaries or the
conduct of business by OSI or any of its subsidiaries as currently conducted
or as proposed to be conducted by OSI and its subsidiaries.
2.8 Compliance With Laws. Each of OSI and its subsidiaries has complied
with, is not in violation of, has not received any notices of violation with
respect to, and holds all licenses, permits and authorizations required by,
any federal, state, local or foreign statute, law, regulation, decree,
judgment or order with respect to
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the conduct of its business, or the ownership or operation of its business,
except for such violations or failures as would not have, individually or in
the aggregate, a Material Adverse Effect on OSI.
2.9 Governmental Authorization. OSI and each of its subsidiaries has
obtained and is in compliance with each federal, state, county, local or
foreign governmental consent, license, permit, grant, or other authorization
of a Governmental Entity (i) pursuant to which OSI or any of its subsidiaries
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of OSI's or any of its subsidiaries' business or
the holding of any such interest ((i) and (ii) herein collectively called "OSI
Authorizations"), and all of such OSI Authorizations are in full force and
effect, except where the failure to obtain or have any of such OSI
Authorizations would not, individually or in the aggregate, have a Material
Adverse Effect on OSI.
2.10 Intellectual Property.
(a) "Intellectual Property" means all patents, patent applications,
copyrights, trademarks, service marks, tradenames, maskworks, trade secrets,
know-how, technologies, ideas, algorithms, processes, computer software
programs, and all other tangible or intangible proprietary information and
materials used in the business of OSI and its subsidiaries as currently
conducted or as proposed to be conducted or relating to products under
development by OSI or any of its subsidiaries ("Used in the Business"), as
well as all registrations and pending applications for registration of any of
the foregoing in any jurisdiction, and including each license, sublicenses or
other contract relating thereto. References herein to the Intellectual
Property of LRC or any other person or entity shall refer to the same items
with respect to that other party. OSI and its subsidiaries own all of the
Intellectual Property Used in the Business of OSI and its subsidiaries free
and clear of any and all liens, collateral assignments, security interests and
encumbrances, except to the extent that the failure to own such Intellectual
Property has not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on OSI.
(b) Section 2.10 of the OSI Disclosure Letter sets forth a complete and
correct list of the following items owned or Used in the Business of OSI or
any of its subsidiaries, and a corresponding list of each jurisdiction in
which a patent or registration for such item has been issued or in which an
application has been filed in the name of OSI or any of its subsidiaries: (i)
all patents and patent applications, (ii) all registered and unregistered
trademarks, service marks and tradenames, (iii) all registered and
unregistered copyrights and maskworks, (iv) the expiration or renewal date for
each patent or registration listed, and (v) the owner of each item of
Intellectual Property listed thereon. Each item set forth in Section 2.10 of
the OSI Disclosure Letter is owned by the party shown on such schedule as the
owner thereof, and, if registered, is registered in the name of such owner.
(c) Section 2.10 of the OSI Disclosure Letter sets forth a complete and
correct list of (i) all licenses, sublicenses and other agreements other than
end user licenses of commercially available products of third parties entered
into in the ordinary course of business ("Licenses") as to which OSI or any of
its subsidiaries is a party and pursuant to which any person is authorized to
use any Intellectual Property of OSI, (ii) all Licenses as to which OSI or any
of its subsidiaries is a party and pursuant to which OSI or any of its
subsidiaries is authorized to use any Intellectual Property of a third party,
and (iii) for each such License, the name of the licensor and licensee
thereof, the nature of the Intellectual Property covered by the License and
the termination date thereof. With respect to each License pursuant to which
OSI or any of its subsidiaries is authorized to use any Intellectual Property
of a third party, Section 2.10 of the OSI Disclosure Letter sets forth the
products of OSI and its subsidiaries in which such third party's Intellectual
Property is used.
(d) OSI or its subsidiaries have sole and exclusive rights to, and no other
person or entity has any claim of ownership, whether joint or individual, with
respect to, each of the patents, patent applications, trademarks, service
marks, tradenames, copyrights and maskworks set forth in Section 2.10 of the
OSI Disclosure Letter. Each patent and each registration listed in Section
2.10 of the OSI Disclosure Letter is valid, enforceable and subsisting and in
full force and effect and has been duly prosecuted, registered and maintained
by OSI and its subsidiaries in each jurisdiction listed. No pending
application for a patent or for a registration of any Intellectual Property
has been rejected, suspended, made the subject of an office action or other
challenge by the agency
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with which such application has been filed or by any third party. No patent
has been claimed or adjudicated to be invalid or unenforceable in whole or in
part, no trademark or service mark has been the subject of any claim of
abandonment or otherwise challenged as invalid, and no copyright has been
invalidated or alleged to be in the public domain. Neither OSI nor any of its
subsidiaries owns any trademark or service mark applications pending in any
jurisdiction that have been filed on an "intent-to-use" basis. No patent or
registration is subject to any current tax, maintenance fee or renewal fee
which has not been paid. All trademarks, service marks and tradenames set
forth in Section 2.10 of the OSI Disclosure Letter have been used continuously
since adoption by the owner listed thereon.
(e) All trade secrets and confidential information of OSI and its
subsidiaries are valid and protectable, are not publicly known, and have not
been disclosed or otherwise made available to any person except pursuant to a
written confidentiality agreement that restricts the further disclosure and
use of such trade secret or confidential information, and each such
confidentiality agreement is valid and enforceable and in full force and
effect. All trade secrets and confidential information of OSI and its
subsidiaries have been documented in writing completely and accurately in all
material respects, and such documentation contains sufficient detail and
disclosure regarding such trade secrets and confidential information so as to
permit the continued use of such trade secrets and confidential information as
Used in the Business of OSI and its subsidiaries without the need to obtain
any further documentation or to depend on the skills or knowledge of any
current or former employee or consultant of OSI or its subsidiaries. OSI and
its subsidiaries have taken all reasonable and appropriate steps to protect
and preserve all trade secrets and confidential information of OSI and its
subsidiaries and all other Intellectual Property of OSI that is not otherwise
protected by patents, or copyright or maskwork registrations. Each item of
Intellectual Property disclosed or identified to LRC as a trade secret of OSI
or its subsidiaries qualifies as such under the Uniform Trade Secrets Act as
embodied in Section 3426.1 of the California Civil Code. The use, possession
or disclosure by OSI or any of its subsidiaries of any confidential
information or trade secrets Used in the Business but which are not owned by
OSI or its subsidiaries has been used, obtained or disclosed in compliance
with the terms and conditions of a valid and enforceable agreement between OSI
or its subsidiaries and the owner of such trade secret or confidential
information, or such use, possession or disclosure is otherwise lawful under
the circumstances. To OSI's best knowledge after reasonable diligence, there
have been no unauthorized disclosures of any trade secret or confidential
information of OSI, no unauthorized disclosures of any trade secret or
confidential information of any third party by OSI or any of its subsidiaries
or any of their respective employees or consultants, and there has been no
breach of any confidentiality or nondisclosure agreements to which OSI or any
of its subsidiaries is a party.
(f) No License, consent or other authorization is required from any third
party with respect to any Intellectual Property Used in the Business of OSI
and its subsidiaries.
(g) Each License to which OSI or any of its subsidiaries is a party with
respect to Intellectual Property of OSI or its subsidiaries, or with respect
to Intellectual Property of any third party, is valid and enforceable in
accordance with its terms, is in full force and effect, and is not the subject
of any notice of termination or nonrenewal, and there is no default or alleged
or threatened default with respect to any such License. OSI and its
subsidiaries have performed all of their respective obligations under any such
License and no event has occurred that with the passage of time or the
delivery of notice or both would constitute a default under any such License.
All consents or approvals with respect to the transfer of any License or any
other agreement involving any Intellectual Property have been obtained by OSI,
and complete and correct copies of all Licenses, together with all amendments,
modifications, supplements or side letters affecting the obligation of any
party thereunder have been made available to LRC. Neither the execution and
performance of this Agreement nor the consummation of the transactions
contemplated hereunder will cause any License to be subject to termination or
material modification, or cause OSI or any of its subsidiaries to be in breach
of any License or other agreement relating to the Intellectual Property, if
such breach would have, or would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on OSI.
(h) The possession and use of the Intellectual Property Used in the Business
of OSI and its subsidiaries does not (to the knowledge of OSI as to patents)
in any material respect conflict with, infringe upon, violate or
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interfere with or constitute a misappropriation of any right, title, interest
or goodwill of any other person in any Intellectual Property, including but
not limited to any "moral rights" of any such person. Neither OSI nor any of
its subsidiaries (i) is a party to any suit, action or proceeding which
involves a claim of infringement, misappropriation or misuse of any
Intellectual Property or has received notice of or otherwise become aware of
any such suit, action or proceeding, (ii) has brought any action, suit or
proceeding against any third party for infringement, misappropriation or
misuse of any Intellectual Property or breach of any License involving any
Intellectual Property, and (iii) neither OSI nor any of its subsidiaries
possesses any information or otherwise is aware of any basis upon which any
material claim can successfully be asserted against OSI or any of its
subsidiaries with respect to any infringement, misappropriation or other
misuse of any Intellectual Property. Neither OSI nor any of its subsidiaries
have received any notice or otherwise knows that any legal proceeding has been
initiated or threatened with respect to any Intellectual Property or with
respect to any claim that any License regarding any Intellectual Property is
the subject of any breach or default.
(i) The items set forth in Section 2.10 of the OSI Disclosure Letter and the
trade secrets, technologies, know-how and other items of Intellectual Property
lawfully possessed by OSI and its subsidiaries are all that are necessary for
the conduct of its business as now conducted or contemplated to be conducted
or relating to products or processes under development by OSI and its
subsidiaries.
(j) Neither OSI nor any of its subsidiaries is aware or has reason to
believe that any of its employees or consultants is obligated under any
contract, covenant or other agreement or commitment of any nature, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of such employee's or consultant's best efforts
to promote the interests of OSI and its subsidiaries or that would conflict
with the business of OSI and its subsidiaries as presently conducted or
proposed to be conducted. Neither OSI nor any of its subsidiaries has entered
into any agreement to indemnify any other person, including but not limited to
any employee or consultant of OSI, against any charge of infringement,
misappropriation or misuse of any Intellectual Property, other than
indemnification provisions contained in purchase orders or customer agreements
arising in the ordinary course of business. To the extent that OSI does not
already own all such rights by operation of law, all current and former
employees and consultants of OSI and its subsidiaries have signed valid and
enforceable written assignments to OSI or its subsidiaries of any and all
rights or claims in any Intellectual Property that any such employee or
consultant has or may have by reason of any contribution, participation or
other role in the development, conception, creation, reduction to practice or
authorship of any invention, innovation, development or work of authorship or
any other Intellectual Property that is Used in the Business of OSI and its
subsidiaries, and OSI and its subsidiaries possess signed copies of all such
written assignments by such employees and consultants.
2.11 Environmental Matters. Except for such cases that, individually or in
the aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect on OSI, OSI and each of its subsidiaries (i) has
obtained all applicable permits, licenses and other authorizations that are
required under Federal, state or local laws relating to pollution or
protection of human health or the environment, including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants or hazardous or toxic materials or wastes into
ambient air, surface water, ground water or land or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Material (as defined below) by OSI or such
subsidiary or any of their respective agents (collectively, "Environmental
Laws"); (ii) is in compliance with all terms and conditions of such required
permits, licenses and authorizations, and also is in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in applicable Environmental
Laws or in any regulation, code, plan, order, decree, judgment, notice or
demand letter issued, entered, promulgated or approved thereunder; (iii) is
not aware of and has not received notice of any (A) claim, act, suit,
proceeding or investigation, or (B) event, condition, circumstance, activity,
practice, incident, action or plan that is reasonably likely to interfere with
or prevent continued compliance or that would give rise to any common law or
statutory liability, or otherwise form the basis of any claim, action, suit or
proceeding, based on or resulting from OSI's or any of its subsidiaries' (or
any of their respective agents') manufacture, processing, distribution, use,
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treatment, storage, disposal, transport, or handling, or the emission,
discharge or release into the environment of any Hazardous Material or other
non-compliance with any applicable Environmental Law; (iv) has not disposed of
any Hazardous Material into the soil or groundwater at any properties owned,
leased or used by OSI, either now or in the past, or at any other property
that might reasonably be expected to result in any assessment or remedial
action by any Governmental Entity; and (v) has taken all actions necessary
under applicable requirements of Federal, state, local and foreign laws, rules
or regulations to register any products or materials required to be registered
by OSI or any of its subsidiaries (or any of their respective agents)
thereunder.
For the purposes of this Agreement, the term "Hazardous Material" means any
pollutant or contaminant or hazardous or toxic substance, material or waste,
the storage, use, treatment, handling, transport or disposition of which is or
becomes regulated or subject to regulation or cause of action by any local
governmental authority, the State of California, the United States government,
or any other person, entity or citizen's group. The term "Hazardous Material"
includes, without limitation, any material or substance which is (i) defined
as or included within the definition of "hazardous waste," "extremely
hazardous waste" or "restricted hazardous waste" under Section 255115, 25117
or 25122.7, or listed pursuant to Section 25140 of the California Health and
Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii)
defined as or included within the definition of a "hazardous substance" under
Section 25136 of the California Health and Safety Code, Division 20, Chapter
6.8 (Carpenter-Presley-Tanner Hazardous Substance Account Act), (iii) defined
as or included within the definition of a "hazardous material," "hazardous
substance," or "hazardous waste" under Section 25501 of the California Health
and Safety Code, Division 20, Chapter 6.95 (Hazardous Materials Release
Response Plans and Inventory), (iv) defined as or included within the
definition of a "hazardous substance" under Section 25281 of the California
Health and Safety Code, Division 20, Chapter 6.7 (Underground Storage of
Hazardous Substances), (v) petroleum or petroleum products or waste, (vi)
asbestos or asbestos-containing materials, lead or lead-based materials or
polychlorinated biphenyls, (vii) listed Under Article 9 or defined as or
included within the definition of hazardous or extremely hazardous pursuant to
Article 11 of Title 22 of the California Administrative Code, Division 4,
Chapter 20, (viii) defined as or included within the definition of a
"hazardous substance" pursuant to Section 311 of the Federal Water Pollution
Control Act (33 U.S.C. Section 1317), (ix) defined as or included within the
definition of a "hazardous waste" pursuant to Section 1004 of the Federal
Resource Conservation and Recovery Act, 42 U.S.C. Section 9601 et seq. (42
U.S.C. Section 9601), (x) defined as or included within the definition of a
"hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response Compensation and Liability, 42 U.S.C. Section 9601 et
seq. (42 U.S.C. Section 9601), or (xi) listed or defined as or included within
the definition of "hazardous waste", "hazardous substance," or other similar
designation by any regulatory scheme of any local governmental authority, the
State of California or the United States Government, or any other governmental
or quasi-governmental entity.
2.12 Taxes. Except to the extent the failure to do so would not,
individually or in the aggregate, have a Material Adverse Effect on OSI, OSI
and each of its subsidiaries, and any consolidated, combined, unitary or
aggregate group for Tax purposes of which OSI or any of its subsidiaries is or
has been a member have timely filed all Tax Returns required to be filed by
it, have paid all Taxes due and have provided adequate accruals in accordance
with generally accepted accounting principles in their financial statements
for any Taxes that have not been paid, whether or not shown as being due on
any Tax Returns. All Tax Returns filed are complete and accurate, except to
the extent that any inaccuracies in filed Tax Returns would not, individually
or in the aggregate, have a Material Adverse Effect on OSI. Except as
disclosed in the OSI Disclosure Letter, (i) no claim for Taxes has become a
lien against the property of OSI or any of its subsidiaries or is being
asserted against OSI or any of its subsidiaries other than liens for Taxes not
yet due and payable, (ii) no audit of any Tax Return of OSI or any of its
subsidiaries is being conducted by a Tax authority (defined below), and there
is no deficiency, refund litigation, proposed adjustment or matter in
controversy with respect to any Taxes due, (iii) no extension of the statute
of limitations on the assessment of any Taxes has been granted by OSI or any
of its subsidiaries and is currently in effect, and (iv) there is no
agreement, contract or arrangement to which OSI or any of its subsidiaries is
a party that may result in the payment of any amount that would not be
deductible by reason of Sections 280G or 404 of the Code. All assessments for
Taxes due and owing by OSI or any of its subsidiaries with respect to
completed examinations or concluded litigation have been paid. Neither OSI nor
any
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of its subsidiaries has been or will be required to include in income any
material amounts for any Tax period (or portion thereof) pursuant to Section
481 or 263A of the Code or any comparable provision under state or foreign Tax
laws as a result of transactions, events or accounting methods employed prior
to the Merger. Neither OSI nor any of its subsidiaries is a party to any tax
sharing or tax allocation agreement with any party other than OSI or its
existing subsidiaries nor does OSI or any of its subsidiaries owe any amount
under any such agreement. OSI and each of its subsidiaries have complied in
all material respects with all rules and regulations relating to the
withholding of Taxes. For purposes of this Agreement, the following terms have
the following meanings: "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means (i) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, social security, workers'
compensation, unemployment compensation, excise, severance, stamp, occupation,
premium, property, environmental or windfall profit tax, custom, duty or other
tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Entity (a "Tax authority")
responsible for the imposition of any such tax (domestic or foreign), (ii) any
liability for the payment of any amounts of the type described in (i) as a
result of being a member of an affiliated, consolidated, combined or unitary
group for any Taxable period and (iii) any liability for the payment of any
amounts of the type described in (i) or (ii) as a result of any express or
implied obligation to indemnify any other person. As used herein, "Tax Return"
shall mean any return, statement, report or form (including, without
limitation, estimated Tax returns and reports, withholding Tax returns and
reports and information reports and returns) required to be filed with respect
to Taxes. OSI and each of its subsidiaries are in full compliance with all
terms and conditions of any Tax exemptions or other Tax-sharing agreement or
order of a foreign government, and the consummation of the Merger shall not
have any adverse effect on the continued validity and effectiveness of any
such Tax exemptions or other Tax-sharing agreement or order.
2.13 Employee Benefit Plans.
(a) Section 2.13(a) of the OSI Disclosure Letter lists, with respect to OSI,
each subsidiary of OSI, and any trade or business (whether or not
incorporated) which is treated as a single employer with OSI (an "ERISA
Affiliate") within the meaning of Section 414(b), (c), (m) or (o) of the Code,
(i) all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and subject to
ERISA, sponsored, maintained, contributed to or required to be contributed to
by OSI or any ERISA Affiliate, (ii) each loan to a non-officer employee in
excess of $50,000, all loans to officers and directors and any stock option,
stock purchase, phantom stock, stock appreciation right or other stock-based
incentive plans, programs, arrangements, or agreements, (iii) all supplemental
retirement, severance, sabbatical, medical, dental, vision care, disability,
employee relocation, cafeteria benefit (Code Section 125) or dependent care
(Code Section 129), life insurance or accident insurance, bonus, pension,
profit sharing, savings, deferred compensation or other welfare, retirement or
incentive plans, programs, policies or contracts or arrangements which are not
employee benefit plans as otherwise covered under clause (i) or (ii) above,
(iv) other material fringe or employee benefit plans, programs, policies or
contracts or arrangements that apply to senior management of OSI and that do
not generally apply to all employees, and (v) any current or former employment
or executive compensation or severance or consulting agreements, written or
otherwise, as to which unsatisfied obligations of OSI of greater than $50,000
remain for the benefit of, or relating to, any present or former employee,
consultant, agent, officer or director of OSI (together, the "OSI Employee
Plans").
(b) OSI has made available to LRC a copy of each of the OSI Employee Plans
and related plan documents (including trust documents, insurance policies or
contracts, employee booklets, summary plan descriptions and other authorizing
documents, and, to the extent still in its possession, any material employee
or other communications relating thereto) and has, with respect to each OSI
Employee Plan which is subject to ERISA reporting requirements, provided
copies of the Form 5500 reports filed for the last three plan years. Any OSI
Employee Plan intended to be qualified under Section 401(a) of the Code has
either obtained from the Internal Revenue Service a favorable determination
letter as to its qualified status under the Code, including all amendments to
the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or
has applied to
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the Internal Revenue Service for such a determination letter prior to the
expiration of the requisite period under applicable Treasury Regulations or
Internal Revenue Service pronouncements in which to apply for such
determination letter and to make any amendments necessary to obtain a
favorable determination. OSI has also furnished LRC with the most recent
Internal Revenue Service determination letter issued with respect to each such
OSI Employee Plan, and nothing has occurred since the issuance of each such
letter which could reasonably be expected to cause the loss of the tax-
qualified status of any OSI Employee Plan subject to Code Section 401(a).
(c) (i) Other than continued health care coverage required under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"),
none of the OSI Employee Plans promises or provides retiree medical or other
retiree welfare benefits to any person; (ii) there has been no "prohibited
transaction," as such term is defined in Section 406 of ERISA and Section 4975
of the Code, with respect to any OSI Employee Plan, which could reasonably be
expected to have, in the aggregate, a Material Adverse Effect on OSI; (iii)
each OSI Employee Plan has been administered in accordance with its terms and
in compliance with the requirements prescribed by any and all statutes, rules
and regulations (including ERISA and the Code), except as would not have, in
the aggregate, a Material Adverse Effect, and OSI and each of its subsidiaries
and each ERISA Affiliate have performed all obligations required to be
performed by them under, are not in any respect in default under or violation
of, and have no knowledge of any default or violation by any other party with
respect to, any of the OSI Employee Plans, which default or violation could
reasonably be expected to have a Material Adverse Effect on OSI; (iv) neither
OSI nor any ERISA Affiliate nor any of the Employee Plans nor any trust
created thereunder nor any trustee or administrator thereof has engaged in a
transaction or has taken or failed to take any action in connection with which
OSI, any ERISA Affiliate, any of the OSI Employee Plans, any such trust, any
trustee or administrator thereof, or any party dealing with the OSI Employee
Plans or any such trust could be subject to any liability or penalty under
Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any
of the OSI Employee Plans and that individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect on OSI; (v) neither
OSI nor any subsidiary of OSI has any liabilities or obligations with respect
to any OSI Employee Plan, whether or not accrued, contingent or otherwise,
except as described in any of the OSI SEC Documents; (vi) with respect to each
OSI Employee Plan that is subject to Title IV of ERISA, no "reportable event"
within the meaning of Section 4043 of ERISA (excluding any such event for
which the thirty (30) day notice requirement has been waived under the
regulations to Section 4043 of ERISA (except any failure to meet the minimum
funding standard of Section 412 of the Code and Section 302 of ERISA, which
failure shall be deemed a "reportable event" for purposes hereof) nor any
event described in Section 4062, 4063 or 4041 of ERISA has occurred; and (vii)
no OSI Employee Plan is or at any time has been subject to, and neither OSI
nor any subsidiary or ERISA Affiliate has at any time incurred or reasonably
expects to incur any liability under Title IV of ERISA or Section 412 of the
Code. To the extent the representation in clause (vii) of the immediately
preceding sentence applies to Sections 4064, 4069 or 4204 of Title IV of
ERISA, it is made not only with respect to the OSI Employee Plans but also
with respect to any employee benefit plan, program, agreement or arrangement
subject to Title IV of ERISA to which OSI or any ERISA Affiliate made, or was
required to make, contributions within the last six (6) years. With respect to
each OSI Employee Plan subject to ERISA that is either an employee pension
benefit plan within the meaning of Section 3(2) of ERISA or an employee
welfare benefit plan within the meaning of Section 3(1) of ERISA, OSI has
prepared in good faith and timely filed all requisite governmental reports
(which were true and correct in all material respects as of the date filed)
and, to OSI's knowledge, OSI has properly and timely filed and distributed or
posted all notices and reports to employees required to be filed, distributed
or posted with respect to each such OSI Employee Plan except where the failure
to do so would not have a Material Adverse Effect. No suit, administrative
proceeding, action or other litigation has been brought, or to the best
knowledge of OSI is threatened, against or with respect to any such OSI
Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor. Neither OSI nor any subsidiary or ERISA Affiliate is a
party to, or has at any time made any contribution to or otherwise incurred
any obligation under, any "multiemployer plan" as defined in Section 3(37) of
ERISA.
(d) With respect to each OSI Employee Plan, OSI and each of its ERISA
Affiliates has complied, except to the extent that failure to so comply would
not, individually or in the aggregate, have a Material Adverse Effect
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on OSI, with (i) the applicable health care continuation and notice provisions
of COBRA and the proposed regulations thereunder and (ii) the applicable
requirements of the Family Leave Act of 1993 and the regulations thereunder.
(e) The consummation of the transactions contemplated by this Agreement will
not (i) entitle any current or former officer, director, agent employee or
other service provider of OSI or any subsidiary or other ERISA Affiliate to
severance benefits or any other payment (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or otherwise),
or (ii) accelerate the time of payment or vesting, or increase the amount of
compensation otherwise due any such officer, director, agent employee or
service provider under any OSI Employee Plan or otherwise.
(f) There has been no amendment to, written interpretation or announcement
(whether or not written) by OSI, any OSI subsidiary or other ERISA Affiliate
relating to, or change in participation or coverage under, any OSI Employee
Plan which would materially increase the expense of maintaining such Plan
above the level of expense incurred with respect to that Plan for the most
recent fiscal year included in OSI's financial statements.
(g) No amounts payable under any of the OSI Employee Plans or any other
agreement arrangements with respect to which OSI may have any liability could
give rise to the payment of any amount that would fail to be deductible for
Federal income tax purposes by virtue of Section 162(m) or Section 280G of the
Code.
(h) With respect to each OSI Employee Plan that is funded wholly or
partially through an insurance policy, there will be no liability of OSI or
any ERISA Affiliate, as of the Closing Date, under any such insurance policy
or ancillary agreement with respect to such insurance policy in the nature of
a retroactive rate adjustment, loss sharing arrangement or other actual or
contingent liability arising wholly or partially out of events occurring prior
to the Closing Date.
2.14 Employee Matters.
(a) OSI and each of its subsidiaries has good labor relations, are in
compliance in all respects with all currently applicable laws, regulations and
agreements respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and are not engaged in any unfair labor practice, except
where the failure to be in compliance or the engagement in such unfair labor
practices would not, individually or in the aggregate, have a Material Adverse
Effect on OSI. There are no pending claims against OSI or any of its
subsidiaries under any workers compensation plan or policy or for long term
disability which would have, individually or in the aggregate, a Material
Adverse Effect on OSI. Neither OSI nor any of its subsidiaries has any
obligations under COBRA with respect to any former employees or qualifying
beneficiaries thereunder, except for obligations that would not have,
individually or in the aggregate, a Material Adverse Effect on OSI. There are
no controversies pending or, to the knowledge of OSI or any of its
subsidiaries, threatened, between OSI or any of its subsidiaries and any of
their respective employees, which controversies would have, individually or in
the aggregate, a Material Adverse Effect on OSI. Neither OSI nor any of its
subsidiaries is (or has in the past been) a party to any collective bargaining
agreement or other labor union contract, nor does OSI nor any of its
subsidiaries know of any activities or proceedings of any labor union to
organize any of its employees.
(b) To OSI's knowledge, no employee of OSI or its subsidiaries (i) is in
violation of any term of any employment contract, nondisclosure agreement,
noncompetition agreement, or any restrictive covenant to a former employer
relating to the right of any such employee to be employed by LRC, OSI or their
subsidiaries because of the nature of the business conducted or presently
proposed to be conducted by LRC, OSI or their subsidiaries or to the use of
trade secrets or proprietary information of others or (ii) has given notice to
OSI, nor is OSI aware that any member of senior management, any key employee
or any other person listed as a "key person" on Section 2.14 of the OSI
Disclosure Letter intends to terminate his or her employment with OSI or its
subsidiaries.
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2.15 Interested Party Transactions. Neither OSI nor any of its subsidiaries
is indebted to any director, officer, employee or agent of OSI or any of its
subsidiaries (except for amounts due as normal salaries and bonuses and in
reimbursement of ordinary expenses), and no such person is indebted to OSI or
any of its subsidiaries, and there have been no other transactions of the type
required to be disclosed pursuant to Items 402 and 404 of Regulation S-K under
the Securities Act and the Exchange Act since the IPO Date. To the knowledge
of OSI, no director, officer, employee or agent of OSI or any of its
subsidiaries has any equity interest or other arrangement with any entity
described in the second to last sentence of Section 2.1 or with any
competitor, supplier or customer of OSI or any of its subsidiaries, other than
less than 1% equity interests in publicly traded companies.
2.16 Insurance. OSI and each of its subsidiaries have policies of insurance
and bonds of the type and in amounts customarily carried by persons conducting
businesses or owning assets similar to those of OSI and its subsidiaries.
There is no material claim pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies
and bonds have been paid and OSI and its subsidiaries are otherwise in
compliance in all material respects with the terms of such policies and bonds.
OSI has no knowledge of any threatened termination of, or material premium
increase with respect to, any of such policies.
2.17 Pooling of Interests. To the knowledge of OSI, after consultation with
its independent auditors, neither OSI nor any of its subsidiaries, nor any of
their respective directors, officers or stockholders has taken any action or
failed to take any action, which action or failure would prevent LRC from
accounting for the Merger as a pooling of interests.
2.18 Brokers' and Finders' Fees. Except for payment obligations to Deutsche
Morgan Grenfell disclosed to LRC, neither OSI nor its subsidiaries have
incurred, nor will they incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or investment bankers' fees
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
2.19 Registration Statement; Joint Proxy Statement/Prospectus. The
information supplied by OSI for inclusion in the Registration Statement on
Form S-4 (the "Registration Statement") pursuant to which the shares of LRC
Common Stock issuable in the Merger will be registered with the SEC shall not
at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
information supplied by OSI for inclusion in the joint proxy
statement/prospectus (the "Proxy Statement") to be sent to the stockholders of
OSI and LRC in connection with the meeting of OSI's stockholders to consider
the Merger (the "OSI Stockholders Meeting") and the meeting of LRC's
stockholders to consider the Merger (the "LRC Stockholders Meeting") (such
Proxy Statement as amended or supplemented, together with the letters to
stockholders, notices of meeting, forms of proxies to be distributed to
stockholders in connection with the Merger and any schedules required to be
filed with the SEC in connection therewith are collectively referred to herein
as the "Joint Proxy Statement") shall not, on the date the Joint Proxy
Statement is first mailed to stockholders of OSI or LRC, at the time of the
OSI Stockholders Meeting or the LRC Stockholders Meeting, or at the Effective
Time, contain any statement which, at such time, is false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they are made, not false or misleading; or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of proxies for the OSI Stockholders Meeting or the
LRC Stockholder Meeting which has become false or misleading. The Joint Proxy
Statement will comply as to form in all material respects with the provisions
of the Exchange Act and the rules and regulations promulgated thereunder. If
at any time prior to the Effective Time any event or information should be
discovered by OSI which should be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy Statement, OSI shall
promptly inform LRC and Merger Sub. Notwithstanding the foregoing, OSI makes
no representation, warranty or covenant with respect to any information
supplied by LRC or Merger Sub which is contained in any of the foregoing
documents.
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2.20 Opinion of Financial Advisor. The financial advisor of OSI, Deutsche
Morgan Grenfell, has delivered to OSI a written opinion dated the date of this
Agreement to the effect that the Exchange Ratio is fair from a financial point
of view to the stockholders of OSI as of the date hereof. A copy of the
written opinion of Deutsche Morgan Grenfell will be delivered to LRC as soon
as practicable after the date of this Agreement.
2.21 Title to Property. OSI and its subsidiaries have good and valid title
to all of their respective properties, interests in properties and assets,
real and personal, reflected in the OSI Balance Sheet or acquired after
December 31, 1996 (except properties, interests in properties and assets sold
or otherwise disposed of since December 31, 1996 in the ordinary course of
business), or in the case of leased properties and assets, valid leasehold
interests in, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (i) any lien of current taxes
not yet due and payable, (ii) such imperfections of title, liens and easements
as do not and will not materially detract from or interfere with the use of
the properties subject thereto or affected thereby, or otherwise materially
impair business operations involving such properties, (iii) liens securing
debt reflected on the OSI Balance Sheet or (iv) those liens which would not,
individually or in the aggregate, have a Material Adverse Effect on OSI. The
plants, property and equipment of OSI and its subsidiaries that are used in
the operations of their businesses are in good operating condition and repair.
All properties used in the operations of OSI and its subsidiaries are
reflected in the OSI Balance Sheet to the extent generally accepted accounting
principles require the same to be reflected. Schedule 2.10 identifies each
parcel of real property owned or leased by OSI or any of its subsidiaries.
2.22 Section 203 of the Delaware Law Not Applicable. Assuming LRC and its
subsidiaries have not owned at any time, and will not acquire prior to the
Effective Time, shares of (or shares convertible into) OSI equity, the Board
of Directors of OSI has taken all actions necessary so that the restrictions
contained in Section 203 of the Delaware Law applicable to a "business
combination" (as defined in Section 203) will not apply to the execution,
delivery or performance of this Agreement or the consummation of the Merger or
the other transactions contemplated by this Agreement.
2.23 Lack of Ownership of LRC Common Stock. Neither OSI nor any of its
subsidiaries owns any shares of LRC Common Stock or other securities
convertible into LRC Common Stock.
2.24 Agreements, Contracts and Commitments. Except as set forth in the OSI
Disclosure Letter, neither OSI nor any of its subsidiaries is a party to or is
bound by:
(a) any collective bargaining agreements;
(b) any agreements or arrangements that contain any severance pay or
postemployment liabilities or obligations other than OSI Employee Plans;
(c) any bonus, deferred compensation, incentive compensation, pension,
profit-sharing or retirement plans, or any other employee benefit plans or
arrangements other than OSI Employee Plans;
(d) any employment or consulting agreement, contract or binding
commitment with any employee, not terminable by OSI or any of its
subsidiaries on thirty days notice without liability;
(e) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(f) any agreement of indemnification or guaranty not entered into in the
ordinary course of business other than indemnification agreements between
OSI or any of its subsidiaries and any of its officers or directors;
(g) any agreement, contract or commitment containing any covenant
limiting the freedom of OSI or any of its subsidiaries to engage in any
line of business or compete with any person;
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(h) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $250,000 and not
cancelable at will without penalty;
(i) any agreement, contract or commitment currently in force relating to
the disposition or acquisition of assets not in the ordinary course of
business or any ownership interest in any corporation, partnership, joint
venture or other business enterprise;
(j) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit;
(k) any joint marketing or development agreement, distribution agreement
or royalty agreement; or
(l) any other agreement, contract or commitment (excluding real and
personal property leases) which require payment by OSI or any of its
subsidiaries under any such agreement, contract or commitment of $250,000
or more in the aggregate and is not cancelable without penalty within
thirty (30) days other than purchase order commitments for inventory in the
ordinary course of business and consistent with past practices.
Neither OSI nor any of its subsidiaries, nor to OSI's knowledge any other
party to an OSI Contract (as defined below), has breached, violated or
defaulted under, or received notice that it has breached violated or defaulted
under, any of the material terms or conditions of any of the agreements,
contracts or commitments to which OSI is a party or by which it is bound of
the type described in clauses (a) through (l) above (any such agreement,
contract or commitment, an "OSI Contract") in such a manner as would permit
any other party to cancel or terminate any such OSI Contract, or would permit
any other party to seek damages, which would have a Material Adverse Effect on
OSI.
2.25 Representations Complete. None of the representations or warranties
made by OSI herein or in any Schedule or Exhibit hereto, including the OSI
Disclosure Letter, or certificate furnished by OSI pursuant to this Agreement,
contains or will contain at the Effective Time any untrue statement of a
material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF LRC AND MERGER SUB
LRC and Merger Sub represent and warrant to OSI that the statements
contained in this Article 3 are true and correct, except as disclosed in
writing in the disclosure letter supplied by LRC and Merger Sub as of the date
hereof and certified by a duly authorized officer of LRC (the "LRC Disclosure
Letter"). The LRC Disclosure Letter shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this
Article 3, and the disclosure in any paragraph shall qualify only the
corresponding paragraph in this Article 3.
3.1 Organization; Subsidiaries. Each of LRC and its subsidiaries, including
Merger Sub, is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of LRC and
its subsidiaries has the corporate power to own its properties and to carry on
its business as now being conducted and as proposed to be conducted, and is
duly qualified to do business and in good standing in each jurisdiction in
which the failure to be so qualified and in good standing would have a
Material Adverse Effect on LRC. LRC has made available to OSI true and
complete copies of LRC's Certificate of Incorporation and Bylaws and similar
governing instruments of its subsidiaries, each as amended to date. Neither
LRC nor any of its subsidiaries is in violation of any of the provisions of
its Certificate of Incorporation or Bylaws or equivalent organizational
documents, and each such document is in full force and effect on the date
hereof. LRC does not own, directly or indirectly, any equity or similar
interest in, or any interest convertible or exchangeable or exercisable for
any equity or similar interest in, any corporation, partnership, limited
liability company, joint
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venture or other business association or entity. LRC does not conduct any part
of its business operations through any subsidiaries or through any other
entity in which LRC has an equity investment.
3.2 Capital Structure.
(a) The authorized capital stock of LRC consists of 90,000,000 shares of LRC
Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001
par value ("LRC Preferred Stock"). As of March 14, 1997, (i) 30,666,060 shares
of LRC Common Stock were issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable; (ii) no shares of
LRC Preferred Stock were issued and outstanding; (iii) 0 shares of LRC Common
Stock or LRC Preferred Stock were held in the treasury of LRC or by
subsidiaries of LRC; and (iv) 4,145,420 shares of LRC Common Stock were
reserved for future issuance pursuant to LRC's Amended 1981 Incentive Stock
Option Plan, Amended 1984 Incentive Stock Plan, and Amended 1991 Stock Option
Plan (the "LRC Stock Option Plans"), LRC's 1996 Performance--Based Restricted
Stock Plan (the "LRC Restricted Stock Plan") and LRC's Amended 1984 Employee
Stock Purchase Plan (the "LRC Purchase Plan" and, together with the LRC Stock
Option Plans and the LRC Restricted Stock Plan, the "LRC Stock Plans"). The
shares reserved under the LRC Stock Plans include: (A) 0 shares reserved for
issuance under the Amended 1981 Stock Option Plan; (B) 111,198 shares reserved
for issuance under the Amended 1984 Stock Option Plan, 111,198 of which were
subject to or reserved for outstanding options and 0 of which were reserved
for future option grants; (C) 3,378,927 shares reserved for issuance under the
Amended 1991 Stock Option Plan, 3,076,148 of which were subject to or reserved
for outstanding options and 302,779 of which were reserved for future option
grants; (D) 120,117 shares reserved for issuance under the LRC Restricted
Stock Plan, 0 of which were subject to outstanding awards and 120,117 of which
were reserved for future issuance; and (E) 535,178 shares reserved for future
issuance under the LRC Purchase Plan. No change in such capitalization has
occurred since such date other than the exercise and termination of
outstanding stock options and restricted stock awards and the accrual of
rights under the LRC Purchase Plan, all in the ordinary course. All shares of
LRC Common Stock subject to issuance as specified above, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. The shares of LRC Common Stock to be issued in the Merger will
be, when issued in accordance with this Agreement, duly authorized, validly
issued, fully paid and nonassessable.
(b) LRC owns beneficially and of record, directly or through a subsidiary,
all outstanding shares of capital stock of each of its subsidiaries (including
100% of the outstanding shares of Merger Sub Common Stock) free and clear of
any security interest, claim, lien, pledge, right, voting trust or proxy or
other encumbrance or restriction whatsoever. There are no obligations,
contingent or otherwise, of LRC or any of its subsidiaries to repurchase,
redeem or otherwise acquire any shares of LRC Common Stock or the capital
stock of any LRC subsidiary or make any investment (in the form of a loan,
capital contribution or otherwise), in any such subsidiary or any other entity
other than guarantees of bank obligations of such subsidiaries entered into in
the ordinary course of business.
(c) Except as set forth in Section 3.2(a) or (b), there are no equity
securities of any class of LRC or its subsidiaries, or any securities
exchangeable into or exercisable for such equity securities, issued, reserved
for issuance or outstanding. Except as set forth in Section 3.2(a) or (b),
there are no options, warrants, equity securities, calls, rights, commitments
or agreements of any character to which LRC or any of its subsidiaries is a
party or by which any of them is bound obligating LRC or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of LRC or any of its subsidiaries or
obligating LRC or any of its subsidiaries to grant, extend, accelerate the
vesting of or enter into any such option, warrant, equity security, call,
right, commitment or agreement, and, to the knowledge of LRC, there are no
voting trusts, proxies or other agreements or understandings with respect to
the capital shares of LRC or its subsidiaries.
3.3 Authority; Absence of Conflicts; Consents. (a) LRC has all requisite
corporate power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
of LRC, subject only to the approval of the
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Merger by LRC's stockholders. A vote of the holders of a majority of the
outstanding shares of the LRC Common Stock is the only approval required for
the LRC stockholders to adopt this Agreement and the transactions contemplated
hereby. The Board of Directors of LRC has, prior to the date hereof,
unanimously (x) approved this Agreement and the Merger, (y) determined that
the Merger is in the best interests of the stockholders of LRC and is on terms
that are fair to such stockholders and (z) determined to recommend that the
stockholders of LRC approve the Share Issuance. This Agreement has been duly
and validly executed and delivered by LRC and, assuming this Agreement
constitutes a valid and binding agreement of the other parties hereto,
constitutes a valid and binding obligation of LRC enforceable against LRC in
accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, or by principles governing the
availability of equitable remedies). The execution and delivery of this
Agreement by LRC does not, and the performance of this Agreement by LRC will
not, (i) conflict with or violate the Certificate of Incorporation or Bylaws
of LRC or the equivalent organizational documents of any of its subsidiaries,
(ii) subject to obtaining the adoption by LRC's stockholders of this Agreement
as contemplated in Section 6.1 and compliance with the requirements set forth
in Section 3.3(b) below, conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to LRC or any of its subsidiaries or by
which its or any of their respective properties is bound, or (iii) result in
any breach of or constitute a default (or an event that with notice or lapse
of time or both would become a default) under, or impair the rights of LRC or
its subsidiaries or alter the rights or obligations of any third party under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of LRC or any of its subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which LRC or any of its
subsidiaries is a party or by which LRC or any of its subsidiaries or its or
any of their respective properties are bound or affected, except, with respect
to clauses (ii) and (iii) above, for any such conflicts, violations, defaults
or other occurrences that would not have a Material Adverse Effect on LRC. The
LRC Disclosure Letter lists all material consents, waivers and approvals under
any of LRC's or its subsidiaries' agreements, contracts, licenses or leases
required to be obtained in connection with the consummation of the
transactions contemplated hereby, except for those the absence of which in
aggregate would not have a Material Adverse Effect on LRC.
(b) No consent, approval, order or authorization of, or registration
declaration or filing with any Governmental Entity is required by or with
respect to LRC or Merger Sub in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby,
except for (i) the filing of the Registration Statement with the SEC in
accordance with the Securities Act, (ii) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (iii) the filing
of the Joint Proxy Statement with the SEC in accordance with the Exchange Act,
(iv) the filing of a Current Report on Form 8-K with the SEC, (v) the filing
with the United States Department of Justice and the Federal Trade Commission
of such forms as may be required by the HSR Act, (vi) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws and the
laws of any foreign country, (vii) the filing with the Nasdaq National Market
of a Notification Form for Listing of Additional Shares with respect to the
shares of LRC Common Stock issuable in the Merger and upon assumption by LRC
of the OSI Stock Plans, (viii) the filing of a Form S-8 Registration Statement
with the SEC relating to the LRC 1997 Equity Incentive Plan and the assumption
by LRC of the OSI Stock Plans, and (ix) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
have a Material Adverse Effect on LRC or OSI or have a material adverse effect
on the ability of the parties to consummate the transactions contemplated by
this Agreement.
3.4 SEC Documents; Financial Statements; Undisclosed Liabilities.
(a) LRC has filed all forms, reports and documents required to be filed with
the SEC since June 30, 1995, and has made available to OSI such forms, reports
and documents in the form filed with the SEC. All such required forms, reports
and documents (including those that LRC may file subsequent to the date hereof
until the Closing) are referred to herein as the "LRC SEC Documents." As of
their respective dates, the LRC SEC Documents (i) were prepared in accordance
with the requirements of the Securities Act or the Exchange Act, as
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the case may be, and the rules and regulations of the SEC thereunder
applicable to such LRC SEC Documents, and (ii) did not at the time they were
filed (and if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of LRC's
subsidiaries is required to file any forms, reports or other documents with
the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in LRC SEC Documents (the "LRC Financial
Statements"), including any LRC SEC Documents filed after the date hereof
until the Closing, (x) complied as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, (y) was prepared in accordance
with GAAP applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto or, in the case of unaudited
interim financial statements, as may be permitted by the SEC on Form 10-Q
under the Exchange Act) and (z) fairly presented the consolidated financial
position of LRC and its subsidiaries as at the respective dates thereof and
the consolidated results of its operations and cash flows for the periods
indicated, consistent with the books and records of LRC, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not, or are not expected to be,
material in amount. The balance sheet of LRC contained in LRC's Form 10-Q for
the quarter ended December 31, 1996 is hereinafter referred to as the "LRC
Balance Sheet." Neither LRC nor any of its subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise) whether or not of a nature
required to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP, which
individually or in the aggregate are or would be reasonably likely to have a
Material Adverse Effect on LRC other than (i) liabilities reflected in the LRC
Balance Sheet, and (ii) normal or recurring liabilities incurred since
December 31, 1996 in the ordinary course of business consistent with past
practice. The inventories shown on the LRC Balance Sheet are (and on LRC
balance sheets included in future LRC SEC Documents except as disclosed
therein will be) of a quantity and quality useable and saleable in accordance
with good business practices and represent a distribution of the types of
inventories utilized in the business of LRC in accordance with good business
practices. Additions and deletions from the inventories since the date thereof
have been in the ordinary course of business. The amounts shown for
inventories on the LRC Balance Sheet have been (and on LRC balance sheets
included in future LRC SEC Documents except as disclosed therein will be)
determined in accordance with generally accepted accounting principles on a
first-in, first-out basis and are stated at lower of cost or market.
(c) LRC has heretofore made available to OSI a complete and correct copy of
any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by LRC with the SEC pursuant to
the Securities Act or the Exchange Act.
3.5 Absence of Changes. (a) Since December 31, 1996, except as expressly
contemplated by this Agreement or in Section 4 of the LRC Disclosure Letter,
the business of LRC and its subsidiaries has been operated in the ordinary
course consistent with past practices, and:
(i) there has not been any material adverse change in the business,
condition, assets, liabilities, operations or financial performance of LRC
and its subsidiaries taken as a whole, and no event has occurred (whether
or not covered by insurance) that would reasonably be expected to have a
Material Adverse Effect on LRC;
(ii) none of LRC or its subsidiaries has (x) declared, accrued, set aside
or paid any dividend or made any other distribution in respect of any
shares of capital stock, or (y) repurchased, redeemed or otherwise
reacquired any shares of capital stock or other securities; and
(iii) there has been no amendment to the Certificate of Incorporation
(other than the Charter Amendments described in Section 4.1), Bylaws or
other charter or organizational documents of LRC or its
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subsidiaries, and none of LRC or its subsidiaries has effected or been a
party to any recapitalization, reclassification of shares, stock split,
reverse stock split or similar transaction.
(b) Since December 31, 1996 through the date of this Agreement:
(i) none of LRC or its subsidiaries has effected or been a party to any
merger, consolidation, share exchange, business combination or similar
transaction, or has made any capital expenditure in any calendar month
which, when added to all other capital expenditures made on behalf of LRC
or its subsidiaries in such calendar month results in such capital
expenditures exceeding $5,000,000 in the aggregate;
(ii) none of LRC or its subsidiaries has entered any material agreement
other than in the ordinary course of business and as made available to OSI,
nor has there occurred any amendment or termination of, or default under,
any material agreement to which LRC or any of its subsidiaries is a party
or by which it is bound which would result in a Material Adverse Effect on
LRC;
(iii) none of LRC or its subsidiaries has written off as uncollectible,
or established any extraordinary reserve with respect to, any material
amount of accounts receivable or other indebtedness;
(iv) none of LRC or its subsidiaries has incurred or guaranteed any
indebtedness for borrowed money, or made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any lien, claim
or encumbrance except for encumbrances of assets made in the ordinary
course of business and consistent with past practices;
(v) none of LRC or its subsidiaries has (x) established or adopted any
employee benefit plan, (y) caused or permitted any employee benefit plan or
rights or agreements granted thereunder to be amended in any material
respect, or (z) except for bonus, profit-sharing and similar payments made
in the ordinary course of business and consistent with past practices, paid
any bonus or made any profit-sharing or similar payment to, materially
increased the amount of commissions payable to, or materially increased the
amount of the wages, salary, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees;
(vi) none of LRC or its subsidiaries has changed any of its methods of
accounting or accounting practices in any material respect;
(vii) none of LRC or its subsidiaries has made any material Tax election;
(viii) none of LRC or its subsidiaries has commenced, settled or received
a notice or threat of any lawsuit or proceeding (including without
limitation any claim involving Intellectual Property) or governmental
investigation of LRC or its subsidiaries; and
(ix) none of LRC or its subsidiaries has agreed or committed to take any
of the actions referred to in clauses (i) through (viii) above.
3.6 Litigation. There is no private or governmental action, suit, claim or
proceeding (collectively, "Litigation") of any nature pending or to LRC's
knowledge threatened against LRC or its subsidiaries, their properties or any
of their officers or directors, in their respective capacities as such
involving Intellectual Property rights of LRC or in which injunctive or other
equitable relief or damages in excess of $1,000,000 are requested against LRC
or its subsidiaries or which could otherwise result in a Material Adverse
Effect on LRC. As of the date hereof, there is no Litigation of any nature
pending or to LRC's knowledge threatened against LRC or its subsidiaries,
their properties or any of their officers or directors, in their respective
capacities as such which in any manner challenges or seeks to (or is
reasonably likely to) prevent, enjoin, alter or delay any of the transactions
contemplated by this Agreement. Except as set forth in Section 3.6 of the LRC
Disclosure Letter, to LRC's knowledge, there is no investigation or review
pending or threatened against LRC or its subsidiaries, their properties or any
of their officers or directors (in their capacities as such) by or before any
Governmental Entity (collectively, "Government Claims"). With respect to any
Litigation or Government Claims listed in Section 3.6 of the LRC Disclosure
Letter in response to the preceding three sentences, such Disclosure Letter
also sets forth the forum, the parties thereto, the subject matter thereof and
the amount of damages or other remedy requested.
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3.7 Restrictions on Business Activities. There is no material agreement,
judgment, injunction, order or decree binding upon LRC or any of its
subsidiaries which has the effect of prohibiting or impairing any current or
future business practice of LRC or any of its subsidiaries, any acquisition of
property (tangible or intangible) by LRC or any of its subsidiaries or the
conduct of business by LRC or any of its subsidiaries as currently conducted
or as proposed to be conducted by LRC and its subsidiaries.
3.8 Compliance With Laws. Each of LRC and its subsidiaries has complied
with, is not in violation of, has not received any notices of violation with
respect to, and holds all licenses, permits and authorizations required by any
federal, state, local or foreign statute, law, regulation, decree, judgment or
order with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures as would not
have, individually or in the aggregate, a Material Adverse Effect on LRC.
3.9 Governmental Authorization. LRC and each of its subsidiaries has
obtained and is in compliance with each federal, state, county, local or
foreign governmental consent, license, permit, grant, or other authorization
of a Governmental Entity (i) pursuant to which LRC or any of its subsidiaries
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of LRC's or any of its subsidiaries' business or
the holding of any such interest ((i) and (ii) herein collectively called "LRC
Authorizations"), and all of such LRC Authorizations are in full force and
effect, except where the failure to obtain or have any of such LRC
Authorizations would not, individually or in the aggregate, have a Material
Adverse Effect on LRC.
3.10 Intellectual Property.
(a) LRC and its subsidiaries own, or are licensed or otherwise possess
legally enforceable rights to use Intellectual Property that is used or
proposed to be used in the business of LRC and its subsidiaries as currently
conducted or as proposed to be conducted by LRC and its subsidiaries, except
to the extent that the failure to have such rights have not had and would not
reasonably be expected to have a Material Adverse Effect on LRC. Each License
to which LRC or any of its subsidiaries is a party with respect to
Intellectual Property of LRC or its subsidiaries, or with respect to
Intellectual Property of third parties, is valid and enforceable in accordance
with its terms and is not the subject of any notice of termination or
nonrenewal, except where such lack of validity or enforceability or notice of
termination or nonrenewal has not had and would not reasonably be expected to
have a Material Adverse Effect on LRC.
(b) The execution, delivery and performance of this Agreement and the
summation of the transactions contemplated hereby will not constitute a breach
of any instrument or agreement governing any LRC Intellectual Property rights
(the "LRC Intellectual Property Rights Agreements"), will not cause the
forfeiture or termination or give rise to a right of forfeiture or termination
of any LRC Intellectual Property rights or impair the right of LRC and its
subsidiaries to use, sell or license any LRC Intellectual Property Rights or
portion thereof, except for the occurrence of any such breach, forfeiture,
termination or impairment that would not individually or in the aggregate,
result in a Material Adverse Effect on LRC.
(c) (i) Neither the manufacture, marketing, license, sale or intended use of
any product or technology currently licensed or sold or under development by
LRC or any of its subsidiaries violates any license or agreement between LRC
or any of its subsidiaries and any third party or infringes any Intellectual
Property right of any other party; and (ii) there is no pending or, to the
knowledge of LRC, threatened claim or litigation contesting the validity,
ownership or right to use, sell, license or dispose of any LRC Intellectual
Property rights or the proposed use, sale, license or disposition thereof
conflicts or will conflict with the rights of any other party, except, with
respect to clauses (i) and (ii), for any violations, infringements, claims or
litigation that would not have a Material Adverse Effect on LRC.
(d) LRC has taken reasonable and practicable steps designed to safeguard and
maintain the secrecy and confidentiality of, and its proprietary rights in,
all LRC Intellectual Property rights.
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3.11 Environmental Matters. Except for such cases that, individually or in
the aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect on LRC, LRC and each of its subsidiaries (i) has
obtained all applicable permits, licenses and other authorizations that are
required by LRC or such subsidiary or any of their respective agents under
applicable Environmental Laws; (ii) is in compliance with all terms and
conditions of such required permits, licenses and authorizations, and also is
in compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
applicable Environmental Laws or in any regulation, code, plan, order, decree,
judgment, notice or demand letter issued, entered, promulgated or approved
thereunder; (iii) is not aware of and has not received notice of any (A)
claim, act, suit, proceeding or investigation, or (B) event, condition,
circumstance, activity, practice, incident, action or plan that is reasonably
likely to interfere with or prevent continued compliance or that would give
rise to any common law or statutory liability, or otherwise form the basis of
any claim, action, suit or proceeding, based on or resulting from LRC's or any
of its subsidiaries' (or any of their respective agents') manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling, or the emission, discharge or release into the environment of any
Hazardous Material or other non-compliance with any applicable Environmental
Law; (iv) has not disposed of any Hazardous Material into the soil or
groundwater at any properties owned, leased or used by LRC, either now or in
the past, or at any other property that might reasonably be expected to result
in any assessment or remedial action by any Governmental Entity; and (v) has
taken all actions necessary under applicable requirements of Federal, state,
local and foreign laws, rules or regulations to register any products or
materials required to be registered by LRC or any of its subsidiaries (or any
of their respective agents) thereunder.
3.12 Employee Benefit Plans. Each material employee benefit plan, program,
arrangement and contract (including, without limitation, any "employee benefit
plan" as defined in Section 3(3) of ERISA) maintained or contributed to by LRC
or any trade or business (whether or not incorporated) which is treated as a
single employer with LRC (an "ERISA Affiliate") within the meaning of Section
414(b), (c), (m) or (o) of the Code (the "LRC Employee Plans"), which is
intended to be qualified under Section 401(a) of the Code has received a
favorable determination from the IRS covering the provisions of the Tax Reform
Act of 1986, stating that such LRC Employee Plan is so qualified, and nothing
has occurred since the date of such letter that could reasonably be expected
to affect the qualified status of such plan. Each LRC Employee Plan has been
operated in all material respects in accordance with its terms and the
requirements of applicable law. Neither LRC nor any ERISA Affiliate of LRC has
incurred or is reasonably expected to incur any material liability under Title
IV of ERISA in connection with any LRC Employee Plan.
3.13 Employee Matters. Lam and each of its subsidiaries has good labor
relations and there are no controversies pending, or to the knowledge of Lam,
threatened, between Lam or any of its subsidiaries and any of their respective
employees, which failure to have good labor relations or controversies would
have, individually or in the aggregate, a Material Adverse Effect on LRC.
3.14 Pooling of Interests. To the knowledge of LRC, after consultation with
its independent auditors, neither LRC nor any of its subsidiaries, nor any of
their respective directors, officers or stockholders has taken any action or
failed to take any action, which action or failure would prevent it from
accounting for the Merger as a pooling of interests.
3.15 Brokers' and Finders' Fees. Except for payment obligations to Smith
Barney Inc. disclosed to OSI, neither LRC nor its subsidiaries have incurred,
nor will they incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or investment bankers' fees or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
3.16 Registration Statement; Joint Proxy Statement/Prospectus. The
information supplied by LRC for inclusion in the Registration Statement shall
not at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
information supplied by
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LRC for inclusion in the Proxy Statement to be sent to the stockholders of LRC
and stockholders of OSI in connection with the LRC Stockholders Meeting and
the OSI Stockholders Meeting shall not, on the date the Joint Proxy Statement
is first mailed to the stockholders of OSI and LRC, at the time of the LRC
Stockholders Meeting or the OSI Stockholders Meeting, or at the Effective
Time, contain any statement which, at such time, is false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they are made, not false or misleading; or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of proxies for the LRC Stockholders Meeting or the
OSI Stockholder Meeting which has become false or misleading. The Joint Proxy
Statement will comply as to form in all material respects with the provisions
of the Exchange Act and the rules and regulations promulgated thereunder. If
at any time prior to the Effective Time any event or information should be
discovered by LRC which should be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy Statement, LRC shall
promptly inform OSI. Notwithstanding the foregoing, LRC makes no
representation, warranty or covenant with respect to any information supplied
by OSI which is contained in any of the foregoing documents.
3.17 Opinion of Financial Advisor. The financial advisor of LRC, Smith
Barney Inc., has delivered to the Board of Directors of LRC an opinion dated
the date of this Agreement to the effect that, as of the date of this
Agreement, the Exchange Ratio is fair, from a financial point of view, to LRC.
A copy of the written opinion of Smith Barney Inc. will be delivered to OSI as
soon as practicable after the date of this Agreement.
3.18 Interim Operations of Merger Sub. Merger Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only
as contemplated by this Agreement.
3.19 Agreements, Contracts and Commitments. LRC has not breached, or
received in writing any claim or threat that it has breached, any of the terms
or conditions of any material agreements, contract or commitment filed as an
exhibit to the LRC SEC Reports ("LRC Material Contracts") in such a manner as
would permit any other party to cancel or terminate the same or would permit
any other party to seek material damages from LRC under any LRC Material
Contract, except where such cancellation, termination or damages would not
have a Material Adverse Effect on LRC. Each LRC Material Contract that has not
expired or been terminated is in full force and effect and is not subject to
any material default thereunder of which LRC is aware by any party obligated
to LRC pursuant to such LRC Material Contract, except where such failure to be
in full force and effect or such default would not have a Material Adverse
Effect on LRC.
3.20 Lack of Ownership of OSI Common Stock. Neither LRC nor any of its
subsidiaries owns any shares of OSI Common Stock or other securities
convertible into OSI Common Stock.
3.21 Interested Party Transactions. Except as disclosed in the LRC SEC
Documents, neither LRC nor any of its subsidiaries is indebted to any
director, officer, employee or agent of LRC or any of its subsidiaries (except
for amounts due as normal salaries and bonuses and in reimbursement of
ordinary expenses), and no such person is indebted to LRC or any of its
subsidiaries, and there have been no other transactions of the type required
to be disclosed pursuant to Items 402 and 404 of Regulation S-K under the
Securities Act and the Exchange Act since June 30, 1995. To the knowledge of
LRC, no director, officer, employee or agent of LRC or any of its subsidiaries
has any equity interest or other arrangement with any entity described in the
second to last sentence of Section 3.1 or with any competitor, supplier or
customer of LRC or any of its subsidiaries, other than less than 1% equity
interests in publicly traded companies.
3.22 Representations Complete. None of the representations or warranties
made by LRC herein or in any Schedule hereto, including the LRC Disclosure
Letter, or certificate furnished by LRC pursuant to this Agreement, contains
or will contain at the Effective Time any untrue statement of a material fact,
or omits or will omit at the Effective Time to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
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ARTICLE 4
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of OSI and LRC. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, each of OSI and LRC agrees (except to the
extent expressly contemplated by this Agreement or as consented to in writing
by the other), (i) to carry on its and its subsidiaries' business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, (ii) to pay and to cause its subsidiaries to pay debts
and Taxes when due subject to good faith disputes over such debts or taxes,
(iii) to pay or perform other obligations when due, and (iv) to use all
reasonable efforts consistent with past practice and policies to preserve
intact its and its subsidiaries' present business organizations, use its
reasonable efforts consistent with past practice to keep available the
services of its and its subsidiaries' present officers and key employees and
use its reasonable efforts consistent with past practice to preserve its and
its subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it or its
subsidiaries. Each of OSI and LRC agrees to use its best efforts to promptly
notify the other of any event or occurrence not in the ordinary course of its
or its subsidiaries' business, and of any event which would have a Material
Adverse Effect. LRC agrees that it will not grant more than 500,000 options to
purchase shares of LRC Common Stock under the LRC Stock Option Plans between
the date of this Agreement and the Effective Time. Without limiting the
foregoing, except as expressly contemplated by this Agreement or in Section
4.1 of the LRC Disclosure Letter or Section 4 of the OSI Disclosure Letter,
neither OSI nor LRC shall do, agree to do, cause or permit any of the
following, or allow, cause or permit any of its subsidiaries to do, agree to
do, cause or permit any of the following, without the prior written consent of
the other:
(a) Charter Documents. Adopt or propose any change or amendment in its
Certificate of Incorporation or Bylaws that would have any adverse impact
on the transactions contemplated by this Agreement or which would amend or
modify the terms or provisions of the capital stock of LRC or OSI;
provided, however, that, notwithstanding any other provision of this
Agreement, LRC may propose the amendments to its Certificate of
Incorporation described in Section 4.1 of the LRC Disclosure Letter (the
"Charter Amendments") for adoption at the LRC Stockholders Meeting;
(b) Dividends; Changes in Capital Stock. Declare or pay any dividends on
or make any other distributions (whether in cash, stock or property) in
respect of any of its capital stock, or split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly,
any shares of its capital stock except from former employees, directors and
consultants in accordance with existing agreements providing for the
repurchase of shares in connection with any termination of service to it or
its subsidiaries;
(c) Stock Option Plans, Etc. Waive any stock repurchase rights,
accelerate, amend or change the period of exercisability or vesting of
options or other rights granted under its employee stock plans or director
stock plans, reprice options granted under such plans, or authorize cash
payments in exchange for any options or other rights granted under any of
such plans; provided, however, that, notwithstanding any other provision of
this Agreement, LRC may take all actions reasonably necessary to implement
at the time of the LRC Stockholders Meeting a new equity incentive plan
permitting grants of options, restricted stock, and other equity incentives
(the "1997 Equity Incentive Plan"), and to reserve up to 3,000,000 shares
of LRC Common Stock for issuance pursuant to such plan; or
(d) Pooling. Take any action, which to the knowledge of such party would
prevent LRC from accounting for the Merger as a pooling of interests.
4.2 Conduct of Business of OSI. During the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, OSI shall not do, cause or permit any of the
following, or allow, cause or permit any of its subsidiaries to do, cause or
permit any of the following, without the prior written consent of LRC, except
as set forth in Section 4 of the OSI Disclosure Letter:
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(a) Material Contracts. Enter into any material contract or commitment
outside the ordinary course of business, or violate, amend or otherwise
modify or waive any of the terms of its material contracts other than
modifications that are not adverse to OSI and its subsidiaries, or enter
into or renew any distribution or representation agreement without the
written consent of LRC (such consent not to be unreasonably withheld);
(b) Issuance of Securities. Issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible
into, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such
shares or other convertible securities, other than the issuance of shares
of OSI Common Stock pursuant to the exercise of stock options, warrants or
other rights therefor outstanding as of the date of this Agreement;
provided, however, that OSI may, in the ordinary course of business
consistent with past practice, grant options for the purchase of OSI Common
Stock under the OSI Stock Option Plans (not to exceed an aggregate of
200,000 options to purchase shares of OSI Common Stock or more than 100,000
options in each sixty day period after the date of this Agreement);
(c) Intellectual Property. Transfer or license to any person or entity,
or otherwise extend, amend or modify in any material respect, any rights to
its Intellectual Property other than in the ordinary course of business
consistent with past practice;
(d) Exclusive Rights. Enter into or amend any agreements pursuant to
which any other party is granted exclusive marketing, distribution or other
rights with respect to any of its business, products or technology;
(e) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material, individually
or in the aggregate, to its and its subsidiaries' business, taken as a
whole;
(f) Indebtedness. Incur any indebtedness for borrowed money (other than
ordinary course trade payables or pursuant to existing credit facilities in
the ordinary course of business) or guarantee any such indebtedness or
issue or sell any debt securities or guarantee any debt securities or
warrants or rights to acquire debt securities of others;
(g) Leases. Enter into any operating lease, except in the ordinary course
of business consistent with past practice;
(h) Payment of Obligations. Pay, discharge or satisfy any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction
of liabilities reflected or reserved against in the OSI Financial
Statements or in the ordinary course of business and consistent with past
practices;
(i) Capital Expenditures. Make any capital expenditures in any calendar
month except those made in the ordinary course of business and consistent
with past practice which, when added to all other capital expenditures made
by OSI and its subsidiaries in that month, do not exceed $250,000 in the
aggregate;
(j) Insurance. Materially reduce the amount of any material insurance
coverage provided by existing insurance policies;
(k) Employee Benefit Plans; Pay Increases. Adopt or amend any employee
benefit or stock purchase or option plan, or enter into or amend any
employment contract, pay any special bonus or special remuneration to any
employee or director, or increase the salaries or wage rates of its
officers or employees except for reasonable salary increases to non-officer
employees in accordance with OSI's written compensation plan and consistent
with past practices;
(l) Severance Arrangements. Grant any severance or termination pay to any
director, officer or other employee except payments made pursuant to
standard written agreements outstanding on the date hereof and disclosed to
LRC, or adopt any new severance plan;
(m) Claims; Lawsuits. Waive, release, assign, settle or compromise any
material claim or litigation, or commence a lawsuit other than (i) for the
routine collection of bills, (ii) in such cases where it in good
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faith determines that failure to commence suit would result in the material
impairment of a valuable aspect of its business, provided that it consults
with LRC prior to the filing of such a suit, or (iii) for a breach of this
Agreement;
(n) Acquisitions. Acquire or agree to acquire by merging or consolidating
with, or by purchasing any equity interest in or a material portion of the
assets of, or by any other manner, any business or any corporation,
partnership interest, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any material
assets or enter into any joint ventures, strategic partnerships or
alliances;
(o) Taxes. Other than in the ordinary course of business, make or change
any material election in respect of Taxes, adopt or change any accounting
method in respect of Taxes, enter into any closing agreement, settle any
claim or assessment in respect of Taxes, or consent to any extension or
waiver of the limitation period applicable to any claim or assessment in
respect of Taxes;
(p) Revaluation. Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; or
(q) Other. Take or agree in writing or otherwise to take, any of the
actions described in Sections 4.2(a) through (p) above, or any action which
would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants hereunder.
4.3 Acquisition Proposals.
(a) OSI agrees that neither it nor any of its subsidiaries nor any of the
officers and directors of it or its subsidiaries shall, and that it shall not
authorize or permit its and its subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its subsidiaries) to, directly or indirectly,
initiate, solicit, encourage or otherwise facilitate (including by way of
furnishing information) any inquiries, expressions of interest or the making
of any proposal or offer with respect to a merger, reorganization, share
exchange, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving, or any purchase or sale of all
or any significant portion of the assets or any of the equity securities of,
it or any of its subsidiaries that, in any such case, could reasonably be
expected to interfere with the completion of the Merger or the other
transactions contemplated by this Agreement (any such inquiry, expression of
interest, proposal or offer being hereinafter referred to as an "Acquisition
Proposal"). OSI further agrees that neither it nor any of its subsidiaries nor
any of the officers and directors of it or its subsidiaries shall, and that it
shall not authorize or permit its and its subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its subsidiaries) to, directly or indirectly, have
any discussion with or provide any confidential information or data to any
individual, group, organization, corporation, partnership, or entity of any
kind (a "Person") relating to an Acquisition Proposal or engage in any
negotiations concerning an Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal or accept an
Acquisition Proposal; provided, however, that nothing contained in this
Agreement shall prevent OSI or its Board of Directors from (A) complying with
Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition
Proposal; (B) engaging in any discussion or negotiations with, or providing
any information to, any Person in response to an unsolicited bona fide written
Acquisition Proposal by any such Person; or (C) recommending such an
unsolicited bona fide written Acquisition Proposal to the stockholders of OSI
or withdrawing or modifying its recommendation in favor of this Agreement and
the Merger in compliance with Sections 5.1 and 7.1(f), if and only to the
extent that, in any such case as is referred to in clause (B) or (C), (i) a
majority of the members of the Board of Directors of OSI concludes in good
faith (after consultation with its financial advisors) that such Acquisition
Proposal is reasonably capable of being completed, taking into account all
legal, financial, regulatory and other aspects of the proposal and the Person
making the proposal, and would, if consummated, result in a transaction more
favorable to OSI's stockholders than the transaction contemplated by this
Agreement (any such more favorable Acquisition Proposal being referred to in
this Agreement as a "Superior Proposal"), (ii) a majority of the members of
the Board of Directors of OSI concludes in good faith (after consultation with
outside
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counsel) that such action is necessary for the Board of Directors to act in a
manner consistent with its fiduciary duties under applicable law, (iii) prior
to providing any information or data to any Person in connection with an
Acquisition Proposal by any such Person, such Board of Directors receives from
such Person an executed confidentiality agreement on terms substantially
similar to those contained in the confidentiality agreement previously entered
into between LRC and OSI in connection with their consideration of the Merger,
and (iv) prior to providing any information or data to any Person or entering
into discussions or negotiations with any Person, the Board of Directors of
OSI notifies LRC of such inquiries, expressions of interest, proposals or
offers received by, any such information requested from, or any such
discussions or negotiations to be initiated or continued with, any of OSI's
representatives indicating, in connection with such notice, the name of such
Person and the terms and conditions of any proposals or offers. OSI agrees
that it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any Acquisition Proposal. OSI agrees that it will take the
necessary steps to promptly inform the officers, directors and other
representatives referred to in the first sentence hereof of the obligations
undertaken in this Section 4.3. OSI agrees that it shall keep LRC informed, on
a current basis, of the status and terms of any such proposals or offers and
the status of any such discussions or negotiations.
(b) LRC shall not, and shall not permit any of its subsidiaries to,
authorize or enter into an agreement relating to an Alternative Transaction
(as defined in Section 7.2) involving LRC until two days after the Effective
Time. LRC shall notify OSI immediately of any proposals or offers received by
LRC relating to an Alternative Transaction involving LRC and will keep OSI
informed, on a current basis, of the status and terms of any such proposals or
offers and the status of any related discussions or negotiations and shall
consult with OSI with respect thereto. Subject to LRC's obligations described
in Section 5.1, this Agreement does not prohibit LRC from taking and
disclosing to its stockholders a position contemplated by Rule 14e-2(a) of the
Exchange Act or from making any disclosure to LRC's stockholders if, in the
good faith judgment of the Board of Directors of LRC, after consultation with
outside counsel, failure so to disclose would be inconsistent with its duties
to LRC or the LRC stockholders under applicable law.
4.4 Organization of Merger Sub; Authorization of Shares, the Merger and this
Agreement.
(a) Subject to the terms and conditions of this Agreement, LRC shall take,
and cause to be taken, all actions necessary, proper or appropriate under
applicable laws and regulations such that, at all times from the date of this
Agreement until the Effective Time: (i) Merger Sub is a corporation duly
organized, validly existing and in good standing under the laws of Delaware,
(ii) LRC owns all of the outstanding capital stock of Merger Sub, (iii) except
as contemplated in clause (ii) and by the terms of this Agreement, Merger Sub
has no outstanding shares of capital stock or any options, warrants, calls,
subscriptions or other rights or agreements or commitments obligating it to
issue, transfer or sell any shares of its capital stock or any other
securities convertible into or evidencing the right to subscribe for any such
shares, (iv) the Certificate of Incorporation and Bylaws of Merger Sub are in
the form provided to OSI, and (v) except as related to the Merger, this
Agreement and the consummation of the transactions contemplated hereby, Merger
Sub has not or will not engage in any business or activities (other than
organizational matters) or incur or be subject to any commitments or
liabilities.
(b) LRC, as the sole stockholder of Merger Sub, shall take, and shall cause
to be taken, all actions necessary, proper or appropriate under applicable
laws and regulations such that LRC shall (i) approve and adopt this Agreement
and the transactions contemplated by this Agreement and (ii) cause Merger Sub
to perform, in each case, the respective duties of Merger Sub pursuant of this
Agreement.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Stockholder Approvals. Subject to the terms and conditions contained
herein, (i) this Agreement shall be submitted for approval to the OSI
stockholders at the OSI Stockholders Meeting to be duly held for this
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purpose by OSI, and (ii) the issuance of LRC Common Stock in connection with
the Merger (the "Share Issuance") shall be submitted for approval to the LRC
stockholders at the LRC Stockholders Meeting to be duly held for this purpose
by LRC. OSI and LRC shall coordinate and cooperate with respect to the timing
of such meetings and shall endeavor to hold such meetings on the same day and
as soon as practicable after the date hereof (and, in any event, no later than
45 days after the Registration Statement is declared effective). OSI and LRC
shall recommend that their respective stockholders approve such matters and
such recommendation shall be contained in the Joint Proxy Statement and shall
not modify or withdraw such recommendation in any circumstance, except, in the
case of OSI, to the extent that the Board of Directors of OSI shall have
withdrawn or modified its approval or recommendation of this Agreement and the
Merger and terminated this Agreement in accordance with Section 7.1(f).
5.2 Board of Directors and Officers of LRC. The Board of Directors of LRC
shall take all action necessary such that (a) the size of the LRC Board of
Directors shall be increased by two directors and, on the business day
following the Effective Time, James W. Bagley and Richard J. Elkus, Jr. shall
be appointed to the LRC Board to fill the resulting vacancies and Mr. Elkus
shall be appointed to the Audit Committee of the LRC Board, and (b) an Office
of the Chairman will be created at LRC. The Office of the Chairman shall
include Roger D. Emerick and Mr. Bagley. Mr. Emerick shall be the Chairman of
the Board, and, on the business day following the Effective Time, Mr. Bagley
shall be the Chief Executive Officer of LRC.
5.3 Cooperation.
(a) As promptly as practicable after the execution of this Agreement, OSI
and LRC shall prepare and file with the SEC preliminary proxy materials
including the Joint Proxy Statement (which shall also relate to the approval
of the 1997 Equity Incentive Plan and, if LRC elects, the Charter Amendments)
and, as promptly as practicable following receipt of SEC comments thereon, LRC
shall file the Registration Statement with the SEC, and LRC and OSI shall use
their reasonable best efforts to have the Joint Proxy Statement cleared by the
SEC under the Exchange Act and the Registration Statement declared effective
by the SEC under the Securities Act. Each of LRC and OSI will notify the other
promptly of the receipt of any comments from the SEC or its staff and of any
request by the SEC or its staff or any other government officials for
amendments or supplements to the proxy materials, the Registration Statement
or any other filing or for additional information and will supply the other
with copies of all correspondence between such company or any of its
representatives, on the one hand, and the SEC, or its staff and any other
government officials, on the other hand, with respect to the proxy materials,
the Registration Statement or other filing. The proxy materials, Registration
Statement and the other filings shall comply in all material respects with all
applicable requirements of law. Whenever any event occurs which is required to
be set forth in an amendment or supplement to the proxy materials, the
Registration Statement or any other filing, LRC or OSI, as the case may be,
shall promptly inform the other of such occurrence and cooperate in filing
with the SEC or its staff or any other government officials and/or mailing to
stockholders of LRC and OSI, as the case may be, such amendment or supplement.
(b) As soon as is reasonably practicable, LRC and OSI shall take all such
action as may be necessary to comply with state blue sky or securities laws in
connection with the transactions contemplated by this Agreement. If any "fair
price", "moratorium", "control share acquisition" or other form of state
antitakeover statute or regulation shall become applicable to the transactions
contemplated hereby, each of OSI and LRC and the members of their respective
Boards of Directors shall grant such approvals and take such actions as are
reasonably necessary so that the transactions contemplated hereby may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to eliminate or minimize the effects of such statute or
regulation on the transactions contemplated hereby.
(c) Prior to the Effective Time, LRC will file with the Nasdaq National
Market a notification form for listing of additional shares covering the
shares of LRC Common Stock issuable in the Merger or as a result of LRC's
assumption of the OSI Stock Options described in Section 5.10.
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(d) OSI and LRC shall cooperate with one another in order to lift any
injunctions or remove any other impediment to the consummation of the
transactions contemplated herein.
(e) OSI and LRC shall cooperate with one another in obtaining opinions of
Heller Ehrman White & McAuliffe, counsel to OSI, and Shartsis, Friese &
Ginsburg LLP, counsel to LRC, dated as of the Effective Time, to the effect
that the Merger qualifies as a reorganization under the provisions of Section
368(a) of the Code. In connection therewith, each of OSI and LRC shall deliver
to Shartsis, Friese & Ginsburg LLP and Heller Ehrman White & McAuliffe
representation letters substantially in the form attached hereto as Exhibits
C-1 and C-2, respectively, and OSI shall use its reasonable best efforts to
obtain the representation letter substantially in the form attached hereto as
Exhibit D from appropriate stockholders and shall deliver any such letters
obtained to Shartsis, Friese & Ginsburg LLP and Heller Ehrman White &
McAuliffe.
(f) Subject to any limitations contained in Section 5.4, OSI and LRC shall
each furnish to one another and to one another's counsel all such information
as may be required in order to effect the foregoing actions and each
represents and warrants to the other that no information furnished by it in
connection with such actions or otherwise in connection with the consummation
of the transactions contemplated by this Agreement will contain any untrue
statement of a material fact or omit to state a material fact required to be
stated in order to make any information so furnished, in light of the
circumstances under which it is so furnished, not misleading.
5.4 Access to Information.
(a) Each of OSI and LRC shall afford to one another and to one another's
officers, employees, accountants, counsel and other authorized representatives
full and complete access during normal business hours, throughout the period
prior to the earlier of the Effective Time or the date of termination of this
Agreement, to its and its subsidiaries' properties, contracts, commitments,
books and records (including but not limited to tax returns) and any report,
schedule or other document filed or received by it pursuant to the
requirements of federal or state securities laws and shall use their
reasonable best efforts to cause their respective representatives to furnish
promptly to one another such additional financial and operating data and other
information as to its and its subsidiaries' respective businesses and
properties as the other or its duly authorized representatives may from time
to time reasonably request. The parties hereby agree that each of them will
treat any such information in accordance with the Confidentiality Agreement,
dated as of February 25, 1997, between OSI and LRC (the "Confidentiality
Agreement"), which Confidentiality Agreement shall remain in full force and
effect.
(b) Subject to compliance with applicable law, from the date hereof until
the earlier of the Effective Time or the date of termination of this
Agreement, each of LRC and OSI shall confer on a regular and frequent basis
with one or more representatives of the other party to report material
operational matters and the general status of ongoing operations.
5.5 Public Disclosure. Unless otherwise permitted by this Agreement, LRC and
OSI shall consult with each other before issuing any press release or
otherwise making any public statement or making any other public (or non-
confidential) disclosure (whether or not in response to an inquiry) regarding
the terms of this Agreement and the transactions contemplated hereby, and
neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not
be unreasonably withheld), except as may be required by law, or in exercise of
the fiduciary duties of the Board of Directors of LRC or OSI, or by
obligations pursuant to any listing agreement with any national securities
exchange or with the NASD.
5.6 Consents.
(a) Subject to the terms and conditions herein provided, OSI and LRC shall
(a) promptly make their respective filings and thereafter make any other
required submissions under the HSR Act, (b) use reasonable efforts to
cooperate with one another in (i) determining whether any filings are required
to be made with, or consents, permits, authorizations or approvals are
required to be obtained from any other Governmental Entity
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or any third party in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and
(ii) timely making all such filings and timely seeking all such consents,
permits, authorizations or approvals, and (c) use reasonable efforts to take,
or cause to be taken, all other actions and do, or cause to be done, all other
things necessary, proper or advisable to consummate and make effective the
transactions contemplated hereby as soon as possible, including, without
limitation, taking all such further action as reasonably may be necessary to
resolve such objections, if any, as the Federal Trade Commission, the
Antitrust Division of the Department of Justice, state antitrust enforcement
authorities or competition authorities of any other nation or other
jurisdiction or any other person may assert under relevant antitrust or
competition laws with respect to the transactions contemplated hereby. OSI
shall use all reasonable efforts to obtain all consents described in Section
2.3(a) of the OSI Disclosure Letter prior to the Closing, and LRC shall use
all reasonable efforts to obtain all consents described in Section 3.3(a) of
the LRC Disclosure Letter prior to the Closing.
(b) Notwithstanding anything to the contrary in this Agreement, (i) neither
LRC nor any of it subsidiaries shall be required to divest any of their
respective businesses, product lines or assets, or to take or agree to take
any other action or agree to any limitation, that could reasonably be expected
to have a Material Adverse Effect on LRC or on LRC combined with the Surviving
Corporation after the Effective Time, and (ii) neither OSI nor any of its
subsidiaries shall be required to divest any of their respective businesses,
product lines or assets, or to take or agree to take any other action or agree
to any limitation, that could reasonably be expected to have a Material
Adverse Effect on OSI.
5.7 Pooling Accounting. LRC and OSI shall each use its reasonable best
efforts to cause the business combination to be effected by the Merger to be
accounted for as a pooling of interests. Each of LRC and OSI shall use its
reasonable best efforts to cause its "affiliates" (as defined in Section 5.8)
not to take any action that would prevent LRC from accounting for the business
combination to be effected by the Merger as a pooling of interests.
5.8 Affiliate Agreements.
(a) OSI shall, within five business days of the date hereof, deliver to LRC
a list (reasonably satisfactory to counsel for LRC), setting forth the names
of all persons who are expected to be, at the time of the OSI Stockholder
Meeting, in OSI's reasonable judgment, "affiliates" of OSI for purposes of
Rule 145 under the Securities Act or under applicable SEC accounting releases
with respect to pooling of interests accounting treatment. OSI shall furnish
such information and documents as LRC may reasonably request for the purpose
of reviewing such list. OSI shall use its reasonable best efforts to cause
each person who is identified as an "affiliate" in the list furnished pursuant
to this Section 5.8 to execute a written agreement as soon as practicable
after the date hereof, in substantially the form of Exhibit E-1 hereto.
(b) LRC shall, within five business days of the date hereof, deliver to OSI
a list (reasonably satisfactory to counsel for OSI) setting forth the names of
all persons who are expected to be, at the time of the LRC Stockholder
Meeting, in LRC's reasonable judgment, affiliates of LRC under applicable SEC
accounting releases with respect to pooling of interests accounting treatment.
LRC shall furnish such information and documents as OSI may reasonably request
for the purpose of reviewing such list. LRC shall use its reasonable best
efforts to cause each person who is identified as an affiliate in the list
furnished pursuant to this Section 5.8 to execute a written agreement as soon
as practicable after the date hereof in substantially the form of Exhibit E-2
hereto.
5.9 Voting Agreement. Each of Jerauld Cutini, Patrick O'Connor, Wilbur
Krusell, James Bagley, Advent VII L.P., Advent Atlantic and Pacific II L.P.,
Advent New York L.P., TA Venture Investors Limited Partnership, Advent
Industrial II L.P., and Chestnut Capital International III L.P. have executed
and delivered to LRC a Voting Agreement substantially in the form of Exhibit B
attached hereto concurrent with the execution of this Agreement.
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5.10 Employee Benefit Plans.
(a) At the Effective Time, each outstanding option to purchase shares of OSI
Common Stock (the "OSI Stock Options") under the OSI Stock Option Plans,
whether vested or unvested, will be assumed by LRC. Section 5.10 of the OSI
Disclosure Letter sets forth a true and complete list as of March 14, 1997 of
all holders of OSI Stock Options, including the number of shares of OSI Common
Stock subject to each such option, the exercise or vesting schedule, the
exercise price per share and the term of each such option. Each such OSI Stock
Option so assumed by LRC under this Agreement shall continue to have, and be
subject to, substantially the same terms and conditions as were applicable
under the OSI Stock Option Plans and the documents governing the OSI Stock
Options immediately prior to the Effective Time, except that (i) each OSI
Stock Option will be exercisable for that number of whole shares of LRC Common
Stock equal to the product of the number of shares of OSI Common Stock that
were issuable upon exercise of such option immediately prior to the Effective
Time multiplied by the Exchange Ratio and rounded down to the nearest whole
number of shares of LRC Common Stock, and (ii) the per share exercise price
for the shares of LRC Common Stock issuable upon exercise of such OSI Stock
Option will be equal to the quotient determined by dividing the exercise price
per share of OSI Common Stock at which such option was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded up to the nearest
whole cent, and (iii) none of the options shall accelerate by reason of the
Merger except as described in Section 5.10 of the OSI Disclosure Letter. It is
the intention of the parties that the OSI Stock Options so assumed by LRC
qualify following the Effective Time as incentive stock options as defined in
Section 422 of the Code to the extent such options qualified as incentive
stock options immediately prior to the Effective Time. As soon as reasonably
practical after the Effective Time, LRC will issue to each person who,
immediately prior to the Effective Time was a holder of an outstanding OSI
Stock Option a notice describing the foregoing assumption of such options by
LRC.
(b) Conditional on the consummation of the Merger, and only to the extent
permitted by the terms of the OSI Purchase Plan and the LRC Purchase Plan, OSI
shall take such action as is necessary to (i) preclude the granting of
additional purchase rights under the OSI Purchase Plan on or after the date
hereof (including but not limited to the commencement of any new "offering
period"), and (ii) convert each right to purchase shares of OSI Common Stock
granted under the OSI Purchase Plan pursuant to the offering period commencing
on February 1, 1997, into a right to purchase, on substantially the same terms
provided under the OSI Purchase Plan, whole shares of LRC Common Stock, except
at a price equal to 85% of the lesser of (A) the closing sale price of a share
of OSI Common Stock on the Nasdaq National Market on February 1, 1997, divided
by the Exchange Ratio, rounded up to the nearest whole cent, and (B) the
closing sale price of a share of LAM Common Stock on the last day of each
applicable purchase period during the offering period that began on February
1, 1997. A schedule of all current participants in the OSI Purchase Plan and
their respective levels of participation in the OSI Purchase Plan as of such
date is included in Section 5.10 of the OSI Disclosure Letter. Subject to the
consummation of the Merger, no additional enrollments in the OSI Purchase Plan
shall be accepted by OSI from and after the date hereof, and no participant in
the OSI Purchase Plan shall be permitted to increase his or her level of
participation in such plan. Notwithstanding any other provision of this
Agreement, rights to acquire LRC Common Stock acquired by OSI employees after
the Closing pursuant to the terms of this paragraph 5.10(b) shall count
against all purchase limitations applicable to individual participants
(including dollar value limitations, number of share limitations, etc.)
contained in the LRC Purchase Plan (or any similar plan adopted by LRC) for
all purposes, and LRC shall be permitted to amend the LRC Plan in any respect
to reflect this limitation. The parties agree that in no event shall they be
required to take any action which would preclude either the OSI Purchase Plan
or the LRC Purchase Plan to qualify for treatment under Section 423 of the
Code or cause any other material negative tax consequences to LRC. If the
actions described in this paragraph would have the effect of disqualifying
either such plan per such treatment or causing such material negative tax
consequences, the parties shall negotiate in good faith to attempt to carry
out the purpose of this paragraph in such a manner that would not so
disqualify either plan.
(c) OSI and LRC agree that each of their respective employee equity
incentive plans, programs and arrangements and non-employee director plans
shall be amended, to the extent necessary and appropriate, to
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reflect the transactions contemplated by this Agreement, including, but not
limited to the conversion of shares of OSI Common Stock held or to be awarded
or paid pursuant to such plans, programs or arrangements into shares of LRC
Common Stock on a basis consistent with the transactions contemplated by this
Agreement. The actions to be taken by OSI and LRC pursuant to this Section
5.10 shall include the submission by OSI or LRC of the amendments to the
plans, programs or arrangements referred to herein to their respective
stockholders at the OSI Stockholder Meeting or the LRC Stockholder Meeting,
respectively, if such submission is determined to be necessary or advisable by
counsel to OSI or LRC after consultation with one another; provided, however,
that such approval shall not be a condition to the consummation of the Merger.
(d) As of the Effective Time, LRC shall take all corporate action necessary
to reserve for issuance the number of shares of LRC Common Stock that will
become subject to the benefit plans, programs and arrangements referred to in
this Section 5.10.
(e) Employees of OSI who become employees of the Surviving Corporation at
the Effective Time shall be credited with years of service at OSI for purposes
of determining eligibility, vesting and benefit accrual under all benefit
plans of LRC, except that with respect to retirement benefits under plans
maintained by LRC, such years of service shall be credited for purposes of
determining eligibility and vesting but not for purposes of benefit accrual.
5.11 Consents of LRC's and OSI's Accountants. LRC and OSI will each use
reasonable best efforts to cause to be delivered to each other consents from
their respective independent auditors, dated the date on which the
Registration Statement shall become effective, in form reasonably satisfactory
to the recipient and customary in scope and substance for consents delivered
by independent public accountants in connection with registration statements
on Form S-4 under the Securities Act.
5.12 Form S-8. LRC agrees to file, no later than three business days after
the Closing, a registration statement on Form S-8 covering the shares of LRC
Common Stock issuable pursuant to outstanding options and purchase rights
under the OSI Stock Option Plans assumed by LRC. OSI shall cooperate with and
assist LRC in the preparation of such registration statement.
5.13 Indemnification.
(a) LRC and the Surviving Corporation shall defend, exculpate, indemnify and
reimburse expenses for acts or omissions occurring prior to the Effective Time
by the current or former directors, officers, employees or agents (the
"Indemnified Parties") of OSI on the same terms provided in the current
Certificate of Incorporation or Bylaws of OSI and/or in any indemnification
agreement existing on the date hereof; provided that such indemnification
shall be subject to any limitation imposed from time to time under applicable
law. Without limiting the foregoing, in the event any such Indemnified Party
is or becomes involved in any capacity in any actual or threatened action,
suit, claim, proceeding or investigation (a "Claim") in connection with any
matter relating to this Agreement or the transactions contemplated hereby
occurring at or before the Effective Time, OSI, and after the Effective Time,
the Surviving Corporation and LRC, to the extent permitted by applicable law,
shall periodically advance to the Indemnified Party as incurred expenses
incurred in connection with the Claim, provided that the Indemnified Party to
whom the expenses are advanced provides an undertaking to repay such advances
if it is ultimately determined that such Indemnified Party is not entitled to
indemnification, provided further that such determination shall be made by
independent legal counsel selected by the Indemnified Party and reasonably
acceptable to LRC.
(b) For six years from the Effective Time, LRC shall or shall cause the
Surviving Corporation to maintain in effect OSI's current directors' and
officers' liability insurance (provided that LRC or the Surviving Corporation
may substitute therefor policies of substantially the same coverage containing
terms and conditions issued by responsible companies of national reputation
which are no less advantageous so long as no lapse in coverage occurs as a
result of such substitution) covering those persons who are currently covered
by OSI's directors' and officers' liability insurance policy (a copy of which
has been heretofore made available to LRC);
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provided, however, that in no event shall LRC be required to expend in any one
year an amount in excess of 300% of the annual premiums currently paid by OSI
for such insurance, and, provided, further, that if the annual premiums of
such insurance coverage exceed such amount, LRC shall be obligated to obtain a
policy with the greatest coverage available for a cost not exceeding such
amount.
(c) In the event LRC or the Surviving Corporation or any of their respective
successors or assigns (i) consolidates with or merges into any other person
and shall not be the continuing or surviving corporation or entity in such
consolidation or merger or (ii) transfers all or substantially all its
properties and assets to any person, then in such case, proper provision shall
be made so that the successors and assigns of LRC or the Surviving
Corporation, as the case may be, honor the indemnification obligations of LRC
and the Surviving Corporation to the extent set forth in this Section 5.13.
(d) The obligations of LRC and the Surviving Corporation under this Section
5.13 shall not be terminated or modified in such manner as to adversely affect
any director, officer, employee, agent or other person to whom this Section
5.13 applies without the consent of such affected director, officer, employee,
agent or other person (it being expressly agreed that each such director,
officer, employee, agent or other person to whom this Section 5.13 applies
shall be a third-party beneficiary of this Section 5.13).
5.14 Employment Agreements. LRC shall use reasonable efforts, and OSI shall
use reasonable efforts to cause Mr. Bagley, to negotiate prior to the filing
of the Registration Statement, and thereafter to execute and deliver an
Employment Agreement between LRC and Mr. Bagley relating to his employment by
LRC on mutually satisfactory terms.
5.15 Pooling Letters.
(a) OSI shall use its reasonable best efforts to cause to be delivered to
OSI a letter of OSI's independent auditors, dated as of the date of this
Agreement and confirmed in writing two business days before the date of the
Proxy Statement, to the effect that no condition exists that would preclude
LRC from accounting for the Merger as a pooling of interest as such conditions
relate to OSI if the Merger is consummated in accordance with this Agreement,
and in a form reasonably satisfactory to LRC and customary in scope and
substance for letters delivered by independent public accountants in
connection with transactions of this type.
(b) LRC shall use its reasonable best efforts to cause to be delivered to
LRC a letter of LRC's independent auditors, dated as of the date of this
Agreement and confirmed in writing two business days before the date of the
Proxy Statement, regarding LRC's auditors' concurrence with LRC management's
and OSI management's conclusions, respectively, as to the appropriateness of
pooling of interests accounting for the Merger under Accounting Principles
Board Opinion No. 16 if closed and consummated in accordance with this
Agreement.
(c) Each of OSI and LRC shall promptly make available to the other party the
letter from its independent auditors described above in paragraph (a) or (b),
respectively.
5.16 Reasonable Best Efforts and Further Assurances. Each of the parties to
this Agreement shall use its reasonable best efforts to effectuate the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement. Each party hereto, at the
reasonable request of another party hereto, shall execute and deliver such
other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
5.17 Additional Reports. OSI and LRC shall each furnish to the other copies
of any reports of the type referred to in Sections 2.4 and 3.4 which it files
with the SEC on or after the date hereof, and OSI and LRC, as the case may be,
covenant and warrant that as of the respective dates thereof, such reports
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Any
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unaudited consolidated interim financial statements included in such reports
(including any related notes and schedules) will fairly present the financial
position of OSI and its consolidated subsidiaries or LRC and its consolidated
subsidiaries, as the case may be, as of the dates thereof and the results of
operations and changes in financial position or other information included
therein for the periods or as of the date then ended (subject, where
appropriate, to normal year-end adjustments), in each case in accordance with
past practice and GAAP consistently applied during the periods involved
(except as otherwise disclosed in the notes thereto).
ARTICLE 6
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate and
effect the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived in writing by agreement of all the
parties hereto:
(a) Stockholder Approval. The holders of issued and outstanding shares of
OSI Common Stock shall have duly approved this Agreement and the Merger,
and the holders of issued and outstanding shares of LRC Common Stock shall
have approved the Share Issuance, all in accordance with Delaware Law and
the rules of the Nasdaq National Market.
(b) Registration Statement Effective. The SEC shall have declared the
Registration Statement effective and it shall not be the subject of any
stop order suspending such effectiveness or proceedings seeking a stop
order.
(c) No Injunctions. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or enforced by any court or other tribunal or governmental body or
authority which prohibits the consummation of the Merger or otherwise makes
it illegal. In the event any order, decree or injunction shall have been
issued, each party shall use reasonable best efforts to remove any such
order, decree or injunction.
(d) Governmental Approval. The waiting period applicable to consummation
of the Merger under the HSR Act shall have expired or been terminated.
Other than the filing of the Certificate of Merger which shall be
accomplished as provided in Section 1.2, all authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any Governmental Entity the failure of which to
obtain or comply with would be reasonably likely to have a Material Adverse
Effect on LRC or OSI shall have been obtained or filed.
(e) Tax Opinion. LRC and OSI shall have received substantially identical
written opinions of Shartsis, Friese & Ginsburg LLP, legal counsel to LRC,
and Heller Ehrman White & McAuliffe, legal counsel to OSI, respectively, in
form and substance reasonably satisfactory to them to the effect that the
Merger will constitute a reorganization within the meaning of Section
368(a) of the Code, and such opinions shall not have been withdrawn. If
counsel to either LRC or OSI does not render such opinion, this condition
shall nonetheless be deemed to be satisfied with respect to such party if
counsel to the other party renders such opinion in the required form to
such party. In rendering such opinions, counsel shall be entitled to rely
upon, among other things, reasonable assumptions as well as representations
of LRC, Merger Sub and OSI and certain stockholders of OSI. LRC and OSI
shall use all reasonable efforts to make such representations as the above-
named counsel may request in support of their opinions.
(f) Listing of Additional Shares. The filing with the Nasdaq National
Market of a Notification Form for Listing of Additional Shares with respect
to the shares of LRC Common Stock issuable in the Merger and upon exercise
of the OSI Stock Options assumed by LRC shall have been made.
(g) Pooling Letters. At the Effective Time, each of LRC and OSI shall
have received a letter of its independent accountants, dated as of the
Effective Time, in form and substance reasonably satisfactory to
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it, confirming that the Merger will qualify as a transaction to be
accounted for by the parties hereto in accordance with the pooling of
interests method of accounting.
6.2 Additional Conditions to Obligations of OSI. The obligations of OSI to
consummate and effect the transactions contemplated hereby shall be subject to
the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived in writing by OSI:
(a) Representations and Warranties. The representations and warranties of
LRC and Merger Sub contained in this Agreement (without regard to any
materiality exceptions or provisions therein) shall be true and correct as
of the Effective Time, with the same force and effect as if made on and as
of the Effective Time, except (i) for changes specifically permitted by the
terms of this Agreement, (ii) that the accuracy of representations and
warranties that by their terms speak as of the date of this Agreement or
some other date will be determined as of such date, and (iii) for such
inaccuracies as individually or in the aggregate would not reasonably be
expected to have a Material Adverse Effect on LRC; OSI shall have received
a certificate to such effect signed on behalf of LRC by its Chief Executive
Officer, President or any Senior Vice President;
(b) Agreements and Covenants. LRC and Merger Sub shall have performed or
complied in all material respects with all covenants, obligations,
conditions and agreements required by this Agreement to be performed or
complied with by them on or prior to the Effective Time; OSI shall have
received a certificate to such effect signed on behalf of LRC by its Chief
Executive Officer, President or any Senior Vice President; and
(c) No Material Adverse Changes. There shall have been no events, changes
or effects with respect to LRC or its subsidiaries having, or which could
reasonably be expected to have, a Material Adverse Effect on LRC, and at
the Closing LRC shall have delivered to OSI a certificate to that effect.
6.3 Additional Conditions to the Obligations of LRC and Merger Sub. The
obligations of LRC and Merger Sub to consummate and effect the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived
in writing by LRC:
(a) Representations and Warranties. The representations and warranties of
OSI contained in this Agreement (without regard to any materiality
exceptions or provisions therein) shall be true and correct as of the
Effective Time, with the same force and effect as if made on and as of the
Effective Time, except, (i) for changes specifically permitted by the terms
of this Agreement, (ii) that the accuracy of representations and warranties
that by their terms speak as of the date of this Agreement or some other
date will be determined as of such date, and (iii) for such inaccuracies as
individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect on OSI; LRC shall have received a certificate to
such effect signed on behalf of OSI by its Chief Executive Officer and
President or any Senior Vice President;
(b) Agreements and Covenants. OSI shall have performed or complied in all
material respects with all agreements, covenants, obligations and
conditions required by this Agreement to be performed or complied with by
it on or prior to the Effective Time, LRC shall have received a certificate
to such effect signed on behalf of OSI by its Chief Executive Officer,
President or any Senior Vice President;
(c) No Material Adverse Changes. There shall have been no events, changes
or effects with respect to OSI or its subsidiaries having, or which could
reasonably be expected to have, a Material Adverse Effect on OSI or the
Surviving Corporation, and at the Closing OSI shall have delivered to LRC a
certificate to that effect.
(d) Employment Agreements. Mr. Bagley shall have executed and delivered
to LRC an Employment Agreement relating to his employment by LRC on terms
satisfactory to LRC in LRC's discretion.
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<PAGE>
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. Notwithstanding anything contained in this Agreement to the
contrary, this Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of OSI and LRC.
(a) by mutual written consent duly authorized by the Board of Directors
of LRC and OSI;
(b) by either LRC or OSI if the Effective Time shall not have occurred on
or before August 31, 1997; provided, that the party seeking to terminate
this Agreement pursuant to this clause 7.1(b) shall not have breached in
any material respect its obligations under this Agreement in any manner
that shall have proximately contributed to the failure to consummate the
Merger on or before such date;
(c) by either LRC or OSI if (i) a statute, rule, regulation or executive
order shall have been enacted, entered or promulgated prohibiting the
consummation of the Merger substantially on the terms contemplated hereby
or (ii) a court of competent jurisdiction or other Governmental Entity
shall have issued an order, decree, ruling or injunction, or taken any
other action, having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger substantially on the terms contemplated
hereby and such order, decree, ruling, injunction or other action shall
have become final and non-appealable; provided, that the party seeking to
terminate this Agreement pursuant to this clause 7.1(c)(ii) shall have used
its reasonable best efforts to remove such order, decree, ruling, or
injunction;
(d) by either LRC or OSI if the approvals of the stockholders of either
LRC or OSI described in Section 6.1(a) shall not have been obtained at the
LRC Stockholders Meeting or the OSI Stockholders Meeting, provided that the
party seeking to terminate this Agreement pursuant to this clause 7.1(d)
shall not have breached in any material respect its obligations under this
Agreement in any manner that shall have proximately contributed to the
failure to obtain either of such approvals;
(e) by LRC if (i) the Board of Directors of OSI shall have withdrawn or
modified its recommendation of this Agreement or the Merger in a manner
adverse to LRC or shall have publicly announced its intention to do so; or
(ii) a tender offer (to which Rule 14e-2 applies) for any of the
outstanding shares of capital stock of OSI is commenced prior to the OSI
Meeting, and the Board of Directors of OSI fails to recommend against
acceptance of such tender offer within the time period required by Rule
14e-2 (including by taking no position with respect to acceptance of such
tender offer by its stockholders);
(f) by either LRC or OSI if the Board of Directors of OSI determines in
good faith that an Acquisition Proposal constitutes a Superior Proposal;
provided, however, that OSI may not terminate this Agreement pursuant to
this clause 7.1(f) unless and until four calendar days have elapsed
following delivery to LRC of a written notice of such determination by the
Board of Directors of OSI and during such four day period OSI (i) informs
LRC of the terms and conditions of the Acquisition Proposal and the
identity of the Person making the Acquisition Proposal and (ii) otherwise
fully cooperates with LRC (subject, in the case of this clause (ii), to the
condition that the OSI Board of Directors shall not be required to take any
action that it believes, after consultation with outside legal counsel,
would violate its obligations to OSI or OSI's stockholders under applicable
law) with the intent of enabling LRC to agree to a modification of the
terms and conditions of this Agreement so that the transactions
contemplated hereby may be effected; provided, further, that OSI may not
terminate this Agreement pursuant to this clause 7.1(f) unless at the end
of such four day period the Board of Directors of OSI continues reasonably
to believe that the Acquisition Proposal constitutes a Superior Proposal
and simultaneously with such termination OSI pays to LRC the amount
specified under Section 7.2; and provided, further, that this Agreement
shall not terminate pursuant to this clause 7.1(f) unless simultaneously
with such termination LRC enters into a definitive acquisition, merger or
similar agreement to effect the Acquisition Proposal;
(g) by LRC or OSI if there shall have been a material breach by the other
of any of its representations, warranties, covenants or agreements
contained in this Agreement such that the closing condition set forth in
Section 6.2(a) or 6.3(a) as appropriate would not be satisfied as of the
time of such breach and such breach
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<PAGE>
shall not have been cured within 30 days after notice thereof shall have
been received by the party alleged to be in breach; and
(h) by OSI if (i) the LRC Closing Value is less than $30.00 per share,
(ii) the LRC Closing Value is less than the OSI Walk Away Threshold, (iii)
LRC shall not exercise the LRC Adjustment Option, and (iv) OSI shall
deliver a written termination notice prior to the close of business on the
third trading day prior to the date of the scheduled OSI Stockholder
Meeting.
In the event of termination of this Agreement pursuant to this Section 7.1,
this Agreement shall terminate (except for the confidentiality agreement
referred to in Section 5.4 and for the provisions of Sections 7.2 and 8.2),
and there shall be no other liability on the part of LRC or OSI to the other
except liability arising out of a willful or knowing breach of this Agreement
or as provided for in the Confidentiality Agreement.
7.2 Expenses and Termination Fees.
(a) If this Agreement is terminated (i) by LRC or OSI pursuant to Section
7.1(b) at a time that the OSI Stockholders Meeting has not been held and
completed (and a vote on this Agreement and the Merger by the OSI Stockholders
recorded) and an Alternative Transaction involving OSI shall have been
announced and the Alternative Transaction shall not have been absolutely and
unconditionally withdrawn and abandoned, (ii) by LRC or OSI pursuant to
Section 7.1(d) as a result of the failure to receive the requisite vote for
approval of this Agreement and the Merger by the stockholders of OSI at the
OSI Stockholders Meeting, (iii) by LRC as a result of a breach by OSI within
the scope of Section 7.1(g) if, at the time of such breach, an Alternative
Transaction involving OSI shall have been announced which shall not have been
absolutely and unconditionally withdrawn and abandoned, (iv) by LRC pursuant
to 7.1(e), or (v) by LRC or OSI pursuant to 7.1(f), then OSI shall pay to LRC
a termination fee of $8.4 million in cash, such payment to be made
simultaneously with such termination in the case of a termination by OSI
pursuant to 7.1(f) and within one business day after any other such
termination.
(b) If this Agreement is terminated (i) by LRC or OSI pursuant to Section
7.1(b) at a time that the LRC Stockholders Meeting has not been held and
completed (and a vote on the Share Issuance by the LRC Stockholders recorded)
if an Alternative Transaction involving LRC shall have been announced and the
Alternative Transaction shall not have been absolutely and unconditionally
withdrawn and abandoned, (ii) by LRC or OSI pursuant to Section 7.1(d) as a
result of the failure to receive the requisite vote for approval of the Share
Issuance by the stockholders of LRC at the LRC Stockholders Meeting, or (ii)
by OSI as a result of a breach by LRC within the scope of Section 7.1(g) if,
at the time of such breach, an Alternative Transaction involving LRC shall
have been announced which shall not have been absolutely and unconditionally
withdrawn and abandoned, then LRC shall pay to OSI a termination fee of $8.4
million in cash, such payment to be made within one business day after any
such termination.
(c) As used in this Agreement, an "Alternative Transaction" involving OSI or
LRC or any company in the Semiconductor Equipment Group Closing Index
("Target") means (i) a transaction or series of transactions pursuant to which
any person or group (as such term is defined under the Exchange Act) other
than LRC, OSI or Merger Sub, or any affiliate thereof (a "Third Party")
acquires or would acquire (upon completion of such transaction or series of
transactions) shares (or securities exercisable for or convertible into
shares) representing more than twenty percent (20%) of the outstanding shares
of the Target common stock, pursuant to a tender offer or exchange offer or
otherwise, (ii) a merger, consolidation, share exchange or other business
combination involving the Target or any of its subsidiaries if, upon
consummation of such merger, consolidation, share exchange or other business
combination, such Third Party (or its shareholders) owns or would own more
than twenty percent (20%) of the outstanding equity securities of the Target
or any of its subsidiaries or the entity surviving such merger or business
combination or resulting from such consolidation, (iii) any other transaction
or series of transactions pursuant to which any Third Party acquires or would
acquire (upon completion of such transaction or series of transactions)
control of assets of the Target or any of its subsidiaries (including, for
this purpose, outstanding equity securities of subsidiaries of the Target)
having a fair market value equal to more
A-41
<PAGE>
than twenty percent (20%) of the fair market value of all the consolidated
assets of the Target immediately prior to such transaction or series of
transactions, or (iv) any transaction or series of transactions pursuant to
which any Third Party acquires or would acquire (upon completion of such
transaction or series of transactions) control of the Board of Directors of
the Target or by which nominees of any Third Party are (or would be) elected
or appointed to a majority of the seats on the Board of Directors of the
Target.
(d) If either OSI or LRC (the "Delinquent Party") fails to promptly pay to
the other party any fee or expense due hereunder, the Delinquent Party shall
pay the costs and expenses (including reasonable documented legal fees and
expenses) in connection with any action, including the filing of any lawsuit
or other legal action, taken to collect payment, together with interest on the
account of any unpaid fee at the publicly announced prime rate of Citibank,
N.A. plus three percent (3%) from the date such fee was required to be paid.
7.3 Amendment. The boards of directors of the parties hereto may cause this
Agreement to be amended at any time by execution of an instrument in writing
signed on behalf of each of the parties hereto, except that following adoption
of the Agreement by the stockholders of OSI or LRC there shall be no amendment
to alter or change the amount or kind of consideration to be received on
conversion of the OSI Common Stock nor any amendment or change that by
applicable law would require approval of such stockholders, without further
approval by such stockholders of LRC and OSI.
7.4 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto
and (iii) waive compliance with any of the agreements or conditions for the
benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE 8
GENERAL PROVISIONS
8.1 No Survival of Representations and Warranties. The representations,
warranties and agreements set forth in this Agreement shall terminate at the
Effective Time, except that the agreements set forth in Article 1, the
agreements of "affiliates" of LRC and OSI to be delivered pursuant to Section
5.8, the provisions of Sections 5.10, 5.12, 5.13, 5.16 and this Article 8
shall survive the Effective Time.
8.2 Expenses. Except as described in Section 7.2, whether or not the Merger
is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses, except that OSI and LRC shall share equally: (i) the
filing fee in connection with any HSR Act filing and the filing of the Proxy
Statement materials and Registration Statement and (ii) the expenses incurred
in connection with the printing and mailing of the Joint Proxy Statement.
8.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to LRC or Merger Sub, to:
Lam Research Corporation
47300 Bayside Parkway
Fremont, California 94538
Attention: General Counsel
Facsimile No.: (510) 572-2876
Telephone No.: (510) 572-0200
A-42
<PAGE>
with copies to:
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, CA 94111
Attention: M. Greg Allio, Esq.
Facsimile No.: (415) 421-2922
Telephone No.: (415) 421-6500
Skadden, Arps, Slate, Meagher & Flom LLP
Four Embarcadero Center, Suite 3800
San Francisco, California 94111
Attention: Kenton J. King, Esq.
Facsimile No.: (415) 984-2698
Telephone No.: (415) 984-6483
(b) if to OSI, to:
OnTrak Systems, Inc.
1010 Rincon Center
San Jose, California 95131
Attention: Chief Executive Officer
Facsimile No.: (408) 952-5568
Telephone No.: (408) 952-5562
with a copy to:
Heller, Ehrman, White & McAuliffe
525 University Avenue
Palo Alto, CA 94301-1900
Attention: Sarah A. O'Dowd, Esq.
Facsimile No.: (415) 324-0638
Telephone No.: (415) 324-7000
8.4 Interpretation. When a reference is made in this Agreement to Exhibits
or Schedules, such reference shall be to an Exhibit or Schedule to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by
the words "without limitation." The phrase "made available" in this Agreement
shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrase "to the knowledge of" a party shall mean the actual knowledge of any
executive officers of such party or its subsidiaries after due inquiry. The
term "subsidiary", when used in this Agreement with respect to any Person,
means any corporation or other organization, whether incorporated or
unincorporated, (A) of which at least a majority of the securities or other
interests having by their terms voting power to elect a majority of the board
of directors, trustees or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such Person, or (B) which is controlled, directly or indirectly,
by such Person through ownership of securities, by contract or otherwise. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
8.5 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered (by facsimile or otherwise) to the other parties,
it being understood that all parties need not sign the same counterpart.
8.6 Entire Agreement; Nonassignability; Parties in Interest. This Agreement
and the documents and instruments and other agreements specifically referred
to herein or delivered pursuant hereto, including the
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<PAGE>
Exhibits and Schedules (including the OSI Disclosure Letter and the LRC
Disclosure Letter) (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, except for the Confidentiality Agreement, which shall
continue in full force and effect and shall survive any termination of this
Agreement or the Closing in accordance with its terms; (b) are not intended to
confer upon any other person any rights or remedies hereunder, except as set
forth in Section 5.13; and (c) shall not be assigned by operation of law or
otherwise without the prior written consent of the other parties. Subject to
the preceding sentence, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns.
8.7 Severability. Any term or provision of this Agreement that is, or whose
application is, or is declared by a court of competent jurisdiction to be,
invalid or unenforceable in any jurisdiction, shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability and the
remainder of this Agreement shall continue in full force and effect. The
parties further agree to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such void or
unenforceable provision.
8.8 Enforcement. The parties hereto agree that money damages or other remedy
at law would not be sufficient or adequate remedy for any breach or violation
of, or default under, this Agreement by them and that in addition to all other
remedies available to them, each of them shall be entitled, to the fullest
extent permitted by law, to an injunction restraining such breach, violation
or default or threatened breach, violation or default and to any other
equitable relief, including, without limitation, specific performance, without
bond or other security being required.
8.9 Remedies Cumulative. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy.
8.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
principles of conflicts of law thereof.
8.11 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
A-44
<PAGE>
IN WITNESS WHEREOF, OSI, LRC and Merger Sub have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized,
all as of the date first written above.
ONTRAK SYSTEMS, INC.
/s/ James W. Bagley
By: _________________________________
Name:James W. Bagley
Title:Chairman and Chief Executive
Officer
LAM RESEARCH CORPORATION
/s/ Roger D. Emerick
By: _________________________________
Name:Roger D. Emerick
Title:Chairman and Chief Executive
Officer
OMEGA ACQUISITION CORPORATION
/s/ Richard H. Lovgren
By: _________________________________
Name:Richard H. Lovgren
Title: Vice President, General
Counsel and Secretary
A-45
<PAGE>
ANNEX B-1
OnTrak Systems, Inc.
1010 Rincon Circle
San Jose, California 95131
LADIES AND GENTLEMEN:
I have been advised that as of the date of this letter I may be deemed to be
an "affiliate" of Lam Research Corporation, a Delaware corporation ("Parent"),
as the term "affiliate" is defined for purposes of Accounting Series Releases
130 and 135, as amended, of the Securities and Exchange Commission ("SEC").
Pursuant to the terms of the Agreement and Plan of Merger dated as of March
24, 1997 (the "Merger Agreement") among Parent, OnTrak Systems, Inc. (the
"Company"), and Omega Acquisition Corporation, a wholly-owned subsidiary of
Parent ("Merger Sub"), Merger Sub will be merged with and into the Company
(the "Merger").
I understand and agree that it is intended that the Merger will be treated
as a "pooling-of-interests" in accordance with generally accepted accounting
principles and the applicable General Rules and Regulations ("Rules and
Regulations") published by the SEC. I have been advised that as of the date
hereof, I may be deemed an "affiliate" of Parent, (i) for application of the
pooling of interests requirements and (ii) within the meaning of Rule 145
("Rule 145") promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), although nothing contained herein should be construed as an
admission of either such fact.
I have been informed and understand that the treatment of the Merger as a
pooling-of-interests for financial accounting purposes is dependent upon the
accuracy of my representations and warranties set forth herein, and upon my
compliance with the covenants set forth herein. I understand that the
representations and warranties and covenants set forth herein will be relied
upon by Parent, the Company, their respective counsel and accounting firms and
stockholders of Parent and the Company.
I represent to, and covenant with, Parent that, except (i) with the prior
written consent of Parent for sales of a de minimus number of shares of common
stock of Parent ("Parent Common Stock"), which, in the judgment of Parent,
would not prevent the Merger from being accounted for as a pooling of
interests under the requirements of Staff Accounting Bulletin No. 76 of the
SEC or (ii) as otherwise permitted by the Merger Agreement, I will not sell,
transfer, exchange, pledge or otherwise dispose of, or in any other way reduce
my risk of ownership or investment in, or make any offer or agreement relating
to any of the foregoing with respect to any Parent Common Stock or other
securities of Parent (i) during the 30-day period immediately preceding the
Effective Time and (ii) until such time after the Effective Time as the
Company has publicly announced the combined financial results of the Company
for a period of at least 30 days of combined operations of Parent and the
Company within the meaning of Accounting Series Release No. 135, as amended,
of the SEC.
This agreement may be executed in several counterparts, each of which shall
constitute one in the same instrument.
This agreement shall be binding upon my heirs, legal representatives, and
successors.
Very truly yours,
_____________________________________
Name(1):
Agreed this day
of , 1997, by
ONTRAK SYSTEMS, INC.
By __________________________________
Name:
Title:
- --------
(1) In the event this undertaking covers shares held jointly or held
individually by related parties who will sign this together, each joint or
related party shall sign.:
B-1
<PAGE>
ANNEX B-2
Lam Research Corporation
4650 Cushing Parkway
Fremont, California 94538
, 1997
Ladies and Gentlemen:
I* am a holder of shares of common stock, par value $0.0001 per share
("Company Common Stock"), of OnTrak Systems, Inc., a Delaware corporation (the
"Company"). I am aware that pursuant to the terms of the Agreement and Plan of
Merger, dated as of March 24, 1997 (the "Merger Agreement") among the Company,
Lam Research Corporation, a Delaware corporation ("Parent"), and Omega
Acquisition Corp., a wholly-owned subsidiary of Parent ("Merger Sub"), Merger
Sub will be merged (the "Merger") with and into the Company with the Company
continuing as the surviving corporation, and each of the shares of Company
Common Stock owned by me as of the time of such Merger shall be converted into
shares of common stock, par value $0.001 per share ("Parent Common Stock"), of
Parent.
I understand and agree that it is intended that the Merger will be treated
as a "pooling-of-interests" in accordance with generally accepted accounting
principles and the applicable General Rules and Regulations ("Rules and
Regulations") published by the Securities and Exchange Commission ("SEC"). I
have been advised that as of the date hereof, I may be deemed an "affiliate"
of the Company, (i) for application of the pooling-of-interests requirements
and (ii) within the meaning of Rule 145 ("Rule 145") promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), although nothing
contained herein should be construed as an admission of either such fact.
If in fact I am deemed an "affiliate" under the Securities Act, my ability
to sell, assign or transfer Parent Common Stock received by me in exchange for
any shares of Company Common Stock pursuant to the Merger may be restricted
unless such transaction is registered under the Securities Act or an exemption
from such registration is available. I understand that such exemptions are
limited and I have obtained advice of counsel as to the provisions of this
letter agreement as well as the nature and conditions of such exemptions,
including information with respect to the applicability to the sale of such
securities of Rule 145(d) promulgated under the Securities Act, to the extent
applicable.
I have been informed and understand that the treatment of the Merger as a
pooling-of-interests for financial accounting purposes is dependent upon the
accuracy of my representations and warranties set forth herein, and upon my
compliance with the covenants set forth herein. I understand that the
representations and warranties and covenants set forth herein will be relied
upon by the Company, Parent, their respective counsel and accounting firms and
stockholders of the Company and Parent.
In connection with the above transactions, I represent and warrant to Parent
and agree that:
A. I have full power and authority to execute this agreement, to make the
representations, warranties and covenants herein contained and to perform my
obligations hereunder.
B. I have been advised that the issuance of Parent Common Stock to me
pursuant to the Merger will be registered with the SEC under the Securities
Act on a Registration Statement on Form S-4. I have also been advised,
however, that because I may be deemed to have been an "affiliate" of the
Company at the time the Merger was submitted for a vote of the stockholders of
the Company, and because any distribution by me of Parent Common Stock has not
been registered under the Securities Act, I may not sell, transfer, exchange,
pledge, or otherwise dispose of, or make any offer or agreement relating to
any of the foregoing with respect to, any Restricted Securities, or any
option, right or other interest with respect to any Restricted Securities, (as
- --------
* To be conformed for institutional holders.
B-2-1
<PAGE>
defined hereinafter) unless (i) such transaction is permitted pursuant to
Rules 145(c) and 145(d) under the Securities Act, (ii) counsel reasonably
satisfactory to Parent shall have advised Parent in a written opinion letter
satisfactory to Parent and Parent's legal counsel, and upon which Parent and
its legal counsel may rely, that no registration under the Securities Act
would be required in connection with the proposed sale, transfer or other
disposition, (iii) a registration statement under the Securities Act covering
the Restricted Securities proposed to be sold, transferred or otherwise
disposed of, describing the manner and terms of the proposed sale, transfer or
other disposition, and containing a current prospectus, shall have been filed
with the SEC and made effective under the Securities Act, or (iv) an
authorized representative of the SEC shall have rendered written advice to me
(sought by me or counsel representing me, with a copy thereof and all other
related communications delivered to Parent) to the effect that the SEC would
take no action, or that the Staff of the SEC would not recommend that the SEC
take action, with respect to the proposed disposition if consummated.
C. I have no present plan or intent to dispose of the Parent Common Stock
acquired by me pursuant to the Merger, or any securities that may be paid as a
dividend or otherwise distributed thereon or with respect thereto or issued or
delivered in exchange or substitution therefor (all such shares and other
securities of Parent being herein sometimes collectively referred to as
"Restricted Securities") and I shall not formulate prior to the Effective Time
any such plan or intent to dispose of such Restricted Securities.
D. I will not make any sale, transfer or other disposition of Restricted
Securities in violation of the Securities Act or the Rules and Regulations.
E. I understand that Parent is under no obligation to register the sale,
transfer or other disposition of Restricted Securities by me or on my behalf
under the Securities Act or to take any other action necessary in order to
make compliance with an exemption from such registration available.
F. Notwithstanding any other provision of this Agreement to the contrary,
except (i) with the prior written consent of Parent, for sales of a de minimus
number of shares of Restricted Securities, which, in the judgment of Parent,
would not prevent the Merger from being accounted for as a pooling of
interests under the requirements of Staff Accounting Bulletin No. 76 of the
SEC or (ii) as otherwise permitted by the Merger Agreement, I will not sell,
transfer, exchange, pledge or otherwise dispose of, or in any other way reduce
my risk of ownership or investment in, or make any offer or agreement relating
to any of the foregoing with respect to any Restricted Securities or other
securities of Parent (i) during the 30-day period immediately preceding the
Effective Time and (ii) until such time after the Effective Time as Parent has
publicly announced the combined financial results of Parent for a period of at
least 30 days of combined operations of Parent and the Company within the
meaning of Accounting Series Release No. 135, as amended, of the SEC.
G. From and after the Effective Time and for so long as is necessary in
order to permit me to sell the Restricted Securities held by and pursuant to
Rule 145 and, to the extent applicable, Rule 144 under the Securities Act,
Parent will use its best efforts to file on a timely basis all reports
required to be filed by it pursuant to Section 13 of the Securities Exchange
Act of 1934, as amended, referred to in paragraph (c)(1) of Rule 144 under the
Securities Act. Parent is under no obligation to register the sale, transfer
or other disposition of any Restricted Securities by me or on my behalf.
H. I understand that, in addition to the restrictions imposed under this
agreement, the provisions of Rule 145 limit any public resale by me of
Restricted Securities and that the restrictive legends described below will be
placed upon the Restricted Securities.
1. I understand that stop transfer instructions will be given to the
registrar of the certificates for the shares of Parent Common Stock and that
there will be placed on the certificates for the shares of Parent Common
Stock, or any substitutions therefor, a legend stating in substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
(THE ACQUISITION OF OTTER CORPORATION) TO WHICH RULE 145 PROMULGATED UNDER
B-2-2
<PAGE>
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), APPLIES AND MAY BE SOLD
OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE LIMITATIONS OF SUCH
RULE 145, OR UPON RECEIPT BY WOOL CORPORATION, OF AN OPINION OF COUNSEL
ACCEPTABLE TO IT THAT SOME OTHER EXEMPTION FROM REGISTRATION UNDER THE ACT
IS AVAILABLE, OR PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT. THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED PRIOR TO THE PUBLICATION BY WOOL CORPORATION OF FINANCIAL
RESULTS COVERING AT LEAST 30 DAYS OF OPERATIONS SUBSEQUENT TO THE EFFECTIVE
DATE OF THE MERGER.
Parent agrees to remove such legend to the extent that shares evidenced by
such certificates may properly be sold by me pursuant to this agreement.
2. I also understand that unless a sale or transfer is made in conformity
with the provisions of Rule 145, or pursuant to a registration statement,
Parent reserves the right to put the following legend on the certificates
issued to my transferee:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ACQUIRED FROM A PERSON
WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED BY
THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF
1933.
I. I hereby agree that, for a period of one (1) year following the effective
date of the Merger, I will obtain an agreement similar to this agreement from
each transferee of the shares of Parent Common Stock sold or otherwise
transferred by me, but only if such sale or transfer is effected other than in
a transaction involving a registered public offering or as a sale pursuant to
Rule 145.
It is understood and agreed that this agreement will terminate and be of no
further force and effect and the legends set forth in Paragraph H above will
be removed by delivery of substitute certificates without such legends, and
the related transfer restrictions shall be lifted forthwith, if the period of
time specified in Paragraph F of this agreement has passed and (i) my shares
of Parent Common Stock shall have been registered under the Securities Act for
sale, transfer, or other disposition by me or on my behalf, (ii) I am not at
the time an "affiliate" of Parent and have held the shares of Parent Common
Stock for at least one (1) year** (or such other period as may be prescribed
by the Securities Act and the Rules and Regulations) and Parent has filed with
the SEC all of the reports it is required to file under the Securities
Exchange Act of 1934, as amended, during the preceding 12 months, (iii) I am
not and have not been for at least three (3) months an "affiliate" of Parent
and I have held the shares of Parent Common Stock for at least two (2)
years,/1/ or (iv) Parent shall have received a letter from the staff of the
SEC, or an opinion of counsel acceptable to Parent, to the effect that the
stock transfer restrictions and the legend are not required.
This agreement may be executed in several counterparts, each of which shall
constitute one in the same instrument.
** The Holding Period provisions of Rule 145(d) for Restricted Securities
have been amended to a one-year, rather than a two-year, holding period
for affiliates, and non-affiliates may resell after a two-year, rather
than a three-year, holding period; Amendments take effect in 60 days from
February 26, 1997.
B-2-3
<PAGE>
This agreement shall be binding on my heirs, legal representatives, and
successors.
Very truly yours,
_____________________________________
Name***:
Title:
Accepted this day of March, 1997
LAM RESEARCH CORPORATION
By: _________________________________
- --------
*** In the event this undertaking covers shares held jointly or held
individually by related parties who will sign this together, each joint or
related party shall sign.
B-2-4
<PAGE>
ANNEX C-1
[INDIVIDUAL STOCKHOLDERS]
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT (this "Agreement"), dated as of March 24, 1997, by and
among Lam Research Corporation ("Parent"), Omega Acquisition Corporation, a
Delaware corporation and wholly owned subsidiary of Parent (the "Merger Sub"),
and the person or entity whose name appears on the signature page hereto as a
stockholder or optionholder of OnTrak Systems, Inc., a Delaware corporation
(the "Company") acting in his, her, or its capacity as a stockholder of the
Company and not in any other capacity ("Stockholder").
WHEREAS, immediately prior to the execution of this Agreement, Parent,
Merger Sub and the Company have entered into an Agreement and Plan of Merger
of even date herewith (the "Merger Agreement"), pursuant to which the parties
thereto have agreed, upon the terms and subject to the conditions set forth
therein, to merge the Company with and into Merger Sub (the "Merger"); and
WHEREAS, as of the date hereof, Stockholder is the record and Beneficial
Owner (as defined hereinafter) of the number of Existing Shares (as defined
hereinafter) of the Common Stock, $0.001 par value, of the Company (the
"Company Common Stock") set forth on the signature page hereto; and
WHEREAS, as inducement and a condition to entering into the Merger
Agreement, Parent has required Stockholder to agree, and Stockholder has
agreed, to enter into this Agreement; and
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
SECTION 1. CERTAIN DEFINITIONS. In addition to the terms defined elsewhere
herein, capitalized terms used and not defined herein have the respective
meanings ascribed to them in the Merger Agreement. For purposes of this
Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities means having "beneficial ownership" of such securities as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Without duplicative counting of the same
securities by the same holder, securities Beneficially Owned by a person
include securities Beneficially Owned by all other persons with whom such
person would constitute a "group" within the meaning of Section 13(d) of the
Exchange Act with respect to the securities of the same issuer.
(b) "Existing Shares" means shares of Company Common Stock Beneficially
Owned by Stockholder as of the date hereof.
(c) "Securities" means the Existing Shares together with any shares of
Company Common Stock or other securities of the Company acquired by
Stockholder in any capacity after the date hereof and prior to the termination
of this Agreement whether upon the exercise of options, warrants or rights,
the conversion or exchange of convertible or exchangeable securities, or by
means of purchase, dividend, distribution, split-up, recapitalization,
combination, exchange of shares or the like, gift, bequest, inheritance or as
a successor in interest in any capacity or otherwise.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER. Stockholder
represents and warrants to Parent and Merger Sub as follows:
(a) Ownership of Shares. On the date hereof, Stockholder is the sole record
and Beneficial Owner of the Existing Shares consisting of the number of shares
of Company Common Stock set forth on the signature page
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<PAGE>
hereto. On the date hereof, the Existing Shares constitute all of the shares
of Company Common Stock owned of record or Beneficially Owned by Stockholder.
There are no outstanding options or other rights to acquire from Stockholder
or obligations of Stockholder to sell or to acquire, any shares of Company
Common Stock. Stockholder has sole voting power and sole power to issue
instructions with respect to the matters set forth in Sections 5, 7 and 8
hereof, sole power of disposition, sole power of conversion, sole power to
demand appraisal rights and sole power to agree to all of the matters set
forth in this Agreement, in each case with respect to all of the Existing
Shares with no limitations, qualifications or restrictions on such rights,
subject to applicable securities laws and the terms of this Agreement.
(b) Power; Binding Agreement. Stockholder has the legal capacity, power and
authority to enter into and perform all of Stockholder's obligations under
this Agreement. This Agreement has been duly and validly executed and
delivered by Stockholder and constitutes a valid and binding agreement of
Stockholder, enforceable against Stockholder in accordance with its terms
except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency or other similar laws, now or hereafter in effect, affecting
creditors' rights generally, and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought.
(c) No Conflicts. Except for filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and the Exchange Act, no
filing with, and no permit, authorization, consent or approval of, any state
or federal public body or authority ("Governmental Entity") is necessary for
the execution of this Agreement by Stockholder and the consummation by
Stockholder of the transactions contemplated hereby, none of the execution and
delivery of this Agreement by Stockholder, the consummation by Stockholder of
the transactions contemplated hereby or compliance by Stockholder with any of
the provisions hereof shall (i) conflict with or result in any breach of any
organizational documents applicable to Stockholder, (ii) result in a violation
or breach of, or constitute (with or without notice or lapse of time or both)
a default (or give rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms, conditions or
provisions of any note, loan agreement, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which Stockholder is a party or by
which Stockholder or any of its properties or assets may be bound, or (iii)
violate any order, writ, injunction, decree, judgment, order, statute, rule or
regulation applicable to Stockholder or any of Stockholder's properties or
assets.
(d) No Encumbrance. Except as permitted by this Agreement, the Existing
Shares are now and, at all times during the term hereof, and the Securities
will be, held by Stockholder, or by a nominee or custodian for the benefit of
Stockholder, free and clear of all mortgages, claims, charges, liens, security
interests, pledges or options, proxies, voting trusts or agreements,
understandings or arrangements or any other rights whatsoever
("Encumbrances"), except for any such Encumbrances arising hereunder.
(e) No Finder's Fees. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of
Stockholder.
(f) Reliance by Parent. Stockholder understands and acknowledges that Parent
is entering into, and causing Merger Sub to enter into, the Merger Agreement
in reliance upon Stockholder's execution and delivery of this Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB. Each of
Parent and Merger Sub hereby, jointly and severally, represents and warrants
to Stockholder as follows:
(a) Power; Binding Agreement. Parent and Merger Sub each has the corporate
power and authority to enter into and perform all of its obligations under
this Agreement. This Agreement has been duly and validly executed and
delivered by each of Parent and Merger Sub and constitutes a valid and binding
agreement of Parent and Merger Sub, enforceable against each of Parent and
Merger Sub in accordance with its terms, except
C-1-2
<PAGE>
that (i) such enforcement may be subject to applicable bankruptcy, insolvency
or other similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought.
(b) No Conflicts. Except for filings under the HSR Act, the Exchange Act, no
filing with, and no permit, authorization, consent or approval of, any
Governmental Entity is necessary for the execution of this Agreement by Parent
and Merger Sub and the consummation by Parent and Merger Sub of the
transactions contemplated hereby, and none of the execution and delivery of
this Agreement by each of Parent and Merger Sub, the consummation by each of
Parent and Merger Sub of the transactions contemplated hereby or compliance by
each of Parent and Merger Sub with any of the provisions hereof shall (i)
conflict with or result in any breach of any organizational documents
applicable to either Parent or Merger Sub, (ii) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms, conditions or
provisions of any note, loan agreement, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which either Parent or Merger Sub is a
party or by which either Parent or Merger Sub or any of their respective
properties or assets may be bound, or (iii) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation applicable to
either Parent or Merger Sub or any of their respective properties or assets.
SECTION 4. DISCLOSURE. Stockholder hereby agrees to permit Parent to publish
and disclose in the Registration Statement and the Joint Proxy Statement
(including all documents and schedules filed with the Securities and Exchange
Commission), and any press release or other disclosure document which Parent,
in its sole discretion, determines to be necessary or desirable in connection
with the Merger and any transactions related thereto, Stockholder's identity
and ownership of Company Common Stock and the nature of Stockholder's
commitments, arrangements and understandings under this Agreement.
SECTION 5. CERTAIN RESTRICTIONS.
(a) No Solicitation. Stockholder will not, and will cause its affiliates, if
any, and partners, investment bankers, attorneys, accountants and other agents
and representatives of Stockholder and such affiliates (such affiliates,
partners investment bankers, attorneys, accountants, agents and
representatives of any person are hereinafter collectively referred to as the
"Representatives" of such person) not to, directly or indirectly (i) initiate,
solicit or encourage, or take any action to facilitate the making of, any
offer or proposal which constitutes or is reasonably likely to lead to any
Acquisition Proposal or any inquiry with respect thereto or (ii) in the event
of any unsolicited Acquisition Proposal for the Company or any affiliate of
the Company, engage in negotiations or discussions with, or provide any
information or data to, any person (other than Parent, any of its affiliates
or representatives) relating to any Acquisition Proposal. Stockholder will
notify Parent orally and in writing of any such offers, proposals, or
inquiries relating to the purchase or acquisition by any person of Securities
(including, without limitation, the terms and conditions thereof and the
identity of the person making it), within 24 hours of the receipt thereof.
Stockholder will and will cause its Representative to immediately cease and
cause to be terminated any and all existing activities, discussions or
negotiations, if any, with any parties conducted heretofore without respect to
any Acquisition Proposal relating to the Company, other than discussions or
negotiations with Parent and its affiliates and their Representatives. For
purposes of this Agreement, the Company is not deemed to be an Affiliate of
Stockholder.
(b) Certain Actions. Prior to the termination of this Agreement, Stockholder
agrees not to, directly or indirectly, take any other action that would make
any representation or warranty of Stockholder contained herein untrue or
incorrect.
SECTION 6. COMPANY OPTIONS. If Stockholder holds Company Options to acquire
shares of Company Common Stock, Stockholder shall, if requested by the
Company, consent to the cancellation or substitution of Stockholders Company
Options in accordance with the terms of the Merger Agreement and shall execute
all appropriate documentation in connection with such cancellation or
substitution.
C-1-3
<PAGE>
SECTION 7. VOTING OF COMPANY COMMON STOCK. Stockholder hereby agrees that,
during the period commencing on the date hereof and continuing until the first
to occur of (a) the Effective Time or (b) termination of this Agreement in
accordance with its terms, at any meeting (whether annual or special and
whether or not an adjourned or postponed meeting) of the holders of Company
Common Stock, however called, or in connection with any written consent of the
holders of Company Common Stock, Stockholder will appear at the meeting or
otherwise cause the Securities to be counted as present thereat for purposes
of establishing a quorum and vote or consent (or cause to be voted or
consented) the Securities in favor of the adoption of the Merger Agreement and
the approval of other actions contemplated by the Merger Agreement and this
Agreement and any actions required in furtherance thereof and hereof.
SECTION 8. PROXY.
(a) Stockholder hereby irrevocably grants to, and appoints, Parent and Roger
D. Emerick and Richard H. Lovgren or any of them in their respective
capacities as officers of Parent and any individual who shall hereafter
succeed to any such office of Parent and each of them individually, such
Stockholder's proxy and attorney-in-fact (with full power of substitution),
for and in the name, place and stead of Stockholder, to vote the Securities,
or grant a consent or approval in respect of the Securities, in favor of the
merger, as specified in Section 7 hereof.
(b) Stockholder represents that any proxies heretofore given in respect of
the Existing Shares are not irrevocable, and that such proxies are hereby
revoked.
(c) Stockholder understands and acknowledges that Parent is entering into
the Merger Agreement in reliance upon such Stockholder's execution and
delivery of this Agreement. Stockholder hereby affirms that the irrevocable
proxy set forth in this Section 8 is given in connection with the execution of
the Merger Agreement, and that such irrevocable proxy is given to secure the
performance of the duties of Stockholder under this Agreement. Stockholder
hereby further affirms that the irrevocable proxy is coupled with an interest
and may under no circumstances be revoked. Stockholder hereby ratifies and
confirms all that such irrevocable proxy may lawfully do or cause to be done
by virtue hereof. Such irrevocable proxy is executed and intended to be
irrevocable in accordance with the provisions of Section 212(e) of the
Delaware General Corporation Law.
SECTION 9. DISTRIBUTIONS. In the event of a stock dividend or distribution,
or any change in the Company Common Stock by reason of any stock dividend,
split-up, recapitalization, combination, exchange of share or the like other
than pursuant to the Merger, the terms "Existing Shares and Securities" will
be deemed to refer to and include the shares of Company Common Stock as well
as all such stock dividends and distributions and any shares into which or for
which any or all of the Securities may be changed or exchanged and appropriate
adjustments shall be made to the terms and provisions of this Agreement.
SECTION 10. BEST REASONABLE EFFORTS. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use its best reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement and the Merger Agreement. Each party shall promptly consult
with the other and provide any necessary information and material with respect
to all filings made by such party with any Governmental Entity in connection
with this Agreement and the Merger Agreement and the transactions contemplated
hereby and thereby.
SECTION 11. TERMINATION. This Agreement shall terminate on the earlier to
occur of: (a) the termination of the Merger Agreement; (b) the agreement of
the parties hereto to terminate this Agreement; or (c) the consummation of the
Merger.
SECTION 12. MISCELLANEOUS.
(a) Entire Agreement. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof.
C-1-4
<PAGE>
(b) Successors and Assigns. This Agreement shall not be assigned by
operation of law or otherwise without the prior written consent of the other
parties hereto. This Agreement shall be binding upon, inure to the benefit of
and be enforceable by each party and such party's respective heirs,
beneficiaries, executors, representatives and permitted assigns.
(c) Amendment and Modification. This Agreement may not be amended, altered,
supplemented or otherwise modified or terminated except upon the execution and
delivery of a written agreement executed by the parties hereto.
(d) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon (i) transmitter's confirmation of a
receipt of a facsimile transmission, (ii) confirmed delivery by a standard
overnight carrier or when delivered by hand or (iii) the expiration of five
business days after the day when mailed by certified or registered mail,
postage prepaid, addressed at the following addresses (or at such other
address for a party as shall be specified by like notice):
If to Parent or Merger Sub, to:
Lam Research Corporation
4650 Cusing Parkway
Fremont, California 94538
Telecopy No.: (510) 572-2876
Attention: Richard H. Lovgren, Esq.
with a copy to:
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94111
Telecopy No.: (415) 421-2922
Attention: M. Greg Allio, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Embarcadero Center, Suite 3800
San Francisco, California 94111
Telecopy No.: (415) 984-2698
Attention: Kenton J. King, Esq.
If to Stockholder, to the address set forth on the signature page hereto.
(e) Severability. Any term or provision of this Agreement which is held to
be invalid, illegal or unenforceable in any respect in any jurisdiction shall,
as to that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
(f) Specific Performance. Each of the parties hereto recognizes and
acknowledges a breach by it of any covenants or agreements contained in this
Agreement will cause the other party to sustain damages for which it would not
have an adequate remedy at law for money, damages, and therefore in the event
of any such breach the aggrieved party shall be entitled to the remedy of
specified performance of such covenants and agreements and injunctive and
other equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(g) No Waiver. The failure of any party hereto to exercise any right, power
or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other
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<PAGE>
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, will not constitute a waiver by
such party of its right to exercise any such or other right, power or remedy
or to demand such compliance.
(h) No Third Party Beneficiaries. This Agreement is not intended to confer
upon any person other than the parties hereto any rights or remedies
hereunder.
(i) Governing Law. This Agreement will be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to
the principles of conflict of laws thereof.
(j) Descriptive Heading. The descriptive headings used herein are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
(k) Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses.
(l) Further Assurances. From time to time, at any other party's request and
without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further lawful action as may be
necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this
Agreement.
(m) 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 shall constitute one and the same instrument.
IN WITNESS WHEREOF, Parent, Merger Sub, and Stockholder have caused this
Agreement to be duly executed as of the day and year first written above.
LAM RESEARCH CORPORATION
By: _________________________________
Name:
Title:
OMEGA ACQUISITION CORPORATION
By: _________________________________
Name:
Title:
*
By: _________________________________
NUMBER OF EXISTING SHARES
BENEFICIALLY OWNED BY
STOCKHOLDER: ________________________
ADDRESS OF STOCKHOLDER:
- --------
* In the event this agreement covers shares held jointly or held individually
by related parties who will sign this together, each joint or related party
shall sign.
C-1-6
<PAGE>
ANNEX C-2
[TA ASSOCIATES]
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT (this "Agreement"), dated as of March 24, 1997, by and
among Lam Research Corporation ("Parent"), Omega Acquisition Corporation, a
Delaware corporation and wholly owned subsidiary of Parent (the "Merger Sub"),
and the person or entity whose name appears on the signature page hereto as a
stockholder or optionholder of OnTrak Systems, Inc., a Delaware corporation
(the "Company") acting in his, her, or its capacity as a stockholder of the
Company and not in any other capacity ("Stockholder").
WHEREAS, immediately prior to the execution of this Agreement, Parent,
Merger Sub and the Company have entered into an Agreement and Plan of Merger
of even date herewith (the "Merger Agreement"), pursuant to which the parties
thereto have agreed, upon the terms and subject to the conditions set forth
therein, to merge the Company with and into Merger Sub (the "Merger"); and
WHEREAS, as of the date hereof, Stockholder is the record and Beneficial
Owner (as defined hereinafter) of the number of Existing Shares (as defined
hereinafter) of the Common Stock, $0.001 par value, of the Company (the
"Company Common Stock") set forth on the signature page hereto; and
WHEREAS, as inducement and a condition to entering into the Merger
Agreement, Parent has required Stockholder to agree, and Stockholder has
agreed, to enter into this Agreement; and
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
SECTION 1. CERTAIN DEFINITIONS. In addition to the terms defined elsewhere
herein, capitalized terms used and not defined herein have the respective
meanings ascribed to them in the Merger Agreement. For purposes of this
Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities means having "beneficial ownership" of such securities as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Without duplicative counting of the same
securities by the same holder, securities Beneficially Owned by a person
include securities Beneficially Owned by all other persons with whom such
person would constitute a "group" within the meaning of Section 13(d) of the
Exchange Act with respect to the securities of the same issuer.
(b) "Existing Shares" means shares of Company Common Stock Beneficially
Owned by Stockholder as of the date hereof.
(c) "Securities" means the Existing Shares together with any shares of
Company Common Stock or other securities of the Company acquired by
Stockholder in any capacity after the date hereof and prior to the termination
of this Agreement whether upon the exercise of options, warrants or rights,
the conversion or exchange of convertible or exchangeable securities, or by
means of purchase, dividend, distribution, split-up, recapitalization,
combination, exchange of shares or the like, gift, bequest, inheritance or as
a successor in interest in any capacity or otherwise.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER. Stockholder
represents and warrants to Parent and Merger Sub as follows:
(a) Ownership of Shares. On the date hereof, Stockholder is the sole record
and Beneficial Owner of the Existing Shares consisting of the number of shares
of Company Common Stock set forth on the signature page
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hereto. On the date hereof, the Existing Shares constitute all of the shares
of Company Common Stock owned of record or Beneficially Owned by Stockholder.
There are no outstanding options or other rights to acquire from Stockholder
or obligations of Stockholder to sell or to acquire, any shares of Company
Common Stock. Stockholder has sole voting power and sole power to issue
instructions with respect to the matters set forth in Sections 5, 7 and 8
hereof, sole power of disposition, sole power of conversion, sole power to
demand appraisal rights and sole power to agree to all of the matters set
forth in this Agreement, in each case with respect to all of the Existing
Shares with no limitations, qualifications or restrictions on such rights,
subject to applicable securities laws and the terms of this Agreement.
(b) Power; Binding Agreement. Stockholder has the legal capacity, power and
authority to enter into and perform all of Stockholder's obligations under
this Agreement. This Agreement has been duly and validly executed and
delivered by Stockholder and constitutes a valid and binding agreement of
Stockholder, enforceable against Stockholder in accordance with its terms
except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency or other similar laws, now or hereafter in effect, affecting
creditors' rights generally, and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought.
(c) No Conflicts. Except for filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and the Exchange Act, no
filing with, and no permit, authorization, consent or approval of, any state
or federal public body or authority ("Governmental Entity") is necessary for
the execution of this Agreement by Stockholder and the consummation by
Stockholder of the transactions contemplated hereby, none of the execution and
delivery of this Agreement by Stockholder, the consummation by Stockholder of
the transactions contemplated hereby or compliance by Stockholder with any of
the provisions hereof shall (i) conflict with or result in any breach of any
organizational documents applicable to Stockholder, (ii) result in a violation
or breach of, or constitute (with or without notice or lapse of time or both)
a default (or give rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms, conditions or
provisions of any note, loan agreement, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which Stockholder is a party or by
which Stockholder or any of its properties or assets may be bound, or (iii)
violate any order, writ, injunction, decree, judgment, order, statute, rule or
regulation applicable to Stockholder or any of Stockholder's properties or
assets.
(d) No Encumbrance. Except as permitted by this Agreement, the Existing
Shares are now and, at all times during the term hereof, and the Securities
will be, held by Stockholder, or by a nominee or custodian for the benefit of
Stockholder, free and clear of all mortgages, claims, charges, liens, security
interests, pledges or options, proxies, voting trusts or agreements,
understandings or arrangements or any other rights whatsoever
("Encumbrances"), except for any such Encumbrances arising hereunder.
(e) No Finder's Fees. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of
Stockholder.
(f) Reliance by Parent. Stockholder understands and acknowledges that Parent
is entering into, and causing Merger Sub to enter into, the Merger Agreement
in reliance upon Stockholder's execution and delivery of this Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB. Each of
Parent and Merger Sub hereby, jointly and severally, represents and warrants
to Stockholder as follows:
(a) Power; Binding Agreement. Parent and Merger Sub each has the corporate
power and authority to enter into and perform all of its obligations under
this Agreement. This Agreement has been duly and validly executed and
delivered by each of Parent and Merger Sub and constitutes a valid and binding
agreement of Parent and Merger Sub, enforceable against each of Parent and
Merger Sub in accordance with its terms, except
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that (i) such enforcement may be subject to applicable bankruptcy, insolvency
or other similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought.
(b) No Conflicts. Except for filings under the HSR Act, the Exchange Act, no
filing with, and no permit, authorization, consent or approval of, any
Governmental Entity is necessary for the execution of this Agreement by Parent
and Merger Sub and the consummation by Parent and Merger Sub of the
transactions contemplated hereby, and none of the execution and delivery of
this Agreement by each of Parent and Merger Sub, the consummation by each of
Parent and Merger Sub of the transactions contemplated hereby or compliance by
each of Parent and Merger Sub with any of the provisions hereof shall (i)
conflict with or result in any breach of any organizational documents
applicable to either Parent or Merger Sub, (ii) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms, conditions or
provisions of any note, loan agreement, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which either Parent or Merger Sub is a
party or by which either Parent or Merger Sub or any of their respective
properties or assets may be bound, or (iii) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation applicable to
either Parent or Merger Sub or any of their respective properties or assets.
SECTION 4. DISCLOSURE. Stockholder hereby agrees to permit Parent to publish
and disclose in the Registration Statement and the Joint Proxy Statement
(including all documents and schedules filed with the Securities and Exchange
Commission), and any press release or other disclosure document which Parent,
in its sole discretion, determines to be necessary or desirable in connection
with the Merger and any transactions related thereto, Stockholder's identity
and ownership of Company Common Stock and the nature of Stockholder's
commitments, arrangements and understandings under this Agreement.
SECTION 5. CERTAIN RESTRICTIONS.
(a) No Solicitation. Stockholder will not, and will cause its affiliates, if
any, and partners, investment bankers, attorneys, accountants and other agents
and representatives of Stockholder and such affil iates (such affiliates,
partners investment bankers, attorneys, accountants, agents and
representatives of any person are hereinafter collectively referred to as the
"Representatives" of such person) not to, directly or indirectly (i) initiate,
solicit or encourage, or take any action to facilitate the making of, any
offer or proposal which constitutes or is reasonably likely to lead to any
Acquisition Proposal or any inquiry with respect thereto or (ii) in the event
of any unsolicited Acquisition Proposal for the Company or any affiliate of
the Company, engage in negotiations or discussions with, or provide any
information or data to, any person (other than Parent, any of its affiliates
or representatives) relating to any Acquisition Proposal. Stockholder will
notify Parent orally and in writing of any such offers, proposals, or
inquiries relating to the purchase or acquisition by any person of Securities
(including, without limitation, the terms and conditions thereof and the
identity of the person making it), within 24 hours of the receipt thereof.
Stockholder will and will cause its Representative to immediately cease and
cause to be terminated any and all existing activities, discussions or
negotiations, if any, with any parties conducted heretofore without respect to
any Acquisition Proposal relating to the Company, other than discussions or
negotiations with Parent and its affiliates and their Representatives. For
purposes of this Agreement, the Company is not deemed to be an Affiliate of
Stockholder.
(b) Certain Actions. Prior to the termination of this Agreement, Stockholder
agrees not to, directly or indirectly, take any other action that would make
any representation or warranty of Stockholder contained herein untrue or
incorrect.
SECTION 6. COMPANY OPTIONS. If Stockholder holds Company Options to acquire
shares of Company Common Stock, Stockholder shall, if requested by the
Company, consent to the cancellation or substitution of Stockholders Company
Options in accordance with the terms of the Merger Agreement and shall execute
all appropriate documentation in connection with such cancellation or
substitution.
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SECTION 7. VOTING OF COMPANY COMMON STOCK. Stockholder hereby agrees that,
during the period commencing on the date hereof and continuing until the first
to occur of (a) the Effective Time or (b) August 31, 1997; or (c) termination
of this Agreement in accordance with its terms, at any meeting (whether annual
or special and whether or not an adjourned or postponed meeting) of the
holders of Company Common Stock, however called, or in connection with any
written consent of the holders of Company Common Stock, Stockholder will
appear at the meeting or otherwise cause the Securities to be counted as
present thereat for purposes of establishing a quorum and vote or consent (or
cause to be voted or consented) the Securities in favor of the adoption of the
Merger Agreement and the approval of other actions contemplated by the Merger
Agreement and this Agreement and any actions required in furtherance thereof
and hereof.
SECTION 8. PROXY.
(a) Stockholder hereby irrevocably grants to, and appoints, Parent and Roger
D. Emerick and Richard H. Lovgren or any of them in their respective
capacities as officers of Parent and any individual who shall hereafter
succeed to any such office of Parent and each of them individually, such
Stockholder's proxy and attorney-in-fact (with full power of substitution),
for and in the name, place and stead of Stockholder, to vote the Securities,
or grant a consent or approval in respect of the Securities, in favor of the
merger, as specified in Section 7 hereof.
(b) Stockholder represents that any proxies heretofore given in respect of
the Existing Shares are not irrevocable, and that such proxies are hereby
revoked.
(c) Stockholder understands and acknowledges that Parent is entering into
the Merger Agreement in reliance upon such Stockholder's execution and
delivery of this Agreement. Stockholder hereby affirms that the irrevocable
proxy set forth in this Section 8 is given in connection with the execution of
the Merger Agreement, and that such irrevocable proxy is given to secure the
performance of the duties of Stockholder under this Agreement. Stockholder
hereby further affirms that the irrevocable proxy is coupled with an interest
and may under no circumstances be revoked. Stockholder hereby ratifies and
confirms all that such irrevocable proxy may lawfully do or cause to be done
by virtue hereof. Such irrevocable proxy is executed and intended to be
irrevocable in accordance with the provisions of Section 212(e) of the
Delaware General Corporation Law.
SECTION 9. DISTRIBUTIONS. In the event of a stock dividend or distribution,
or any change in the Company Common Stock by reason of any stock dividend,
split-up, recapitalization, combination, exchange of share or the like other
than pursuant to the Merger, the terms "Existing Shares and Securities" will
be deemed to refer to and include the shares of Company Common Stock as well
as all such stock dividends and distributions and any shares into which or for
which any or all of the Securities may be changed or exchanged and appropriate
adjustments shall be made to the terms and provisions of this Agreement.
SECTION 10. BEST REASONABLE EFFORTS. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use its best reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement and the Merger Agreement. Each party shall promptly consult
with the other and provide any necessary information and material with respect
to all filings made by such party with any Governmental Entity in connection
with this Agreement and the Merger Agreement and the transactions contemplated
hereby and thereby.
SECTION 11. TERMINATION. This Agreement shall terminate on the earlier to
occur of: (a) the termination of the Merger Agreement; (b) the agreement of
the parties hereto to terminate this Agreement; or (c) the consummation of the
Merger.
SECTION 12. MISCELLANEOUS.
(a) Entire Agreement. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof.
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(b) Successors and Assigns. This Agreement shall not be assigned by
operation of law or otherwise without the prior written consent of the other
parties hereto. This Agreement shall be binding upon, inure to the benefit of
and be enforceable by each party and such party's respective heirs,
beneficiaries, executors, representatives and permitted assigns.
(c) Amendment and Modification. This Agreement may not be amended, altered,
supplemented or otherwise modified or terminated except upon the execution and
delivery of a written agreement executed by the parties hereto.
(d) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon (i) transmitter's confirmation of a
receipt of a facsimile transmission, (ii) confirmed delivery by a standard
overnight carrier or when delivered by hand or (iii) the expiration of five
business days after the day when mailed by certified or registered mail,
postage prepaid, addressed at the following addresses (or at such other
address for a party as shall be specified by like notice):
If to Parent or Merger Sub, to:
Lam Research Corporation
4650 Cusing Parkway
Fremont, California 94538
Telecopy No.: (510) 572-2876
Attention: Richard H. Lovgren, Esq.
with a copy to:
Shartsis, Friese & Ginsburg LLP
One Maritime Plaza, 18th Floor
San Francisco, California 94111
Telecopy No.: (415) 421-2922
Attention: M. Greg Allio, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Embarcadero Center, Suite 3800
San Francisco, California 94111
Telecopy No.: (415) 984-2698
Attention: Kenton J. King, Esq.
If to Stockholder, to the address set forth on the signature page hereto.
(e) Severability. Any term or provision of this Agreement which is held to
be invalid, illegal or unenforceable in any respect in any jurisdiction shall,
as to that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
(f) Specific Performance. Each of the parties hereto recognizes and
acknowledges a breach by it of any covenants or agreements contained in this
Agreement will cause the other party to sustain damages for which it would not
have an adequate remedy at law for money, damages, and therefore in the event
of any such breach the aggrieved party shall be entitled to the remedy of
specified performance of such covenants and agreements and injunctive and
other equitable relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(g) No Waiver. The failure of any party hereto to exercise any right, power
or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any
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<PAGE>
other party hereto with its obligations hereunder, and any custom or practice
of the parties at variance with the terms hereof, will not constitute a waiver
by such party of its right to exercise any such or other right, power or
remedy or to demand such compliance.
(h) No Third Party Beneficiaries. This Agreement is not intended to confer
upon any person other than the parties hereto any rights or remedies
hereunder.
(i) Governing Law. This Agreement will be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to
the principles of conflict of laws thereof.
(j) Descriptive Heading. The descriptive headings used herein are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
(k) Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses.
(l) Further Assurances. From time to time, at any other party's request and
without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further lawful action as may be
necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this
Agreement.
(m) 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 shall constitute one and the same instrument.
IN WITNESS WHEREOF, Parent, Merger Sub, and Stockholder have caused this
Agreement to be duly executed as of the day and year first written above.
LAM RESEARCH CORPORATION
By: _________________________________
Name:
Title:
OMEGA ACQUISITION CORPORATION
By: _________________________________
Name:
Title:
*
By: _________________________________
NUMBER OF EXISTING SHARES
BENEFICIALLY OWNED BY STOCKHOLDER: __
ADDRESS OF STOCKHOLDER:
- --------
* In the event this agreement covers shares held jointly or held individually
by related parties who will sign this together, each joint or related party
shall sign.
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<PAGE>
ANNEX D
FORM OF LAM RESEARCH CORPORATION
1997 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Lam Research Corporation 1997 Stock Incentive
Plan (the "Plan"). The Plan was adopted by the Board on May 6, 1997, subject
to the approval of the stockholders of the Company, which approval was
obtained on [ ], 1997. The purpose of the Plan is to enable the Company to
attract and retain highly qualified personnel who will contribute to the
Company's success by their ability, ingenuity and industry and to provide
incentives to the participating officers, directors, employees, consultants
and advisors that are linked directly to increases in stockholder value and
will therefore inure to the benefit of all stockholders of the Company.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(1) "Administrator" means the Board, or if and to the extent the Board
does not administer the Plan, the Committee in accordance with Section 2.
(2) "Annual Non-Employee Director Stock Option" means an annual grant of
Stock Options to a non-employee director of the Company pursuant to Section
6.
(3) "Board" means the Board of Directors of the Company.
(4) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor thereto.
(5) "Committee" means the Stock Committee of the Board or any Committee
the Board may subsequently appoint to administer the Plan. To the extent
applicable, the Committee shall be composed entirely of individuals who
meet the qualifications referred to in Section 162(m) of the Code and Rule
16b-3 under the Securities Exchange Act of 1934, as amended. If at any time
or to any extent the Board shall not administer the Plan, then the
functions of the Board specified in the Plan shall be exercised by the
Committee.
(6) "Company" means Lam Research Corporation, a Delaware corporation (or
any successor corporation).
(7) "Deferred Stock" means an award made pursuant to Section 7 below of
the right to receive Stock at the end of a specified deferral period.
(8) "Disability" means the inability of a Participant to perform
substantially his or her duties and responsibilities to the Company by
reason of a physical or mental disability or infirmity (i) for a continuous
period of six months, or (ii) at such earlier time as the Participant
submits medical evidence satisfactory to the Administrator that he or she
has a physical or mental disability or infirmity which will likely prevent
him or her from returning to the performance of his or her work duties for
six months or longer. The date of such Disability shall be on the last day
of such six-month period or the day on which the Participant submits such
satisfactory medical evidence, as the case may be.
(9) "Effective Date" shall mean the date set forth in Section 11.
(10) "Eligible Recipient" means an officer, director, employee,
consultant or advisor of the Company or any Subsidiary.
(11) "Fair Market Value" means, as of any given date, with respect to any
awards granted hereunder, (A) if the Stock is publicly traded, the closing
sale price of the Stock on such date as reported in the Western Edition of
the Wall Street Journal, or the average of the closing price of the Stock
on each day on which the Stock was traded over a period of up to twenty
trading days immediately prior to such date, (B) the fair market value of
the Stock as determined in accordance with a method prescribed in the
agreement
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evidencing any award hereunder, or (C) the fair market value of the Stock
as otherwise determined by the Administrator in the good faith exercise of
its discretion.
(12) "Incentive Stock Option" means any Stock Option intended to be
designated as an "incentive stock option" within the meaning of Section 422
of the Code.
(13) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option, including any Stock Option that provides (as of the
time such option is granted) that it will not be treated as an Incentive
Stock Option.
(14) "Parent Corporation" means any corporation (other the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations in the chain (other than the Company) owns stock possessing
50% or more of the combined voting power of all classes of stock in one of
the other corporations in the chain.
(15) "Participant" means any Eligible Recipient selected by the
Administrator, pursuant to the Administrator's authority in Section 2
below, to receive grants of Stock Options, Restricted Stock awards,
Deferred Stock awards, Performance Shares or any combination of the
foregoing and each non-employee director of the Company who receives an
Annual Non-Employee Director Stock Option pursuant to Section 6.
(16) "Performance Share" means an award of shares of Stock pursuant to
Section 7 that is subject to restrictions based upon the attainment of
specified performance objectives.
(17) "Restricted Stock" means an award granted pursuant to Section 7 of
shares of Stock subject to certain restrictions.
(18) "Stock" means the common stock, par value $.001 per share, of the
Company.
(19) "Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 5 or any Annual Non-Employee Director Stock Option
granted pursuant to Section 6.
(20) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations (other than the last corporation) in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered in accordance with the requirements of
Section 162(m) of the Code (but only to the extent necessary to maintain
qualification of the Plan under Section 162(m) of the Code) and, to the extent
applicable, Rule 16b-3 under the Securities Exchange Act of 1934, as amended
("Rule 16b-3") by the Board or by the Committee which shall be appointed by
the Board and which shall serve at the pleasure of the Board.
Pursuant to the terms of the Plan, the Administrator shall have the power
and authority to grant to Eligible Recipients pursuant to the terms of the
Plan: (a) Stock Options, (b) Restricted Stock, (c) Deferred Stock, (d)
Performance Shares or (e) any combination of the foregoing.
In particular, the Administrator shall have the authority:
(a) to select those Eligible Recipients who shall be Participants;
(b) to determine whether and to what extent Stock Options, Restricted
Stock, Deferred Stock, Performance Shares or a combination of the
foregoing, are to be granted hereunder to Participants;
(c) to determine the number of shares of Stock to be covered by each such
award granted hereunder;
(d) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not
limited to, (x) the restrictions applicable to Restricted or Deferred Stock
awards and the conditions under which restrictions applicable to such
Restricted or Deferred Stock shall lapse, and (y) the performance goals and
periods applicable to an award of Performance Shares); and
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<PAGE>
(e) to determine the terms and conditions, not inconsistent with the
terms of the Plan, which shall govern all written instruments evidencing
the Stock Options, Restricted Stock, Deferred Stock, Performance Shares or
any combination of the foregoing granted hereunder to Participants.
The Administrator shall have the authority, in its discretion, to adopt,
alter and repeal such administrative rules, guidelines and practices governing
the Plan as it shall from time to time deem advisable; to interpret the terms
and provisions of the Plan and any award issued under the Plan (and any
agreements relating thereto); and to otherwise supervise the administration of
the Plan.
All decisions made by the Administrator pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and the
Participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for issuance
under the Plan shall initially be three million; provided, however, that the
number of shares so reserved shall automatically be increased at the beginning
of each calendar quarter if and to the extent that, as of such date, the
quotient determined by dividing (x) the total number of shares of Stock
reserved for issuance under all of Lam's stock-based incentive plans pursuant
to outstanding and future awards by (y) the sum of (i) the total number of
shares of Stock outstanding plus (ii) the number determined under clause (x),
is less than 20%, such that immediately following any such increase such
quotient will equal 18.5%; and provided, further, that the number of shares
reserved for issuance under the Plan shall in no event exceed five million
shares, as adjusted to take into account changes in capitalization as set
forth below. Such shares may consist, in whole or in part, of authorized and
unissued shares or treasury shares. The aggregate number of shares of Stock as
to which Stock Options, Restricted Stock, Deferred Stock and Performance
Shares may be granted to any individual during any calendar year may not,
subject to adjustment as provided in this Section 3, exceed 20% of the shares
of Stock reserved for the purposes of the Plan in accordance with the
provisions of this Section 3.
Consistent with the provisions of Section 162(m) of the Code, as from time
to time applicable, to the extent that (i) a Stock Option expires or is
otherwise terminated without being exercised, or (ii) any shares of Stock
subject to any Restricted Stock, Deferred Stock or Performance Share award
granted hereunder are forfeited, such shares shall again be available for
issuance in connection with future awards under the Plan. If any shares of
Stock have been pledged as collateral for indebtedness incurred by a
Participant in connection with the exercise of a Stock Option and such shares
are returned to the Company in satisfaction of such indebtedness, such shares
shall again be available for issuance in connection with future awards under
the Plan.
In the event of any merger, reorganization, consolidation, recapitalization,
stock dividend or other change in corporate structure affecting the Stock, a
substitution or adjustment shall be made in (i) the aggregate number of shares
reserved for issuance under the Plan, (ii) the kind, number and option price
of shares subject to outstanding Stock Options granted under the Plan, and
(iii) the kind, number and purchase price of shares issuable pursuant to
awards of Restricted Stock, Deferred Stock and Performance Shares, as may be
determined by the Administrator, in its sole discretion. Such other
substitutions or adjustments shall be made as may be determined by the
Administrator, in its sole discretion. In connection with any event described
in this paragraph, the Administrator may provide, in its discretion, for the
cancellation of any outstanding awards and payment in cash or other property
therefor.
SECTION 4. ELIGIBILITY.
Officers, directors and employees of the Company or any Subsidiary, and
consultants and advisors to the Company or any Subsidiary, who are responsible
for or are in a position to contribute to the management, growth and/or
profitability of the business of the Company shall be eligible to be granted
Stock Options, Restricted Stock awards, Deferred Stock awards or Performance
Shares hereunder. The Participants under the Plan shall be selected from time
to time by the Administrator, in its sole discretion, from among the Eligible
Recipients recommended by the senior management of the Company, and the
Administrator shall determine, in its sole discretion, the number of shares of
Stock covered by each award.
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<PAGE>
SECTION 5. DISCRETIONARY GRANTS OF STOCK OPTIONS.
Stock Options may be granted alone or in addition to other awards granted
under the Plan. Any Stock Option granted under the Plan shall be in such form
as the Administrator may from time to time approve, and the provisions of
Stock Option awards need not be the same with respect to each optionee.
Recipients of Stock Options shall enter into an award agreement with the
Company, in such form as the Administrator shall determine, which agreement
shall set forth, among other things, the exercise price of the option, the
term of the option and provisions regarding exercisability of the option
granted thereunder.
The Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options.
The Administrator shall have the authority to grant any officer or employee
of the Company (including directors who are also officers of the Company)
Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock
Options. Directors who are not officers of the Company, consultants and
advisors may only be granted Non-Qualified Stock Options. To the extent that
any Stock Option does not qualify as an Incentive Stock Option, it shall
constitute a separate Non-Qualified Stock Option. More than one option may be
granted to the same optionee and be outstanding concurrently hereunder.
Stock Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Administrator shall deem
desirable:
(1) Option Price. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Administrator in its sole
discretion at the time of grant but shall not be less than 100% of the Fair
Market Value of the Stock on such date. If an employee owns or is deemed to
own (by reason of the attribution rules applicable under Section 424(d) of
the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Parent Corporation and an Incentive Stock
Option is granted to such employee, the option price of such Incentive
Stock Option (to the extent required by the Code at the time of grant)
shall be no less than 110% of the Fair Market Value of the Stock on the
date such Incentive Stock Option is granted.
(2) Option Term. The term of each Stock Option shall be fixed by the
Administrator, but no Stock Option shall be exercisable more than ten years
after the date such Stock Option is granted; provided, however, that if an
employee owns or is deemed to own (by reason of the attribution rules of
Section 424(d) of the Code) more than 10% of the combined voting power of
all classes of stock of the Company or any Parent Corporation and an
Incentive Stock Option is granted to such employee, the term of such
Incentive Stock Option (to the extent required by the Code at the time of
grant) shall be no more than five years from the date of grant.
(3) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by
the Administrator at or after grant. The Administrator may provide, in its
discretion, that any Stock Option shall be exercisable only in
installments, and the Administrator may waive such installment exercise
provisions at any time in whole or in part based on such factors as the
Administrator may determine, in its sole discretion, including but not
limited to in connection with any "change in control" of the Company, as
defined in any stock option agreement or otherwise.
(4) Method of Exercise. Subject to Section 5(3) above, Stock Options may
be exercised in whole or in part at any time during the option period, by
giving written notice of exercise to the Company specifying the number of
shares to be purchased, accompanied by payment in full of the purchase
price in cash or its equivalent as determined by the Administrator. As
determined by the Administrator, in its sole discretion, payment in whole
or in part may also be made (i) by means of any cashless exercise procedure
approved by the Administrator, (ii) in the form of unrestricted Stock
already owned by the optionee, or (iii) in the case of the exercise of a
Non-Qualified Stock Option, in the form of Restricted Stock or Performance
Shares subject to an award hereunder (based, in each case, on the Fair
Market Value of the Stock on the date the
D-4
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option is exercised); provided, however, that in the case of an Incentive
Stock Option, the right to make payment in the form of already owned shares
may be authorized only at the time of grant. If payment of the option
exercise price of a Non-Qualified Stock Option is made in whole or in part
in the form of Restricted Stock or Performance Shares, the shares received
upon the exercise of such Stock Option shall be restricted in accordance
with the original terms of the Restricted Stock or Performance Share award
in question, except that the Administrator may direct that such
restrictions shall apply only to that number of shares equal to the number
of shares surrendered upon the exercise of such option. An optionee shall
generally have the rights to dividends and any other rights of a
stockholder with respect to the Stock subject to the option only after the
optionee has given written notice of exercise, has paid in full for such
shares, and, if requested, has given the representation described in
paragraph (1) of Section 10.
The Administrator may require the voluntary surrender of all or a portion
of any Stock Option granted under the Plan as a condition precedent to the
grant of a new Stock Option. Subject to the provisions of the Plan, such
new Stock Option shall be exercisable at the price, during such period and
on such other terms and conditions as are specified by the Administrator at
the time the new Stock Option is granted. Consistent with the provisions of
Section 162(m), to the extent applicable, upon their surrender, Stock
Options shall be canceled and the shares previously subject to such
canceled Stock Options shall again be available for grants of Stock Options
and other awards hereunder. Any re-pricing of Stock Options granted under
the Plan will be limited, in the aggregate, to 10% of the shares reserved
and available for issuance under the Plan.
(5) Loans. The Company may make loans available to Stock Option holders
in connection with the exercise of outstanding options granted under the
Plan, as the Administrator, in its discretion, may determine. Such loans
shall (i) be evidenced by promissory notes entered into by the Stock Option
holders in favor of the Company, (ii) be subject to the terms and
conditions set forth in this Section 5(5) and such other terms and
conditions, not inconsistent with the Plan, as the Administrator shall
determine, (iii) bear interest, if any, at such rate as the Administrator
shall determine, and (iv) be subject to Board approval (or to approval by
the Administrator to the extent the Board may delegate such authority). In
no event may the principal amount of any such loan exceed the sum of (x)
the exercise price less the par value (if any) of the shares of Stock
covered by the option, or portion thereof, exercised by the holder, and (y)
any Federal, state, and local income tax attributable to such exercise. The
initial term of the loan, the schedule of payments of principal and
interest under the loan, the extent to which the loan is to be with or
without recourse against the holder with respect to principal or interest
and the conditions upon which the loan will become payable in the event of
the holder's termination of employment shall be determined by the
Administrator. Unless the Administrator determines otherwise, when a loan
is made, shares of Stock having a Fair Market Value at least equal to the
principal amount of the loan shall be pledged by the holder to the Company
as security for payment of the unpaid balance of the loan, and such pledge
shall be evidenced by a pledge agreement, the terms of which shall be
determined by the Administrator, in its discretion; provided, however, that
each loan shall comply with all applicable laws, regulations and rules of
the Board of Governors of the Federal Reserve System and any other
governmental agency having jurisdiction.
(6) Non-Transferability of Options. Unless otherwise determined by the
Administrator in accordance with Rule 16b-3, no Stock Option shall be
transferable by the optionee, and all Stock Options shall be exercisable,
during the optionee's lifetime, only by the optionee.
(7) Termination of Employment or Service. If an optionee's employment
with or service as a director, consultant or advisor to the Company
terminates by reason of death, Disability or for any other reason, the
Stock Option may thereafter be exercised to the extent provided in the
applicable subscription or award agreement, or as otherwise determined by
the Administrator.
(8) Annual Limit on Incentive Stock Options. To the extent that the
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of shares of Stock with respect to which Incentive Stock
Options granted to an Optionee under this Plan and all other option plans
of the Company or its Parent Corporation become exercisable for the first
time by the Optionee during any calendar year exceeds $100,000, such Stock
Options shall be treated as Non-Qualified Stock Options.
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SECTION 6. ANNUAL NON-EMPLOYEE DIRECTOR STOCK OPTION GRANTS
Each non-employee director of the Company shall automatically be granted a
Non-Qualified Stock Option to purchase 6,000 shares of Stock on the first
business day of January of each calendar year (an "Annual Non-Employee
Director Stock Option"). The terms and conditions of the Annual Non-Employee
Director Stock Options granted pursuant to this Section 6 shall be as follows:
(1) Option Term. The term of the option shall be ten (10) years from the
date of grant.
(2) Exercise Price. The exercise price per share of Stock subject to such
option shall be 100% of the Fair Market Value of the Stock on the date of
grant.
(3) Vesting and Exercisability. The option shall be 100% vested and
exercisable as of the date of grant.
(4) Non-Transferability of Options. Unless otherwise determined by the
Administrator in accordance with Rule 16b-3, the option shall not be
transferable by the optionee, and shall be exercisable, during the
optionee's lifetime, only by the optionee.
(5) Payment of Exercise Price. The exercise price of such option shall be
paid in cash or its equivalent as determined by the Administrator.
(6) Termination of Service. Except as provided below, the option shall
terminate as of the date on which the optionee's service as a director of
the Company terminates. In the event the optionee's service as a director
terminates as a result of Disability, the optionee may exercise the option
within six (6) months following the date of termination (but in no event
after expiration of the option term). In the event the optionee's service
as a director terminates by reason of the death of the optionee, the option
may be exercised by the optionee's estate or beneficiary for a period of
six (6) months following the date of death (but in no event after
expiration of the option term).
SECTION 7. RESTRICTED STOCK, DEFERRED STOCK AND PERFORMANCE SHARES.
(1) General. Restricted Stock, Deferred Stock or Performance Share awards
may be issued either alone or in addition to other awards granted under the
Plan. The Administrator shall determine the Eligible Recipients to whom, and
the time or times at which, grants of Restricted Stock, Deferred Stock or
Performance Share awards shall be made; the number of shares to be awarded;
the price, if any, to be paid by the recipient of Restricted Stock, Deferred
Stock or Performance Share awards; the Restricted Period (as defined in
paragraph (3) hereof) applicable to Restricted Stock or Deferred Stock awards;
the performance objectives applicable to Restricted Stock, Deferred Stock or
Performance Share awards; the date or dates on which restrictions applicable
to such Restricted Stock or Deferred Stock awards shall lapse during such
Restricted Period; and all other conditions of the Restricted Stock, Deferred
Stock and Performance Share awards. The Administrator may also condition the
grant of Restricted Stock, Deferred Stock awards or Performance Shares upon
the exercise of Stock Options, or upon such other criteria as the
Administrator may determine, in its sole discretion. The provisions of
Restricted Stock, Deferred Stock or Performance Share awards need not be the
same with respect to each recipient. In the discretion of the Administrator,
loans may be made to Participants in connection with the purchase of
Restricted Stock under substantially the same terms and conditions as provided
in Section 5(5) with respect to the exercise of Stock Options.
(2) Awards and Certificates. The prospective recipient of a Restricted
Stock, Deferred Stock or Performance Share award shall not have any rights
with respect to such award, unless and until such recipient has executed an
agreement evidencing the award (a "Restricted Stock Award Agreement,"
"Deferred Stock Award Agreement" or "Performance Share Award Agreement," as
appropriate) and delivered a fully executed copy thereof to the Company,
within a period of sixty days (or such other period as the Administrator may
specify) after the award date. Except as otherwise provided below in this
Section 7(2), (i) each Participant who is awarded Restricted Stock or
Performance Shares shall be issued a stock certificate in respect of such
shares of Restricted Stock or Performance Shares; and (ii) such certificate
shall be registered in the name of the Participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such award.
D-6
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The Company may require that the stock certificates evidencing Restricted
Stock or Performance Share awards hereunder be held in the custody of the
Company until the restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Stock award or Performance Share award, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Stock covered by such award.
With respect to Deferred Stock awards, at the expiration of the Restricted
Period, stock certificates in respect of such shares of Deferred Stock shall
be delivered to the Participant, or his or her legal representative, in a
number equal to the number of shares of Stock covered by the Deferred Stock
award.
(3) Restrictions and Conditions. The Restricted Stock, Deferred Stock and
Performance Share awards granted pursuant to this Section 7 shall be subject
to the following restrictions and conditions:
(a) Subject to the provisions of the Plan and the Restricted Stock Award
Agreement, Deferred Stock Award Agreement or Performance Share Award
Agreement, as appropriate, governing such award, during such period as may
be set by the Administrator commencing on the grant date (the "Restricted
Period"), the Participant shall not be permitted to sell, transfer, pledge
or assign shares of Restricted Stock, Deferred Stock or Performance Shares
awarded under the Plan; provided, however, that the Restricted Period shall
not be less than (i) three years with respect to restrictions based solely
on continued employment with the Company and (ii) one year with respect to
restrictions based on the achievement of performance-related goals; and
provided, further, that the Administrator may, in its sole discretion,
provide for the lapse of such restrictions in installments and may
accelerate or waive such restrictions in whole or in part based on the
attainment of certain performance related goals, the Participant's
termination of employment or service, death or Disability or the occurrence
of a "Change of Control" as defined in the agreement evidencing such award
or otherwise.
(b) Except as provided in paragraph (3)(a) of this Section 7, the
Participant shall generally have, with respect to the shares of Restricted
Stock or Performance Shares, all of the rights of a stockholder with
respect to such stock during the Restricted Period. The Participant shall
generally not have the rights of a stockholder with respect to stock
subject to Deferred Stock awards during the Restricted Period; provided,
however, that dividends declared during the Restricted Period with respect
to the number of shares covered by a Deferred Stock award shall be paid to
the Participant. Certificates for shares of unrestricted Stock shall be
delivered to the Participant promptly after, and only after, the Restricted
Period shall expire without forfeiture in respect of such shares of
Restricted Stock, Performance Shares or Deferred Stock, except as the
Administrator, in its sole discretion, shall otherwise determine.
(c) The rights of holders of Restricted Stock, Deferred Stock and
Performance Share awards upon termination of employment or service for any
reason during the Restricted Period shall be set forth in the Restricted
Stock Award Agreement, Deferred Stock Award Agreement or Performance Share
Award Agreement, as appropriate, governing such awards.
(d) With respect to awards intended to constitute "qualified performance
based compensation" for purposes of Section 162(m) of the Code, the
applicable performance goals shall be based upon earnings, earnings per
share, revenue growth or return on equity.
SECTION 8. AMENDMENT AND TERMINATION.
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made that would impair the rights of a
Participant under any award theretofore granted without such Participant's
consent, or that without the approval of the stockholders (as described below)
would:
(1) except as provided in Section 3, increase the total number of shares
of Stock reserved for the purpose of the Plan;
(2) change the class of directors, officers, employees, consultants and
advisors eligible to participate in the Plan;
(3) extend the maximum option period under paragraph (2) of Section 5 of
the Plan; or
(4) change the material terms of grants of Annual Non-Employee Director
Stock Options pursuant to Section 6.
Notwithstanding the foregoing, stockholder approval under this Section 8
shall only be required at such time and under such circumstances as
stockholder approval would be required under Section 162(m) of the Code or
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other applicable law, rule or regulation with respect to any material
amendment to any employee benefit plan of the Company.
The Administrator may amend the terms of any award theretofore granted,
prospectively or retroactively, but, subject to Section 3 above, no such
amendment shall impair the rights of any holder without his or her consent.
SECTION 9. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to a Participant by
the Company, nothing contained herein shall give any such Participant any
rights that are greater than those of a general creditor of the Company.
SECTION 10. GENERAL PROVISIONS.
(1) The Administrator may require each person purchasing shares pursuant to
a Stock Option to represent to and agree with the Company in writing that such
person is acquiring the shares without a view to distribution thereof. The
certificates for such shares may include any legend which the Administrator
deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Stock is then listed, and any applicable Federal or state
securities law, and the Administrator may cause a legend or legends to be
placed on any such certificates to make appropriate reference to such
restrictions.
(2) Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan
shall not confer upon any officer, director, employee, consultant or advisor
of the Company any right to continued employment or service with the Company,
as the case may be, nor shall it interfere in any way with the right of the
Company to terminate the employment or service of any of its officers,
directors, employees, consultants or advisors at any time.
(3) Each Participant shall, no later than the date as of which the value of
an award first becomes includible in the gross income of the Participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to the
award. The obligations of the Company under the Plan shall be conditional on
the making of such payments or arrangements, and the Company shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Participant.
(4) No member of the Board or the Administrator, nor any officer or employee
of the Company acting on behalf of the Board or the Administrator, shall be
personally liable for any action, determination, or interpretation taken or
made in good faith with respect to the Plan, and all members of the Board or
the Administrator and each and any officer or employee of the Company acting
on their behalf shall, to the extent permitted by law, be fully indemnified
and protected by the Company in respect of any such action, determination or
interpretation.
SECTION 11. EFFECTIVE DATE OF PLAN.
The Plan became effective (the "Effective Date") on [ ], 1997, the date
the Company's stockholders formally approved the Plan.
SECTION 12. TERM OF PLAN.
No Stock Option, Restricted Stock, Deferred Stock or Performance Share award
shall be granted pursuant to the Plan on or after the tenth anniversary of the
Effective Date, but awards theretofore granted may extend beyond that date.
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<PAGE>
ANNEX E
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
OF
LAM RESEARCH CORPORATION
Lam Research Corporation (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted setting forth proposed amendments of the
Certificate of Incorporation of the Corporation, declaring such amendments to
be advisable and authorizing and directing that such amendments be presented
to the stockholders of the Corporation for consideration thereof. The
resolutions setting forth the proposed amendments are as follows:
RESOLVED, that the Certificate of Incorporation of the Corporation, subject
to the approval of the stock- holders, be amended by deleting it in its
entirety Article Eleventh, concerning cumulative voting in the election of
directors; and further
RESOLVED, that the Certificate of Incorporation of the Corporation, subject
to the approval of the stock- holders, be amended by adding a new Article
Thirteenth, which shall be and read as follows:
"THIRTEENTH:
Except as otherwise provided by applicable law, the Corporation may take or
authorize any action upon the affirmative vote of the majority of shares
present in person or represented by proxy at the meeting and entitled to vote
on the subject matter thereof. Action shall be taken by stockholders of the
Corporation only at annual or special meetings of stockholders, and
stockholders may act in lieu of a meeting only by unanimous written consent."
SECOND: That thereafter a meeting of the stockholders of the Corporation was
duly called and held on August 5, 1997, upon notice in accordance with Section
222 of the General Corporation Law of the State of Delaware at which meeting
the necessary number of shares as required by statute were voted in favor of
the amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Lam Research Corporation has made under its corporate
seal and the hands of its Chairman of the Board and Chief Executive Officer
and Secretary, respectively, of such corporation the foregoing certificate,
and the said Chairman of the Board and Chief Executive Officer and Secretary
have hereunto set their hands and caused the corporate seal of such
corporation to be hereunto affixed this 5th day of August, 1997.
LAM RESEARCH CORPORATION
By:
-----------------------------
Roger D. Emerick
Chairman of the Board and
Chief Executive Officer
ATTEST:
- -----------------------------
Richard H. Lovgren
Secretary
E-1
<PAGE>
ANNEX F
[LETTERHEAD OF SMITH BARNEY INC.]
March 24, 1997
The Board of Directors
Lam Research Corporation
4650 Cushing Parkway
Fremont, California 94538
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Lam Research Corporation ("LRC") of the consideration to be paid by
LRC pursuant to the terms and subject to the conditions set forth in the
Agreement and Plan of Merger, dated as of March 24, 1997 (the "Merger
Agreement"), by and among LRC, Omega Acquisition Corporation, a wholly owned
subsidiary of LRC ("Merger Sub"), and OnTrak Systems, Inc. ("OSI"). As more
fully described in the Merger Agreement, (i) Merger Sub will be merged with
and into OSI (the "Merger") and (ii) each outstanding share of the common
stock, par value $0.0001 per share, of OSI (the "OSI Common Stock") will be
converted into the right to receive 0.83 (the "Exchange Ratio") of a share of
the common stock, par value $0.001 per share, of LRC (the "LRC Common Stock");
provided that, if the average of the daily closing sale prices per share of
LRC Common Stock as reported on the Nasdaq National Market on the 10 trading
days ending the eighth trading day preceding OSI's stockholder meeting for the
Merger (the "LRC Closing Value") falls below certain thresholds specified in
the Merger Agreement, then the Exchange Ratio will be subject to adjustment at
the election of LRC to that number of shares of LRC Common Stock equal to
$24.90 divided by the LRC Closing Value.
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of LRC and certain senior officers and other representatives and
advisors of OSI concerning the businesses, operations and prospects of LRC and
OSI. We examined certain publicly available business and financial information
relating to LRC and OSI as well as certain financial forecasts and other
information and data for LRC and OSI which were provided to or otherwise
discussed with us by the respective managements of LRC and OSI, including
information relating to certain strategic implications and operational
benefits anticipated to result from the Merger. We reviewed the financial
terms of the Merger as set forth in the Merger Agreement in relation to, among
other things: current and historical market prices and trading volumes of LRC
Common Stock and OSI Common Stock; the historical and projected earnings and
other operating data of LRC and OSI; and the capitalization and financial
condition of LRC and OSI. We considered, to the extent publicly available, the
financial terms of similar transactions recently effected which we considered
relevant in evaluating the Merger and analyzed certain financial, stock market
and other publicly available information relating to the businesses of other
companies whose operations we considered relevant in evaluating those of LRC
and OSI. We also evaluated the potential pro forma financial impact of the
Merger on LRC. In addition to the foregoing, we conducted such other analyses
and examinations and considered such other financial, economic and market
criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed
by or discussed with us. With respect to financial forecasts and
<PAGE>
The Board of Directors
Lam Research Corporation
March 24, 1997
Page 2
other information and data provided to or otherwise reviewed by or discussed
with us, we have been advised by the managements of LRC and OSI that such
forecasts and other information and data were prepared on bases reflecting
reasonable estimates and judgments as to the future financial performance of LRC
and OSI and the strategic implications and operational benefits anticipated to
result from the Merger. We have assumed, with your consent, that the Merger will
be treated as a pooling of interests in accordance with generally accepted
accounting principles and as a tax-free reorganization for federal income tax
purposes. Our opinion, as set forth herein, relates to the relative values of
LRC and OSI. We are not expressing any opinion as to what the value of the LRC
Common Stock actually will be when issued to OSI stockholders pursuant to the
Merger or the price at which the LRC Common Stock will trade subsequent to the
Merger. We have not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of LRC or OSI
nor have we made any physical inspection of the properties or assets of LRC or
OSI. Our opinion does not address the relative merits of the Merger as compared
to any alternative business strategies that might exist for LRC or the effect of
any other transaction in which LRC might engage. Our opinion is necessarily
based upon information available to us, and financial, stock market and other
conditions and circumstances existing and disclosed to us, as of the date
hereof.
Smith Barney has been engaged to render financial advisory services to LRC in
connection with the Merger and will receive a fee for such services, a
significant portion of which is contingent upon the consummation of the
Merger. We also will receive a fee upon the delivery of this opinion. In the
ordinary course of our business, we and our affiliates may actively trade or
hold the securities of LRC and OSI for our own account or for the account of
our customers and, accordingly, may at any time hold a long or short position
in such securities. We have in the past provided financial advisory and
investment banking services to LRC unrelated to the Merger, for which services
we have received compensation. In addition, we and our affiliates (including
Travelers Group Inc. and its affiliates) may maintain relationships with LRC
and OSI.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of LRC in its evaluation of the proposed
Merger, and our opinion is not intended to and does not constitute a
recommendation to any stockholder as to how such stockholder should vote with
respect to any matter relating to the proposed Merger. Our opinion may not be
published or otherwise used or referred to, nor shall any public reference to
Smith Barney be made, without our prior written consent; provided, that this
opinion letter may be included in its entirety in the Joint Proxy
Statement/Prospectus of LRC and OSI relating to the proposed Merger.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of
the opinion that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to LRC.
Very truly yours,
/s/ Smith Barney Inc.
Smith Barney Inc.
<PAGE>
[LETTERHEAD OF DEUTSCHE MORGAN GRENFELL INC.]
ANNEX G
March 24, 1997
Board of Directors
OnTrak Systems, Inc.
1010 Rincon Circle
San Jose, CA 95131
Members of the Board:
We understand that Lam Research Corporation ("Lam"), OnTrak Systems, Inc.
("OnTrak"), and Otter Acquisition Corp. ("Merger Sub"), a wholly-owned
subsidiary of Lam, have entered into an Agreement and Plan of Reorganization,
dated as of the date hereof (the "Merger Agreement"), which provides, among
other things, for the merger (the "Merger") of Merger Sub with and into
OnTrak. In addition, we understand that certain security holders of OnTrak have
entered into stockholder voting agreements dated as of the date hereof (the
"Stockholder Voting Agreements"). Pursuant to the Merger, OnTrak will become a
wholly-owned subsidiary of Lam and each issued and outstanding share of common
stock, $.0001 par value, of OnTrak (the "OnTrak Common Stock"), other than
shares held in treasury or held by Lam or any subsidiary or affiliate of Lam or
OnTrak or as to which dissenters' rights have been perfected, shall be converted
into the right to receive 0.830 of a share of common stock, subject to
adjustment in certain circumstances as set forth in the Merger Agreement (the
"Exchange Ratio"), of Lam (the "Lam Common Stock"). The terms and conditions of
the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether, as of the date hereof, the
Exchange Ratio pursuant to the Merger Agreement is fair from a financial point
of view to the holders of OnTrak Common Stock.
For purposes of the opinion set forth herein, we have:
i. analyzed certain publicly available financial statements and other
information of Lam and OnTrak, respectively;
ii. analyzed certain internal financial statements and other financial and
operating data concerning OnTrak prepared by the management of OnTrak;
iii. analyzed certain financial projections relating to OnTrak prepared
by the management of OnTrak;
iv. discussed the past and current operations and financial condition and
the prospects of OnTrak with senior executives of OnTrak;
<PAGE>
OnTrak Systems, Inc.
March 24, 1997
Page 2
v. analyzed certain internal financial statements and other financial and
operating data concerning Lam prepared by the management of Lam;
vi. discussed the past and current operations and financial condition and
the prospectus of Lam with senior executives of both Lam and OnTrak;
vii. analyzed the pro forma impact of the Merger on the earnings per
share and consolidated capitalization of Lam;
viii. reviewed the reported prices and trading activity for the OnTrak
Common Stock and the Lam Common Stock, respectively;
ix. compared the financial performance of OnTrak and the prices and
trading activity of the OnTrak Common Stock with that of certain other
publicly traded companies (which we deemed to be relevant) and their
securities;
x. compared the financial performance of Lam and the prices and trading
activity of the Lam Common Stock with that of certain other publicly-
traded companies (which we deemed to be relevant) and their
securities;
xi. reviewed the financial terms, to the extent publicly available, of
certain merger and acquisition transactions which we deemed to be
relevant;
xii. reviewed and discussed with the senior management of OnTrak (i) the
strategic rationale for the Merger and their assessment of the
synergies and other benefits expected to be derived from the Merger
and (ii) certain alternatives to the Merger;
xiii. participated in discussions and negotiations among representatives of
OnTrak and Lam and their financial and legal advisors;
xiv. reviewed the Merger Agreement and Stockholder Voting Agreements; and
xv. performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the financial projections, we have assumed
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of OnTrak.
With respect to the information furnished by Lam and OnTrak, and with respect to
the information discussed with the managements of Lam and OnTrak regarding their
views of future operations, we have assumed that such information has been
reasonably prepared and reflects the best currently available estimates and
judgments of Lam's and OnTrak's management as to the competitive, operating and
regulatory environments and related financial performance of Lam and OnTrak, as
the case may be, for the relevant periods. For purposes of this opinion, we have
also relied upon, without independent verification, the assessment by OnTrak's
management of the cost savings and other synergies as well as the strategic and
other benefits expected to be derived from the Merger. We have also relied upon,
without independent verification, the
<PAGE>
OnTrak Systems, Inc.
March 24, 1997
Page 3
assessment by OnTrak's management of Lam's technology and competitive position.
We have not made any independent valuation or appraisal of the assets,
liabilities or technology of Lam or OnTrak, respectively, nor have we been
furnished with any such appraisals. We have also relied upon OnTrak management's
summary of certain due diligence inquiries made regarding the charges announced
with respect to Lam's third fiscal quarter. We have assumed that the Merger will
be accounted for as a "pooling-of-interests" business combination in accordance
with U.S. Generally Accepted Accounting Principles and will be consummated in
accordance with the terms set forth in the Merger Agreement. Our opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of OnTrak in
connection with this transaction and will receive a fee for our services.
It is understood that this letter is for the information of the Board of
Directors of OnTrak and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its
entirety in any filing made by OnTrak, with the Securities and Exchange
Commission with respect to the transactions contemplated by the Merger
Agreement. In addition, we express no recommendation or opinion as to how the
shareholders of OnTrak should vote at the stockholders' meeting held in
connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of OnTrak Common Stock.
Very truly yours,
DEUTSCHE MORGAN GRENFELL INC.
By: /s/ GEORGE F. BOUTROS
_________________________________
George F. Boutros
Managing Director
By: /s/ ETHAN M. TOPPER
_________________________________
Ethan M. Topper
Managing Director
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") permits a
Delaware corporation to indemnify officers, directors, employees and agents
for actions taken in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the corporation, and with respect
to any criminal action, which they had no reasonable cause to believe was
unlawful. The DGCL provides that a corporation may pay expenses (including
attorneys' fees) incurred by an officer or director in defending any civil,
criminal, administrative or investigative action (upon receipt of a written
undertaking to reimburse the corporation if indemnification is not
appropriate), and must reimburse a successful defendant for expenses,
including attorney's fees, actually and reasonably incurred, and permits a
corporation to purchase and maintain liability insurance for its directors and
officers. The DGCL provides that indemnification may be made for any claim,
issue or matter as to which a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation, unless and only to the extent a court determines that the person
is entitled to indemnity for such expenses as the court deems proper.
The Lam Certificate and the Lam Bylaws provide, among other things, that, to
the fullest extent authorized by the DGCL, Lam indemnify each person who is or
has served as a director or officer of Lam or any predecessor of Lam, or any
other enterprise at the request of Lam or of any predecessor of Lam, against
expenses (including attorneys' fees), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was an agent of Lam. Lam
may also indemnify each of its employees and agents against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an agent of Lam.
The DGCL permits a Delaware corporation to include a provision in its
certificate of incorporation eliminating or limiting the personal liability of
any director to the corporation or its stockholders for monetary damages for a
breach of the director's fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, which concerns unlawful payments of dividends, stock purchases or
redemptions or (iv) for any transaction from which the director derived an
improper personal benefit. The Lam Certificate contains provisions limiting
the liability of its directors, to the fullest extent currently permitted by
the DGCL for monetary damages for breach of their fiduciary duty as directors.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate
such duty. Accordingly, these provisions will have no effect on the
availability of equitable remedies such as an injunction or rescission based
on a director's breach of his or her duty of care.
Lam has purchased insurance which purports to insure Lam against certain
costs of indemnification which may be incurred by it pursuant to the Lam
Certificate and the Lam Bylaws and to insure the officers and directors of
Lam, and its subsidiary companies, against certain liabilities incurred by
them in the discharge of their functions as such officers and directors except
for liabilities resulting from their own malfeasance.
II-1
<PAGE>
ITEM 21. EXHIBITS
(a) The following is a list of Exhibits included as part of this
Registration Statement. Lam agrees to furnish supplementally a copy of any
omitted schedule to the Commission upon request. Items marked with an asterisk
are filed herewith.
<TABLE>
<C> <S>
2.1* Agreement and Plan of Merger, dated as of March 24, 1997, by and
among Lam Research Corporation, Omega Acquisition Corporation, and
OnTrak Systems, Inc. (included as Annex A to the Joint Proxy
Statement/Prospectus).
2.2* Form of Stockholder Agreement, dated as of March 24, 1997 (included
as Annex C to the Joint Proxy Statement/Prospectus).
2.3* Form of Affiliate Agreement, dated as of March 24, 1997 for Lam
Research Corporation (included as Annex B-1 to the Joint Proxy
Statement/Prospectus).
2.4* Form of Affiliate Agreement, dated as of March 24, 1997 for OnTrak
Systems, Inc. (included as Annex B-2 to the Joint Proxy
Statement/Prospectus).
3.1* Certificate of Amendment of the Certificate of Incorporation of Lam
Research Corporation, to be filed upon approval of the Written
Consent Amendment and the Cumulative Voting Amendment (included as
Annex E to the Joint Proxy Statement/Prospectus).
4.1** Form of Specimen Stock Certificate.
5.1* Opinion of Shartsis, Friese & Ginsburg, LLP to Lam Research
Corporation, regarding the legality of the securities being
registered.
8.1* Opinion of Shartsis, Friese & Ginsburg, LLP, as to certain United
States federal income tax consequences of the Merger.
8.2* Opinion of Heller Ehrman White & McAuliffe, as to certain United
States federal income tax consequences of the Merger.
10.1* Employment Agreement between Lam Research Corporation and James W.
Bagley dated June , 1997.
10.2* Lam Research Corporation 1997 Stock Incentive Plan (included as Annex
D to the Joint Proxy Statement/Prospectus).
23.1* Consent of Ernst & Young LLP.
23.2* Consent of Price Waterhouse LLP.
23.3* Consent of Shartsis, Friese & Ginsburg, LLP (included in its opinions
filed as Exhibits 5.1 and 8.1 hereto).
23.4* Consent of Heller Ehrman White & McAuliffe (included in its opinion
filed as Exhibit 8.2 hereto).
24.1* Power of Attorney (see Page II-4).
99.1* Lam Research Corporation's Stockholder Letter, dated July 7, 1997.
99.2* Lam Research Corporation's Notice of Special Meeting of Stockholders
to be held August 5, 1997.
99.3* Form of proxy card to be mailed to stockholders of Lam Research
Corporation.
99.4* OnTrak Systems, Inc.'s Stockholder Letter, dated July 7, 1997.
99.5* OnTrak Systems, Inc.'s Notice of Special Meeting of Stockholders to
be held August 5, 1997.
99.6* Form of proxy card to be mailed to stockholders of OnTrak Systems,
Inc.
99.7* Consent of Person About to Become a Director for Richard J. Elkens.
99.8* Consent of Person About to Become a Director for James W. Bagley.
99.9* Consent of Smith Barney, Inc.
99.10* Consent of Deutsche Morgan Grenfell Inc.
</TABLE>
(b) Financial Statement Schedules. Not applicable.
- --------
*Filed herewith.
** Incorporated by reference to Exhibit 1 of the Form 8-A filed pursuant to
the Securities Exchange Act of 1934, as amended, filed on October 24, 1984.
II-2
<PAGE>
ITEM 22. UNDERTAKING
(a)(1) The undersigned Registrant hereby undertakes that, for purposes of
any liability under the Securities Act of 1933, as amended (the "Securities
Act"), each filing of the Registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
(2) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(3) The Registrant undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registration in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(b)(1) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form S-4, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(2) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THERETO DULY AUTHORIZED, IN THE CITY OF FREMONT, STATE OF
CALIFORNIA ON JULY 1, 1997.
Lam Research Corporation
/s/ Roger D. Emerick
By: _________________________________
ROGER D. EMERICK
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Roger D. Emerick and Richard H. Lovgren
and each of them, jointly and severally, as his or her true and lawful
attorneys-in-fact and agents, each with full power of substitution for him or
her and in his or her name, place and stead in any and all capacities, to sign
any and all amendments to this Registration Statement, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-of-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that each said attorneys-in-fact and agent or his
or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JULY 1, 1997.
SIGNATURE TITLE
/s/ Roger D. Emerick Chairman of the Board and Chief
- ------------------------------------- Executive Officer (Principal
ROGER D. EMERICK Executive Officer)
/s/ Hsiu-Sheng (Way) Tu President
- -------------------------------------
HSIU-SHENG (WAY) TU
/s/ Mercedes Johnson Vice President and Chief Financial
- ------------------------------------- Officer (Principal Financial and
MERCEDES JOHNSON Accounting Officer)
/s/ David G. Arscott Director
- -------------------------------------
DAVID G. ARSCOTT
/s/ Jack R. Harris Director
- -------------------------------------
JACK R. HARRIS
/s/ Grant M. Inman Director
- -------------------------------------
GRANT M. INMAN
/s/ Osamu (Sam) Kano Director
- -------------------------------------
OSAMU (SAM) KANO
II-4
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF SHARTSIS, FRIESE & GINSBURG LLP]
July 1, 1997
Lam Research Corporation
4650 Cushing Parkway
Fremont, California 94538
Re: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Lam Research Corporation (the "Company") of a Registration
Statement on Form S-4 (the "Registration Statement") with the Securities and
Exchange Commission covering the offering of 9,000,000 shares of the Company's
Common Stock (the "Shares"), with a par value of $0.001, pursuant to the
Agreement and Plan of Merger (the "Agreement") by and among the Company, Omega
Acquisition Corporation and OnTrak Systems, Inc.
In connection with this opinion, we have examined the Registration
Statement, the Company's Certificate of Incorporation and Bylaws, as amended,
and such other documents, records, certificates, memoranda and other
instruments as we deem necessary as a basis for this opinion. We have assumed
the genuineness and authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies thereof, and the due execution and delivery of all documents where due
execution and delivery are a prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the
opinion that the Shares, when sold and issued in the manner referred to in the
Agreement and the Registration Statement, and in accordance with resolutions
adopted by the Board of Directors of the Company, will be validly issued,
fully paid, and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our firm appearing in the Registration
Statement.
Very truly yours,
SHARTSIS, FRIESE & GINSBURG LLP
Carolyn R. Klasco
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF SHARTSIS, FRIESE & GINSBURG LLP]
July 1, 1997
Lam Research Corporation
4650 Cushing Parkway
Fremont, California 94536
OnTrak Systems, Inc.
1010 Rincon Circle
San Jose, California 95131
Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the proposed merger (the "Merger") of Omega Acquisition
Corporation ("Merger Sub"), a Delaware corporation and wholly-owned subsidiary
of Lam Research Corporation ("Lam"), a Delaware corporation, with and into
OnTrak Systems, Inc. ("OnTrak"), a Delaware corporation. We have acted as
counsel for Lam in connection with the Merger, and have examined the Agreement
and Plan of Merger dated March 24, 1997, among OnTrak, Merger Sub and Lam (the
"Agreement") and the exhibits and attachments thereto. In addition, we have
received written representations pertaining to the Merger from OnTrak, Lam and
certain shareholders of OnTrak. Our opinions are based on the understanding
that the material facts are as described in the Agreement and related
documents and that the Merger will be effected in accordance with the
Agreement. In rendering our opinions, we have relied on such documents and the
foregoing representations without undertaking independently to verify the
accuracy and completeness of the matters covered thereby. Capitalized terms
used and not otherwise defined herein have the meanings respectively ascribed
to such terms in the Agreement.
Based on the foregoing, it is our opinion that:
1. The Merger will constitute a "reorganization" within the meaning of
section 368(a) of the Internal Revenue Code of 1985, as amended (the
"Code").
2.For federal income tax purposed, the Merger will have the following
consequences:
a. An OnTrak shareholder receiving only Lam Common Stock in the Merger
will not recognize gain or loss in the Merger;
b. Cash paid to an OnTrak shareholder in lieu of a fractional share of
Lam Common Stock will be treated as having been received in payment in
exchange for the Lam Common Stock that otherwise would have been
received in the Merger, and the OnTrak shareholder will recognize gain
or loss equal to the difference between the cash received in lieu of
such fractional share and the OnTrak shareholder's basis in the OnTrak
Common Stock surrendered therefor;
c. The aggregate tax basis of the Lam Common Stock received in the
Merger by an OnTrak shareholder will be the same as the aggregate tax
basis of OnTrak Common Stock surrendered in exchange therefor,
increased by the expenses of such shareholder related to the Merger
paid by the shareholder, and reduced by an basis allocable to a
fractional share of Lam Common Stock for which cash is received;
d. The holding period of the Lam Common Stock received in the Merger by
an OnTrak shareholder will include the period during which such
shareholder held the OnTrak Common Stock surrendered in exchange
therefor, if the OnTrak Common Stock is held as a capital asset at the
time of the Merger, and
e. None of Lam, Merger Sub or OnTrak will recognize gain or loss solely
as a result of the Merger.
<PAGE>
Lam Research Corporation
July 1, 1997
Page 2
Our opinion is subject to certain assumptions and qualifications and is
based on the accuracy and completeness of the representations of the parties
in the Agreement, the Affiliates Agreements and in representation letters
delivered by OnTrak, the OnTrak shareholders and you. We have also assumed
that the Merger will satisfy the "continuity of interest" and "continuity of
business enterprise" requirements for reorganization treatment under Code
section 368(a). If either of these requirements is not met, the Merger cannot
be a tax-free reorganization, and each OnTrak shareholder would recognize gain
or loss on the exchange of OnTrak Common Stock for Lam Common Stock.
For the continuity of interest requirement to be met under existing law,
OnTrak shareholders must not, pursuant to a plan or intent existing at or
before the Effective Time, dispose of an amount of Lam Common Stock to be
received in the Merger (including certain pre-Merger disposition of OnTrak
stock) such that they do not retain a meaningful continuing equity ownership
in Lam. Generally, so long as OnTrak shareholders do not plan to dispose of a
number of shares of Lam Common Stock that would reduce their ownership of Lam
Common Stock to a number of shares having a value, as of the Effective Time,
of less than 50 percent of the value of all of the formerly outstanding stock
of OnTrak as of the same date, the continuity of interest requirement will be
satisfied. Management of Lam and OnTrak have represented to us that there is
no such plan or intention that would result in the continuity of interest
requirement not being satisfied. In addition, certain major shareholders of
OnTrak owning approximately 26.7 percent of the Common Stock of OnTrak as of
the date that the Agreement was signed have represented that such shareholders
did not have any present plan or intention to engage in a sale, exchange,
transfer, distribution, pledge, disposition or any other transaction that
would result in a direct or indirect disposition or reduction in risk of
ownership of more than 50 percent of the Lam Common Stock that he, she or it
may acquire in connection with the Merger. In addition, an OnTrak shareholder
owning approximately 5.8 percent of the Common Stock of OnTrak as of the date
that the Agreement was signed, and who currently holds approximately 5.2
percent of such stock, has similarly represented that he has no present plan
or intention to dispose of more than 50 percent of the Lam Common Stock that
he may acquire in connection with the Merger. No representations were sought
or received from other major shareholders who owned an aggregate of
approximately 13.7 percent of the OnTrak Common Stock on the date that the
Agreement was signed. The remaining 53.8 percent of OnTrak Common Stock was
held in street name or by shareholders owning less than 1 percent of such
stock. While the status of "public" shareholders for continuity of interest
purposes is not settled, recent case law suggests that such shareholders are
treated as a single large shareholder which does not dispose of its shares,
or, at worst, as if the public shareholders disposed of their shares in the
same ratio as the major shareholders. Thus, although the representations
received from major shareholders do not cover 50 percent of the formerly
outstanding common stock of OnTrak, it is our opinion that the continuity of
interest requirements will be satisfied if such representations and the
representations of management of Lam and OnTrak are correct.
For the continuity of business enterprise requirement to be met, Lam must,
after the Merger, either continue OnTrak's historic business or use a
significant portion of OnTrak's historic business assets in a business.
Management of Lam has represented to us that following the Merger, Lam will
continue OnTrak's historic business or use a significant portion of OnTrak's
historic business assets in a business.
Our opinions are limited to the federal income tax consequences of the
Merger and do not address the tax consequences under the laws of any state or
local government or any other jurisdiction. Our opinions also do not address
special rules that may be applicable to particular shareholders of OnTrak,
such as shareholders who acquired their shares on exercise of statutory stock
options, shareholders that are dealers or foreign persons, or shareholders
that exercise dissenter's rights. We express no opinion regarding any tax
aspect or ramification of the Merger apart from the opinions specifically set
forth above.
An opinion of counsel does not bind the Internal Revenue Service or preclude
it or a court from taking a position contrary to the opinion. This opinion is
rendered in connection with the Agreement. This opinion may
<PAGE>
Lam Research Corporation
July 1, 1997
Page 3
not be relied on for any other purpose without our written consent. This
opinion is based on the Code, the Treasury Regulations issued thereunder, and
judicial and administrative interpretations thereof, all as in effect on the
date of this opinion. All of such authority is subject to change, including
retroactive change. We disclaim any obligation to advise of any developments
that occur after the date of this opinion.
This opinion has been delivered to you for the purpose of satisfying the
requirements of section 6.1(e) of the Agreement. We hereby consent to the
filing of this opinion as an exhibit to the Registration Statement. In giving
this consent, however, we do not admit that we are in the category of persons
whose consent is required under section 7 of the Securities Act of 1933, as
amended.
Very truly yours,
SHARTSIS, FRIESE & GINSBURG LLP
By:
----------------------------------
Geoffrey W. Haynes,
Partner
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF HELLER EHRMAN WHITE & MCAULIFFE]
July 1, 1997
OnTrak Systems, Inc.
1010 Rincon Circle
San Jose, California 95131
Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the proposed merger (the "Merger") of Omega Acquisition Corp.
("Acquisition Corp."), a wholly-owned subsidiary of LAM Research Corporation
("LAM"), with and into OnTrak Systems, Inc. ("OnTrak"). We have acted as
counsel to OnTrak, in connection with the Merger, and have examined the
Agreement and Plan of Merger dated March 24, 1997, among OnTrak, Acquisition
Corporation and LAM (the "Agreement") and the exhibits and attachments
thereto. In addition, we have received written representations pertaining to
the Merger from OnTrak, LAM and certain shareholders of OnTrak. Our opinions
are based upon the understanding that the material facts are as described in
the Agreement and appurtenant documents and that the Merger will be effected
in accordance with the terms set forth in the Agreement, and in rendering our
opinions we have relied upon such documents and the foregoing representations
without undertaking independently to verify the accuracy and completeness of
the matters covered thereby. Except as otherwise noted, capitalized terms used
herein have the same meaning given to such terms in the Agreement.
Based upon the foregoing, it is our opinion that:
1. The Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"),
2.By virtue of 1., above, for federal income tax purposes;
a. An OnTrak shareholder receiving only LAM Common Stock in the Merger
will not recognize gain or loss in the Merger.
b. Cash paid to an OnTrak shareholder in lieu of a fractional share of
LAM Common Stock will be treated as having been received in payment
in exchange for the LAM Common Stock that otherwise would have been
received in the Merger, and the OnTrak shareholder will recognize
gain or loss equal to the difference between the cash received in
lieu of such fractional share and the OnTrak shareholder's basis in
the OnTrak Common Stock surrendered therefor.
c. An exchanging OnTrak shareholder will have the same aggregate tax
basis in the LAM Common Stock received as he or she had in the
OnTrak Securities surrendered in exchange therefor, increased by the
expenses of such shareholder related to the Merger paid by the
shareholder and reduced by any basis allocable to a fractional share
of LAM Common Stock for which cash was received.
d. The periods for which an OnTrak shareholder has held his or her
OnTrak Common Stock will be included in computing his or her holding
periods for the LAM Common Stock received in the Merger, assuming
the OnTrak Common Stock are held by the OnTrak shareholder as
capital assets at the Effective Time.
e. None of LAM, Acquisition Corp. or OnTrak will recognize gain or loss
solely as a result of the Merger.
Our opinion is subject to certain assumptions and qualifications, and is
based on the truth and accuracy of the representations of the parties in the
Agreement and Plan of Reorganization and the Affiliates Agreement, and
<PAGE>
OnTrak Systems, Inc. Page 2
July 1, 1997
in representation letters to be delivered by LAM and by you. Of particular
important is the assumption that the Merger will satisfy the "continuity of
interest" and "continuity of business enterprise" requirements for
reorganization treatment under Section 368(a) of the Internal Revenue Code of
1986, as amended. If either of these requirements is not met, then the Merger
cannot be a tax-free reorganization, and each OnTrak shareholder would
recognize gain or loss on the exchange of OnTrak stock for LAM Common Stock.
In order for the continuity of interest requirements to be met under
existing law, OnTrak shareholders must not, pursuant to a plan or intent
existing at or before the Effective Time, dispose of an amount of LAM Common
Stock to be received in the Merger (including pre-Merger dispositions of
OnTrak stock in contemplation of the Merger) such that they do not retain a
meaningful continuing equity ownership in LAM. Generally, so long as OnTrak
shareholders do not plan to dispose of a number of shares of LAM Common Stock
that would reduce their ownership of LAM Common Stock to a number of shares
having a value, as of the Effective Time, of less than 50 percent of the value
of all of the formerly outstanding stock of OnTrak as of the same date, the
continuity of interest requirement will be satisfied. Management of OnTrak and
of LAM have represented to us that they know of no such plan or intention that
would result in the continuity of interest requirement not being satisfied. In
addition, certain major shareholders of OnTrak have represented that such
shareholder does not have any present plan or intention to sell, exchange, or
otherwise dispose of or to engage in any other transaction which would
substantially eliminate the risk of loss or the opportunity for gain from the
holding of LAM Common Stock that such major shareholders are expected to
acquire in connection with the Merger. In this case, the major shareholders
from whom representations were received owned approximately 26.7% of the stock
of OnTrak as of the date the Agreement and Plan of Merger was signed. In
addition, an OnTrak shareholder owning 5.8% of OnTrak Common Stock as of such
date, and who currently holds 5.2% of such stock, has represented that he has
no current plan or intention to dispose of more than 50% of the LAM Common
Stock to be received in the Merger. Other major shareholders, from whom no
such representations have been received, owned 13.7% of the stock of OnTrak on
such date. The remaining 53.8% of the stock of OnTrak was held in street name
or by shareholders owning less than 1% of the stock of OnTrak. While the
status of "public" shareholders for continuity of interest purposes is not
settled, recent case law suggests that such shareholders are treated as a
single large shareholder which does not dispose of its shares, or, at worst,
as if the public shareholders disposed of their shares in the same ratio as
the major shareholders. Thus, although the representations received from major
shareholders do not cover 50 percent of the formerly outstanding common stock
of OnTrak, it is our representations and the representations of management of
LAM and OnTrak are correct.
In order for the continuity of business enterprise requirement to be met,
LAM must, after the Merger, either continue OnTrak's historic business or use
a significant portion of OnTrak's historic business assets in a business.
Management of LAM has represented to us that following the Merger LAM will
continue OnTrak's historic business or use a significant portion of OnTrak's
historic business assets in a business.
* * * * *
Our opinions are limited to the federal income tax consequences of the
Merger and do not address the tax consequences under the laws of the various
state and local governments or under the laws of any other jurisdiction.
Moreover, they do not address special rules which may be applicable to
particular shareholders of OnTrak, such as shareholders who acquired their
shares pursuant to the exercise of statutory stock options, shareholders which
are dealers or foreign persons, or shareholders who exercise dissenter's
rights. We express no opinion regarding any tax aspect or ramification of the
Merger apart from the opinions specifically set forth above.
An opinion of counsel does not bind the Internal Revenue Service or preclude
it or a court from taking a position contrary to the opinion. This opinion is
rendered in connection with the Agreement. This opinion may not be relied upon
for any other purpose without our written consent. This opinion is based upon
the Code, the Treasury Regulations issued thereunder, and judicial and
administrative interpretations thereof, all as in effect on the date of this
opinion. All of such authority is subject to change, including retroactive
change. We disclaim
<PAGE>
OnTrak Systems, Inc. Page 3
July 1, 1997
any obligation to advise of any developments in areas covered by this opinion
that occur after the date of this opinion.
This opinion has been delivered to you for the purposes of satisfying the
requirements of Section 6.1(e) of the Reorganization Agreement. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement. In giving this consent, however, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
Heller Ehrman White & McAuliffe
<PAGE>
FORM OF EMPLOYMENT AGREEMENT
----------------------------
This Employment Agreement (the "Agreement") is made and entered into this
1st day of July, 1997, by and between James W. Bagley (the "Executive") and Lam
Research Corporation, a Delaware corporation (the "Company").
R E C I T A L S
A. The Company, Omega Acquisition Corporation, a Delaware corporation and
a wholly owned subsidiary of the Company, and OnTrak Systems, Inc., a Delaware
corporation ("OnTrak"), have entered into that certain Agreement and Plan of
Merger dated March 24, 1997 (the "Merger Agreement") pursuant to which OnTrak
will become a wholly owned subsidiary of the Company (the "Merger").
B. The Executive is currently employed by OnTrak as its Chief Executive
Officer pursuant to an employment agreement dated May 17, 1996 (the "OnTrak
Employment Agreement"). In addition, the Executive serves as Chairman of
OnTrak's Board of Directors.
C. It is a condition to the closing of the Merger that the Executive and
the Company enter into an employment agreement providing for the Executive's
employment with the Company.
D. The Company and Executive desire to enter into this Agreement with
respect to the Executive's employment with the Company.
E. Certain capitalized terms used in the Agreement are defined in Section
8 below.
In consideration of the mutual covenants herein contained, and in
consideration of the employment of Executive by the Company, the parties agree
as follows:
1. Effectiveness of Agreement; Effective Date. The effectiveness of this
------------------------------------------
Agreement shall be conditioned upon and subject to the closing of the Merger,
and this Agreement shall be effective as of the first business day following the
closing date of the Merger (the "Effective Date"). In the event the Merger does
not close or the transactions contemplated under the Merger Agree-
<PAGE>
ment are otherwise abandoned, this Agreement shall terminate without obligation
of the Executive or the Company hereunder.
2. Duties and Scope of Employment.
------------------------------
(a) Position. During the Employment Period (as defined in Section
--------
3(a) below), the Executive shall serve as the Chief Executive Officer of the
Company. In addition, during the Employment Period, the Company shall use its
best efforts to elect the Executive as a director of the Company. The duties
and responsibilities of the Executive shall include the duties and
responsibilities for the Executive's corporate offices and positions as set
forth in the Company's Bylaws from time to time in effect and such other duties
and responsibilities as the Board of Directors of the Company (the "Board") may
from time to time reasonably assign to the Executive, in all cases to be
consistent with the Executive's corporate offices and positions.
(b) Obligations. During the Employment Period, the Executive shall
-----------
devote his full business efforts and time to the Company. The foregoing,
however, shall not preclude the Executive from engaging in such activities and
services as do not interfere or conflict with his responsibilities to the
Company.
3. Employment Period.
-----------------
(a) Basic Rule. The Employment Period (the "Employment Period") shall
----------
begin upon the Effective Date and shall continue thereafter until the fifth
anniversary of the Effective Date, unless earlier terminated in accordance
herewith.
(b) Early Termination.
-----------------
(i) By the Company. The Company may terminate the Executive's
--------------
employment for Cause (as defined in Section 8(a) below), by giving the
Executive 30 days' advance notice in writing. The Company may terminate
the Executive's employment with the Company other than for Cause by giving
the Executive 180 days' advance notice in writing. Any waiver of notice
shall be valid only if it is made in writing and expressly refers to the
applicable notice requirement of this Section 3(b).
2
<PAGE>
(ii) By the Executive. The Executive may terminate his
----------------
employment with the Company by reason of Involuntary Termination (as
defined in Section 8(d) below) by giving the Company 30 days' advance
written notice, subject, however, to the cure provisions of such Section.
The Executive may terminate his employment with the Company at any time for
any other reason by giving the Company 180 days' advance written notice.
Any waiver of notice shall be valid only if it is made in writing and
expressly refers to the applicable notice requirement of this Section 3(b).
(c) Death. The Executive's employment shall terminate in the event of
-----
his death. The Company shall pay to the Executive's estate any earned but
unpaid salary and vacation pay accrued to the date of his death.
(d) Disability. The Company may terminate the Executive's employment
----------
for Disability (as defined in Section 8(c) below) by giving the Executive 90
days' advance notice in writing. In the event the Executive resumes the
performance of substantially all of his duties hereunder before the termination
of his employment under this Section 3(d) becomes effective, the notice of
termination shall automatically be deemed to have been revoked.
4. Compensation and Benefits.
-------------------------
(a) Base Compensation. During the Employment Period, the Company
-----------------
shall pay the Executive as compensation for services a base salary at the
annualized rate of $100,000. Such salary shall be paid periodically in
accordance with normal Company payroll. The annual compensation specified in
this Section 4(a) is referred to in this Agreement as "Base Compensation."
(b) Bonus. Unless otherwise determined by the Board of Directors in
-----
its sole discretion, Executive shall not be entitled to participate in any
performance bonus plan of the Company.
(c) Stock Options.
-------------
(i) Subject to stockholder approval of the Company's 1997 Stock
Incentive Plan (the "1997 Stock Plan"), the Executive shall be granted non-
qualified stock options (the "Incentive Options") to purchase 250,000
shares of the Company's common stock, par value $.001 per share (the
"Common Stock"), with an exercise price equal to the closing
3
<PAGE>
price of the Common Stock as reported on the Nasdaq Stock Market on the
Effective Date. The Incentive Options shall vest with respect to one-fifth
of the option shares on the first anniversary of the Effective Date, and
with respect to an additional one-sixtieth of the option shares on the last
day of each of the thirteenth through sixtieth months of the Employment
Period; provided, that except as provided in Sections 5 and 6(c) below, no
portion of the Incentive Options shall vest following the termination of
Executive's employment with the Company. The Incentive Options shall have
a term of ten (10) years from the Effective Date, but, except as otherwise
provided herein or in the 1997 Stock Plan, the Incentive options shall
terminate 90 days following the termination of Executive's employment with
the Company.
(ii) In lieu of additional Base Compensation or entitlement to
participate in performance bonus plans, and subject to stockholder approval
of the 1997 Stock Plan, Executive shall also be granted non-qualified stock
options (the "Base Options") to purchase an additional 225,000 shares of
Common Stock, with an exercise price equal to the closing price of the
Common Stock as reported on the Nasdaq Stock Market on the Effective Date.
The Base Options shall vest with respect to one-fifth of the option shares
on the first anniversary of the Effective Date, and with respect to an
additional one-sixtieth of the option shares on the last day of each of the
thirteenth through sixtieth months of the Employment Period; provided, that
--------
except as provided in Section 6(c) below, no portion of the Base Options
shall vest following the termination of Executive's employment with the
Company. The Base Options shall have a term of ten (10) years from the
Effective Date, but, except as otherwise provided herein or in the 1997
Stock Plan, the Base Options shall terminate 90 days following the
termination of Executive's employment with the Company.
(d) Deferred Compensation. The Executive shall be entitled to
---------------------
participate in the Company's Executive Deferred Compensation Plan pursuant to
the terms thereof.
(e) Benefits. During the Employment Period, the Executive shall be
--------
eligible to participate in the benefit plans and compensation programs
maintained by the Company of general applicability to other key executives of
the Company, including (without limitation) retirement plans, savings or profit-
sharing plans, deferred compensation plans, supplemental retirement or excess-
4
<PAGE>
benefit plans, stock option, life, disability, health, accident and other
insurance programs, paid vacations, and similar plans or programs, but excluding
any performance bonus plans, subject in each case to the generally applicable
terms and conditions of the plan or program in question and to the determination
of the Board or any committee administering such plan or program. Without
limiting the generality of the foregoing, Executive shall be entitled to an
automobile allowance of not less than $800 per month.
(f) Reimbursement for Business Expenses. The Company shall reimburse
-----------------------------------
the Executive for all reasonable and necessary business expenses incurred by the
Executive in the performance of his duties hereunder upon proper submission of
expense reports in accordance with Company policies regarding such
reimbursement.
(g) Section 162(m). Executive and the Company agree to use reasonable
--------------
good faith efforts, to the extent reasonably practicable, to structure payment
of all amounts of Executive's compensation from the Company so as to avoid non-
deductibility of any such amounts under Section 162(m) of the Code or any
successor provision.
5. Benefits Upon a Change in Control. In the event of a Change in
---------------------------------
Control (as defined in Section 8(b) below) that occurs during the Employment
Period, any unvested portion of the Incentive Options shall automatically be
accelerated in full so as to become completely vested.
6. Severance Benefits.
------------------
(a) Severance Benefits. If the Executive's employment with the
------------------
Company terminates prior to the fifth anniversary of the Effective Date, then
the Executive shall be entitled to receive severance benefits as follows:
(i) Involuntary Termination. (A) If the Executive's employment
-----------------------
terminates as a result of Involuntary Termination other than for Cause
prior to the first anniversary of the Effective Date, then the Company
shall pay the Executive within ten (10) business days after the Termination
Date a lump sum amount in cash equal to $200,000.
(B) If the Executive's employment terminates as a result of
Involuntary Termination other than for Cause on or after the first
anniversary of the Effective Date, then the Company shall pay the Execu-
5
<PAGE>
tive within ten (10) business days after the Termination Date a lump sum
amount in cash equal to $100,000.
In the case of either (A) or (B), the Executive shall also receive such
other benefits as may be payable to the Executive under the Company's then-
existing benefit plans in accordance with the terms of such plans.
(ii) Voluntary Resignation; Disability; Death; Termination for
---------------------------------------------------------
Cause. If (A) the Executive's employment terminates by reason of the
-----
Executive's (i) voluntary resignation (and is not the result of an
Involuntary Termination), (ii) Disability or (iii) death, or (B) the
Executive's employment is terminated by the Company for Cause, then the
Executive shall not be entitled to receive severance or other benefits
except for those (if any) as may then be established (and applicable) under
the Company's then-existing severance and benefits plans and policies at
the time of such termination.
(b) Benefits; Miscellaneous. In the event the Executive is entitled
-----------------------
to severance benefits pursuant to subsection 6(a)(i), then in addition to such
severance benefits, the Company shall continue to provide the Executive, (A) if
his employment is terminated prior to the first anniversary of the Effective
Date, through the second anniversary of the Effective Date, and (B) if his
employment is terminated on or after the first anniversary of the Effective
Date, for a period of one year following the Termination Date, welfare benefits
or such comparable alternative welfare benefits as the Company may, in its
discretion, determine to be sufficient to satisfy its obligations to the
Executive under this Agreement (including, without limitation, medical,
prescription, dental, disability, individual life, group life, accidental death
and travel accident plans and programs) which are at least as favorable as the
most favorable plans of the Company applicable to other peer executives and
their families as of the Termination Date. Notwithstanding the foregoing, if
the Executive is covered under any medical, life, or disability insurance
plan(s) provided by a subsequent employer, then the amount of coverage required
to be provided by the Company hereunder shall be reduced by the amount of
coverage provided by the subsequent employer's medical, life or disability
insurance plan(s). The Executive's rights under this Section 6(b) shall be in
addition to, and not in lieu of, any post-termination continuation coverage or
conversion rights the Executive may have pursuant to applicable law, including
without limitation, continuation coverage required by Section 4980B of the Code.
6
<PAGE>
In addition, in the event of any termination of Executive's employment, (i)
the Company shall pay the Executive any unpaid base salary due for periods prior
to the Termination Date; (ii) the Company shall pay the Executive all of the
Executive's accrued and unused vacation through the Termination Date; and (iii)
following submission of proper expense reports by the Executive, the Company
shall reimburse the Executive for all expenses reasonably and necessarily
incurred by the Executive in connection with the business of the Company prior
to termination. These payments shall be made promptly upon termination and
within the period of time mandated by law.
(c) Option Accelerated Vesting; Post-Termination Exercisability of
--------------------------------------------------------------
Options.
- -------
(i) In the event the Executive is entitled to severance benefits
pursuant to subsection 6(a)(i), any unvested portion of the Incentive
Options shall automatically be accelerated in full so as to become
completely vested. In addition, if the Executive's employment terminates
as a result of Involuntary Termination other than for Cause prior to the
first anniversary of the Effective Date, that portion of the Base Options
that would have vested on or before the second anniversary of the Effective
Date had Executive continued employment with the Company through such
anniversary shall automatically be accelerated so as to become completely
vested. Alternatively, if the Executive's employment terminates as a
result of Involuntary Termination other than for Cause on or after the
first anniversary of the Effective Date, any portion of the Base Options
that would have vested within the one year period following the date of
such termination had Executive continued employment with the Company
through the end of such period shall automatically be accelerated so as to
become completely vested. In the event Executive is entitled to severance
benefits pursuant to subsection 6(a)(i), any options to purchase Common
Stock held by Executive that have vested as of the Termination Date shall
remain exercisable for a period of two (2) years following the Termination
Date (or, if earlier, until the expiration of the term of such options),
whereupon such options shall terminate.
(ii) In the event Executive's employment is terminated by reason
of the Executive's voluntary resignation (and is not the result of an
Involuntary Termination), any options to purchase the Common Stock held by
the Executive that have vested as of the Termination Date shall remain
exercisable for a period of six months following the Termination
7
<PAGE>
Date (or, if earlier, until the expiration of the term of such options),
whereupon such options shall terminate.
(iii) In the event Executive is terminated for Cause, any
options to purchase the Common Stock held by the Executive that have vested
as of the Termination Date shall remain exercisable for a period of 30 days
following the Termination Date (or, if earlier, until expiration of the
term of such options), whereupon such options shall terminate.
7. Excise Tax on Payments. Notwithstanding anything to the contrary
----------------------
contained herein, in the event it shall be determined that any payment by the
Company to or for the benefit of the Executive, whether paid or payable but
determined without regard to any additional payments required under this Section
7 (a "Payment"), would be subject to the excise tax imposed by Section 4999 of
the Code or any comparable federal, state, or local excise tax (such excise tax,
together with any interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in such an amount that after the
payment of all taxes (including, without limitation, any interest and penalties
on such taxes and the Excise Tax) on the Payment and on the Gross-Up Payment,
the Executive shall retain an amount equal to the Payment minus all applicable
taxes on the Payment not imposed as a result of the Excise Tax. The intent of
the parties is that the Company shall be solely responsible for, and shall pay,
any Excise Tax on the Payment and Gross-Up Payment and any income and employment
taxes (including, without limitation, penalties and interest) imposed on any
Gross-Up Payment, as well as any loss of tax deduction caused by the Gross-Up
Payment.
All determinations required to be made under this Section, including
without limitation, whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be utilized in arriving
at such determinations, shall be made by a nationally recognized accounting firm
that is the Company's outside auditor at the time of such determinations, which
firm must be reasonably acceptable to the Executive (the "Accounting Firm").
All fees and expenses of the Accounting Firm shall be borne solely by the
Company.
8. Definition of Terms. The following terms referred to in this
-------------------
Agreement shall have the following meanings:
8
<PAGE>
(a) Cause. "Cause" shall mean (i) a willful act of personal
-----
dishonesty knowingly taken by the Executive in connection with his
responsibilities as an employee and intended to result in his substantial
personal enrichment, (ii) a willful and knowing act by the Executive which
constitutes gross misconduct, or any refusal by the Executive to comply with a
reasonable written directive of the Board, (iii) a willful breach by the
Executive of a material provision of this Agreement, or (iv) a material and
willful violation of a federal or state law or regulation applicable to the
business of the Company. No act, or failure to act, by the Executive shall be
considered "willful" unless committed without good faith and without a
reasonable belief that the act or omission was in the Company's best interest.
Termination for Cause shall not be deemed to have occurred unless, by the
affirmative vote of all of the members of the Board (excluding the Executive, if
applicable), at a meeting called and held for that purpose (after reasonable
notice to the Executive and his counsel and after allowing the Executive and his
counsel to be heard before the Board), a resolution is adopted finding that in
the good faith opinion of such Board members the Executive was guilty of conduct
set forth in (i), (ii), (iii), or (iv) and specifying the particulars thereof.
(b) Change in Control. "Change in Control" shall mean the occurrence
-----------------
of any of the following events:
(i) Any "person" or "group" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, but
excluding any person or group as such term is used in Rule 13d-1(b) under
the Exchange Act)) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under said Act), directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the total voting power
represented by the Company's then outstanding voting securities; or
(ii) A change in the composition of the Board occurring within a
two-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of the Effective
Date, or (B) are elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of the Incumbent Directors at the
time of such election or nomination (but shall not include an individual
whose election or nomination is in connection with an actual or threatened
proxy contest relating to the election of directors to the Company); or
9
<PAGE>
(iii) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent (50%) of the
total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets
(other than to a subsidiary or subsidiaries).
(c) Disability. "Disability" shall mean that the Executive has been
----------
or will be unable to substantially perform his duties under this Agreement for a
period of six or more months due to illness, accident or other physical or
mental incapacity.
(d) Involuntary Termination. "Involuntary Termination"shall mean:
-----------------------
(i) the continued assignment to the Executive of any duties or
the continued significant change in the Executive's duties, either of which
is substantially inconsistent with the Executive's duties immediately prior
to such assignment or change for a period of 30 days after notice thereof
from the Executive to the Board setting forth in reasonable detail the
respects in which Executive believes such assignments or duties are
significantly inconsistent with the Executive's prior duties;
(ii) a reduction in the Executive's Base Compensation, other than
any such reduction which is part of, and generally consistent with, a
general reduction of officer salaries;
(iii) a material reduction by the Company in the kind or level
of employee benefits (other than salary) to which the Executive is entitled
immediately prior to such reduction with the result that the Executive's
overall benefits package (other than salary) is substantially reduced
(other than any such reduction applicable to officers of the Company
generally);
10
<PAGE>
(iv) the relocation of the Company's principal executive office
to a location more than fifty (50) miles from its present location;
(v) any purported termination of the Executive's employment by
the Company other than for Cause;
(vi) the failure of the Company to obtain the assumption of this
Agreement by any successors contemplated in Section 9 below; or
(vii) any material breach by the Company of any material
provision of this Agreement;
provided, that none of the foregoing shall constitute Involuntary Termination to
- --------
the extent the Executive has agreed thereto; and provided, further, that the
-------- -------
foregoing shall constitute Involuntary Termination only if and to the extent
that (i) the Executive provides written notice to the Company setting forth in
reasonable detail such facts which Executive believes constitute Involuntary
Termination and (ii) any circumstances constituting Involuntary Termination
remain uncured for a period of 30 days following the Company's receipt of such
written notice.
(e) Termination Date. "Termination Date" shall mean the last day of
----------------
the applicable notice period set forth in Section 3(b) above or the date as of
which such notice is waived in accordance with the terms of Section 3(b).
9. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether
--------------------
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the Company's obligations under this Agreement and
agree expressly to perform such obligations in the same manner and to the same
extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this
subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Executive's Successors. The terms of this Agreement and all
----------------------
rights of the Executive hereunder shall inure to the benefit of, and be enforce-
11
<PAGE>
able by, the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
10. Notice.
------
(a) General. Notices and all other communications contemplated by
-------
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Executive,
mailed notices shall be addressed to him at the home address which he most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for Cause
---------------------
or by the Executive as a result of a voluntary resignation or an Involuntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with Section 10(a) of this Agreement. Such notice
shall indicate the specific termination provision in this Agreement relied upon,
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination under the provision so indicated, and shall
specify the termination date in accordance with Section 3(b). Subject to the
second proviso to Section 8(d), the failure by the Executive to include in the
notice any fact or circumstance which contributes to a showing of Involuntary
Termination shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing his rights
hereunder.
11. Non-Compete; Non-Solicit.
------------------------
(a) The parties hereto recognize that the Executive's services are
special and unique and that his level of compensation and the provisions herein
for compensation upon Involuntary Termination are partly in consideration of and
conditioned upon the Executive's not competing with the Company, and that the
covenant on his part not to compete or solicit as set forth in this Section 11
during and after his employment is essential to protect the business and
goodwill of the Company.
(b) The Executive agrees that during the Employment Period and for the
period ending twelve (12) months following the date the Executive ceases to
render services to the Company as an employee (other than upon
12
<PAGE>
expiration of the five-year Employment Period without early termination thereof
(the "Covenant Period"), the Executive will not either directly or indirectly,
whether as a director, officer, consultant, employee or advisor or in any other
capacity (i) render any planning, marketing or other services respecting the
creation, design, manufacture or sale of semiconductor manufacturing equipment
and/or software to any business, agency, partnership or entity ("Restricted
Business") other than the Company, or (ii) make or hold any investment in any
Restricted Business in the United States other than the Company, whether such
investment be by way of loan, purchase of stock or otherwise, provided that
there shall be excluded from the foregoing the ownership of not more than 2% of
the listed or traded stock of any publicly held corporation. For purposes of
this Section 11, the term "Company" shall mean and include the Company, any
subsidiary or affiliate of the Company, any successor to the business of the
Company (by merger, consolidation, sale of assets or stock or otherwise) and any
other corporation or entity of which the Executive may serve as a director,
officer or employee at the request of the Company or any successor of the
Company.
(c) During the Covenant Period, the Executive will not, directly or
indirectly, induce or attempt to influence any employee of the Company to leave
its employ and the Executive will not, directly or indirectly, involve himself
in decisions to hire any employee who has left the Company's employ within the
three-month period preceding the Executive's cessation of employment or the
three-month period following his cessation of employment.
(d) The Executive agrees that the Company would suffer an irreparable
injury if he were to breach the covenants contained in subparagraphs (b) or (c)
and that the Company would by reason of such breach or threatened breach be
entitled to injunctive relief in a court of appropriate jurisdiction and the
Executive hereby stipulates to the entering of such injunctive relief
prohibiting him from engaging in such breach.
(e) If any of the restrictions contained in this Section 11 shall be
deemed to be unenforceable by reason of the extent, duration or geographical
scope or other provisions thereof, then the parties hereto contemplate that the
court shall reduce such extent, duration, geographical scope or other provisions
hereof (but only to the extent necessary to render such restrictions
enforceable) and then enforce this Section 11 in its reduced form for all
purposes in the manner contemplated hereby.
13
<PAGE>
12. Coordination with the OnTrak Employment Agreement. As of the
-------------------------------------------------
Effective Date, the OnTrak Employment Agreement shall terminate without further
obligation by the Executive or the Company or any affiliate of the Company;
provided, that (i) the Executive shall be entitled to receive amounts of base
salary payable under and reimbursement of reimbursable expenses as provided in
Section 4 of the OnTrak Employment Agreement, together with benefits under any
of OnTrak's employee welfare benefit plans, in each case to the extent accrued
or incurred through the Effective Date, (ii) the Executive shall be entitled to
receive a bonus payment in the amount of $250,000 as set forth in Section 11 of
the OnTrak Employment Agreement, and (iii) as of the closing of the Merger, all
unvested options to purchase OnTrak common stock (which in connection with the
Merger shall be converted into options to purchase Company Common Stock) held by
the Executive shall become vested and exercisable in full.
13. Existing Confidentiality and Non-Compete Agreements. Executive
---------------------------------------------------
represents and warrants that (i) prior to the date hereof he has provided the
Company with true and complete copies of any and all written confidentiality
and/or non-compete agreements to which Executive is a party as of the date
hereof (together with a written description of any oral such agreements) and
(ii) full compliance with the terms of each such agreement will not interfere in
any respect with the performance of Executive's duties hereunder. The Executive
further covenants that he will fully abide by the terms of any and all such
agreements.
14. Arbitration.
-----------
At the option of either party, any and all disputes or controversies
whether of law or fact and of any nature whatsoever arising from or respecting
this Agreement shall be decided by arbitration by the American Arbitration
Association in accordance with the rules and regulations of that Association.
The arbitrator shall be selected as follows. In the event the Company and
the Executive agree on one arbitrator, the arbitration shall be conducted by
such arbitrator. In the event the Company and the Executive do not so agree,
the Company and the Executive shall each select one independent, qualified
arbitrator and the two arbitrators so selected shall select the third
arbitrator. The Company reserves the right to object to any individual
arbitrator who shall be employed by or affiliated with a competing organization.
14
<PAGE>
Arbitration shall take place in San Jose, California, or any other location
mutually agreeable to the parties. At the request of either party, arbitration
proceedings will be conducted in the utmost secrecy; in such case all documents,
testimony and records shall be received, heard and maintained by the arbitrators
in secrecy under seal, available for the inspection only by the Company and the
Executive and their respective attorneys and their respective experts who shall
agree in advance and in writing to receive all such information confidentially
and to maintain such information in secrecy unless and until such information
shall become generally known. The arbitrator, who, if more than one, shall act
by majority vote, shall have the power and authority to decree any and all
relief of an equitable nature including, but not limited to, such relief as a
temporary restraining order, a temporary and/or permanent injunction, and shall
also have the power and authority to award damages, with or without an
accounting and costs, provided, that punitive damages shall not be awarded, and
--------
provided, further, that the Executive shall be entitled to reimbursement for his
- -------- -------
reasonable attorney's fees to the extent he prevails as to the material issues
in such dispute. The decree or judgment of an award rendered by the arbitrators
may be entered in any court having jurisdiction thereof.
Reasonable notice of the time and place of arbitration shall be given to
all persons, other than the parties, as shall be required by law, in which case
such persons or those authorized representatives shall have the right to attend
and/or participate in all the arbitration hearings in such a manner as the law
shall require.
15. Miscellaneous Provisions.
------------------------
(a) No Duty to Mitigate. The Executive shall not be required to
-------------------
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Executive may receive from any
other source.
(b) Waiver. No provisions of this Agreement shall be modified, waived
------
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Executive and by an authorized officer of the Company
(other than the Executive). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
15
<PAGE>
(c) Whole Agreement. This Agreement and the documents expressly
---------------
referred to herein represent the entire agreement of the parties with respect to
the matters set forth herein. No agreements, representations or understandings
(whether oral or written and whether express or implied) which are not expressly
referred to herein have been made or entered into by either party with respect
to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California.
(e) Severability. The invalidity or unenforceability of any provision
------------
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(f) No Assignment of Benefits. The rights of any person to payments
-------------------------
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
(g) Employment Taxes. All payments made pursuant to this Agreement
----------------
will be subject to withholding of applicable income and employment taxes.
(h) Assignment by Company. The Company may assign its rights under
---------------------
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company or to the Company, provided,
however, that no assignment shall be made if the net worth of the assignee is
less than the net worth of the Company at the time of assignment. In the case
of any such assignment, the term "Company" when used in a section of this
Agreement shall mean the corporation that actually employs the Executive.
(i) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
16
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as the day and year
first above written.
COMPANY LAM RESEARCH CORPORATION
By: _______________________
Title: ____________________
EXECUTIVE ___________________________
JAMES W. BAGLEY
17
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Joint Proxy Statement/Prospectus
of Lam Research Corporation for the registration of shares of its common stock
and to the incorporation by reference therein of our report dated July 29,
1996, with respect to the consolidated financial statements of Lam Research
Corporation incorporated by reference in its Annual Report (Form 10-K) for the
year ended June 30, 1996 and the related financial statement schedule included
therein, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
San Jose, California
June 30, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus on Form S-4 of our report dated July 25, 1996, which
appears on page 25 of OnTrak Systems, Inc.'s Annual Report on Form 10-K for
the year ended June 30, 1996. We also consent to the reference to us under the
heading "Experts" in such Joint Proxy Statement/Prospectus.
/s/ Price Waterhouse LLP
San Jose California
June 30, 1997
<PAGE>
EXHIBIT 99.1
LOGO
LAM RESEARCH CORPORATION
4650 CUSHING PARKWAY
FREMONT, CALIFORNIA 94538
July 7, 1997
Dear Stockholder:
You are cordially invited to attend a special meeting ("Lam Special
Meeting") of the stockholders of Lam Research Corporation ("Lam") to be held
at the offices of Lam, 4650 Cushing Parkway, Fremont, California, on August 5,
1997, at 2:00 p.m., local time. At the Lam Special Meeting, you will be asked
to consider and vote on, (i) a proposal (the "Share Issuance") to approve the
issuance of shares of common stock of Lam, par value $0.001 per share ("Lam
Common Stock") pursuant to an Agreement and Plan of Merger dated as of March
24, 1997 (the "Merger Agreement"), pursuant to which OnTrak Systems, Inc.
("OnTrak") will be acquired by Lam by means of a merger (the "Merger") of
Omega Acquisition Corporation, a wholly-owned subsidiary of Lam, with and into
OnTrak, resulting in OnTrak becoming a wholly-owned subsidiary of Lam; (ii) a
proposal to approve and adopt the Lam Research Corporation 1997 Stock
Incentive Plan (the "Lam 1997 Stock Plan"); (iii) a proposal to amend the
Certificate of Incorporation of Lam (the "Certificate") to eliminate
stockholder action by written consent (the "Written Consent Amendment"); and
(iv) a proposal to amend the Certificate to eliminate cumulative voting in the
election of members of the Board of Directors (the "Cumulative Voting
Amendment" and together with the Written Consent Amendment, the "Certificate
of Incorporation Amendments").
The Merger Agreement provides for the conversion and exchange of each
outstanding share of common stock of OnTrak, par value $0.0001 per share
("OnTrak Common Stock"), into 0.83 of a share of Lam Common Stock subject to
the following adjustment (the "Exchange Ratio"). If the average of the daily
closing sale prices per share of the Lam Common Stock as reported on the
Nasdaq National Market on the ten trading days ending the eighth trading day
preceding the special meeting of stockholders of OnTrak (the "Lam Closing
Value") falls below certain thresholds specified in the Merger Agreement, then
Lam may elect to adjust the Exchange Ratio to that number of shares of Lam
Common Stock equal to $24.90 divided by the Lam Closing Value. If Lam
determines not to adjust the Exchange Ratio in those circumstances, then
OnTrak has the option to terminate the Merger Agreement. If adjusted, the
Exchange Ratio will be fixed prior to the Lam Special Meeting and the special
meeting of stockholders of OnTrak. Stockholders may ascertain whether Lam has
adjusted the Exchange Ratio or whether OnTrak has terminated the Merger
Agreement by phoning 1-888 LAM-TRAK or logging onto the World Wide Web at
http://www.lamrc.com at any time after July 25, 1997. If, subsequent to the
mailing of the Proxy Card, you wish to revoke or change your vote, you may do
so by phoning 1-888-LAM-TRAK or logging onto the World Wide Web at
http://www.lamrc.com at any time after July 25, 1997, and following the
instructions provided by the messages thereon.
Following the Merger, based on the number of shares of Lam Common Stock and
OnTrak Common Stock outstanding as of March 31, 1997, and an Exchange Ratio of
0.83 of a share of Lam Common Stock for each share of OnTrak Common Stock, the
former stockholders of OnTrak will hold approximately 6,422,165 shares, or
17.3% of Lam Common Stock. In addition, each outstanding option or right to
purchase OnTrak Common Stock under OnTrak's stock option and stock purchase
plans will be assumed by Lam and will be converted into an option or right to
purchase Lam Common Stock, with appropriate adjustments, based upon the
Exchange Ratio, made to the number of shares issuable under the option and to
the exercise or purchase price per share of each option or right. On June 25,
1997, the last practicable date prior to printing of the Joint Proxy
Statement/Prospectus, the last sale prices of Lam Common Stock and OnTrak
Common Stock as reported on the Nasdaq National Market, were $35.75 and
$28.75, respectively.
<PAGE>
Pursuant to the Merger Agreement, an Office of the Chairman will be created
at Lam and will include James W. Bagley, currently the Chairman and Chief
Executive Officer at OnTrak, and me. I will be the Chairman of the Board, and
as contemplated by the Merger Agreement, Lam will enter into an employment
agreement with Mr. Bagley pursuant to which he will serve as Chief Executive
Officer of Lam. In addition, the Lam Board of Directors will be expanded and
Mr. Bagley and Richard J. Elkus, Jr., currently directors of OnTrak, will be
appointed to the Board of Directors of Lam.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus and a Proxy Card.
In addition to describing the terms and conditions of the Merger Agreement,
the enclosed Joint Proxy Statement/Prospectus sets forth information,
including summary financial data, about Lam and OnTrak. The complete text of
the Merger Agreement appears as Annex A to the Joint Proxy
Statement/Prospectus. Please carefully review all of these materials and
consider the information contained in them. Your vote on the Share Issuance is
important.
Approval of each of the Share Issuance and the Lam 1997 Stock Plan requires
the affirmative vote of the majority of the total votes cast in person or by
proxy at the Lam Special Meeting. Approval of each of the Written Consent
Amendment and the Cumulative Voting Amendment requires the affirmative vote of
the holders of a majority of the outstanding shares of Lam Common Stock.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
SHARE ISSUANCE AND THE LAM 1997 STOCK PLAN, AND THE CERTIFICATE OF
INCORPORATION AMENDMENTS, AND HAS CONCLUDED THAT APPROVAL AND ADOPTION OF
THESE PROPOSALS ARE IN THE BEST INTERESTS OF LAM AND ITS STOCKHOLDERS. YOUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL
OF THE SHARE ISSUANCE, FOR APPROVAL AND ADOPTION OF THE LAM 1997 STOCK PLAN
AND FOR APPROVAL OF THE CERTIFICATE OF INCORPORATION AMENDMENTS.
Stockholders are urged to review carefully the information contained in the
accompanying Notice of Special Meeting and Joint Proxy Statement/Prospectus,
including in particular the information under the captions "Risk Factors,"
"Lam Special Meeting--Recommendations of Lam Board of Directors," "The Merger
and Related Transactions--Joint Reasons For the Merger," "--Lam's Reasons For
the Merger" and "--Material Contacts and Board Deliberations" prior to making
any voting decision in connection with their Lam Common Stock.
Regardless of the size of your holdings, it is important that your shares be
voted at the Lam Special Meeting. All stockholders are invited to attend the
Lam Special Meeting in person. Whether or not you plan to attend the Lam
Special Meeting in person, please complete, sign and promptly return the
enclosed Proxy Card in the enclosed postage-prepaid envelope to assure
representation of your shares. You may revoke your proxy at any time before it
has been voted, and if you attend the Lam Special Meeting you may vote in
person even if you have previously returned your Proxy Card. Your prompt
cooperation will be greatly appreciated.
Sincerely,
/s/Roger D. Emerick
Roger D. Emerick
Chairman of the Board and Chief
Executive Officer
YOUR PROXY IS IMPORTANT--PLEASE VOTE PROMPTLY.
<PAGE>
EXHIBIT 99.2
LAM RESEARCH CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 5, 1997
TO THE STOCKHOLDERS OF LAM RESEARCH CORPORATION:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Lam
Research Corporation ("Lam") will be held at the offices of Lam, 4650 Cushing
Parkway, Fremont, California, on August 5, 1997, at 2:00 p.m., local time (the
"Lam Special Meeting"), for the following purposes all of which are more fully
described in the accompanying Joint Proxy Statement/Prospectus:
1. To consider and vote upon a proposal (the "Share Issuance") to approve
the issuance of shares of common stock of Lam, par value $0.001 per share
("Lam Common Stock") pursuant to an Agreement and Plan of Merger dated as
of March 24, 1997 (the "Merger Agreement"), by and among Lam, Omega
Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary
of Lam ("Merger Sub"), and OnTrak Systems, Inc. ("OnTrak"). Pursuant to the
Merger Agreement, (i) Merger Sub will be merged with and into OnTrak (the
"Merger"), (ii) OnTrak will become a wholly-owned subsidiary of Lam, and
(iii) each share of OnTrak common stock, par value $0.0001 per share
("OnTrak Common Stock"), will be converted into the right to receive, and
become exchangeable for, 0.83 of a share of Lam Common Stock, subject to
the following adjustment (the "Exchange Ratio"). If the average of the
daily closing sale prices per share of the Lam Common Stock as reported on
the Nasdaq National Market on the ten trading days ending the eighth
trading day preceding the special meeting of stockholders of OnTrak (the
"Lam Closing Value") falls below certain thresholds specified in the Merger
Agreement, then Lam may adjust the Exchange Ratio to that number of shares
of Lam Common Stock equal to $24.90 divided by the Lam Closing Value. If
Lam determines not to adjust the Exchange Ratio in those circumstances,
then OnTrak has the option to terminate the Merger Agreement. If adjusted,
the Exchange Ratio will be fixed prior to the Lam Special Meeting and the
special meeting of stockholders of OnTrak. Stockholders may ascertain
whether Lam has adjusted the Exchange Ratio or whether OnTrak has
terminated the Merger Agreement by phoning 1-888-LAM-TRAK or logging onto
the World Wide Web at http://www.lamrc.com at any time after July 25, 1997.
If, subsequent to the mailing of the Proxy Card, a stockholder wishes to
revoke or change such stockholder's vote, the stockholder may do so by
phoning 1-888-LAM-TRAK or logging onto the World Wide Web at
http://www.lamrc.com at any time after July 25, 1997, and following the
instructions provided by the messages thereon. In addition, each
outstanding option or right to purchase OnTrak Common Stock under OnTrak's
stock option and stock purchase plans will be assumed by Lam and will be
converted to an option or right to purchase Lam Common Stock, with
appropriate adjustments, based upon the Exchange Ratio, made to the number
of shares issuable under the option and to the exercise or purchase price
per share of each option or right. Pursuant to the Merger Agreement, an
Office of the Chairman will be created at Lam and will include Roger D.
Emerick and James W. Bagley, currently the Chairman and Chief Executive
Officer at OnTrak. Mr. Emerick will be the Chairman of the Board, and as
contemplated by the Merger Agreement, Lam will enter into an employment
agreement with Mr. Bagley pursuant to which he will serve as Chief
Executive Officer of Lam. In addition, the Lam Board of Directors will be
expanded and Mr. Bagley and Richard J. Elkus, Jr., currently directors of
OnTrak, will be appointed to the Board of Directors of Lam. The Share
Issuance, the Merger and the Merger Agreement are more fully described in
the accompanying Joint Proxy Statement/Prospectus and a copy of the Merger
Agreement is attached as Annex A thereto.
2. To consider and vote upon a proposal to approve and adopt the Lam
Research Corporation 1997 Stock Incentive Plan (the "Lam 1997 Stock Plan").
The Lam 1997 Stock Plan is more fully described in the accompanying Joint
Proxy Statement/Prospectus and a copy of the Lam 1997 Stock Plan is
attached as Annex D thereto.
<PAGE>
3. To consider and vote upon a proposal to amend the Certificate of
Incorporation of Lam (the "Certificate") to eliminate stockholder action by
written consent (the "Written Consent Amendment"). The Written Consent
Amendment is more fully described in the accompanying Joint Proxy
Statement/ Prospectus and the form of the Certificate of Amendment is
attached as Annex E thereto.
4. To consider and vote upon a proposal to amend the Certificate to
eliminate cumulative voting (the "Cumulative Voting Amendment"). The
Cumulative Voting Amendment is more fully described in the accompanying
Joint Proxy Statement/Prospectus and the form of the Certificate of
Amendment is attached as Annex E thereto.
The Lam Board of Directors has fixed the close of business on July 3, 1997
as the record date for the determination of stockholders entitled to notice of
and to vote at the Lam Special Meeting and any adjournments or postponements
thereof. Only stockholders of record at the close of business on such date are
entitled to notice of and to vote at the Lam Special Meeting. A list of Lam
stockholders entitled to vote at the Lam Special Meeting will be available for
examination, during ordinary business hours, at the corporate offices of Lam
at 4650 Cushing Parkway, Fremont, California during the ten days prior to the
Lam Special Meeting.
Your vote is important regardless of the number of shares you own. Each
stockholder, even though he or she now plans to attend the Lam Special
Meeting, is requested to sign, date and return the enclosed proxy without
delay in the enclosed postage-paid envelope. You may revoke your proxy at any
time prior to its exercise. Any stockholder present at the Lam Special Meeting
or at any adjournments or postponements thereof may revoke his or her proxy
and vote personally on each matter brought before the Lam Special Meeting.
By Order of the Board of Directors,
/s/Richard H. Lovgren
Richard H. Lovgren
Secretary
Fremont, California
July 7, 1997
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE.
<PAGE>
[FORM OF PROXY]
EXHIBIT 99.3
P R O X Y
LAM RESEARCH CORPORATION
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 5, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of LAM RESEARCH CORPORATION, a Delaware
corporation, hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and Joint Proxy Statement/Prospectus, each dated July 7, 1997,
and hereby appoints Roger D. Emerick and Richard H. Lovgren, and each of them,
proxies and attorneys-in-fact, with full power to each of substitution, on
behalf of the undersigned, to represent the undersigned at the Special Meeting
of Stockholders of LAM RESEARCH CORPORATION to be held at 4650 Cushing
Parkway, Fremont, California, on August 5, 1997 at 2:00 p.m., local time, and
at any adjournment or adjournments thereof, and to vote all shares of Common
Stock that the undersigned would be entitled to vote if then and there
personally present, on all matters set forth on the reverse side hereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE HEREIN. IF NO SPECIFICATION IS INDICATED, THE SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED AGAINST PROPOSALS 3 AND 4 ON THE
REVERSE SIDE HEREOF AND WILL HAVE NO EFFECT ON PROPOSALS 1 AND 2. IF
SUBSEQUENT TO MAILING THIS PROXY CARD, THE HOLDER OF THE SHARES REPRESENTED BY
THIS PROXY WISHES TO REVOKE OR CHANGE SUCH HOLDER'S VOTE, THE HOLDER MAY DO SO
BY PHONING 1-888-LAM-TRAK OR LOGGING ONTO THE WORLD WIDE WEB AT
HTTP://WWW.LAMRC.COM AT ANY TIME AFTER JULY 25, 1997 AND FOLLOWING THE
INSTRUCTIONS PROVIDED BY THE MESSAGES THEREON.
SEE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE REVERSE
SIDE
<PAGE>
Please
mark
votes X
as in
this
example
The undersigned acknowledges receipt of the Notice of Special Meeting and
Joint Proxy Statement/Prospectus dated July 7, 1997.
Signature(s) ___________________________ Date _______________________________
NOTE: PLEASE MARK, SIGN, AND DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
(1) To approve the issuance of shares of the Common Stock, par value $0.001 per
share of Lam Research Corporation, a Delaware corporation ("Lam"), to the
stockholders of OnTrak Systems, Inc., a Delaware corporation ("OnTrak"),
pursuant to an Agreement and Plan of Merger, dated as of March 24, 1997,
among Lam, OnTrak and Omega Acquisition Corp., a wholly-owned subsidiary of
Lam ("Merger Sub"), providing for the merger of Merger Sub with and into
OnTrak (the "Merger").
FOR [_] AGAINST [_] ABSTAIN [_]
(2) To approve and adopt the Lam 1997 Stock Incentive Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
(3) To approve an amendment to the Certificate of Incorporation of Lam (the
"Certificate") to eliminate stockholder action by written consent.
FOR [_] AGAINST [_] ABSTAIN [_]
4) To approve an amendment to the Certificat to eliminate cumulative voting in
the election of directors.
FOR [_] AGAINST [_] ABSTAIN [_]
Note: Please sign exactly as your name appears
on your stock certificate. If the stock is
registered in the names of two or more person,
each should sign. Executors, administrators,
trustees, guardians, attorneys and corporate
officers should insert their titles.
MARK HERE
FOR ADDRESS
CHANGE AND
NOTE AT LEFT
<PAGE>
EXHIBIT 99.4
LOGO
1010 RINCON CIRCLE
SAN JOSE, CALIFORNIA 95131
July 7, 1997
Dear Stockholder:
You are cordially invited to attend a special meeting ("OnTrak Special
Meeting") of the stockholders of OnTrak Systems, Inc. ("OnTrak") to be held at
the offices of OnTrak, 1010 Rincon Circle, San Jose, California, on August 5,
1997, at 2:00 p.m., local time. At the OnTrak Special Meeting, you will be
asked to consider and vote upon the approval and adoption of an Agreement and
Plan of Merger, dated as of March 24, 1997 (the "Merger Agreement"), pursuant
to which OnTrak will be acquired by Lam Research Corporation ("Lam") by means
of a merger (the "Merger") of Omega Acquisition Corporation, a wholly-owned
subsidiary of Lam, with and into OnTrak, resulting in OnTrak becoming a
wholly-owned subsidiary of Lam.
The Merger Agreement provides for the conversion and exchange of each and
every outstanding share of common stock of OnTrak, par value $0.0001 per share
("OnTrak Common Stock") into 0.83 of a share of common stock of Lam, par value
$0.001 per share ("Lam Common Stock"), subject to the following adjustment
(the "Exchange Ratio"). If the average of the daily closing sale prices per
share of the Lam Common Stock as reported on the Nasdaq National Market on the
ten trading days ending the eighth trading day preceding the OnTrak Special
Meeting (the "Lam Closing Value") falls below certain thresholds specified in
the Merger Agreement, then Lam may elect to adjust the Exchange Ratio to that
number of shares of Lam Common Stock equal to $24.90 divided by the Lam
Closing Value. If Lam determines not to adjust the Exchange Rate in those
circumstances, then OnTrak has the option to terminate the Merger Agreement.
If adjusted, the Exchange Ratio will be fixed prior to the OnTrak Special
Meeting and the special meeting of stockholders of Lam. Stockholders may
ascertain whether Lam has adjusted the Exchange Ratio or whether OnTrak has
terminated the Merger Agreement by phoning 1-888-LAM-TRAK or logging onto the
World Wide Web at http://www.lamrc.com at any time after July 25, 1997. If,
subsequent to the mailing of the Proxy Card, you wish to revoke or change your
vote, you may do so by phoning 1-888-LAM-TRAK or logging onto the World Wide
Web at http://www.lamrc.com at any time after July 25, 1997, and following the
instructions provided by the messages thereon.
Following the Merger, based on the number of shares of Lam Common Stock and
OnTrak Common Stock outstanding as of March 31, 1997 and an Exchange Ratio of
0.83 of a share of Lam Common Stock for each share of OnTrak Common Stock, the
former stockholders of OnTrak will hold approximately 6,422,165 shares or
17.3% of the Lam Common Stock. In addition, each outstanding option or right
to purchase OnTrak Common Stock under OnTrak's stock option and stock purchase
plans will be assumed by Lam and will be converted into an option or right to
purchase Lam Common Stock, with appropriate adjustments, based upon the
Exchange Ratio, made to the number of shares issuable under the option and to
the exercise or purchase price of each option or right. On June 25, 1997, the
last practicable date prior to the printing of the Joint Proxy
Statement/Prospectus, the last sale prices of OnTrak Common Stock and Lam
Common Stock as reported on the Nasdaq National Market, were $28.75 and
$35.75, respectively.
Pursuant to the Merger Agreement, an Office of the Chairman will be created
at Lam and will include Roger D. Emerick, the current Chairman of the Board
and Chief Executive Officer and me. Mr. Emerick will be the Chairman of the
Board, and as contemplated by the Merger Agreement, I will enter into an
employment agreement with Lam pursuant to which I will serve as Chief
Executive Officer of Lam. In addition, the Lam Board of Directors will be
expanded, and Richard J. Elkus, Jr. and I, currently directors of OnTrak, will
be appointed to the Board of Directors of Lam.
<PAGE>
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus and a Proxy Card.
In addition to describing the terms and conditions of the Merger Agreement,
the enclosed Joint Proxy Statement/Prospectus sets forth information,
including summary financial data about Lam and OnTrak. The complete text of
the Merger Agreement appears as Annex A to the Joint Proxy
Statement/Prospectus. Please carefully review all of these materials and
consider the information contained in them. Your vote on the Merger is
important.
Approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of OnTrak Common Stock.
Certain executive officers and directors and other stockholders owning an
aggregate of approximately 26% of the outstanding shares of OnTrak have
entered into agreements pursuant to which they have agreed to vote all of the
shares of OnTrak Common Stock held by them in favor of the Merger.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND
HAS CONCLUDED THEY ARE FAIR TO AND IN THE BEST INTERESTS OF ONTRAK AND ITS
STOCKHOLDERS. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR
OF THE MERGER.
Stockholders are urged to review carefully the information contained in the
accompanying Notice of Special Meeting and Joint Proxy Statement/Prospectus,
including in particular the information under the captions "Risk Factors,"
"OnTrak Special Meeting--Recommendations of OnTrak Board of Directors," "The
Merger and Related Transactions--Joint Reasons For the Merger," "--OnTrak's
Reasons For the Merger" and "--Material Contacts and Board Deliberations"
prior to making any voting decision in connection with their OnTrak Common
Stock.
Regardless of the size of your holdings, it is important that your shares be
voted at the OnTrak Special Meeting. All stockholders are invited to attend
the OnTrak Special Meeting in person. Whether or not you plan to attend the
OnTrak Special Meeting in person, please complete, sign and promptly return
the enclosed proxy card in the enclosed postage-prepaid envelope to assure
representation of your shares. You may revoke your proxy at any time before it
has been voted, and if you attend the OnTrak Special Meeting you may vote in
person even if you have previously returned your Proxy Card. Your prompt
cooperation will be greatly appreciated.
Sincerely,
/s/ James W. Bagley
James W. Bagley
Chairman and Chief Executive Officer
YOUR PROXY IS IMPORTANT--PLEASE VOTE PROMPTLY.
<PAGE>
EXHIBIT 99.5
ONTRAK SYSTEMS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 5, 1997
TO THE STOCKHOLDERS OF ONTRAK SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of OnTrak
Systems, Inc. ("OnTrak") will be held at the offices of OnTrak at 1010 Rincon
Circle, San Jose, California, on August 5, 1997, at 2:00 p.m., local time (the
"OnTrak Special Meeting"), for the following purpose, which is more fully
described in the accompanying Joint Proxy Statement/Prospectus:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of March 24, 1997 (the "Merger
Agreement"), by and among OnTrak, Lam Research Corporation ("Lam"), and
Omega Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of Lam ("Merger Sub"), and the transactions contemplated
thereby. Pursuant to the Merger Agreement, (i) Merger Sub will be merged
with and into OnTrak (the "Merger"), (ii) OnTrak will become a wholly-owned
subsidiary of Lam, and (iii) each share of common stock of OnTrak, par
value $0.0001 per share ("OnTrak Common Stock") will be converted into the
right to receive, and become exchangeable for, 0.83 of a share of common
stock of Lam, par value $0.001 per share ("Lam Common Stock"), subject to
the following adjustment (the "Exchange Ratio"). If the average of the
daily closing sales prices per share of the Lam Common Stock as reported on
the Nasdaq National Market on the ten trading days ending the eighth
trading day preceding the OnTrak Special Meeting (the "Lam Closing Value")
falls below certain thresholds specified in the Merger Agreement, then, Lam
may elect to adjust the Exchange Ratio to that number of shares of Lam
Common Stock equal to $24.90 divided by the Lam Closing Value. If Lam
determines not to adjust the Exchange Ratio in those circumstances, OnTrak
has the option to terminate the Merger Agreement. If adjusted, the Exchange
Ratio will be fixed prior to the OnTrak Special Meeting and the special
meeting of stockholders of Lam. Stockholders may ascertain whether Lam has
adjusted the Exchange Ratio or whether OnTrak has terminated the Merger
Agreement by phoning 1-888-LAM-TRAK or logging onto the World Wide Web at
http://www.lamrc.com at any time after July 25, 1997. If, subsequent to the
mailing of the Proxy Card, a stockholder wishes to revoke or change such
stockholder's vote, the stockholder may do so by phoning 1-888-LAM-TRAK or
logging onto the World Wide Web at http://www.lamrc.com at any time after
July 25, 1997, and following the instructions provided by the messages
thereon. In addition, each outstanding option or right to purchase shares
of OnTrak Common Stock under OnTrak's stock option and stock purchase plans
will be assumed by Lam and will be converted into an option or right to
purchase Lam Common Stock, with appropriate adjustments, based upon the
Exchange Ratio, made to the number of shares issuable under the option and
the exercise or purchase price of each option or right.
Pursuant to the Merger Agreement, an Office of the Chairman will be created
at Lam and will include Roger D. Emerick, the current Chairman of the Board
and Chief Executive Officer and James W. Bagley. Mr. Emerick will be the
Chairman of the Board, and as contemplated by the Merger Agreement, Lam will
enter into an employment agreement with Mr. Bagley pursuant to which Mr.
Bagley will serve as Chief Executive Officer of Lam. In addition, the Lam
Board of Directors will be expanded, and Mr. Bagley and Richard J. Elkus, Jr.,
currently directors of OnTrak, will be appointed to the Board of Directors of
Lam.
The Merger and the Merger Agreement are described more fully in the
accompanying Joint Proxy Statement/Prospectus and a copy of the Merger
Agreement is attached as Annex A thereto.
The OnTrak Board of Directors has fixed the close of business on July 3,
1997 as the record date for the determination of stockholders entitled to
notice of and to vote at the OnTrak Special Meeting and any adjournments or
postponements thereof. Only stockholders of record at the close of business on
such date are
<PAGE>
entitled to notice of and to vote at the OnTrak Special Meeting. A list of
OnTrak stockholders entitled to vote at the OnTrak Special Meeting will be
available for examination, during ordinary business hours, at the corporate
offices of OnTrak at 1010 Rincon Circle, San Jose, California during the ten
days prior to the OnTrak Special Meeting.
Your vote is important regardless of the number of shares you own. Each
stockholder, even though he or she now plans to attend the OnTrak Special
Meeting, is requested to sign, date and return the enclosed proxy without
delay in the enclosed postage-paid envelope. You may revoke your proxy at any
time prior to its exercise. Any stockholder present at the OnTrak Special
Meeting or at any adjournments or postponements thereof may revoke his or her
proxy and vote personally on each matter brought before the OnTrak Special
Meeting.
By Order of the Board of Directors
/s/Jerauld J. Cutini
Jerauld J. Cutini
Secretary
San Jose, California
July 7, 1997
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE.
<PAGE>
[FORM OF PROXY]
EXHIBIT 99.6
P R O X Y
ONTRAK SYSTEMS, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 5, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of ONTRAK SYSTEMS, INC., a Delaware corporation,
hereby acknowledges receipt of the Notice of Special Meeting of Stockholders
and Joint Proxy Statement/Prospectus, each dated July 7, 1997, and hereby
appoints James W. Bagley and Jerauld J. Cutini, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf of the
undersigned, to represent the undersigned at the Special Meeting of
Stockholders of ONTRAK SYSTEMS, INC. to be held at 1010 Rincon Circle, San
Jose, California, on August 5, 1997 at 2:00 p.m., local time, and at any
adjournment or adjournments thereof, and to vote all shares of Common Stock
that the undersigned would be entitled to vote if then and there personally
present, on all matters set forth on the reverse side hereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE HEREIN. IF NO SPECIFICATION IS INDICATED, THE SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED AGAINST THE PROPOSAL ON THE REVERSE
SIDE HEREOF. IF, SUBSEQUENT TO MAILING THIS PROXY CARD, THE HOLDER OF THE
SHARES REPRESENTED BY THIS PROXY WISHES TO REVOKE OR CHANGE HOLDER'S VOTE, THE
HOLDER MAY DO SO BY PHONING 1-888-LAM-TRAK OR LOGGING ONTO THE WORLD WIDE WEB
AT HTTP://WWW.LAMRC.COM AT ANY TIME AFTER JULY 25, 1997 AND FOLLOWING THE
INSTRUCTIONS PROVIDED BY THE MESSAGES THEREON.
SEE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE REVERSE
SIDE
<PAGE>
Please
mark
votes X
as in
this
example
The undersigned acknowledges receipt of the Notice of Special Meeting and
Joint Proxy Statement/Prospectus dated July 7, 1997.
Signature(s) ___________________________ Date _______________________________
NOTE: PLEASE MARK, SIGN, AND DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
(1) To approve and adopt the Agreement and Plan of Merger dated March 24, 1997,
among OnTrak Systems, Inc. ("OnTrak"), Lam Research Corporation ("Lam") and
Omega Acquisition Corp. and the transactions contemplated thereby, pursuant
to which OnTrak will become a wholly-owned subsidiary of Lam and each share
of Common Stock of OnTrak will be converted into and be exchangeable for
0.83 of a share of Common Stock of Lam, par value $0.001 per share, subject
to adjustment.
FOR [_] AGAINST [_] ABSTAIN [_]
Note: Please sign exactly as your name appears
on your stock certificate. If the stock is
registered in the names of two or more person,
each should sign. Executors, administrators,
trustees, guardians, attorneys and corporate
officers should insert their titles.
MARK HERE
FOR ADDRESS
CHANGE AND
NOTE AT LEFT
<PAGE>
EXHIBIT 99.7
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, Richard J. Elkus, Jr., hereby consent to the use, in the Registration
Statement on Form S-4 of Lam Research Corporation (the "Company") to which this
consent is filed as an exhibit and the Joint Proxy Statement/Prospectus
included therein, of my name as a person about to become a director of the
Company.
/s/ Richard J. Elkus, Jr.
_____________________________________
RICHARD J. ELKUS, JR.
July 1, 1997
<PAGE>
EXHIBIT 99.8
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, James W. Bagley, hereby consent to the use, in the Registration Statement
on Form S-4 of Lam Research Corporation (the "Company") to which this consent
is filed as an exhibit and the Joint Proxy Statement/Prospectus included
therein, of my name as a person about to become a director of the Company.
/s/ James W. Bagley
_____________________________________
JAMES W. BAGLEY
July 1, 1997
<PAGE>
EXHIBIT 99.9
[LETTERHEAD OF SMITH BARNEY INC.]
The Board of Directors
Lam Research Corporation
4650 Cushing Parkway
Fremont, California 94538
Members of the Board:
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of Lam Research Corporation ("Lam") as Annex F to the Joint Proxy
Statement/Prospectus of Lam relating to the proposed merger transaction
involving Lam and OnTrak Systems, Inc. and references thereto in such Joint
Proxy Statement/Prospectus under the captions "SUMMARY--Opinions of Financial
Advisors--Lam" and "THE MERGER AND RELATED TRANSACTIONS--Lam's Reasons for the
Merger," "--Material Contacts and Board Deliberations" and "--Opinion of Lam's
Financial Advisor." In giving such consent, we do not admit that we come
within the category of persons whose consent is required under, and we do not
admit that we are "experts" for purposes of, the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
By: /s/ Smith Barney Inc.
----------------------------------
SMITH BARNEY INC.
July 1, 1997
<PAGE>
EXHIBIT 99.10
CONSENT OF DEUTSCHE MORGAN GRENFELL INC.
We hereby consent to the use of Annex G containing our opinion letter dated
March 24, 1997 to the board of Directors of OnTrak Systems, Inc. ("OnTrak") in
the Joint Proxy Statement/Prospectus constituting a part of the registration
statement on Form S-4 relating to the combination of Lam Research and OnTrak
and to the references to our firm name in the Joint Proxy
Statement/Prospectus. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under section 7 of
Securities Act of 1933, as amended (the "Act"), or the rules and regulations
of the Securities and Exchange Commission (the "SEC") promulgated thereunder,
nor do we admit that we are experts with respect to any part of such
registration statement within the meaning of the term "experts" as used in the
Act or the rules and regulations of the SEC promulgated thereunder.
Deutsche Morgan Grenfell Inc.
/s/ George Boutros
By: _________________________________
GEORGE BOUTROS
MANAGING DIRECTOR
/s/ Ethan Topper
By: _________________________________
ETHAN TOPPER
MANAGING DIRECTOR
July 1, 1997
