<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the quarterly period ended June 28, 1996 or
Transition report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the transition period from ------ to ------
Commission file number 0-15071
ADAPTEC, INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2748530
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(State of Incorporation) (I.R.S. Employer
Identification No.)
691 S. MILPITAS BLVD., MILPITAS, CALIFORNIA 95035
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 945-8600
-----------------------------------------------------------------
N/A
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of common stock as of August 2,1996 was
53,454,143.
This document consists of 14 pages of which this is page 1.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes To Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations:
Results of Operations 8-9
Liquidity and Capital Resources 10
Certain Factors Bearing on Future Results 10-12
Part II. Other Information
Item 6.Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
2
<PAGE> 3
ADAPTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Three Month Period Ended
------------------------
June 28 June 30
(in thousands, except per share data) 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Net revenues $202,014 $138,025
Cost of revenues 86,046 56,666
- ------------------------------------------------------------------------------------------------
Gross profit 115,968 81,359
- ------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 27,847 18,227
Sales and marketing 23,714 17,077
General and administrative 10,210 7,142
Write-off of acquired in-process technology 26,500 --
- ------------------------------------------------------------------------------------------------
Total operating expenses 88,271 42,446
- ------------------------------------------------------------------------------------------------
Income from operations 27,697 38,913
Interest income, net of interest expense 2,667 2,638
- ------------------------------------------------------------------------------------------------
Income before provision for income taxes 30,364 41,551
Provision for income taxes 12,450 10,388
- ------------------------------------------------------------------------------------------------
Net income $ 17,914 $ 31,163
================================================================================================
Net income per share $ .32 $ .58
================================================================================================
Weighted average common and common
equivalent shares outstanding 55,671 53,942
================================================================================================
</TABLE>
See accompanying notes.
3
<PAGE> 4
ADAPTEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
June 28 March 31
1996 1996*
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,618 $ 91,211
Marketable securities 177,056 204,283
Accounts receivable, net 108,957 89,487
Inventories 69,684 55,028
Prepaid expenses and other 27,313 25,271
- ---------------------------------------------------------------------------------------------
Total current assets 425,628 465,280
- ---------------------------------------------------------------------------------------------
Property and equipment, net 116,484 92,778
- ---------------------------------------------------------------------------------------------
Other assets 95,693 88,428
- ---------------------------------------------------------------------------------------------
$637,805 $646,486
=============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,400 $ 3,400
Note Payable -- 46,200
Accounts payable 26,325 23,974
Accrued liabilities 68,651 56,717
- ---------------------------------------------------------------------------------------------
Total current liabilities 98,376 130,291
- ---------------------------------------------------------------------------------------------
Long-term debt, net of current portion 3,400 4,250
- ---------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock 189,102 182,932
Retained earnings 346,927 329,013
- ---------------------------------------------------------------------------------------------
Total shareholders' equity 536,029 511,945
- ---------------------------------------------------------------------------------------------
$637,805 $646,486
=============================================================================================
</TABLE>
See accompanying notes.
* Amounts are derived from the March 31, 1996 audited financial statements.
4
<PAGE> 5
ADAPTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Three Month Period Ended
------------------------
June 28 June 30
(in thousands) 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,914 $ 31,163
Adjustments to reconcile net income to net cash
provided by operating activities:
Write-off of acquired in-process technology, net of taxes 24,734 --
Depreciation and amortization 5,665 3,560
Changes in assets and liabilities:
Accounts receivable (19,470) (9,309)
Inventories (6,625) 46
Prepaid expenses (276) 1,536
Other assets 504 255
Accounts payable 2,351 (5,290)
Accrued liabilities 11,934 18,606
- ------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 36,731 40,567
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of certain net assets of Western Digital's Connectivity
Solutions Group and Corel, Inc. (44,879) --
Purchase of property and equipment (26,792) (5,365)
Sales of (investment in) marketable securities, net 27,227 (11,779)
- ------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (44,444) (17,144)
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of short-term note (46,200) --
Proceeds from issuance of common stock 6,170 2,294
Repurchase of common stock -- (7,765)
Principal payments on debt (850) (850)
- ------------------------------------------------------------------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES (40,880) (6,321)
- ------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (48,593) 17,102
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 91,211 66,835
- ------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 42,618 $ 83,937
================================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 6
ADAPTEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 28, 1996
(unaudited)
1. Basis of Presentation
In the opinion of management, the unaudited condensed consolidated
interim financial statements included herein have been prepared on the
same basis as the March 31, 1996 audited consolidated financial
statements and include all adjustments, consisting of only normal
recurring adjustments, necessary to fairly state the information set
forth herein. The statements have been prepared in accordance with the
regulations of the Securities and Exchange Commission, but omit certain
information and footnote disclosures necessary to present the
statements in accordance with generally accepted accounting principles.
For further information, refer to the consolidated financial statements
and footnotes thereto included in Adaptec's (the Company) Annual Report
on Form 10-K for the year ended March 31, 1996. The results of
operations for the three month period ended June 28, 1996 are not
necessarily indicative of the results to be expected for the entire
year.
2. Supplemental Disclosures of Cash Flows
Cash paid for interest and income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
Three Month Period Ended
------------------------
June 28 June 30
1996 1995
------- -------
<S> <C> <C>
Interest $ 245 $ 212
Income taxes $5,961 $ 459
</TABLE>
3. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. The components of inventory are (in thousands):
<TABLE>
<CAPTION>
June 28 March 31
1996 1996
------- -------
<S> <C> <C>
Raw materials $18,824 $23,415
Work in process 24,972 12,865
Finished goods 25,888 18,748
------- -------
$69,684 $55,028
======= =======
</TABLE>
6
<PAGE> 7
4. Net Income Per Share
Net income per share for the three month periods ended June 28, 1996
and June 30, 1995, is computed under the treasury stock method using
the weighted average common and common equivalent shares from dilutive
stock options outstanding during the respective periods.
5. Acquisitions
On April 9, 1996, the Company acquired certain assets and the ongoing
business of Western Digital's Connectivity Solutions Group (CSG) for
$33 million cash. CSG supplies silicon solutions to meet the demands of
the multi-gigabyte SCSI disk drive market. Additionally, on June 28,
1996, the Company acquired certain technologies from Corel, Inc. for
$12 million cash.
The Company accounted for these acquisitions using the purchase method
of accounting, and excluding the $26.5 million write-off of purchased
in-process technology from these companies, the aggregate impact on the
Company's results of operations from the acquisition date was not
material.
The allocation of the Company's aggregate purchase price to the
tangible and identifiable intangible assets acquired was based on
preliminary independent appraisals and is summarized as follows (in
thousands):
<TABLE>
<S> <C>
Tangible assets $ 9,935
In-process technology 26,500
Goodwill 8,444
--------
Assets acquired $ 44,879
========
</TABLE>
6. Income Taxes
The Company's effective tax rate of 41% for the first quarter of fiscal
1997 differed from the 25% rate accrued in the first quarter of fiscal
1996 primarily due to valuation allowances recorded against deferred
tax assets generated by the write-off of in-process technology. The
valuation allowances are appropriate due to sufficient uncertainty
regarding recoverability during the 15 year amortization period
required for tax purposes for in-process technology. Also, the
effective tax rate for the three month period ended June 30, 1995
differed from the federal statutory rate primarily due to income earned
in Singapore where the Company is subject to a significantly lower
effective tax rate.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth the items in the condensed consolidated
statements of operations as a percentage of net revenues:
<TABLE>
<CAPTION>
Three Month Period Ended
------------------------
June 28 June 30
1996 1995
------- -------
<S> <C> <C>
Net revenues 100.0% 100.0%
Cost of revenues 42.6 41.1
----- -----
Gross profit 57.4 58.9
----- -----
Operating expenses:
Research and development 13.8 13.2
Sales and marketing 11.7 12.3
General and administrative 5.1 5.2
Write-off of acquired in-process technology 13.1 --
----- -----
43.7 30.7
----- -----
Income from operations 13.7 28.2
Interest income, net 1.3 1.9
----- -----
Income before provision for
income taxes 15.0 30.1
Provision for income taxes 6.1 7.5
----- -----
Net income 8.9% 22.6%
===== =====
</TABLE>
Net Revenues
Net revenues increased 46% to $202 million in the first quarter of fiscal 1997
from $138 million in the first quarter of fiscal 1996. This growth was
attributable to increased shipments of the Company's host adapters and
proprietary integrated circuits (ICs) used in mass storage devices. These
increases reflect growth in the high-performance microcomputer markets,
continued demand for SCSI in the client/server environment, and an increase in
the use of diverse peripherals in microcomputer systems compared to the same
period a year ago.
8
<PAGE> 9
Gross Profit
The gross profit percentage for the first quarter of fiscal 1997 decreased to
57% compared to 59% in the same period of fiscal 1996. The percentage decrease
is due to the mix of products shipped, which included a greater percentage of
mass storage ICs. During the quarter, the Company continued to focus on reducing
component costs as well as implementing design efficiencies. The Company's
ability to maintain current gross profit can be significantly affected by
factors such as the mix of products shipped, competitive price pressures, the
timeliness of volume shipments of new products and the Company's ability to
achieve manufacturing cost reductions.
Operating Expenses
Expenditures for research and development as a percentage of net revenues were
14% for the first quarter in fiscal 1997 compared to 13% for the same period in
fiscal 1996. Actual spending for research and development increased 53% to $28
million in the first quarter of fiscal 1997 from $18 million in the same period
a year ago. This increased spending is a result of the Company's continued
investment in its core SCSI business together with its ongoing commitment to the
development of newer products and technologies including ATM, RAID, and serial
architectures such as Fibre Channel and 1394.
Sales and marketing expenses as a percentage of net revenues were 12% in the
first quarter of both fiscal 1997 and fiscal 1996. Actual spending for sales and
marketing increased 39% to $24 million in the first quarter of fiscal 1997 from
$17 million in the corresponding period in fiscal 1996. This spending increase
was mainly due to increased staffing levels and increased advertising and
promotional activities aimed at introducing new technologies and generating
demand for the Company's products in the microcomputer and file server markets.
General and administrative expenses remained consistent as a percentage of net
revenues at 5% in the first quarter in both fiscal 1997 and 1996.
As discussed under Note 5 of the Notes to Condensed Consolidated Financial
Statements in this report, during the current quarter the Company acquired CSG
and certain technologies from Corel, Inc. for $33 million and $12 million cash,
respectively. These acquisitions were accounted for using the purchase method of
accounting, and the Company recorded a one time after-tax charge of $25 million
for acquired in-process technology. The Company also recorded goodwill of $8
million which will be amortized ratably over a period of five years.
Interest and Income Taxes
Interest income, net of interest expense, in the first quarter of fiscal 1997
was relatively consistent compared to the same period in the prior year. The
Company's effective tax rate of 41% for the first quarter of fiscal 1997
differed from the 25% rate accrued in the first quarter of fiscal 1996 primarily
due to valuation allowances recorded against deferred tax assets generated by
the write-off of in-process technology. The valuation allowances are appropriate
due to sufficient uncertainty regarding recoverability during the 15 year
amortization period required for tax purposes for in-process technology. Also,
the effective tax rate for the three month period ended June 30, 1995 differed
from the federal statutory rate primarily due to income earned in Singapore
where the Company is subject to a significantly lower effective tax rate.
9
<PAGE> 10
Liquidity and Capital Resources
Operating Activities
Net cash generated by operations for the first quarter of fiscal 1997 was $37
million compared with $41 million for the corresponding quarter of fiscal 1996.
During the first quarter of fiscal 1997, the majority of funds generated from
operations resulted from $18 million of net income adjusted for non-cash items
including a non-recurring write-off of acquired in-process technology of $25
million, and depreciation and amortization of $6 million. The overall decrease
in cash generated from operations compared to the prior year is mainly a result
of the Company's non-cash working capital increasing at a higher rate compared
to the same period a year ago. This increase in working capital included
increases in accounts receivable and inventories of $19 million and $7 million,
respectively, primarily offset by an increase in accrued liabilities of $12
million. These overall increases were mainly attributable to higher revenue
volumes and increased staffing levels.
Investing Activities
As previously discussed, the Company paid a total of $45 million cash for the
acquisitions of CSG and certain technologies from Corel, Inc. During the first
quarter of fiscal 1997, the Company also continued to invest in the purchase of
equipment for product development, IC testing, board level production, and made
various building and leasehold improvements to its facilities. In connection
with an agreement with Lucent Technologies (Lucent, formerly AT&T) to secure
capacity for wafer fabrication, the Company purchased $7 million of fabrication
equipment which is consigned to Lucent's fab in Madrid, Spain.
The Company anticipates capital expenditures relating to property and equipment
of approximately $80 million for the remainder of fiscal 1997. The Company may
also make investments for increased capacity for wafer fabrication or
acquisitions of complimentary businesses, products, or technologies. The Company
believes existing working capital, together with expected cash flows from
operations and available sources of bank, equity, debt and equipment financing,
will be sufficient to support its operations at least through fiscal 1997.
Financing Activities
In connection with an agreement with Taiwan Semiconductor Manufacturing Co.,
Ltd. (TSMC) that ensures availability of a portion of the Company's wafer
capacity for both current and future technologies, the Company paid a short-term
note of $46 million due to TSMC. In return for this advance payment, the Company
will receive guaranteed future wafer capacity and a discount on purchases that
exceed certain prescribed minimum quantities. Additionally, in connection with
this agreement, the Company will receive access to future process technology.
During the first quarter of fiscal 1997 and fiscal 1996, the Company received
proceeds from common stock issued under the employee stock option and employee
stock purchase plans totaling $6 million and $2 million, respectively.
Certain Factors Bearing on Future Results
The following risk factors should be considered by anyone contemplating an
investment in the Company's Common Stock. In addition, the Company and its
representatives may from time to time make forward-looking statements, and the
following are important factors that could cause actual results to differ
materially from those projected in any such forward-looking statements.
10
<PAGE> 11
Reliance on the High-Performance Microcomputer Market. The Company's board-based
I/O solutions are used primarily in high performance computer systems designed
to support I/O intensive applications and operating systems. Historically, the
Company's growth has been supported by increasing demand for systems which
support networking applications, multitasking, CAD/CAM, desktop publishing,
multimedia, and video. Should the growth of demand for such systems slow, the
Company's revenues and income could be adversely affected by a decline in demand
for the Company's products and increased pricing pressures from both competitors
and customers.
Future Operating Results Subject to Fluctuation. The Company's operating results
may fluctuate in the future as a result of a number of factors, including
variations in the Company's sales channels or the mix of products it sells,
changes in pricing policies by the Company's suppliers, the timing of
acquisitions of other businesses, products and technologies and any associated
charges to earnings and the market acceptance of new and enhanced versions of
the Company's products. The volume and timing of orders received during a
quarter are difficult to forecast. Customers generally order on an as-needed
basis and, accordingly, the Company has historically operated with a relatively
small backlog, especially relating to orders of its board-based I/O solutions.
Further, the Company's expense levels are based in part on expectations of
future revenues, and the Company has been significantly increasing and intends
to continue to increase operating expenditures and inventory as it expands its
operations. As a result of the difficulty of forecasting revenues and the
Company's planned growth in spending, operating expenses and inventory levels
could be disproportionately high for a given quarter, and the Company's
operating results for that quarter, and potentially future quarters, would be
adversely affected. Operating results in any particular quarter which do not
meet the expectations of securities analysts or investors could cause volatility
in the price of the Company's Common Stock.
Uncertainty of Timing and Amount of Capital Expenditures. Predicting the timing
and amount of capital expenditures is difficult for a number of reasons,
including (i) the fact that opportunities to acquire other businesses, products
and technologies of interest to the Company may arise on short notice and
require substantial amounts of capital and (ii) that in the increasingly
competitive market for wafer supplies, wafer manufacturers have been frequently
requiring substantial capital commitments by customers in order to obtain
guaranteed wafer capacity. Opportunities to obtain such capacity can arise on
relatively short notice and require significant commitments on the part of the
Company.
Dependence on Suppliers. The majority of the Company's ICs are manufactured by
TSMC and a limited number of manufacturers. If one or more of these
manufacturers were to experience significant difficulty or disruptions in the
shipment of ICs, delays in developing alternative sources could adversely affect
the Company's business. In addition, the Company's host adapter products make
extensive use of standard logic, memory and microprocessor circuits. An extended
supply shortage or a major increase in the market price of these components
could have an adverse effect on the Company's business.
International Operations and Markets. The Company's manufacturing facility and
various subcontractors it utilizes from time-to-time are primarily located in
Asia. Additionally the Company has various sales offices and customers
throughout Europe, Japan, and other countries. The Company's international
operations and sales may be subject to political and economic risks, including
political instability, currency controls, exchange rate fluctuations, and
changes in import/export regulations, tariffs and freight rates. There can be no
assurance that the political and economic risks to which the Company is subject
will not result in customers of the Company defaulting on payments due to the
Company or in the reduction of potential purchases of the Company's products.
11
<PAGE> 12
Fluctuation in Demand. The Company's customers encounter uncertain and changing
demand for their products. They typically order products from the Company based
on their forecasts. If demand falls below customers' forecasts, or if customers
do not control their inventories effectively, they may cancel or reschedule
shipments previously ordered from the Company. The Company has in the past
experienced, and may at any time and with minimal notice in the future
experience, cancellations and postponements of orders.
Management of Growth and Acquisitions. The Company recently has experienced
growth in the number of its employees and the scope of its operations and has
completed several acquisitions of other companies resulting in increased
responsibilities for its management. In order to manage potential future growth
and acquisitions, the Company will need to hire, train, motivate and manage a
growing number of employees. A failure to effectively manage growth or
acquisitions could materially adversely affect the Company's business and
operating results.
Reliance on Industry Standards. The Company's products are designed to conform
with certain industry standards such as SCSI, UltraSCSI, PCI, RAID and ATM. If
consumer acceptance of these standards was to decline or if new standards were
to emerge, the Company's business and operating results could be materially
adversely affected.
Technological Change; Competition; Dependence on New Products. The markets for
the Company's products are characterized by rapidly changing technology,
frequent new product introductions and declining average selling prices over
product life cycles. The Company's future success is highly dependent upon the
timely completion and introduction of new products at competitive
price/performance levels. In addition, the Company must respond to current
competitors, who may choose to increase their presence in the Company's markets,
and to new competitors, who may choose to enter those markets. If the Company is
unable to make timely introduction of new products or respond to competitive
threats, its business and operating results could be materially adversely
affected.
Volatility of Stock Price. In recent months, the stock market in general, and
the market for share of technology companies in particular, have experienced
extreme price fluctuations, which have often been unrelated to the operating
performance of the affected companies. In addition, factors such as
technological innovations or new product introductions by the Company, its
competitors or its customers may have a significant impact on the market price
of the Company's Common Stock. Furthermore, quarter-to-quarter fluctuations in
the Company's results of operations caused by changes in customer demand,
changes in the microcomputer and peripherals markets, or other factors, may have
a significant impact on the market price of the Company's Common Stock. These
conditions, as well as factors which generally affect the market for stocks of
high technology companies, could cause the price of the Company's stock to
fluctuate substantially over short periods.
12
<PAGE> 13
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
EXHIBIT
NUMBER DESCRIPTION
2.1 Agreement for Purchase and Sale of Stock By and Among
Western Digital Corporation, Western Digital CSG
Corporation, and Adaptec, Inc. dated April 9, 1996.
27.1 Financial Data Schedule for the quarter ended June 28,
1996.
No Reports on Form 8-K were filed during the quarter.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADAPTEC, INC.
-----------------------------------------
Registrant
\s\ Paul G. Hansen
-----------------------------------------
Paul G. Hansen, Vice-President, Finance
and Chief Financial Officer
(Principal Financial Officer),
Assistant Secretary
Date: August 9, 1996
\s\ Andrew J. Brown
-----------------------------------------
Andrew J. Brown, Corporate Controller
(Principal Accounting Officer)
Date: August 9, 1996
14
<PAGE> 1
Exhibit 2.1
AGREEMENT FOR PURCHASE AND
SALE OF STOCK
By and Among
WESTERN DIGITAL CORPORATION
WESTERN DIGITAL CSG CORPORATION
AND
ADAPTEC, INC.
April 9,1996
<PAGE> 2
AGREEMENT FOR PURCHASE AND SALE OF STOCK
TABLE OF CONTENTS
Page
1. CERTAIN DEFINITIONS.
1.1 Affiliate ........................................ 2
1.2 Acquired Cadence Contract ........................ 2
1.3 Cadence Contract ................................. 2
1.4 CSG Business Products ............................ 2
1.4A Description ...................................... 2
1.5 DTG .............................................. 2
1.6 Encumbrance ...................................... 3
1.7 GAAP ............................................. 3
1.8 Governmental Entity .............................. 3
1.9 Host Bus Adapter Products ........................ 3
1.10 IBM Agreement .................................... 3
1.11 Letter of Intent ................................. 3
1.12 Lynnwood Unit .................................... 3
1.13 Person ........................................... 3
1.14 Proprietary Rights Agreements .................... 3
1.15 Retained Cadence Contract ........................ 3
1.16 Seller's knowledge ............................... 4
1.17 Software Programs ................................ 4
1.18 ST ............................................... 4
1.19 ST Agreement ..................................... 4
1.20 ST Assignment .................................... 4
1.21 Strategic Agreements ............................. 4
1.22 Systems Solutions Products ....................... 4
1.23 Target Products .................................. 5
1.24 Testing Material ................................. 5
1.25 Tools ............................................ 5
2. TRANSFER OF ASSETS: SHARE PURCHASE.
2.1 Contribution of Selected CSG Assets and Liabilities
to Sub ............................................. 5
2.2 Transferred Assets Defined ......................... 6
2.3 Excluded Assets .................................... 9
2.4 Share Purchase ..................................... 10
3. PURCHASE PRICE: PAYMIENTS.
3.1 Purchase Price ..................................... 10
3.2 Post-Closing Adjustment of Purchase Price .......... 11
3.3 Closing ............................................ 13
3.4 Allocation of Purchase Price ....................... 13
<PAGE> 3
AGREEMENT FOR PURCHASE AND SALE OF STOCK
TABLE OF CONTENTS (Continued)
4. OBLIGATIONS ASSUMED.
4.1 Liabilities ....................................... 13
4.2 Liabilities and Obligations Not Assumed ........... 14
4.3 No Obligations to Third Parties ................... 16
5. REPRESENTATIONS AND WARRANTIES OF BUYER.
5.1 Organization, Good Standing and Qualification ..... 16
5.2 Authorization ..................................... 16
5.3 Governmental Consents ............................. 16
5.4 Litigation ........................................ 17
5.5 Compliance with Other Instruments and Laws ........ 17
5.6 Brokerage and Finder's Fees ....................... 17
6. REPRESENTATIONS AND WARRANTIES OF SELLER.
6.1 Organization, Good Standing and Qualification ..... 17
6.2 Authorization ..................................... 17
6.3 Capitalization; Status of Capital Stock ........... 18
6.4 Filings, Consents and Approvals ................... 18
6.5 Litigation ........................................ 18
6.6 Compliance with Other Instruments and Laws ........ 19
6.7 CSG Business Products ............................. 19
6.8 Inventory ......................................... 19
6.9 Intellectual Property ............................. 20
6.10 Software Programs, Tools and Testing Materials .... 22
6.11 Agreements ........................................ 22
6.12 Foundry Relationships and ST Agreement ............ 23
6.13 Tangible Assets ................................... 24
6.14 Permits ........................................... 24
6.15 Transferred Assets ................................ 25
6.16 Infringement ...................................... 26
6.17 Proprietary Information ........................... 26
6.18 Customer, Distributor and Supplier Contracts ...... 27
6.19 Warranties and Service; Payment Obligations ....... 28
6.20 Products Liability ................................ 29
6.21 Financial Information ............................. 29
6.22 No Undisclosed Liabilities or Adverse Changes ..... 29
6.23 Taxes, Tax Returns, Payments and Elections ........ 30
6.24 Environmental and Safety Laws ..................... 31
6.25 Related-Party Transactions ........................ 31
6.26 Employee Matters .................................. 31
6.27 Labor and Employee Relations ...................... 32
- ii -
<PAGE> 4
AGREEMENT FOR PURCRASE AND SALE OF STOCK
TABLE OF CONTENTS (Continued)
Page
6. REPRESENTATIONS AND WARRANTIES OF SELLER (Continued).
6.28 Brokerage and Finder's Fees ............................. 33
6.29 Disclosure .............................................. 33
6.30 Fair Consideration; No Fraudulent Conveyance ............ 33
7. MUTUAL COVENANTS.
7.1 Confidential Information ............................ 33
7.2 Related Agreements .................................. 34
7.3 Hart-Scott-Rodino Act ............................... 34
7.4 Enforcement Contracts ............................... 34
7.5 Certain Notifications ............................... 35
7.6 Public Announcements ................................ 35
7.7 Survival of Covenants ............................... 35
8. COVENANTS OF BUYER.
8.1 Records, Reports and Audit .......................... 35
8.2 Taxes ............................................... 36
8.3 Name Change ......................................... 36
8.4 Employee Compensation ............................... 36
8.5 Survival of Covenants ............................... 37
9. COVENANTS OF SELLER.
9.1 Carry on CSG Business in Normal Manner .............. 37
9.2 Access to Information ............................... 38
9.3 Consent of Third Parties ............................ 38
9.4 Termination of Certain CSG Supplier and Sales
Relationships ....................................... 38
9.5 No Other Bids ....................................... 38
9.6 Future Agreements ................................... 39
9.7 Updates of Schedules ................................ 39
9.8 Covenants Not to Compete ............................ 39
9.9 Service and Warranty Obligations .................... 40
9.10 Financial Information for SEC Compliance ............ 40
9.11 Transition Matters .................................. 40
9.12 Seller's Materials .................................. 40
9.13 Post-Closing Access to Information .................. 40
9.14 No Post-Closing Retention of Copies ................. 41
9.15 Taxes ............................................... 41
9.16 Post-Closing Audits and Governmental Inquiries ...... 41
9.17 Election Under Section 338(h)(10) ................... 41
9.18 Further Assurances and Asset Transfers .............. 42
9.19 Survival of Covenants ............................... 42
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AGREEMENT FOR PURCHASE AND SALE OF STOCK
TABLE OF CONTENTS (Continued)
Page
10. COVENANTS AND AGREEMENTS RELATED TO EMPLOYEES.
10.1 Offers of Employment ................................ 42
10.2 Employment Taxes .................................... 44
10.3 WARN Compliance ..................................... 44
10.4 Compensation; Contractual Obligations ............... 44
10.5 Benefits ............................................ 44
10.6 Severance Payments .................................. 45
10.7 Short-Term Transition Employees ..................... 45
10.8 COBRA Payments ...................................... 45
10.9 Seller Employee Plan Claims; Life Insurance
and Disability Coverage ............................. 45
10.10 No Solicitation of Former Employees ................. 45
10.11 No Rights Conferred Upon Employees .................. 45
11. CONDITIONS TO CLOSING.
11. 1 Conditions to Buyer's Obligations ................... 46
11. 2 Conditions to Seller's Obligations .................. 48
12. CLOSING OBLIGATIONS.
12.1 Buyer's Closing Obligations ............................. 50
12.2 Seller's Closing Obligations ............................ 50
13. SURVTVAL OF WARRANTIES AND INDEMNIFICATION.
13.1 Survival of Warranties .............................. 51
13.2 Indemnified Losses .................................. 51
13.3 Indemnification by Seller ........................... 51
13.4 Intellectual Property Indemnification By Seller ..... 53
13.5 Indemnification By Buyer ............................ 53
13.6 Indemnification Procedure ........................... 54
13.7 Period for Making Claims ............................ 56
14. DISPUTE RESOLUTION.
14.1 Management Negotiation .............................. 56
14.2 Waiver of Jury Trial ................................ 57
15. TERMINATION.
15.1 Termination of Agreement ............................ 57
15.2 Procedure and Effect of Termination ................. 58
15.3 Reimbursement of Prepaid Purchase Price; Sole Remedy. 58
16. AUDIT RIGHTS .................................................. 58
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AGREEMENT FOR PURCHASE AND SALE OF STOCK
TABLE OF CONTENTS (CONTINUED)
PAGE
17. MISCELLANEOUS
17.1 Expenses ............................................. 59
17.2 Notices .............................................. 59
17.3 Entire Agreement; Captions ........................... 60
17.4 Amendment; Waiver .................................... 61
17.5 No Third Party Beneficiaries ......................... 61
17.6 Execution in Counterparts ............................ 61
17.7 Assignment ........................................... 61
17.8 Benefit and Burden ................................... 61
17.9 Governing Law ........................................ 61
17.10 Severability ......................................... 61
17.11 Attorneys' Fees ...................................... 61
17.12 Locating of Definitions .............................. 61
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AGREEMENT FOR PURCHASE AND SALE OF STOCK
TABLE OF CONTENTS (Continued)
SCHEDULES
Schedule No. Description
Schedule 2.2(f) List of Assumed Contracts
Schedule 2.2(h) Tangible Assets
Schedule 2.2(j) Prepaid Assets
Schedule 2.3(d) Shared Resources
Schedule 2.3(e) DTG Assets
Schedule 2.3(i) MIS System
Schedule 2.3(j) Retained HBA Inventory
Schedule 2.3(k) Failure Analysis Equipment
Schedule 2.3(m) Other Excluded Items
Schedule 3.1(d) Earnout Products
Schedule 3.2(c) Inventory Criteria
Schedule 3.4 Allocation of Purchase Price
Schedule 4.1(a) ST Closing Forecast
Schedule 4.1(b) Warranty and Service Cost Schedule
Schedule 6.4 Third Party Consents, Licenses or Payments
Schedule 6.5 Litigation
Schedule 6.7 CSG Business Products
Schedule 6.8 Inventory
Schedule 6.9 Intellectual Property
Schedule 6.9(e) Shared Resources Licensed to Others
Schedule 6.10 Software Programs, Tools and Testing Materials;
Updates, Maintenance Fees
Schedule 6.11 Agreements
Schedule 6.12 Supply Contracts
Schedule 6.14 Permits
Schedule 6.15(a) Additional Transferred Assets
Schedule 6.15(b) Location of Business Records
Schedule 6.15(c) Disposed Assets
Schedule 6.16 Infringement
Schedule 6.17 Form of Proprietary Information and Invention Agreement
Schedule 6.18(a) Customers, Distributors and Supplier Contracts
Schedule 6.18(b) Suppliers
Schedule 6.19 Warranties and Service
Schedule 6.21 Financial Statements
Schedule 6.26(a) Employees
Schedule 6.26(b) Employee Plans
Schedule 9. 1(f) Inventory Promotions
Schedule 10.1 Listed Employees
Schedule 10.6 Severance for Long Term Transition Employees
Schedule 10.7 Short-Term Transition Employees
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AGREEMENT FOR PURCRASE AND SALE OF STOCK
TABLE OF CONTENTS (Continued)
EXHIBITS
Exhibit 1.2 Agreement for Acquired Cadence Contract
Exhibit 1.20 ST Assignment
Exhibit 1.21 Strategic Agreements (Strategic Development Relationship
Agreement and Volume Purchase Agreement)
Exhibit 2.1 Contribution, Assignment and Assumption Agreement
Exhibit 2.3(d) Shared Resources License Agreement
Exhibit 7.2(a) Transition Agreement
Exhibit 10.1(a) Form of Permanent Employee Letter Agreement
Exhibit 10.1(b) Form of Lona-Term. Transition Employee Letter Agreement
Exhibit 11.1(b) Opinions of Seller's Counsel
Exhibit 11.2(a) Opinion of Buyer's Counsel
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AGREEMENT FOR PURCRASE AND SALE OF STOCK
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of April 9,
1996 (the "Effective Date"), by and among Western Digital Corporation, a
Delaware corporation with its principal offices at 8105 Irvine Center Drive,
Irvine, Califomia 92718 ("Seller"), Western Digital CSG Corporation, a Delaware
corporation ("Sub"), and Adaptec, Inc., a California corporation with its
principal offices at 691 South Milpitas, Boulevard, Milpitas, California 95035
("Buyer").
R E C I T A L S
A. Seller has operated a business referred to as the Connectivity
Solutions Group ("CSG"), which has been primarily engaged in the business of
designing, developing, manufacturing, testing, marketing, selling, supporting
and providing related services for control electronics to manufacturers,
distributors and resellers of disk drives and other storage peripherals (such
business as previously and currently conducted is herein referred to as the "CSG
Business").
B. Buyer desires to acquire the CSG Business in corporate form for a
variety of business reasons including, but not limited to, the following:
(1) Except as specifically listed in this Agreement, at no time does
Buyer want to assume any of the liabilities of the CSG Business as conducted
through the Effective Date and the acquisition of a newly formed wholly-owned
subsidiary of Seller will allow Buyer to examine the liabilities assumed and
insulate itself and its other assets from any undisclosed or unknown liabilities
associated with the CSG Business;
(ii) There are numerous assets and several different types of assets
associated with the CSG Business and Buyer believes the use of a separate
corporation will provide it with the ability to more easily separately track the
assets acquired for a period of time to verify the existence and validity (if
necessary) of the assets acquired;
(iii) The revenue generated by, and the key customers of, the CSG
Business are a material inducement for Buyer entering into this Agreement and
the acquisition of a separate corporation representing the CSG Business will
allow Buyer, for an appropriate period, to separately account for the business
activities of the CSG Business and address these separate revenue sources and
customer matters; and
(iv) As part of this transaction, Buyer is acquiring various amounts
of inventory property from Seller and Buyer may wish to market such inventory
and/or identify the seller of such inventory under a name other than Buyer's for
marketing reasons and the acquisition of a separate corporation with a separate
legal identity from and different name than Buyer's can assist Buyer in
achieving these acquired inventory sales objectives.
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C. To achieve the above described business purpose of Adaptec, prior
to the Closing Seller shall, as provided herein, contribute certain assets and
liabilities related to the CSG Business to Sub, which is, and prior to the
Closing will be, a wholly-owned subsidiary of Seller.
D. Following the transfer of such assets and liabilities related to
the CSG Business to Sub as described above, Seller shall sell, and Buyer shall
buy, all of the outstanding shares of Common Stock of Sub, constituting all of
the issued and outstanding capital stock of Sub (the "Shares"), pursuant to the
terms and conditions set forth in this Agreement.
E. Upon the closing of the acquisition of the Shares, Seller and
Buyer will enter into Strategic Agreements, in the forms attached hereto as
Exhibits 1.21, to among other matters address mutual product development
opportunities and product purchase arrangements.
NOW, THEREFORE, in consideration of the above recitals and the
mutual covenants hereinafter set forth, Buyer, Seller and Sub hereby agree as
follows:
1. CERTAIN DEFINITIONS
The following terms shall have the following meanings:
1.1 "AFFILIATE" of a Person means any other Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under conunon control with such Person. The Sub and Seller shall be
Affiliates of each other until the Shares are transferred to Buyer at the
Closing and after the Closing, Sub and Buyer shall be Affiliates of each other.
1.2 "ACQUIRED CADENCE CONTRACT" means rights, including 25 engineering
license "seats" to use design tool software, assigned to Sub by Seller with the
approval of Cadence, and obligations assumed by Sub, related to the Cadence
Contract, as provided in the agreement attached as Exhibit 1.2 hereto.
1.3 "CADENCE CONTRACT" means the Software License and Development
Support Contract, dated September 1, 1994, by and between Seller and Cadence
Design Systems, Inc.
1.4 "CSG BUSINESS PRODUCTS" means any and all products (in whatever
form, whether hardware, semiconductor, software (including Software Programs),
or other) owned, co-owned, licensed, developed, under development or invented by
or for Seller or its Affiliates, which currently are or previously have been or
were used in, marketed, licensed or sold in the CSG Business, including, without
limitation, the Target Products, the Host Bus Adapter Products and the Systems
Solutions Products.
1.4A "Description" means a listing, specification, identification or
other language that is sufficient to uniquely identify and describe an asset or
other applicable item.
1.5 "DTG" means Seller's Design Technology Group, which is engaged in
the design and maintenance of tools for designing and manufacturing integrated
circuits and the design of integrated circuits for Seller's business.
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1.6 "ENCUMBRANCE" means all mortgages, deeds of trust, pledges, Iiens,
hypothecations, licenses, rights of possession, security interests,
restrictions, encumbrances, charges, title retention, conditional sale or other
security arrangements, any lease of any nature, all claims or agreements of any
nature whatsoever, and/or the filing of or agreement to give any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction.
1.7 "GAAP" means generally accepted U.S. accounting principles, as in
effect from time to time, consistently applied.
1.8 "GOVERNMENTAL ENTITY" means any court, or any federal, state,
municipal or other governmental authority, department, commission, board,
agency or other instrumentality (domestic or foreign).
1.9 "HOST BUS ADAPTER PRODUCTS" means any and all device level and board
level products and any Software Programs related thereto owned, co-owned,
licensed, developed, under development or invented by or for Seller or its
Affiliates, which currently or previously are or were used, marketed, licensed
or sold in the CSG Business.
1.10 "IBM AGREEMENT" means collectively that certain Standard Ordering
Agreement Number 01182 dated May 23, 1989 between Seller and IBM Corporation,
as amended by Addendum number 1 thereto dated April 6, and Volume Purchase
Agreement Number 01182 dated December 13, 1989 and Purchase Agreement Number
02687 dated July 28, 1994 thereunder.
1.11 "LETTER OF INTENT" means the Letter of Intent, dated as of February
6, 1996, by and between Buyer and Seller, as amended on March 1, 1996.
1.12 "LYNNWOOD UNIT" means Seller's operations at its Lynnwood,
Washington business unit, which is engaged in the design, manufacture, and
distribution of products that incorporate Seller's physical interface fibre
channel technology, including media interface modules and fibre channel hubs.
1.13 "PERSON" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization or Governmental Entity.
1.14 "PROPRIETARY RIGHTS AGREEMENTS" means any and all of Seller's or
its Affiliates' rights (including rights relating to past infringement by third
parties) to enforce, for the protection of the Transferred Assets, (i) any and
all agreements or licenses entered into for the protection of rights associated
with the Transferred Assets, or (ii) any and all agreements between Seller or
Sub and any Persons, including without limitation Seller's or its Affiliates'
consultants, developers or employees, relating to the Transferred Assets,
including any such rights assigned to or obtained by Seller or any of its
Affiliates in connection with Seller's or any of its Affiliates' direct or
indirect acquisition of any of the Transferred Assets.
1.15 "RETAINED CADENCE CONTRACT" means the Cadence Contract, excluding
the rights and obligations represented by the Acquired Cadence Contract.
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1.16 "SELLER'S KNOWLEDGE" means the knowledge of Seller's elected
officers, which are Charles A. Haggerty, Kathryn A. Braun, D. Scott Mercer,
David Shaffer, Mark Nussbuaum, Duston Williams, Michael Cornelius, Vice
President and General Counsel, Scott Hughes, Vice President, Human Resources,
Ken Hendrickson, Executive Vice President, and other officers, which shall
include without limitation A. Keith Plant, Vice President, New Business
Opportunities, Jim Eckstaedt, Vice President Finance, Gerry Hill, Vice President
Quality/Sourcing[PE, Maxine Gandall, Vice President Business
Planning/Operations, Leo Young, Vice President, Intellectual Property, Dan
Brown, Vice President, Product Development, Bob Blair, Vice President, Investor
Relations, Steve Slavin, Vice President, Tax, Tom Porter, Vice President,
Western Digital Rochester and Directors, Thais Greco, Director of Human
Resources, Denise Hyde, Manager of Human Resources, Bill Needles, Director of
Development Technology, Tom Seche, Director, Contracts, Joe Carrillo, Director,
Corporate Accounting, Debbie Chiya, Director, Accounting Shelly Wilson,
Corporate Attorney, Ian Harvey, Ward Stark and Don Turner, after investigation
or inquiry.
1.17 "SOFTWARE PROGRAMS" means any and all software owned, co-owned,
licensed, developed, under development or invented by or for Seller or its
Affiliates, which currently or previously was or is used, marketed, sold or
licensed in the CSG Business, in whatever form, including, without limitations
(1) any and all source code (in all forms), object code, firmware, microcode,
flow charts, binaries, program descriptions, program listings, layouts,
schematics, diagrams, libraries, databases, interfaces, supplements,
modifications, ports, drivers, updates, custom modules, corrections and
enhancements to past and current versions of such software, reports, drafts,
models, prototypes, test and other data and programs, and all related
documentation and information, comprising and related to the version existing as
of the Closing Date and all preceding versions of and works in progress or
developments; (ii) any and all English and foreign language versions of such
programs; (iii) any design and code documentation, and other software,
methodologies and processes required to create, operate or maintain the
programs; and (iv) any and all related backup tapes and archival tapes from
Seller's storage.
1.18 "ST" means SGS-Thomson Microelectronics, N.V., a Dutch corporation.
1.19 "ST AGREEMENT" means that certain Wafer, Die and Chips Purchase
Contract effective November 29, 1994 between Seller and ST.
1.20 "ST ASSIGNMENT" means that agreement attached hereto as EXHIBIT
1.20 assigning the ST Agreement from Seller to Sub and Buyer and the letter of
consent from ST attached hereto as part of Exhibit 1.20.
1.21 "STRATEGIC AGREEMENTS" means the Strategic Development Relationship
Agreement and Volume Purchase Agreement attached hereto as Exhibit 1.21 between
Seller and Buyer.
1.22 "SYSTEMS SOLUTIONS PRODUCTS" means any and all integrated circuits
that perform the interface functions between a microprocessor and certain
input/output devices, including memory, and any Software Program related thereto
owned, co-owned, licensed, developed,
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under development or invented by or for Seller or its Affiliates, which
currently or previously are or were used, marketed, licensed or sold in the
CSG Business.
1.23 "TARGET PRODUCTS" means any and all integrated circuits that perform
specific disk drive control functions including, without limitation, servo
control between the read/write head, spindle motor, actuator and media and any
Software Program related thereto owned, co-owned, licensed, developed, under
development or invented by or for Seller or its Affiliates which currently or
previously are or were used, marketed, licensed or sold in the CSG Business,
including without limitation products sold to IBM.
1.24 "TESTING MATERIAL" means any and all information and material owned,
co-owned, licensed, developed, under development ore invented by or fore
Seller or its Affiliates, which currently or previously were used in or with
respect to simulation, verification, testing and correcting defects with
respect to the CSG Business Products, Inventory, Additional Inventory, Software
Programs, tools, or the Intellectual Property, including, without limitation,
regression tests, test beads, test plans, and historical defects data, software
programs and all internal references manuals, engineering notebooks, other
documents and materials which are used in or with respect to maintaining,
enhancing or correcting errors in the CSG Business Products, Software Programs,
the Intellectual Property or Tools or providing continued customer technical
support.
1.25 "TOOLS" means any and all tools, scripts, software programs owned,
co-owned, licensed, developed, under development or invented by or for Seller
or its Affiliates, which currently are or previously were used in or with
respect to connection with the design development, production, test,
maintenance, support, enhancement or operation of the CSG Business or CSG
Business Products, in any media or format, whether hardware or software, and for
all versions hardware platforms, software platforms and operating environments
including without limitation, any and all CAD software or tools, source code
(for Seller owned Software Programs) and object codes, binaries, supplements,
modifications, updates, corrections and enhancements to past and current
versions of such tools and scripts, and version of such tools and scripts under
development, and any and all related back-up tapes and archival tapes as
required in Schedules 2.3 (d) and 6.10.
2. TRANSFER OF ASSETS; SHARE PURCHASE.
2.1 CONTRIBUTION OF SELECTED CSG ASSETS AND LIABILITIES TO SUB.
(a) At least two (2) business days before the Closing, the Seller
shall transfer, assign and deliver to Sub, and Sub shall accept and receive from
the Seller, all right, title and interest of the Seller, free and clear of all
Encumbrances, except as otherwise expressly disclosed in the Seller Schedule of
Exceptions (as defined below), in and to the Transferred Assets (as defined
below) (the "Initial Transfer D". Prior to the Closing, Seller share transfer,
assign and deliver to Sub, and Sub shall accept and receive from Seller, all
right, title and interest of the Seller, free and clear of all Encumbrances,
except as otherwise expressly described in the Seller Schedule of Exceptions, in
and to those additional assets that Seller acquires or discovers after the
Initial Transfer that fall within the definition of Transferred Assets and shall
transfer to Sub the Assumed Liabilities (the "Subsequent Transfer D"). The
contribution of the Transferred Assets and the assumption of the Assumed
Liabilities shall be pursuant to a Contribution,
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Assignment and Assumption Agreement in a form reasonably acceptable to all
parties (the "Contribution Agreement") and shall be attached hereto as Exhibit
2.1.,
(b) In connection with the Initial Transfer and each Subsequent
Transfer, and in any event on the Closing Date, title to all of the Transferred
Assets and Assumed Liabilities shall have passed to Sub from Seller. Seller
shall deliver possession of all of the Transferred Assets to Sub at such
location and time and by such means as are reasonably designated by Buyer, and
Seller shall further deliver to Sub proper assignments, conveyances and bills of
sales reasonably satisfactory to Buyer in order to convey to Sub good and
marketable title to all Transferred Assets, free and clear of all Encumbrances,
except as otherwise expressly disclosed in the Seller Schedule of Exceptions, as
well as such other instruments of conveyance as counsel for Buyer may reasonably
request (both at or after the Closing) to effect or evidence the transfer
contemplated hereby.
(c) Seller agrees that to the extent any Transferred Assets are owned
or held by any Affiliate of Seller, including without limitation its Japanese
subsidiary and its Malaysian operations, then Seller shall also cause such
Transferred Assets to be transferred and assigned to Sub free and clear of all
Encumbrances on or prior to the Closing Date.
2.2 TRANSFERRED ASSETS DEFINED. As used in this Agreement, the term
"TRANSFERRED ASSETS" means, other than the Excluded Assets (as defined below),
collectively, all right, tide and interest in and to all of the tangible and
intangible assets, rights and properties owned by or licensed or leased to
Seller which are used in or with respect to the CSG Business wherever situated,
as the same exist on the Closing Date, which include without limitation the
following
(a) CSG Business. CSG as a going concern, including without
limitation all of its goodwill.
(b) Inventory. All finished goods inventory wherever situated with
respect to the CSG Business Products and any of the above subject to applicable
reserves, owned, controlled, held or possessed by Seller or its Affiliates (the
"INVENTORY").
(c) Additional Inventory. (1) Other than the Inventory, all other
inventory wherever situated with respect to the CSG Business Products and any
subject to applicable reserves, owned, controlled, held, or possessed by Seller
or its Affiliates, which includes without limitation work in progress, raw
materials, spare parts and components; and (2) all of Seller's or its
Affiliates' rights to inventory of finished goods, work in progress, raw
materials, spare parts and components owned by Seller or its Affiliates or
subject to open purchase orders, which are with respect to or used, developed or
purchased in connection with the CSG Business Products, but are not controlled,
held, or possessed by or located at Seller or its Affiliates, including but not
limited to such inventory controlled, held or possessed by or located at (i) ST
("ST INVENTORY"), (ii) subcontractors or vendors for Seller or its Affiliates,
including, without limitation, SCI ("SUBCONTRACTOR INVENTORY", or (iii)
customers, distributors, or resellers of Seller ("CUSTOMER INVENTORY"), (all of
the foregoing under this Section 2.2(c) is herein referred to as "ADDITIONAL
INVENTORY."
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(d) Product Rights. All CSG Business Products, and all property and
rights to develop, manufacture, have manufactured, license, sublicense, sell and
market the CSG Business Products (collectively the "Product Rights ").
(e) Software Programs, Testing Materials and Tools. All Software
Programs, Testing Materials and Tools.
(f) Assumed Contracts. All rights of Seller or its Affiliates under
(i) the ST Agreement subject to the provisions of Section 4. l(a) and Section
4.2(i); (ii) the IBM Agreement; (iii) the Acquired Cadence Contract; (iv) the
other contracts or agreements entered into between Seller and third parties
named therein in the operation of CSG which are listed in Schedule 2.2(f), which
shall include a listing of all of Seller's or its Affiliates' unfilled accepted
purchase orders for the sale of CSG Business Products as of the Closing Date,
together with all of Seller's or any of its Affiliates' rights, if any, under
purchase orders for the sale of the CSG Business Products not yet accepted by
Seller or its Affiliates as of the Closing Date, all of which are set forth on
Schedule 2.2(f) (collectively "CUSTOMER PURCHASE ORDERS") and those open
purchase orders placed by Seller or Sub in the ordinary course of business and
consistent with past practices relating to the type of products or materials
included in Inventory or Additional Inventory as set forth on Schedule 2.2(f)
and specifically agreed to by Buyer (collectively "SUPPLIER PURCHASE ORDERS");
(v) all contracts or agreements between Seller or any of its Affiliates and any
Transferred Employee to the extent that they relate to confidentiality,
nondisclosure, assignment of proprietary rights or noncompetition relating to
the Transferred Assets or the CSG Business; (vi) all Proprietary Rights
Agreements; (vii) all agreements entered into in the course of operating the
CSG Business that generally have expired or been terminated or canceled
containing a provision or evidencing an obligation or right relating to an item
of Intellectual Property that survives each expiration, termination or
cancellation, and all without any obligations or liabilities on behalf of Seller
or Sub; and (viii) all prepayments or deposits or warranties and representations
made to Seller or any of its Affiliates by third parties under any of the
contracts or agreements in (i) through (vii) above, and all rights, remedies,
setoffs, allowances, rebates, discounts and credits granted to Seller or any of
its Affiliates by third parties under any of the contracts or agreements in (i)
through (vii) above, together with any and all claims, causes of action and
rights of Seller or any of its Affiliates existing previously, now or hereafter
arising out of all of the contracts or agreements in (i) through (vii) above or
the performance thereof, (collectively, the "ASSUMED CONTRACTS D";
(g) Intellectual ProXM. All intangible, intellectual, proprietary and
industrial property rights constituting, embodied in, pertaining to, used in or
with respect to the CSG Business, Inventory, Additional Inventory, Product
Rights, Software Programs, Testing Material or Tools, and all tangible
embodiments thereof, wherever located, including, but not limited to, the
following: (i) all trademarks, trade names, service marks, names or
substantially similar names and logos or slogans, including all registrations
and applications therefor, other than "Western Digital" and derivatives thereof,
(ii) all copyrights, moral rights, and other rights in works of authorship,
including all registrations and applications therefor; (iii) all mask works and
other rights pertaining to semiconductors, including, but not limited to, cell
libraries, microcode, tapes, tape-outs and netlists rights, including all
registrations and applications therefor, whether currently in the possession of
Seller, Sub or third parties (such as, for example,
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mask works in the possession of ST); (iv) all patentable ideas, inventions,
disclosures, and patents, including issued patents, patent applications,
reissues, reissues-in-part or patents of additions, continuations,
continuations-in-part, divisionals, divisionals-in-part, filing priorities and
patent applications which were commenced but not completed or abandoned; (v) all
inventions, ideas, discoveries, technology, know-how, trade secrets and vendor
lists; (vi) any and all design and code documentation, methodologies, processes,
design Information, product information, technology, formulae, routines,
engineering specifications, technical manuals and data, drawings, techniques,
engineering working papers and programmers' and engineers' notes, development
work in progress and other proprietary information and materials of any kind;
(vii) all computer programs, content and other software; (viii) subject to
Section 9.14 all copies of documentation, records, databases, drafts, papers,
designs, design information, codes, drawings, schematics, algorithms (including
but not limited to error correcting code algorithms), diagrams, methodologies,
processes, product information, formulae, routines, engineering specifications,
engineering work papers, models, prototypes related to the foregoing; (ix) all
confidential and proprietary information related to any of (i) to (viii) above;
(x) all licenses related to any of (1) to (viii) above or otherwise necessary to
utilize or exploit the Transferred Assets without future royalty or similar
obligations; (xi) and the exclusive right for Sub (and its successors and
assigns) to hold itself out as the successor to the CSG Business of Seller; and
(xii) all goodwill related to the foregoing (collectively, the "INTELLECTUAL
PROPERTY".
(h) Other Tangible Assets. All of the tangible assets, including,
without limitation, all computers, equipment, fixtures, machinery, tooling,
tools, dyes, instruments, trade fixtures, mobile phones, and pagers not
described in the preceding subparagraphs of this Section 2.2 used in the CSG
Business and as set forth on Schedule 2.2(h) (the "Tangible Assets ").
(i) Business Records. All books, records, documentation, data or
information that have been or now are used in or with respect to or in
connection with the CSG Business, the foregoing Transferred Assets and Assumed
Liabilities, whether stored in written form, magnetic or electronic media or in
any other form, including, without limitation, all (i) logs, files, supplier and
vendor lists and files, product component lists, engineering and design
drawings, diagrams and other documentation depicting or specifying the designs
and components, manufacturers, testing or repair of all the CSG Business
Products; (ii) sales, marketing, advertising and promotional material,
information, literature and aids, including pictures, negatives, camera ready
proofs, product catalogs, product sheets and documentation, product displays,
sales and marketing collateral, white papers, sales training and presentation
material, performance benchmark reports; (iii) sales and customer (whether
current, prior or prospective) records, account histories, customer profiles,
and customer testimonials; (iv) customer support and training materials, support
bulletins (including without limitation copies of any and all information on
electronic bulletin boards), and data contained in Seller's or Sub's customer
support organization computer system; (v) all personnel files and other records
relating to the Listed Employees (as defined herein); and (vi) business,
accounting and financial books and records pertaining to the Transferred Assets,
Assumed Liabilities, Listed Employees, or the CSG Business ("FINANCIAL
RECORDS"); and (vii) all other books and records relating to the Transferred
Assets, Assumed Liabilities, Listed Employees or CSG Business (collectively the
"BUSINESS RECORDS").
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(j) Prepaid Assets. All of the prepaid assets of CSG Business,
prepaid software maintenance fees (to the extent such software is otherwise
included in the Transferred Assets), and prepaid property taxes related to the
Tangible Assets as agr@ed to by Buyer and set forth on Schedule 2.2(i)
(collectively the "PREPAID ASSETS").
(k) AMD Payments. The right to payments under that certain Second
Source Agreement with Advanced Micro Devices, Inc. dated December 11, 1987.
(l) Permits. All licenses, permits, authorizations, certificates,
variances, waivers and other approvals from any federal, state, local or foreign
governmental, public, or self-regulatory body or authority relating to the
Transferred Assets, CSG Business or Assumed Liabilities to the extent
transferable (collectively, the "PERMITS").
(m) Other Assets and Rights. All (i) other assets (and related
rights) acquired, developed or used in connection with the CSG Business
currently or previously and (ii) all warranties, representations made to Seller
or Sub by third parties with respect to any of the foregoing Transferred Assets,
the CSG Business or Assumed Liabilities, all rights, remedies, set offs,
allowances, rebates, discounts and credits granted to Seller or its Affiliates
with respect to any of the foregoing Transferred Assets, CSG Business or Assumed
Liabilities, together with any and all claims, causes of action and rights of
Seller or its Affiliates existing previously, now or hereafter with respect to
any of the foregoing Transferred Assets, CSG Business or Assumed Liabilities. To
the extent any tangible or intangible assets or rights are discovered or
identified at any time before or after the Closing Date which, pursuant to the
Agreement constitute Transferred Assets and should have been transferred to Sub
or Buyer, are still in Seller's or any of its Affiliates' possession, the Seller
shall immediately transfer and promptly deliver them (or cause them to be
delivered) to Sub or Buyer, without additional charge.
2.3 EXCLUDED ASSETS. The parties agree that the assets of Seller
used, in connection with or with respect to the CSG Business that would
otherwise fall within the description of Transferred Assets set forth in
Section 2.2 above, which are not to be transferred by Seller to Sub or Buyer are
specifically listed below (the "EXCLUDED ASSETS"):
(a) Pre-Closing Cash and Accounts Receivables. All cash and
accounts receivables associated with the CSG Business for sales completed prior
to the Closing Date, including amounts owed by CARSEM to Seller for the sale of
certain equipment to CARSEM in November 1995;
(b) The Barranca Facility. The leasehold and all building,
improvements (unless set forth in the list of Tangible Assets set forth on
Schedule 2.2.(h)), and structures, including the failure analysis laboratory,
located at the Irvine Technology Center on Bananca Parkway in Irvine,
California (the "Barranca Facility"),
(c) Trade names. The name "Western Digital" and any
derivatives thereof;
(d) Shared Resources. Those assets, intellectual property and
rights which are set forth on Schedule 2.3(d) ("SHARED RESOURCES") and are
subject to the Shared Resource License Agreement attached as Exhibit 2.3(d)
hereto.
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(e) DTG. Those assets used by DTG which are listed on Schedule 23(e).
("DTG ASSETS"), however, to the extent these assets are utilized in the CSG
Business, they will become subject to the Shared Resources License Agreement;
(f) Lynnwood Unit. Those assets related solely to the Lynnwood Unit;
(g) Retained Cadence Contract. The Retained Cadence Contract;
(h) IBM Cross-License. The Agreement dated as of November 8, 1994
between Buyer and International Business Machines Corporation;
(i) MIS Systems. The general and administrative management information
systems of Seller, used throughout Seller's operations, which are described on
Schedule 2.3(i);
(j) Retained Host Bus Products Inventory. Those specific parts and
finished goods inventory agreed to by Buyer and identified on Schedule 23(i).
hereto, which Seller shall use solely to fulfill its existing service and
warranty obligations as described in Section 9.9 hereof ("RETAINED HBA
INVENTORY");
(k) Failure Analysis Equipment. That equipment and other assets used in
Seller's failure analysis laboratory located at 15345 Barranca Parkway, Irvine,
California and set forth on SCHEDULE 2.3(k); -
(1) Outstanding purchase orders for trays and packaging placed by
CARSEM with Seller; and
(m) Other Excluded Items. Those items, if any, listed on SCHEDULE
2.3(m) (the OTHER EXCLUDED ITEMS ").
2.4 SHARE PURCHASE. On the terms and subject to the conditions set
forth herein, at the Closing, the Seller shall sell, transfer, convey, assign
and deliver to Buyer, and Buyer shall purchase, acquire and accept from Seller,
the Shares free and clear of all Encumbrances. At the Closing, Seller shall
deliver to Buyer a certificate evidencing the Shares duly endorsed for transfer.
The purchase price for the Shares shall be paid in accordance with the terms of
Section 3 hereof.
3. PURCHASE PRICE: PAYMENTS.
3.1 PURCHASE PRICE. In consideration of the sale, transfer, conveyance
and assignment of the Shares to Buyer at the Closing, Buyer agrees to pay to
Seller (i) $34,551,892, subject to adjustments as provided below ("Closing
Payment"), and (ii) an earnout payment to be determined and paid as provided in
Section 3.1 (d) below (the "Earnout Payment D"), the aggregate total value of
which, together with the Assumed Liabilities, shall be defined as the "PURCHASE
PRICE").
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(a) First Deposit. Upon the execution of the Letter of Intent, Buyer
delivered to Seller $750,000 in cash (the "First Deposit" as security for
Buyer's obligation to consummate the acquisition of the Shares. The First
Deposit will be credited toward the Closing Payment.
(b) Second Deposit. Concurrently with the execution hereof, Buyer will
deliver to Seller $1,250,000 in cash (by cashier's check or wire transfer) (the
"SECOND DEPOSIT" as security for Buyer's obligation to consummate the
acquisition of the Shares. The Second Deposit will be credited toward the
Closing Payment.
(c) Closing Payment. The net Closing Payment to be paid by Buyer to
Seller and delivered on the Closing Date shall be $32,414,249 (which represents
the Closing Payment reduced by the First Deposit and the Second Deposit) less
the Closing Severance Payment (as defined in Section 10.6) of $137,643.
(d) Earnout Payment. The Earnout Payment shall be an amount equal to
two percent (2%) of the "NET SALES PRICE" received by Buyer for any of the
current CSG Business Products listed on SCHEDULE 3.1(d) hereto that are
produced and sold directly by Buyer to IBM pursuant to the IBM Agreement as
currently in existence or any amendment or continuation of the IBM Agreement
after the Closing Date (the "Earnout Products". Unless set forth on SCHEDULE
3.1(d), the Earnout Products shall not include derivative products, die shrinks,
products under development or future products that are not currently sold by CSG
to IBM pursuant to the IBM Agreement. Net Sales Price refers to the actual net
sales price paid by IBM and received by Buyer pursuant to the IBM Agreement net
of sales tax, transportation, custom duties, returns, warranty costs, packaging
and similar costs. As described more fully in Section 8.1 hereof, the Earnout
Payment shall be paid quarterly, within 30 days after the end of each quarter,
based on the Net Sales Price received by Buyer during that quarter for sales of
the Earnout Products. In connection with the calculation and verification of the
Earnout Payment, the Seller shall have such audit rights as are described in
Section 16 hereof. All Earnout Payments shall be treated as an Increase in the
Purchase Price paid by Buyer to Seller.
3.2 POST-CLOSING ADJUSTMENT OF PURCHASE PRICE.
(a) Adjustment to Purchase Price. The Purchase Price shall be
subject to the following post-closing adjustments:
(i) Increased or decreased, by the monetary amount that the value
of the Inventory related to the Target Products and Systems Solutions Products,
excluding in each case Additional Inventory, exceeds or is less than $9,143,418,
respectively;
(ii) Increased or decreased, by the monetary amount that the
value of the Tangible Assets plus Prepaid Assets, exceeds or is less than
$2,024,784; and
(iii) Increased or decreased, by the monetary amount that the
value of the Inventory related to the Host Bus Adapter Products, excluding the
Additional Inventory, exceeds or is less than $6,776,690; provided, however,
that there shall be no Purchase Price adjustment to the extent such Host Bus
Adapter Products Inventory exceeds $7,000,O00.
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The determination of the monetary amount and value of the
Inventory, Tangible Assets and Prepaid Assets shall be made pursuant to Section
3.2(c) and (d) hereof.
(b) Adjustments for Additional Assets and/or Assumed Liabilities.
In addition, the Purchase Price shall be increased by the monetary amount
(determined pursuant to Section 3.2(c) and (d) hereof) of the value of any
additional assets added to the Tangible Assets List set forth in Schedule 2.2(h)
hereof transferred to Buyer hereunder by mutual agreement of the parties after
the date hereof, which assets shall be listed on the Closing Date Asset and
Liability List (as defined below) and shall, for the purposes of this Agreement,
be deemed Tangible Assets. Furthermore, the Purchase Price shall be decreased by
the monetary amount of the value of any additional liabilities (other than the
Assumed Liabilities) assumed by Buyer hereunder or by mutual agreement of the
parties after the date hereof, which liabilities shall be listed on the Closing
Date Asset and Liability List and shall, for the purposes of this Agreement, be
deemed Assumed Liabilities.
(c) Closing Date Asset and Liability List. Seller shall conduct a
physical inventory of all Inventory, whether or not in its possession on,
Monday, April 8, 1996, and shall provide the preliminary results of such
physical inventory to Buyer no later than April 10, 1996 and the final results
of such physical inventory to Buyer no later than April 15, 1996. Within 30 days
after the Closing Date, Seller shall prepare and deliver to Buyer a schedule of
the Transferred Assets (excluding the intangible assets) and Assumed Liabilities
as of the Closing Date setting forth separately the monetary amount of the value
of the Inventory related to the Target Products, System Solutions Products and
Host Bus Adapter Products, the Additional Inventory, Tangible Assets, Prepaid
Assets and Assumed Liabilities (the "CLOSING DATE ASSET AND LIABILITY LIST").
The inventory report shall indicate the location of each item, part number,
date code, quantity and revision level. The monetary amounts for the assets
included in the Closing Date Asset and Liability List shall be such value as is
determined in accordance with GAAP and with respect to the Inventory shall be
net of all applicable reserves, including for slow moving, damaged, defective or
obsolete products, warranty service returns and similar matters and shall be
calculated in accordance with provisions and criteria set forth in Schedule
3.2(c) hereto, provided, however, the Host Bus Adapter Inventory as of the
Closing Date shall not be reduced by reserves for warranty or returns because
Seller retains such obligations under Section 9.9 below. Such Closing Date Asset
and Liability List shall attach detailed information regarding the
determination of each of the categories of assets, liabilities and all
applicable reserves and any of Seller's proposed adjustments to the Purchase
Price pursuant to Section 3.2(a) and (b) as well as information regarding the
value of all applicable reserves, including the Warranty Reserve (as defined in
Section 4.1(b)). In preparing the Closing Date Asset and Liability List
Seller, Seller and its independent certified public accounting firm ("SELLER'S
AUDITORS") shall conduct a physical inventory of all the Inventory and
Additional Inventory (to the extent owned by Seller or Sub). Buyer and its
independent certified public accounting firm ("BUYER'S AUDITORS") shall have the
right to participate in and observe the April 8 physical inventory and visit
locations where the Inventory, Additional Inventory or other Transferred Assets
may be held. In addition, Buyer and Buyer's Auditor shall be entitled to review
all work papers and other supporting documentation used by Seller in or relevant
to the physical inventory and the creation of the Closing Date Asset and
Liability List.
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(d) Determination of Final Adjustment. The Closing Date Asset
and Liability List provided by Seller to Buyer shall become final and binding
upon Buyer for purposes of calculating the adjusted Purchase Price under this
Section 3.2 thirty (30) days after delivery thereof to Buyer unless Buyer within
such time period delivers written notice to Seller of its disagreement as to any
item included in the Closing Date Asset and Liability List or in Seller's
calculation of proposed adjustments to the Purchase Price ("NOTICE"). Any such
Notice shall specify the nature of such disagreement. Seller and Buyer shall
attempt in good faith to resolve any disagreement for a period of thirty (30)
days following the date of the Notice and, if they are unable to do so within
such period, shall submit the disputed items to Price Waterhouse LLP (the "AUDIT
ARBITRATOR"), whose decision with respect to the matters disputed in the Notice
shall be final and binding. The Audit Arbitrator shall render its decision with
respect to such matters within thirty (30) days after they are submitted to it.
Seller and Buyer shall each provide promptly all information and documents
within their respective possession that the Audit Arbitrator, in its sole
discretion, deems necessary in order to make its decision with respect to the
disputed matters. The fees and expenses of the Audit Arbitrator shall be borne
equally by Seller and Buyer.
(e) Payment of Adjustment. Within five business days after the Closing
Date Asset and Liability list is finally determined as provided in Section
3.2(d) above, Buyer shall pay to Seller or Seller shall pay to Buyer, as the
case may be, by wire transfer in immediately available funds the net amount owed
pursuant to the Purchase Price adjustment provisions of Sections 3.2(a) and (b).
3.3 CLOSING. The consummation of the purchase and sale of the Shares
contemplated hereby will take place at a closing to be held at the offices of
Buyer's counsel, Fenwick & West, Two Palo Alto Square, Suite 800, Palo Alto,
California (the "CLOSING") on April 12, 1996 (the "CLOSING DATE"), or at such
other time or date, and at such place, or by such other means of exchanging
documents, as may be agreed to by the parties hereto.
3.4 ALLOCATION OF PURCHASE PRICE. The parties agree that on or before
the Closing Date they shall agree upon an allocation of the Purchase Price as to
the Transferred Assets and shall set it forth on SCHEDULE 3.4, and agree to make
such adjustments thereto as the parties may agree to in connection with and at
the same time as the Closing Date Asset and Liability List is agreed upon.
4. OBLIGATIONS ASSUMED.
4.1 LIABILITIES. In connection with the transfer of the Transferred
Assets and effective as of the Closing Date, the only liabilities or obligations
of Sub, whether assumed from Seller or otherwise or incurred by the Sub after
the transfer of the Transferred Assets through the Closing Date, will be only
the liabilities expressly listed below in this Section 4.1 (collectively, the
"ASSUMED LIABILITIES"):
(a) Assumed Contracts. The obligations of Sub or Seller arising
from and after the Closing under and to the extent provided in those (and only
those) Assumed Contracts specifically listed in Section 2.2(f)(i)-(iv), other
than obligations arising from any breach or
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default of any Assumed Contracts by Seller that occurred (or arose from facts
occurring) prior to the Closing and provided that Sub's and Buyer's only
obligations under the ST Agreement shall be set forth in the ST letter of
consent; and provided that no "take or pay" obligation shall apply to Buyer or
Sub for the period from the Closing Date through October 12, 1996 (the "ADAPTEC
RAMP UP PERIOD"); provided further that Seller shall be solely responsible for
the "take or pay" nonutilization obligations and liabilities of the ST Agreement
arising before the Closing Date; and provided further that, irrespective of the
Closing Date, Seller shall be solely responsible for the "take or pay"
nonutilization obligations and liabilities of the ST Agreement arising with
respect to Q1, Q2, Q3 and through the end of the Adaptec Ramp Up Period (the
"RETAINED TAKE OR PAY OBLIGATIONS"); provided, however, that Buyer and/or Sub
shall be obligated to provide ST with forecasts beginning April 20, 1996 and
provided further that Buyer and/or Sub shall be obligated to place purchase
orders based on the Closing Forecast attached hereto as Schedule 4.1(a) and
shall be responsible for any "take or pay" obligation arising from an future
shortfalls and shall be responsible for any "take or pay" obligation relating
to the Closing Forecast.
(b) Certain Product Warranty Claims. The obligations of Seller or
Sub to provide product warranty and services to those customers who purchased
Target Products or Systems Solutions Products from the CSG Business prior to the
Closing pursuant to Seller's or Sub's standard warranty policy as set forth in
Schedule 6.19; provided, Seller gives Sub and Buyer, at Buyer's reasonable
expense, reasonable and timely training and assistance in the operation and
service of Target Products and Systems Solutions Products; provided, however,
Buyer's and Sub's liability for such services shall not exceed the warranty
reserve for the Target Products and Systems Solutions Products agreed upon by
the parties in valuing the Target Products Inventory and Systems Solutions
Inventory as provided in Section 3.2(c) and (d) hereof (the "WARRANTY RESERVE".
In the event that the cost and liability incurred by Buyer and Sub for such
product warranty and services, as determined by the warranty and service cost
schedule in SCHEDULE 4.1(b) hereto, exceeds the Warranty Reserve, Buyer and
Seller shall equally share the cost of such additional liability ("EXCEEDED
WARRANTY AMOUNT". Buyer shall submit periodic invoices to Seller for the
amount of the Exceeded Warranty Amount and Seller shall pay one half (50%) of
the Exceeded Warranty Amount within thirty (30) days of receiving such invoice.
Seller shall have such audit rights as are described in Section 16 hereof.
(c) Ongoing Business. Subject to the provisions of Section 13,
all liabilities of Sub or Buyer arising after the Closing Date with respect to
the conduct of the CSG Business and use or ownership of the Transferred Assets
by Sub or Buyer.
(d) Agreement. Any liability or obligation of Buyer incurred
under this Agreement (including without limitation with respect to any of
Buyer's representations, warranties, agreements, covenants or indemnities
hereunder) in connection with the making or performance of this Agreement and
the transactions contemplated hereby.
4.2 LIABILITIES AND OBLIGATIONS NOT ASSUMED. Except as expressly set
forth in Section 4.1 above, neither Sub nor Buyer shall assume or become liable
or obligated in any way, and Seller shall retain and remain solely liable for
and obligated to discharge and indemnify and hold Sub and Buyer harmless, for
all debts, expenses, contracts, agreements, commitments, obligations, claims,
suits and other liabilities of any nature whatsoever, which are directly or
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indirectly related to or arise from Seller or its Affiliates, the CSG Business
as conducted through the Closing Date, the use or ownership of Transferred
Assets prior to the Closing Date, Seller's actions or obligations with respect
to the Agreement, whether known or unknown, accrued or not accrued, fixed or
contingent, and current or arising hereafter, including without limitation any
of the following (collectively referred to herein as "EXCLUDED LIABILITIES"):
(a) Pre-Closing Conduct of Business. The manufacturing, marketing,
sale, distribution or license of any products or services (including without
limitation the CSG Business Products) with respect to the CSG Business prior to
the Closing Date, whether operated by Seller or any of its Affiliates, including
without limitation warranty, returns, customer service, technical support,
product defects (including latent defects), co-op advertising, restocking, price
protection or similar obligations whether arising prior to or after the Closing
Date;
(b) Legal Proceedings and Environmental Matters. Any liability or
obligation arising out of or as a result of any legal or equitable action
or judicial or administrative proceeding initiated at any time, to the extent
relating to any action or omission of Seller or any of its Affiliates, or to the
CSG Business as conducted through the Closing Date or the Transferred Assets
including without limitation any liability for infringement of Intellectual
Property or violations of federal or state environmental, or other laws;
(c) Taxes. Except as otherwise provided in Section 8.2, any
liability or obligation for Taxes (as defined herein) attributable to or imposed
upon Seller or any of its Affiliates, or attributable to or imposed upon the CSG
Business or the Transferred Assets for any period (or portion thereof) through
the Closing Date;
(d) Indebtedness and Account Payables. Any liability or obligation
for or in respect of any loan, other indebtedness for money borrowed, or account
payable of Seller or any of its Affiliates or with respect to the CSG Business,
including any such liability owed to Seller or its Affiliates;
(e) Employees. Seller's liabilities and obligations as set forth in
Section 10 hereof-,
(f) Breach of Contracts. Any obligations or liabilities related to
or arising from any breach or default by Seller or its Affiliates, whether
before or after the Closing Date, of any contract, agreement or commitment of
Seller or any of its Affiliates with respect to the CSG Business, other than
breaches by Sub or Buyer after the Closing Date with respect to the Assumed
Contracts;
(g) Termination of Certain CSG Supplier and Seller Relationships.
Any liabilities, debts or obligations of Seller or its Affiliates or of the CSG
Business whatsoever, now or hereafter arising from or with respect to, the
termination by Seller or Sub of all arrangements and obligations with (i) any
current or future outside vendors and subcontractors that supply parts for or
manufacture Host Bus Adapter Products, including under any outstanding purchase
orders or (ii) any current Distributors (as defined herein), and similar parties
that sold the CSG Business Products prior to the Closing Date;
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(h) Service and Warranty Obligations. Any of Seller's obligations or
liabilities as set forth in Section 9.9;
(i) ST Take or Pay Obligations. Any obligations or liabilities under
the ST Agreement for the Retained Take or Pay Obligations, subject to the
provisions of Section 4. I (a); and
(j) Agreement. Any liability or obligation of Seller incurred under
this Agreement (including without limitation with respect to any of Seller's
representations, warranties, agreements, covenants or indemnities hereunder) in
connection with the making or performance of this Agreement and the transactions
contemplated hereby.
4.3 NO OBLIGATIONS TO THIRD PARTIES. The execution and delivery of this
Agreement shall not be deemed to confer any rights upon any person or entity
other than the parties hereto, or make any person or entity a third party
beneficiary of this Agreement, or to obligate the parties to any person or
entity other than the parties to this Agreement. Assumption by Sub or Buyer of
Assumed Liabilities under Section 4.1 shall in no way expand the rights or
remedies of third parties against Sub or Buyer as compared to the rights and
remedies such parties would have against Seller if the Closing were not
consummated.
5. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Seller that, except as set
forth in the Schedules to this Agreement delivered to Seller concurrently
herewith (the "BUYER SCHEDULE OF EXCEPTIONS"), all of the following statements
are true, accurate and correct:
5.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of California and has all requisite corporate power and authority to carry on
its business as now conducted and to enter into this Agreement, the Related
Agreements (as defined herein) and Buyer Closing Documents (as defined herein)
and the transactions contemplated hereby and thereby.
5.2 AUTHORIZATION. All corporate action on the part of Buyer, its
officers and directors necessary for the authorization, execution and delivery
of this Agreement, the Related Agreements and the Buyer Closing Documents, the
performance of all obligations of Buyer hereunder and thereunder, has been taken
or will be taken prior to the Closing, and this Agreement, the Related
Agreements and the Buyer Closing Documents constitute the valid and legally
binding obligations of Buyer enforceable in accordance with their respective
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies. No approval of Buyer's shareholders is required to effect
the transactions contemplated by this Agreement, the Related Agreements or the
Buyer Closing Documents.
5.3 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
Governmental Entity on the
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part of Buyer is required in connection with the consummation of the
transactions contemplated by this Agreement, except for compliance with the HSR
Act.
5.4 LITIGATION. There is no action, suit, proceeding or investigation
pending or currently threatened against Buyer that questions the validity of
this Agreement, the Related Agreements or the Buyer Closing Documents, or the
right of Buyer to enter into this Agreement, the Related Agreements or Buyer
Closing Documents or to consummate the transactions contemplated hereby or
thereby.
5.5 COMPLIANCE WITH OTHER INSTRUMENTS AND LAWS. The execution, delivery
and performance of this Agreement, the Related Agreements and the Buyer Closing
Documents and the consummation of the transactions contemplated hereby and
thereby by Buyer will not result in a violation or default of (a) any provision
of the Buyer's charter documents, (b) any judgment, order, writ, or decree to
which Buyer is a party and that would have a material adverse effect on Buyer or
Buyer's assets and properties, or (c) any contract that is material to Buyer's
business. Buyer is not in violation or default of any provision of its charter
documents, or of any instrument, judgment, order, writ, decree or contract to
which it is a party or by which it is bound that could reasonably be expected to
have a material adverse effect on Buyer's business, or, to the best of its
knowledge, of any provision of any federal or state statute, rule or regulation
applicable to Buyer that could reasonably be expected to have a material adverse
effect on Buyer.
5.6 BROKERAGE AND FINDER'S FEES. Neither Buyer nor any of its
Affiliates has employed any broker, finder or agent, or agreed to pay or
incurred any brokerage fee, finder's fee or commission with respect to the
transactions contemplated by this Agreement, or dealt with anyone purporting to
act in the capacity of a broker, finder or agent with respect thereto as a
result of which any claim for a fee can be asserted against Seller.
6. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller hereby represents and warrants to Buyer and Sub that, except as
set forth in the Schedules to this Agreement delivered to Buyer concurrently
herewith (the "SELLER SCHEDULE OF EXCEPTIONS", all of the following statements
are true, accurate and correct.
6.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of Seller and
Sub is a corporation duly organized, validly existing and in good standing under
the laws of Delaware and has all requisite corporate power and authority to (i)
own and use the Transferred Assets, (ii) in Seller's case, to carry on the CSG
Business as now conducted by Seller, and, in Sub's case, as proposed to be
conducted by Sub, and (iii) to enter into this Agreement, the Related Agreements
and the Seller Closing Documents (as defined herein) and the transactions
contemplated hereby and thereby. Seller is, and Sub will be as of the Closing,
duly qualified to transact business as a foreign corporation and in good
standing in California. Seller has delivered true and correct copies of the
charter documents of Seller and Sub, as currently in effect, to Buyer. Sub has
no interest in any corporation, partnership or other entity.
6.2 AUTHORIZATION. All corporate action on the part of Seller and Sub,
and their respective officers and directors, necessary for the authorization,
execution and delivery of this Agreement, the Contribution Agreement, the
Related Agreements and the Seller Closing
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Documents by Seller and Sub, and the performance of all obligations of Seller
and Sub, respectively, hereunder and thereunder, have been taken, and this
Agreement, the Contribution Agreement, the Related Agreements and the Seller
Closing Documents constitute valid and legally binding obligations of Seller and
Sub, respectively, enforceable in accordance with their respective terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies. No approval of the
stockholders of Seller or Sub is required to effect the transactions
contemplated by this Agreement, the Contribution Agreement, the Related
Agreements or the Seller Closing Documents.
6.3 CAPITALIZATION: STATUS OF CAPITAL STOCK. Immediately prior to the
Closing, Sub will have a total authorized capitalization consisting of 1,000
shares of Common Stock, $0.001 par value per share, of which 100 Shares will be
issued to Seller and outstanding, and transferred to Buyer hereunder.
Immediately prior to and on the Closing Date, Seller will be the lawful record
and beneficial owner of the Shares, free and clear of all Encumbrances. There
will be no options, warrants or rights to purchase shares of capital stock or
other securities authorized, issued or outstanding, nor will Sub be obligated in
any other manner to issue shares of its capital stock or other securities.
Neither Seller or Sub has, and as of the Closing neither of them shall have,
granted or sold, and neither Seller or Sub is, or at the time of Closing neither
will be, a party to any agreement, commitment or understanding, written or oral,
providing for the grant or sale of, options or other rights to purchase or
restricting the transfer of, and neither of them is, and at the Closing neither
will be, obligated to sell or otherwise transfer, any of the Shares, the
securities or other capital stock of Sub to any Person except Buyer pursuant to
this Agreement.
6.4 FILINGS, CONSENTS AND APPROVALS. No consent, approval, order,
waiver or authorization of, or registration, qualification, designation,
declaration or filing with, any Governmental Entity on the part of Seller or Sub
is required in connection with the consummation of the transactions contemplated
by this Agreement, except for compliance with the HSR Act. No other consents or
licenses from any Person, or payments to any Person, are necessary to enable
Seller or Sub to enter into, and to perform their respective obligations under,
this Agreement, the Contribution Agreement, the Related Agreements and the
Seller Closing Documents, and to enable Buyer to operate the CSG Business
substantially in the manner in which Seller and Sub have operated same, other
than such consents, licenses or payments as are set forth in Schedule 6.4
attached hereto.
6.5 LITIGATION. Attached as SCHEDULE 6.5 is a complete description of
all pending or, to the Seller's knowledge, threatened claims, actions, suits,
litigation, or proceedings that may affect the CSG Business, the Transferred
Assets, the Shared Resources or the Assumed Liabilities. Except as set forth on
Schedule 6.5 hereto, there is no claim, action, suit, proceeding or
investigation pending or, to Seller's knowledge, currently threatened (colle
ctively, "Litigation ") against Seller or Sub (i) that questions the validity of
this Agreement, the Contribution Agreement, the Related Agreements or the Seller
Closing Documents, or the right of Seller or Sub to enter into this Agreement,
the Contribution Agreement, the Related Agreements or the Seller Closing
Documents, or to consummate the transactions contemplated hereby or thereby, or
(ii) that might reasonably be expected to affect the CSG Business, Transferred
Assets, the Shared Resources, Assumed Liabilities or Listed Employees or result,
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either individually or in the aggregate, in any adverse changes in the value,
condition or status of the CSG Business, the Transferred Assets, the Shared
Resources, or Assumed Liabilities, Financially or otherwise, nor is Seller aware
that there is any basis for the foregoing. The foregoing includes Litigation (or
any basis therefor known to Seller) involving the employment or prior employment
of any of Seller's employees, their use in connection with Seller's business of
any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers.
Neither Seller nor Sub is a party or subject to the provisions of any order,
writ, injunction, judgment, stipulation, or decree of any court, arbitrator, or
Governmental Entity affecting the CSG Business, the Transferred Assets, the
Shared Resources, Assumed Liabilities or the Listed Employees. There is no
Litigation initiated by Seller or Sub, or that Seller or Sub intends to
initiate, that might affect the CSG Business, the Transferred Assets, the Shared
Resources, Assumed Liabilities or the Listed Employees.
6.6 COMPLIANCE WITH OTHER INSTRUMENTS AND LAWS. Seller and Sub are not
in violation or default in any respect of any provision of their charter
documents, or of any instrument, judgment, order, writ, decree or material
contract to which either Seller or Sub is a party or by which either Seller or
Sub is bound or, to the best of Seller's knowledge, of any provision of any
federal or state laws, statute, rule or regulation applicable to Seller or Sub.
The execution, delivery and performance of this Agreement, the Contribution
Agreement, the Related Agreements and the Seller Closing Documents and the
consummation of the transactions contemplated hereby and thereby by Seller and
Sub will not, with or without the passage of time or the delivery of notice or
both, (i) conflict with or result in any violation or default of the charter
documents of Seller or Sub, (1i) conflict with or result in a violation or
breach of, or permit or result in the termination of, or permit any Person to
rescind any term or provision of, or constitute an acceleration of rights or
obligations under, or constitute a default under, any loan, note, bond,
indenture, mortgage, deed of trust, security agreement, lease, contract, Assumed
Contract, license or other agreement to which Seller or Sub is a party or by
which Seller or Sub or any of the Transferred Assets or Shared Resources is
bound, (iii) violate any laws, statute, rule or regulation or order, writ,
judgment, injunction or decree of any Governmental Entity applicable to Seller
or Sub, or (iv) result in the creation of any Encumbrance upon any assets of
Seller or Sub, or (v) result in the suspension, revocation, impairment,
forfeiture, or nonrenewal of any Permit. None of the "bulk sales" provisions of
the commercial code of the State of California apply to the transactions
contemplated by this Agreement, the Contribution Agreement or the Related
Agreements.
6.7 CSG BUSINESS PRODUCTS. SCHEDULE 6.7 lists and provides a complete
and accurate list of all of the CSG Business Products including, without
limitation, (i) the Target Products, (ii) the Host Bus Adapter Products, and
(iii) the Systems Solutions Products.
6.8 INVENTORY. SCHEDULE 6.8 sets forth an accurate and complete list as
of April 4, 1996 of both the Inventory and the Additional Inventory by product
and part, including the value thereof determined in accordance with GAAP and
with the provisions of Schedule 3.2(c), separately categorized under (i) the
Target Products Inventory, (ii) the Host Bus Adapter Products Inventory, (iii)
the Systems Solutions Products Inventory, (iv) the ST Inventory (as reflected in
open Supplier Purchase Orders listed in Schedule 2.2(f)), and (v) the
Subcontractor Inventory (as reflected in open Supplier Purchase Orders listed in
Schedule 2.2(f)). Schedule 6.8 also sets forth the amount of all applicable
reserves, whether for slow moving, damaged,
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defective or obsolete products, or other similar matters, related to the
Inventory and Additional Inventory as of June 30, 1994, July 1, 1995, and an
estimated amount as of April 4, 1996 ("INVENTORY RESERVES"). Schedule 6.8 also
sets forth an accurate and corporate list of the units of CSG Business Products
held by Distributors, itemizing the name of each Distributor and the units of
each CSG Business Product. Schedule 6.8 shall be updated with the most recent
information available to Seller prior to the Closing Date. Subject to Inventory
Reserves, the Inventory and Additional Inventory is of good and merchantable
quality, consists of items of a quality, quantity and condition such that the
items are usable, leasable or salable In the ordinary course of the CSG
Business. On the Closing Date, the Inventory and Additional Inventory will be at
the locations indicated in Schedule 6.8. All die banks at ASAT and ANAM will be
returned to Seller's facilities located in Irvine, California and IPOH Malaysia
on or before the Closing Date at Seller's cost.
6.9 INTELLECTUAL PROPERTY. SCHEDULE 6.9 is a list and brief
description, which is accurate and complete in all material respects, of all
Intellectual Property and Product Rights, owned, marketed, licensed, used,
proposed to be used, or under development by Seller or by its Affiliates other
than Excluded Assets and, with respect to patents, trademarks, trade names,
copyrights, and mask work registrations, lists the application and registration
number, date of application or date of registration, names of all assignors
(individuals and corporate entities) and registered owners and the country of
filing for each such right, if applicable. AB such registrations are valid and
enforceable. Seller has, and will transfer or cause to be transferred to Sub
prior to Closing, sufficient tide and ownership of all Intellectual Property
(other than the Other Excluded Items) that, together with the Shared Resources,
is necessary for or used in the CSG Business and the commercial exploitation of
the Transferred Assets as currently conducted without breach of any contractual
obligation or any conflict with or infringement of the rights of others. The
Transferred Assets include all Intellectual Property and Product Rights (other
than the Other Excluded Items) that, together with the Shares Resources are
required to (i) manufacture the CSG Business Products as currently manufactured
by Seller, and (ii) to provide technical support in a manner substantially
equivalent to that currently provided by Seller, subject to such limitations as
may occur as a result of Seller's retention of the failure analysis equipment
set forth on Exhibit 2.3(j).
(a) Except as specified on Schedule 6.9, Seller is as of the
Effective Date, and Sub prior to Closing will be, the sole and exclusive owner
of the Intellectual Property free and clear of all Encumbrances and has the
rights to use, sell, license, assign, transfer, convey or dispose thereof or the
products, processes and materials covered thereby. Schedule 6.9 includes and
specifically identifies all third-party intellectual property rights which are
incorporated in, are, or form part of, the Transferred Assets, the Shared
Resources, any CSG Business Product or Product Rights or are otherwise used in
the CSG Business, and a list of all rights granted to Seller or Sub to use, or
to allow Seller's or Sub's customers to use such intellectual property of any
third party or to modify or incorporate such intellectual property, including
all end-user licenses and associated rights related to "off the shelf"
commercial software products, whether shrink wrap or not, used in connection
with or as part of the CSG Business or Transferred Assets (herein referred to as
"THIRD PARTY RIGHTS"). Seller and Sub are not, nor will they be, as a result of
the execution and delivery of this Agreement or the Shared Resource License
Agreement or the performance of the parties obligations under this Agreement or
the Shared Resource License Agreement or the exercise of the licenses granted
thereunder, in violation of any Third Party
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Rights. Except for the Third Party Rights described in Schedule 6.9, neither
Seller nor Sub are bound by or a party to any options, licenses or agreements of
any kind with respect to the intellectual property of any other person or entity
with respect to the CSG Business.
(b) To Seller's knowledge, other than Sub, as of the Closing
Date, no other Person, including Seller will have the right, to file, prosecute,
or maintain patent applications or applications to register copyrights,
trademarks, trade names, service marks and mask works with respect to the
Intellectual Property, and the patents and registrations that issue therefrom.
All fees to maintain Seller's or Sub's rights in the Intellectual Property due
and payable on or before the Closing Date, including, without limitation,
registration, maintenance and prosecution fees, and all professional fees
incurred in connection therewith pertaining to the Intellectual Property, have
been paid.
(c) Schedule 6.9 lists (i) all licenses, sublicenses and other
agreements pursuant to which any other Person is authorized to use, exercise, or
receive any benefit from, any Intellectual Property (the "Licenses" and (ii)
Proprietary Rights Agreements. Seller has delivered copies of such Licenses and
Proprietary Rights Agreements to Buyer. Seller and Sub are not, nor will they
be, as a result of the execution and delivery of this Agreement or the Shared
Resource License Agreement or the performance of the party's obligations
hereunder or thereunder, in violation of such Licenses or Proprietary Rights
Agreements.
(d) To Seller's knowledge none of its employees,
consultants, or third party contractors is obligated under any contract
(including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that could conflict with the conduct of the CSG
Business by Buyer or its Affiliates or that could interfere with the ability
of Buyer or its Affiliates to use, license or sell the Transferred Assets or
Buyer's or its Affiliates' rights with respect to the Shared Resources. The
execution, delivery and performance of this Agreement, the Contribution
Agreement, the Related Agreements or the Seller Closing Documents and the
consummation of the transactions contemplated hereby and thereby by Seller and
Sub will not conflict with or result in a material breach of the terms,
conditions or provisions of, or constitute a material default under, any
contract, covenant or instrument under which any of such employees or
consultants is now obligated. The conduct of the CSG Business and the exercise
of rights granted under the Shared Resource License Agreement do not require
the use of any inventions of any of Seller's or its Affiliates' past or
present employees or consultants made prior to their employment by Seller or
its Affiliates, and to Seller's knowledge, neither Seller nor any of its
Affiliates are using any confidential information or trade secrets of any
former employer of any past or present employees in connection with the CSG
Business nor is the use of any such information or trade secrets of any former
employer inherent in the use of the Shared Resources. Except as disclosed on
Schedule 6.9, all of the Intellectual Property, Product Rights, Shared
Resources, Software Programs and Tools have been created by employees or
consultants of Seller within the scope of their employment by or consulting
relationship with Seller and such employees or consultants executed valid and
binding agreements assigning all of their entire right, title and interest in
the Intellectual Property, Product Rights and Software Programs to Seller.
(e) The Shared Resources will be provided to Buyer,
and/or Sub and/or Buyer's Affiliates, free and clear of any Encumbrances and,
together with the Transferred Assets,
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is the only Intellectual Property, that Seller or its Affiliates owns or
licenses, that is used in or with respect to the CSG Business as presently
conducted (other than the Other Excluded Items). Seller has not licensed or
transferred the Shared Resources to any third party except as specified on
SCHEDULE 6.9(e) hereto.
6.10 SOFTWARE PROGRAMS, TOOLS AND TESTING MATERIALS. SCHEDULE 6.10 is
an accurate and complete list and summary description of each Software Program
and Tool and the Testing Materials included in the Transferred Assets, the
location of each Software Program and Tool and the Testing Materials, including
the language in which the software is written (for those Software Programs with
respect to which Seller is transferring or licensing source code) and the type
of operating systems and hardware platform(s) on which the Software Programs,
Tools and Testing Materials operate. Except for general business third party
software which is readily and currently commercially available and not having a
replacement cost of more than $ 1,000 individually and $25,000 in the aggregate
and which is not embedded in or necessary to run any of the Software Programs,
Tools or Testing Materials, no other software is required to operate the
Software Programs, Tools or Testing Materials. Seller has as of the Effective
Date, and Sub prior to Closing will have, good and marketable title to, and have
the full right to use all of the Software Programs, Tools and Testing Materials,
free and clear of any Encumbrance, subject to licenses listed on Schedule 6.10.
Except as specified in Schedule 6.10, Seller is currently, and Price or to
Closing will be, the sole and exclusive owner of the Software Programs, Tools
and Testing Materials. Seller and Sub maintain machine-readable
master-reproducible copies, properly documented source code and source code
listings, and technical and user documentation for each Software Program, Tool
and Testing Material, as appropriate; in each case, the machine-readable copy
substantially conforms to the corresponding source code listing; such Software
Programs, Tools and Testing Materials can be maintained and modified by
reasonably competent programmers or engineers who have access to the
Intellectual Property, Software Programs, Tools and Testing Materials; and in
each case, the Software Programs and Tools operate in accordance with the
product specifications therefor without material operating defects. Neither
Seller nor Sub has any duty to provide updates or new versions of the CSG
Business Products, except as specifically described on Schedule 6.10 and no
customer of Seller or Sub has prepaid maintenance fees except as specifically
described on Schedule 6.10. The documentation which Seller and Sub are
transferring hereunder sets forth in reasonable detail all of the functions of
the Software Programs, Tools and Testing Materials. Seller and Sub have used
diligent efforts to obtain and maintain ownership of the Software Programs,
Tools and Testing Materials. Schedule 6.10 identifies which of the Software
Programs have copyright notices (whether or not published) and which of the
Software Programs have been published.
6.11 AGREEMENTS.
(a) Schedule 2.2(f) sets forth Assumed Contracts, Schedule 6.9
sets forth Third Party Rights and Licenses and Proprietary Rights Agreements,
Schedule 6.12 sets forth Supply Contracts, Schedule 6.18(a) sets forth Customer
Contracts and SCHEDULE 6.11 hereto lists and sets forth a description of all
other contracts, agreements, engagements, leases, licenses and purchase orders
placed by Seller or any of its Affiliates or placed with Seller or any of its
Affiliates and all other currently effective agreements, understandings and
commitments of Seller or Sub related to the CSG Business and/or the Transferred
Assets, whether written or to Seller's knowledge oral, (all agreements and
contracts set forth on such Schedules 2.2(f), 6.9, 6.11, 6.12
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and 6.18(a) are collectively referred to as "AGREEMENTS"). Seller and Sub have
delivered to Buyer a true, correct and complete copy of each Agreement and has
provided a written summary of any material verbal Agreements relating to the CSG
Business. Seller and Sub are not restricted by any agreement, understanding or
commitment, whether oral or written, from selling, licensing, sublicensing or
redistributing the CSG Business Products, from carrying on the CSG Business or
from freely engaging in any business or competing, anywhere in the world. Except
as may be set forth on Schedule 6.11, Sub and Buyer, solely as a result of the
transactions contemplated hereunder, will not be restricted in carrying on the
CSG Business or any other business anywhere in the world.
(b) Each Assumed Contract is a valid and binding agreement of
Seller or Sub, enforceable by Seller or Sub in accordance with its terms, and
Seller does not have any knowledge that any Assumed Contract is not a valid and
binding agreement of the other party or parties thereto. Seller and Sub have
fulfilled all material obligations required pursuant to the Assumed Contracts to
have been performed by Seller or Sub on its part prior to the date hereof, and
Seller has no reason to believe that Seller or Sub will not be able to fulfill,
when due, all of their respective obligations under the Agreements which remain
to be performed after the date hereof and through the Closing Date. Seller and
Sub are not in breach of or default under any Assumed Contract which could
entitle the other party to terminate the Agreement. Neither the execution and
delivery of this Agreement, the Related Agreements, the performance of the
parties respective obligations hereunder and thereunder, nor any event which has
occurred which with the passage of time or giving of notice or both could
constitute a breach or default under any Assumed Contract, result in a loss of
rights, or create an Encumbrance on or with respect to a Transferred Asset or
Assumed Contract. To the knowledge of Seller, there is no existing breach or
default by any other party to any Assumed Contract which could entitle Seller or
Sub to terminate such Assumed Contract, and no event has occurred which, with
the passage of time or giving of notice or both, could constitute a default by
such other party, result in a loss of rights or result in the creation of any
Encumbrance thereunder or pursuant thereto. With respect to each Agreement,
other than an Assumed Contract, neither the execution and delivery of this
Agreement, the Contribution Agreement, the Related Agreements, the performance
of the parties respective obligations hereunder and thereunder, nor any event
which has occurred which, with the passage of time or giving of notice or both,
would cause a breach or default under such Agreements, result in a loss- of
rights, or result in the creation of any Encumbrance on or with respect to any
Transferred Asset, Shared Resource or Assumed Contract.
6.12 FOUNDRY RELATIONSHIPS AND ST AGREEMENT. Schedule 6.12 sets forth a
true, complete and accurate description of each and every foundry relationship,
understanding or commitment, wafer manufacturing or fabricating contract,
understanding or commitment, integrated circuit die or device purchase, supply
or service agreement, understanding or commitment, with respect to or needed by
the CSG Business, in whole or in part, whether written or oral, including
without limitation the ST Agreement ("SUPPLY CONTRACTS"). Seller and Sub have
delivered to Buyer a true, correct and complete copy of each Supply Contract and
provided a written summary of any material oral Supply Contract relating to the
CSG Business, in whole or in part, or any material oral amendments to any Supply
Contract relating to such CSG Business. All of the rights provided under such
Supply Contracts may be transferred to and assumed by Sub or Buyer, without
restraint, limitation. or material change and without impediment arising from
the past transaction history under such Supply Contracts, and all needed
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consents have been obtained or will be obtained prior to Closing. There are no
fees, penalties, price uplifts, shortfall payments, bill backs or other fees
outstanding as to such Supply Contracts. The quantities available for purchase
under each such Supply Contract are as stated on the face of such Supply
Contract and are summarized in Schedule 6.12. Each manufacturing or service site
which requires qualification under the terms of a respective Supply Contract is
qualified, and no unresolved differences with respect to product or process
specifications remains outstanding. All manufacturing or service terms and
conditions are as they appear to be on the face of the respective Supply
Contracts. Seller has not received any written or oral notice from the other
party to any Supply Contract, or from any other supplier to the CSG Business, to
the effect that such party will not accept purchase orders from Seller, Sub or
Buyer on such terms, conditions and quantities consistent with past practices.
All notices which should have been given under such Supply Contracts have been
timely given. All disputes under such Supply Contracts have been timely
resolved. Prices required to be paid for products or services under such Supply
Contracts are summarized on Schedule 6.12 and are reasonable and no condition
exists which is unknown to the respective other party on any such Supply
Contract and which would justify a termination or a material change of such
Supply Contracts if such condition were known to the respective other party
under such Supply Contract. Schedule 6.12 also sets forth information regarding
wafer starts and products in production as of the Effective Date, which will be
updated as of the Closing Date. Schedule 6.12 also sets forth manufacturing
information since July 1, 1995 regarding yields under Supply Contracts or other
arrangements for the manufacture or production of the CSG Products.
6.13 TANGIBLE ASSETS. SCHEDULE 2.2(h) sets forth, a true, complete and
accurate description of each item, or each group of like items (stating the
number), of the Tangible Assets, including any cellular or mobile phones or
pagers provided to Seller's Employees, which description identifies (i) the
location of each such item or group of items, (ii) to the extent available,
original acquisition date and cost of such items, and (iii) with respect to
cellular or mobile phones and pagers, the applicable phone or pager number and
Transferred Employee who has possession thereof and the name of the supplier or
service provider for the telephone and pager service. The Tangible Assets are in
good working condition and repair, ordinary wear and tear excepted, usable in
the ordinary course of business, and are adequate and sufficient for all current
operations of the CSG Business. The use of the Tangible Assets does not violate
any applicable law including, without limitation, laws relating to environmental
clean-up or protection or occupational health or safety.
6.14 PERMITS. Seller has, and Sub prior to Closing will have, all
Permits necessary for the conduct of the CSG Business worldwide, the lack of
which could materially and adversely affect the operations, properties, or
financial condition of the CSG Business, each of which is described in SCHEDULE
6.14 hereto, including their dates of expiration and a brief description of each
of their material terms. The Permits described in Schedule 6.14 are in Ml force
and effect and include all Permits related to the CSG Business, and all Permits
necessary to transfer the Transferred Assets to Sub as contemplated in this
Agreement. Seller is not, and Sub will not be, in default or noncompliance in
any material respect under any of such Permits. Seller has not received notice
that any appropriate authority intends to cancel or terminate any of the
Permits. Schedule 6.14 also sets forth a true, complete and accurate description
of the import, export and duty classifications of each of the CSG Business
Products sold in each of the countries, including, without limitation, the
United States, in which Seller, Sub, their Affiliates, suppliers or
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Distributors (as defined below) manufacture, distribute or sell any of the CSG
Business Products. Seller has not received any correspondence or notice from any
government authority with respect to any dispute concerning the status of such
import, export and duty classifications. Seller and Sub have complied in all
material respects with all Department of Commerce, import, export, customs, duty
and other laws, statutes, rules and regulations applicable to the CSG Business.
Seller and Sub maintain and have maintained all records required by law for the
conduct of the CSG Business, including (but not limited to) the records of
imports and exports related to the CSG Business for the last five years.
6.15 TRANSFERRED ASSETS.
(a) Schedules 2.2(f), 2.2(h), 2.2(j), 6.7, 6.8, 6.9, 6.10 and 6.14
attached hereto list or describe all Transferred Assets other than those
described on SCHEDULE 6.15(a). Together with the Shared Resources which are the
subject of the Shared Resource License Agreement, the Transferred Assets include
all property, assets, technology or intellectual property, tangible and
intangible, agreements and rights necessary for Buyer to operate the CSG
Business after the Closing Date in a manner substantially equivalent to the
manner in which the Seller and Sub currently are operating the CSG Business. All
items on such Schedules accurately reflect the description thereof set forth in
this Agreement. Except as set forth on SCHEDULE 6.15(a) Seller holds, and Sub
prior to Closing will hold, good and marketable title to all of the Transferred
Assets, free and clear of all Encumbrances. None of the Transferred Assets or
the Shared Resources constitute collateral under any UCC-1 financing statement
filed against Seller or Sub, as debtor. As of the Closing Date the only assets,
tangible or intangible, of the Sub will be the Transferred Assets. Title to all
of the Transferred Assets is freely transferable from Seller to Sub without
obtaining the consent or approval of any Person, except such consents and
approvals as will be obtained by Seller prior to Closing. As of the Closing, no
Person shall have any rights in or licenses or rights to acquire licenses, to
produce, distribute, license, sublicense, sell, use in development or otherwise
use any of the Transferred Assets or Shared Resources, except for Transferred
Assets or Shared Resources subject to Licenses which are set forth in the
Schedule 6.9 hereto and identified as such. All Transferred Assets are located
at Seller's facilities at 8105 Irvine Center Drive, Irvine, California or 15345
Barranca Parkway, Irvine, California, unless otherwise set forth on Schedule
6.15(a).
(b) The Business Records are complete and accurate in all material
respects and are located at the locations set forth on SCHEDULE 6.15(B).
(c) Since July 1, 1995, neither Seller nor its Affiliate has
disposed of or terminated any assets (including any that would otherwise be
within the definition of Transferred Assets or Shared Resources), property,
technology or intellectual property, agreements or rights related to or used in
the CSG Business except in the ordinary course of business or as set forth on
SCHEDULE 6.15(c).
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6.16 INFRINGEMENT. None of the Transferred Assets or Shared
Resources has violated or infringed upon, or is violating or infringing upon, or
misappropriates, any patent, copyright, CD trademark, trade name, mask work,
trade secret or other intellectual or proprietary right of any third party.
SCHEDULE 6.16 contains a complete list and description of all correspondence,
communications, notices, claims, litigations and proceedings by third parties
alleging any right, title or interest in or to the Transferred Assets and the
Shared Resources or asserting that the Transferred Assets or the Shared
Resources violate or infringe in any respect the proprietary rights of others.
There are no claims pending or, to Seller's knowledge, threatened by any third
party against Seller or Sub (i) alleging that Seller's or Sub's ownership, sale,
licensing, possession or use of, or disclosure or transfer of, the Transferred
Assets or the Shared Resources infringes upon or constitutes an unauthorized use
of the intellectual property rights of any third party , (ii) challenging or
questioning Seller's or Sub's ownership of, or the validity or effectiveness of,
Seller's ownership or Sub's ownership of, the Transferred Assets or the Shared
Resources, (iii) challenging Seller's or Sub's rights under Third Party Rights,
(iv) alleging that the manufacture, marketing, license, sale or use of any
product or service as used in the CSG Business infringes intellectual property
rights of any third party, nor, to Seller's knowledge is there any basis for any
such claim. Seller or Sub have no disputes with or claims against any third
party (including any employee or former employee of Seller or Sub) for
infringement by such third party of any Intellectual Property of Seller or Sub
included in the Transferred Assets or the Shared Resources. Neither Seller nor
Sub has brought any actions or lawsuits alleging (i) infringement of any
Intellectual Property, or (ii) breach of any License. Neither Seller nor Sub has
entered into any agreement granting any third party the rights to bring
infringement action with respect to or otherwise to enforce rights with respect
to any Intellectual Property. No Intellectual Property is subject to any
outstanding order, judgment, decree, stipulation or agreement related to or
restricting in any manner, the licensing, assignment, transfer or conveyance
thereof by Seller or Sub. Neither Seller nor Sub have entered into any agreement
with respect to the CSG Business to indemnify any Person against any charge of
infringement of any third party intellectual property right, or to the
Intellectual Property. Seller and Sub have taken all steps reasonably necessary
and commercially prudent to protect their night, title and interest in and to
such Intellectual Property. There has not been, and there is not now, any
unauthorized use, infringement or misappropriation of any of the Intellectual
Property by any Person. None of such Intellectual Property is owned by or
registered in the name of any current or former owner, shareholder, partner,
director, executive, officer, employee, salesman, agent, customer,
representative or contractor of any of Seller or Sub nor does any such person
have any interest therein or right thereto, including but not limited to the
right to royalty payments. Buyer and/or Sub may sell and distribute the CSG
Business Products to third parties without infringement of the IBM patents and
other rights licensed to Seller pursuant to the IBM Cross-License.
6.17 PROPRIETARY INFORMATION. Each employee, contractor,
consultant, officer or director of Seller or Sub involved with the creation or
development of the Transferred Assets or the Shared Resources has executed a
proprietary information and inventions assignment agreement substantially in the
form attached hereto as SCHEDULE 6.17. Seller and Sub have taken all reasonable
and customary steps necessary to protect and preserve the confidentiality of the
Intellectual Property, including, without limitation, the marking of all
confidential or proprietary information with appropriate "Proprietary" or
"Confidential" legends, the establishment of policies for the handling,
disclosure, and use of confidential or proprietary information, and the
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acquisition of written non-disclosure agreements from any party receiving same.
Neither Seller nor Sub has disclosed or provided copies of the source code for
any Software Program or Intellectual Property included in the Transferred Assets
or the Shared Resources to any Person except as set forth in Schedule 6.17, and
each has taken customary and reasonable steps to prevent such disclosure, other
than disclosure to employees or consultants of Seller or as set forth on
Schedule 6.17, in each case pursuant to written non-disclosure agreements. To
Seller's knowledge all use, disclosure or appropriation of confidential or
proprietary information not owned by Seller or Sub has been pursuant to the
terms of a written agreement between Seller and/or Sub and the owner of such
information, or is otherwise lawful. Seller has delivered to Buyer copies (which
are substantially in the form attached hereto as Schedule 6.17), of all material
non-disclosure agreements, and all other agreements relating to the handling,
disclosure, and use of confidential or proprietary information (whether or not
Seller or Sub owns such information) relating to the CSG Business and Seller
knows of no breaches or claims relating to any such agreements.
6.18 CUSTOMER, DISTRIBUTOR AND SUPPLIER CONTRACTS.
(a) SCHEDULE 6.18(a) is an accurate and complete list of the
names and addresses of (ii) all distributors, VARs, dealers and other resellers
who currently distribute the CSG Products the "DISTRIBUTORS" and (ii) all
current customers of the CSG Business and the top ten customers of the CSG
Business for the period from July 1, 1995 to March 30, 1996, other than
Distributors (the "CUSTOMERS"), and a list of all contracts, agreements,
understandings of Seller or Sub with Customers or Distributors relating to the
CSG Business Products, including Customer Purchase Orders open as of March 30,
1996 (as updated through the Closing Date) (collectively "CUSTOMER CONTRACTS")
and a complete description of all products on order, prices and shipment dates,
and work to be done, including, but not limited to, development or
customization work, under such Customer Contracts, and all credits or discounts
granted to, or adjustments made for, the Customer or Distributor to be applied
against future payments or purchases. Schedule 6.18(a) details the volume of
each CSG Business Product purchased by each of such Customers or Distributors
per month and by product since July 1, 1994. Schedule 6.18(a) further sets forth
any current forecasts received from any of such Customers or Distributors in
respect of purchases of CSG Business Products and Seller's current internal
forecasts. Schedule 6.18(a) describes any commitment by Seller or Sub to any
Customers or Distributors which are not embodied in the Customer Contracts
(including, without limitation, any commitment to repair, replace, upgrade or
make any other accommodation in relation to any CSG Business Product). Schedule
6.18(a) sets forth all prepaid advances, deposits or expenses from Customers or
Distributors for CSG Business Products to be shipped, or services to be
performed related to the CSG Business Products, after the Closing Date which
have been received by Seller or Sub as of the Closing Date. In addition, with
respect to the IBM Agreement Schedule 6.18(a) includes schedules and information
regarding all changes, cancellations or rescheduling with respect to forecasts
and purchase orders since July 1, 1994. Except as set forth on Schedule 6.18(a),
neither Seller nor Sub have received any written, or to Seller's knowledge, oral
notice, and Seller has no reason to believe that, any current Customer or
Distributor will terminate its relationship with Seller or Sub, materially
decrease the volume of purchases or stop purchasing the CSG Business Products
before or after the Closing. Seller has delivered a true and complete copy of
the Customer Contracts to Buyer. Following the Closing, Buyer will not be
contractually restricted from changing prices charged for the CSG Business
Product to any
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Customers, Distributors or other party, except as may be set forth in the
Assumed Contracts. None of the Distributors has an exclusive right to distribute
or resell the CSG Business Products. As of the Closing Date, no Person shall
have a license to use, or the right to acquire a license to use, any future
version of the CSG Business Products, and no contractual restriction shall
restrict Buyer's ability to charge its Customers for any such new version.
(b) SCHEDULE 6.18(b) sets forth (a) the names and addresses of all
suppliers or vendors from which the CSG Business has ordered components, raw
materials, supplies, merchandise and other goods and services since July 1,
1994, and (b) the items supplied by each supplier and the amount for which each
such supplier invoiced the CSG Business per month during such period. Schedule
6.18(b) sets forth, and Seller has delivered, true and complete copies to Buyer
of all current contracts or agreements, including all Supplier Purchase Orders,
with suppliers relating to the CSG Business. Neither Seller nor Sub have
incurred outstanding, marketing or advertising obligations with respect to the
CSG Business that will not be terminated or discharged in full by Seller.
6.19 WARRANTIES AND SERVICE; PAYMENT OBLIGATIONS.
SCHEDULE 6.19 sets forth (i) copies of all forms of warranties
now in effect or provided duning the past three years with respect to any of the
CSG Business Products and with respect to any services provided, or to be
provided, by Seller or Sub in connection therewith; (ii) a true, complete and
accurate list of all agreements or other arrangements pursuant to which Seller
or Sub is obligated to provide service or support services with respect to the
CSG Business Products; (iii) a true, complete and accurate list of all warranty
or service claims since September 1, 1995 made with respect to the CSG Business
Products or such service, identifying the CSG Business Product and the reason
such product was the subject of a warranty claim, the service, Customer,
Distributor or other party, nature of the claim and date made, remedial action
taken, and the dollar amount involved; (iv) the versions of the CSG Business
Products currently supported by Seller or Sub; (v) a true, complete and accurate
list of all other agreements and other documents of Seller or Sub which are
either included in the Assumed Contracts or relate to any CSG Business Products
other than the Host Bus Adapter Products, and pursuant to which Seller or Sub is
obligated to make payments to or for any Customer or Distributor of the CSG
Business, or make any other accommodation for such Customer or Distributor, or
take back any product from such Customer or Distributor, including, without
limitation, any warranties; and (vi) a true, complete and accurate schedule of
information relating to all of Seller's or Sub's stock rotation obligations in
the CSG Business. Seller expenses as incurred the costs and expenses associated
with warranties, services, returns, defects or similar items with respect to the
CSG Business Products and the amount thereof for the period from September 1,
1995 to February 24, 1996 is accurately set forth in Schedule 4.1(b) ("WARRANTY
AND RETURN EXPENSE") and fairly represents Seller's experience generally, both
before and after, such period. All sales of, and services relating to, CSG
Business Products have been, or are being, made pursuant to the form of
warranties set forth in Schedule 6.19, and no other warranty, express or
implied, has been made or extended by Seller or Sub with respect to the CSG
Business Products. Neither Seller nor Sub has granted to any Person the right to
repair, maintain, service or support any of the CSG Business Products. No
agreement for the sale, license, service, support or maintenance of the CSG
Business Products obligates Seller or Sub to provide any change in functionality
or other
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alterations in the performance of the CSG Business Products or to provide new
products or technology.
6.20 PRODUCTS LIABILITY. The CSG Business Products do not contain any
defects in design or otherwise (including latent defects) and Seller has not
experienced. and is not experiencing, any material difficulties with respect to
the manufacture of the CSG Business Products. There is no Litigation pending or,
to Seller's knowledge, threatened against or involving Seller or Sub relating to
any of the CSG Business Products alleged to have been manufactured or sold by
Seller or Sub and alleged to have been defective (including latent defects), or
improperly designed or manufactured. All manufacturing standards, testing
procedures and product specifications applied in, or used in, or disclosed to
customers of, the CSG Business comply with all applicable industry standards and
in all material respects with applicable laws.
6.21 FINANCIAL INFORMATION. Attached as SCHEDULE 6.21 hereto are (i) a
schedule of the assets of the CSG Business as at July 1, 1995, (ii) an internal
profit and loss statement for the fiscal year ended July 1, 1995 in relation to
the CSG Business, (iii) a schedule of assets of the CSG Business as at March 30,
1996, and (iv) an Internal profit and loss statement in relation to the CSG
Business for the eight month period ended March 30, 1996 (collectively, the
"FINANCIAL STATEMENTS"). The Financial Records are true, correct and complete.
The financial data included in the Financial Statements fairly presents such
financial information regarding the CSG Business, and the recorded and accrued
amounts set forth in the Financial Statements fairly present the financial
position of the respective assets, revenues, product costs, research and
development and marketing expenses and profits of the CSG Business, as of the
respective dates or for the respective periods indicated thereon. The Financial
Statements, Inventory Reserves, Warranty and Return Expenses, the Closing Date
Asset and Liability List and Warranty Reserve have been, or will be, prepared in
a manner that is consistent with Seller's internal business and financial
accounting methods, which internal business and financial accounting methods are
in accordance with GAAP.
6.22 NO UNDISCLOSED LIABILITIES OR ADVERSE CHANGES. Other than the
Assumed Liabilities, Sub has no other debts, liabilities, and obligations of any
nature whether due or to become due (including, without limitation, absolute
liabilities, accrued liabilities and contingent liabilities). To Seller's
knowledge, there are no circumstances, conditions, events or arrangements, that
may be reasonably expected to hereafter give rise to any liabilities of the CSG
Business, other than liabilities arising in the ordinary course. Seller has no
knowledge of any liabilities relating to the CSG Business for breach of
contract, breach of warranty, tort or infringement not specifically disclosed in
the Schedules hereto. Since July 1, 1995 there has been no fact or development
known to Seller which could have a material adverse effect on the condition or
prospects, financial or otherwise, of the CSG Business, the Transferred Assets
or the Shared Resources, nor has there been any damage, destruction or loss,
whether or not covered by insurance, which adversely affects the CSG Business or
the Transferred Assets. During such period, neither Seller nor Sub has not
incurred, and will not incur, any obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due other than in the ordinary
course of the CSG Business.
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6.23 TAXES, TAX RETURNS, PAYMENTS AND ELECTIONS.
(a) All income taxes, real and personal property taxes, gross
receipt taxes, documentary transfer taxes, sales and use taxes, employment
taxes, withholding taxes, unemployment insurance contributions, customs duties,
value-added taxes, alternative or add-on minimum taxes, and other taxes or
governmental charges of any kind, however denominated, including any interest,
penalties and additions to tax in respect thereto (collectively "TAXES"), for
which Sub or Buyer could become liable as a result of succeeding to the CSG
Business and the Transferred Assets or which could result in a lien or charge
against the CSG Business or the Transferred Assets, or in a liability for Sub
or Buyer, other than sales or use Taxes attributable to the operation of the
CSG Business or the Transferred Assets following the Closing Date, have been or
will be paid or otherwise appropriately provided for by Seller for all periods
(or portions thereof) prior to and including the Closing Date.
(b) Seller and Sub have duly and timely filed (or will file
prior to the Closing Date) all returns and reports of Taxes required to be
filed (taking into account any extensions to file) prior to such date, and all
such returns and reports are true, correct and complete in all material
respects as they may relate to the CSG Business or Transferred Assets.
(c) There are no Encumbrances for Taxes on any of the
Transferred Assets except for liens arising from Taxes which are due but not
yet payable. There are no assessments or claims for payment of Taxes now
pending or threatened, nor is there any audit of the records of Seller or Sub
in relation to the CSG Business and/or the Transferred Assets being made or to
Seller's knowledge threatened by any taxing authority.
(d) There is no Litigation pending or to Seller's knowledge
threatened with respect to Taxes, and Sub is not currently the beneficiary of
any extension of time within which to file any tax returns as may relate to the
CSG Business or Transferred Assets. Neither Seller nor Sub have, in relation to
the operation of the CSG Business and the Transferred Assets, waived any
statute of limitation in respect of any Taxes or assessments by any taxing
authority or agreed to any extension of time with respect to any assessment or
deficiency in any Tax.
(e) Seller and Sub have properly withheld and paid, or accrued
for payment, when due, to appropriate tax authorities, all material amounts
required to be withheld from payments made to employees, independent
contractors, all sales and use taxes as required under applicable laws in
relation to the CSG Business and/or the Transferred Assets.
(f) Seller and Sub have not entered into any type of tax
allocation agreement or tax sharing agreement.
(g) As a result of the consummation of the transactions
contemplated by this Agreement, neither Seller nor Sub has entered into any
agreement with any employee of Seller or Sub that would cause Seller, Sub nor
Buyer to become liable for any parachute payments, as defined in Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "CODE").
(h) Sub is not and never has been required to file a
consolidated or combined state or income Tax return with any other persons or
entities other than Seller and its
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consolidated subsidiaries, and Sub is not liable for any Taxes of any person
other than Seller and its consolidated subsidiaries under Treas. Reg. Section
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor by contract otherwise.
6.24 ENVIRONMENTAL AND SAFETY LAWS. Seller has neither violated,
nor is in violation of, and Sub will not be in violation of, any federal, state
or local law, ordinance or regulation relating to industrial hygiene,
occupational health and safety, disposal of Hazardous Materials (as defined
below) or the environmental conditions on the properties or facilities of
Seller or Sub at which any of the CSG Business is conducted, including but not
limited to, soil and ground water conditions. Seller has not used, generated,
manufactured or stored on or under any part of its properties or facilities at
which any of the CSG Business is conducted, or transported to or from any part
thereof, any Hazardous Materials in violation of CERCLA (as defined below) or
any other applicable state or federal environmental law. Sub will not, prior to
Closing, similarly use, generate, manufacture or store on or under any part of
its properties or facilities, or transport to or from any part thereof, any
Hazardous Materials. There has not been any presence, disposal, or release of
any Hazardous Materials on, from or under any part of Seller's properties or
facilities at which any of the CSG Business is conducted. For purposes of this
Section, "HAZARDOUS MATERIALS" means any hazardous or toxic substance, material
or waste that is, or becomes prior to the Closing, regulated or defined as a
"hazardous substance," "pollutant," "contaminant," "toxic chemical,"
"hazardous material," "toxic substance" or "hazardous chemical" or similar
hazardous substance under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), or any other
similar state or federal law, statute, ordinance, rule or regulation having a
scope of purpose similar to that of CERCLA.
6.25 RELATED-PARTY TRANSACTIONS. No officer or director of Seller
or Sub, or member of such director's or officer's immediate family or affiliate
thereof, is a party to or has an interest in any contract or agreement related
to the CSG Business.
6.26 EMPLOYEE MATTERS. SCHEDULE 6.26(a) lists the names and titles
of all persons currently employed or engaged as a consultant by Seller or its
Affiliates in connection with the CSG Business (the "EMPLOYEES"), together with
the amount of their current compensation, their service date, the number of
years each has been employed by Seller or an Affiliate of Seller, their status
as exempt or non-exempt, all sick or vacation benefits accrued or payable, all
bonuses, profit sharing, or commissions accrued or payable, any special
compensatory or reimbursement arrangements, comp time or other arrangements with
such Employees and any agreements between such Employee and Seller (""SELLER
EMPLOYMENT AGREEMENTS"). Sub has not employees or consultants.
(a) With respect to Employees, Sellers (i) is and has been
in compliance in all material respects with all applicable laws respecting
employment and employment practices, consulting practices, terms and conditions
of employment and consulting, and wages and hours (including, but not limited
to, ERISA, WARN or any similar state or local law), (ii) has made all
contributions required to be made under any state unemployment or disability
laws or regulations and has accrued the amount of any such contribution
required for any period prior to the Closing Date which is not yet due and
payable and (iii) is not engaged in any unfair labor practice and is not in
arrears in the payment of wages or taxes with respect to Employees. No Employee
has any claims against Seller (whether under any law, any Seller Employment
Agreement or otherwise)
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on account of or for (i) overtime pay, other than overtime pay for the current
payroll period, (ii) wages or salary for any period other than the current
payroll, including any bonuses, profit sharing, commissions, benefits or other
compensation payable or accrued with respect to the period prior to the Closing
Date, (iii) vacation, time off or pay in lieu of vacation or time off, other
than that earned in respect of the current fiscal year (for any period other
than the current payroll period), (iv) any violation of any statute, ordinance
or regulation relating to minimum wages or maximum hours of work or (v) a
violation of ERISA. Seller has not received notice from any Employee to the
effect that such Employee presently plans to terminate his or her relationship
with Seller. Only Seller will be, pursuant to any Seller Employment Agreement,
employee benefit plan or other law, arrangement or understanding, obligated to
pya or be liable for the payment of any compensation), severance pay or other
benefit (including any medical, disability benefit or payment or any
liabilities relating to pension benefits) by reason of the voluntary or
involuntary termination prior to the Closing Date of employment of any
Employee, including the Listed Employees, or the consummation of the
transactions contemplated by this Agreement.
(b) With respect to all employee benefit plans (as defined in
ERISA) in which any Employee is or was eligible to participate, Seller or any
entity which, within the last 5 years, has been under common control of or
affiliated with Seller (an "ERISA AFFILIATE") within the meaning of Section
414(b), (c) or (m) of the Code, is in compliance in all material respects with
the requirements prescribed by any and all statutes, orders or governmental
rules or regulations currently in effect, including, but not limited to ERISA
and the Code, applicable to such employee benefit plans and Seller is in
compliance with its obligations under the terms of such plans. None of the
employee benefit plans and Seller is in compliance with its obligations under
the terms of such plans. None of the employee benefit plans maintained by
Seller or Seller's ERISA Affiliates are subject to Title IV of ERISA. Neither
Seller nor any ERISA Affiliate has ever been obligated to contribute to any
"multi-employer plan" as such term is defined in Section III(37) of ERISA. No
employee benefit plan of Seller or any ERISA Affiliate has engaged in any
prohibited transaction as such term is defined in Section 4975 of the Code or
Section 406 of ERISA. SCHEDULE 6.26(b) includes a true and complete list of all
Employees, including Listed Employees, who are or may become entitled to
benefits under any severance agreement as of the Closing (other than an
arrangement generally applicable to all or substantially all Employees), and
the terms thereof. Seller has delivered to Buyer copies of all pension,
retirement, profit sharing, deferred compensation agreements, generally
applicable severance, stock, option, bonus or other incentive plans, medical,
dental or other health benefit and other employee benefit plans or arrangements
maintained by Seller with respect to any of the Employees (the "EMPLOYEE
PLANS"), including, without limitation, all "employee benefit plans" as defined
in Section 3(3) of ERISA.
6.27 LABOR AND EMPLOYEE RELATIONS. Seller and Sub are not bound by or
subject to (and none of assets or properties of Seller or Sub are bound by or
subject to) any written or, to Seller's knowledge, oral, express or implied,
contract, commitment or arrangement with any labor union, and no labor union
has requested or, to the best of Seller's knowledge, has made a formal attempt
to represent any of the employees, representatives or agents of the CSG
Business. There is no strike or other labor dispute involving Seller or Sub
pending, or the best of Seller's knowledge, threatened, that could have a
material adverse effect on the CSG Business, nor is Seller aware of any labor
organization activity involving the Employees.
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6.28 BROKERAGE AND FINDER'S FEES. Neither Seller, Sub, nor any of their
Affiliates employed any broker, finder or agent, or agreed to pay or incurred
any brokerage fee, finder's fee or commission with respect to the transactions
contemplated by this Agreement, or dealt with anyone purporting to act in the
capacity of a broker, finder or agent with respect thereto as a result of which
any claim for a fee can be asserted against Buyer.
6.29 DISCLOSURE. Seller has fully provided Buyer with all the
information that Buyer has requested for deciding whether to enter into this
Agreement and the transactions contemplated hereby. This Agreement, the
Schedules attached hereto, the Seller Closing Documents, the Related Agreements
and all other information relating to the CSG Business, the CSG Business
Products, the Transferred Assets, the Shared Resources or the Listed Employees
delivered in connection herewith or therewith, do not contain any untrue
statement of a material fact or ornit to state a material fact required to be
stated herein or therein or necessary to make the statements herein or therein,
in light of the circumstances in which they were made, not misleading.
6.30 FAIR CONSIDERATION: NO FRAUDULENT CONVEVANCE. The transfer of the
Transferred Assets to Sub and the sale of the Shares to Buyer as contemplated by
this Agreement is made in exchange for fair and equivalent consideration, and
Seller and Sub are not now insolvent and Seller and Sub will not be rendered
insolvent by the sale, transfer and assignment of the Transferred Assets or
Shares as contemplated by this Agreement. Seller and Sub are not entering into
this Agreement and the transactions contemplated hereby with the intent to
defraud, delay or hinder their creditors. The transactions contemplated in this
Agreement will not constitute a fraudulent conveyance, or otherwise give rise to
any right of any creditor of Seller whatsoever to any of the Transferred Assets
in the hands of Sub or Buyer after the Closing.
7. MUTUAL COVENANTS.
7.1 CONFIDENTIAL INFORMATION. All copies of financial information,
marketing and sales information, pricing, marketing plans, business plans,
financial and business projections, manufacturing processes and procedures,
formulae, methodologies, inventions, product designs, product specifications and
drawings, and other confidential and/or proprietary information of Buyer or
Seller, as the case may be (the "DISCLOSING PARTY"), (the "RECEIVING PARTY") in
the course of negotiating the transactions contemplated by this Agreement
"Confidential Information") will be held in confidence and not used or disclosed
by the Receiving Party or any of its employees, Affiliates or stockholders for a
period of five (5) years from the Effective Date and will be promptly destroyed
by the Receiving Party or returned to the Disclosing Party, upon the Disclosing
Party's written request to the Receiving Party; provided, that from and after
the Closing, the foregoing covenant shall not be applicable to Buyer with regard
to any Confidential Information from Seller included in the Transferred Assets
and nothing herein shall limit Buyer's rights under Section 1O.1. The Receiving
Party's employees, Affiliates and stockholders will not be given access to
Confidential Information except on a "need to know" basis. It is agreed that
Confidential Information will not include information that: (a) is proven to
have been known to the Receiving Party prior to receipt of such information from
the Disclosing Party; (b) is disclosed by a third party having the legal right
to disclose such information and who owes no obligation of confidence to the
Disclosing Party;
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(c) is now, or later becomes part of the general public knowledge or literature
in the art, other than as a result of a breach of this Agreement by the
Receiving Party; or (d) is independently developed by the Receiving Party
without the use of any Confidential Information. In the event that the Receiving
Party or anyone to whom the Receiving Party transmits Confidential Information
pursuant to this Agreement becomes legally compelled (by oral questions,
interrogatories, request for information or documents, subpoena, criirlinal or
civil investigative demand or similar process or by statute or regulation) to
disclose any of Confidential Information, the Receiving Party will provide the
Disclosing Party with prompt written notice of that fact so that the Disclosing
Party may seek (with the Receiving Party's cooperation, if so requested by the
Disclosing Party) a protective order, confidential treatment or other
appropriate remedy. In any event, in the circumstance, the Receiving Party will
furnish only that portion of the Confidential Information which is legally
required and will exercise its best efforts to obtain reliable assurances that
confidential treatment will be accorded the Confidential Information. The
provisions of this Section 7.1 supersede that certain Master Mutual
Nondisclosure Agreement between Buyer and Seller, dated December 12, 1995.
7.2 RELATED AGREEMENTS. On or before the Closing Date Buyer, Seller
and, as appropriate, Sub shall enter into the following agreements (collectively
RELATED AGREEMENTS"):
(a) The Transition Agreement in the form of Exhibit 7.2(a).
(b) The Shared Resource License Agreement in the form of Exhibit
2.3(d).
(c) The Strategic Agreements in the forms attached as Exhibit
1.21.
(d) The ST Assignment in the form of Exhibit 1.9.
(e) The Acquired Cadence Contract in the form attached as Exhibit
1.2.
(f) Assignments of all Assumed Contracts.
7.3 HART-SCOTT-RODINO ACT. The parties shall use reasonable efforts to
respond as promptly as practicable to all inquiries received from the Federal
Trade Commission or the Antitrust Division for additional information or
documentation in connection with the notification and request forms filed under
the HSR Act with respect to the transactions contemplated hereby. To the extent
permitted by law, the parties shall request such governmental agencies to treat
as confidential all information submitted to them. Notwithstanding any provision
of this Agreement to the contrary, in no event shall Buyer, Seller or any of
their Affiliates be required to divest itself or dispose of any of its
properties or assets or make special payments or grant any special concessions
or in any way diminish or impair its control, ownership, or operation of any of
its properties or assets in order to obtain any waivers, permits, licenses,
approvals, authorizations, qualifications, orders or consents required in
connection with the consummation of the transaction contemplated by this
Agreement, unless mutually agreed by and between Seller and Buyer.
7.4 ENFORCEMENT OF CONTRACTS. Buyer agrees that to the extent a claim
is made against Seller or as a defense to collection of an account receivable
under an Assumed Contract by the other party to such Assumed Contract with
respect to transactions that occurred prior to
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the Closing Date then notwithstanding the assignment of all rights under the
Assumed Contracts to Sub under the provisions of Section 2.2(f)(viii) or
2.2(l)(ii), Buyer and Sub shall, at Seller's expense, and with no liability on
Buyer's part, either assert on behalf of Seller defenses, counter claims or
other rights under such Assumed Contracts as is reasonably required or assign
such rights, defenses or counter claims to the extent reasonably required for
Seller to defend itself or pursue collection of its accounts receivable.
Seller agrees that, if requested by Buyer or its Affiliates, it will
cooperate with Buyer in enforcing the terms of any agreements between Seller and
any third party involving the CSG Business or the Transferred Assets relating to
confidentiality and the protection of the Intellectual Property. In the event
that Buyer or its Affiliates is unable to enforce the rights related to the
Intellectual Property against a third party as a result of a rule or law barring
enforcement of such rights by a transferee of such rights, Seller agrees to
reasonably cooperate with Buyer, at Buyer's expense and with no liability on
Seller's part, by assigning to Buyer or its Affiliates such rights as may be
required by Buyer to enforce the Buyer's rights to the Intellectual Property. If
such assignment still does not permit Buyer to enforce its rights to the
Intellectual Property against the third party, Seller agrees, at Buyer's
expense, to initiate proceedings against such third party in Seller's name,
provided that Buyer shall be entitled to participate in such proceedings, all at
Buyer's expense.
7.5 CERTAIN NOTIFICATIONS. At all times prior to the Closing Date,
Seller and Buyer shall notify the other in writing of the occurrence of any
event which will result in the failure to satisfy any of that party's conditions
to Closing specified in Section 11.1 and 11.2 hereof.
7.6 PUBLIC ANNOUNCEMENTS. On and prior to the Closing Date, Buyer, Sub
and Seller shall advise and confer with each other prior to the issuance of any
reports, statements or releases concerning this Agreement (including the
exhibits hereto) and the transactions contemplated herein. Neither Buyer, Sub,
nor Seller will make any public disclosure prior to the Closing or with respect
to the Closing unless all parties agree on the text and timing of such public
disclosure unless advised by counsel that disclosure is required by law. Nothing
contained in this Section 9.9 shall prevent any party at any time from
furnishing any information to any Governmental Entity.
7.7 SURVIVAL OF COVENANTS. Each of the covenants set forth in Sections
7.1, and 7.4, and this Section 7.7 shall survive the Closing.
8. COVENANTS OF BUYER.
Buyer covenants and agrees with Seller as follows:
8.1 RECORDS, REPORTS AND AUDIT. Buyer shall maintain complete and
accurate books and records pertaining to its determination of the Earnout
Payment and, if applicable, the Exceeded Warranty Amount. On a quarterly basis
following the Closing, Buyer shall submit to Seller, either in conjunction with
any payment due under Sections 3.1(d) or in lieu thereof if no payment is due,
a report setting forth Buyer's determination of the Earnout Payment or Exceeded
Warranty Amount for such quarterly period.
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8.2 TAXES.
(a) While the parties do not anticipate any significant transfer
type taxes or similar charges applying to the Initial Transfer or any Subsequent
Transfer, Buyer shall bear, and to the extent permitted by law shall pay
directly, all transfer, documentary, sales, use, registration, stamp,
value-added and other similar =es, including any penalties, interest and
additions to tax, incurred in connection with the transfer of the Transferred
Assets and Assumed Liabilities from Seller to Sub or incurred in connection with
or relating to the Initial Transfer and all Subsequent Transfers, or that would
not otherwise be payable in the absence of such transfers, but in all cases
exclusive of any income taxes that may be incurred by Seller (collectively,
"TRANSFER TAXES"), and Buyer shall reimburse Seller for any Transfer Taxes paid
by Seller within ten business days of Seller's written request which details the
date the Transfer Taxes were paid and provides documents of actual payment
thereof. Buyer agrees to defend, indemnify and hold the Seller Indemaitees (as
defined in Section 13.5) and each of them harmless from and against (i) any such
Transfer Taxes or claims for payment thereof by any tax authority and (ii) all
expenses and costs incurred by any indemnified party in connection with any
examination, administrative proceeding or other legal contest with respect to
any Transfer Tax, all in accordance with Section 13.
(b) Buyer shall, to the extent that failure to do so could
adversely affect the CSG Business or the Transferred Assets (i) file, within the
time period for filing, all returns and reports relating to Taxes, and such
returns and reports shall be true, correct and complete in all material
respects, and (ii) pay when due any and all Taxes attributable to or levied or
imposed upon (A) the Transferred Assets used in the CSG Business for periods (or
portions thereof) following the Closing Date, and (B) the operations of the
Buyer's business.
8.3 NAME CHANGE. Buyer agrees to cause Sub to change its name to delete
any reference to "Western Digital" no later than thirty (30) days following the
Closing Date.
8.4 EMPLOYEE COMPENSATION. Buyer shall be liable for and obligated to
pay and indemnify, and hold Seller and its Affiliates harmless from, any and all
expenses, contracts, agreements, commitments, obligations, claims, suits, and
other liabilities of any nature whatsoever, whether known or unknown, accrued or
not accrued, fixed or contingent, or arising hereafter, directly or indirectly,
with respect to (i) the employment or termination of employment of any current
or future employee or consultant of Buyer or any of its Affiliates, including
without limitation, the employment or termination of the Transferred Employees
after the Closing Date, whether in connection with the transactions contemplated
hereby or otherwise; (ii) any claims of discrimination under state or federal
law provided such claims arise from the Transferred Employee's employment or
service with or termination by Buyer or its Affiliates after the Closing Date;
(iii) any other claims or obligations arising out of the terms and conditions of
employment of any person by Buyer or its Affiliates whether for salary, wages,
bonuses, profit sharing, commissions, severance, vacation pay, sick pay or
otherwise; (iv) any duties or obligations of Buyer or administrators under any
existing or future employee benefit plans or arrangements maintained by Buyer or
its Affiliates with respect to its employees; or (v) any present or future
obligations or liabilities of Buyer or any of its Affiliates to prior, existing
or future employees of Buyer or any of its Affiliates.
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8.5 Survival-of Covenants. Each of the covenants set forth in Sections
8.1, 8,2, 8.3, 8.4 and this Section 8.5 shall survive the Closing.
Notwithstanding any other provision of this Agreement, the covenants in Section
8.2 shall survive until six months following the expiration of any statute of
limitations applicable to any Transfer Tax.
9. COVENANTS OF SELLER.
Seller covenants and agrees with Buyer as follows:
9.1 Carry on CSG Business in Normal Manner. From the Effective Date to
the Closing Date, Seller will, and will cause Sub to, carry on the CSG Business
in the ordinary course consistent with Seller's past practices. Seller shall,
and shall cause Sub to, use reasonable efforts to retain the Listed Employees,
to protect and preserve the Transferred Assets, and to preserve the goodwill of
their customers, suppliers and others having business relations with CSG.
Without limiting the generality of the foregoing, without Buyer's prior written
consent, prior to the Closing Date Seller shall not, nor shall it allow Sub to:
(a) engage in any transaction which would cause a breach of any
representation, warranty or covenant;
(b) sell, transfer, convey, assign, lease, license or otherwise
dispose of any of the Transferred Assets, or cancel, rescind, waive, release,
fail to renew or forgive any Assumed Contracts or claims of Seller or Sub
except, in each case, in the ordinary course of the CSG Business consistent with
past practices of Seller;
(c) mortgage, pledge, subject to a lien, or grant a security
interest in, or otherwise encumber, any of the Transferred Assets,
(d) sell, dispose of or encumber any of the Transferred Assets or
license any Transferred Assets to any Person, except for the sale of Inventory
and Additional Inventory in the normal course of business consistent with past
practices;
(e) change in any manner the compensation of, or agree to provide
additional benefits to, or grant any severance or termination pay to, or enter
into any employment agreement with any Listed Employees, except as contemplated
in Section 10 below;
(f) engage in any special promotion which promotes the sale of
the Inventory with discounted terms except for promotions existing as of the
date hereof and described on Schedule 9.1(f);
(g) enter into any agreements or commitments relating to the CSG
Business, except on commercially reasonable terms in the ordinary course of
business, consistent with past practices of Seller; or
(h) fail to comply in all material respects with all laws and
regulations applicable to the CSG Business.
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9.2 ACCESS TO INFORMATION. From the Effective Date to the Closing Date,
Seller will afford to the representatives of Buyer, including its counsel and
auditors, during normal business hours, access to any and all of the Transferred
Assets and to Sub and information with respect to the CSG Business and Sub to
the end that Buyer may have a reasonable opportunity to make a full
investigation of the Transferred Assets, the CSG Business and Sub in advance of
the Closing Date as it shall reasonably desire, and the representatives of
Seller will confer with representatives of Buyer and will furnish to Buyer,
either orally or by means of such records, documents, and memoranda as are
available or reasonably capable of preparation, such information as Buyer may
reasonably request, and Seller will furnish to Buyer's auditors all consents and
authority that they may reasonably request In connection with any examination of
Buyer. In addition, Seller authorizes Buyer at any time after the Effective Date
to negotiate directly with IBM and ST in connection with operation of CSG after
the Closing Date, and Seller shall cooperate with Buyer in arranging and
preparing for such meetings, including without limitation providing Buyer with
such information related to the CSG Business, IBM, and ST as Buyer requests;
provided, however, that Buyer shall give Seller reasonable notice of any such
meetings with IBM or ST and shall permit Seller to have a representative present
at such meetings where the CSG Business is being discussed.
9.3 CONSENT OF THIRD PARTIES. Prior to the Closing Date, Seller shall
obtain the consent in writing of all persons necessary to permit Seller to
assign and transfer all of the Transferred Assets (including, but not limited
to, the Assumed Contracts) to Sub, free and clear of all Encumbrances, and to
perform its obligations under, and to conclude the transactions contemplated
by, this Agreement in order that the performance hereof will not result in the
termination of, or any violation, breach or default under, any Assumed Contracts
or affect the Transferred Assets.
9.4 TERMINATION OF CERTAIN CSG SUPPLIER AND SALES RELATIONSHIPS.
Notwithstanding Section 9.1 hereof, Seller agrees that effective as of the
Closing Date it shall terminate all arrangements and obligations (i) with
respect to the purchase and supply of parts for or the manufacture of Host Bus
Adapter Products, including under any outstanding purchase orders and (ii) for
the distribution or resale of the CSG Business Products. Seller agrees that it
shall be liable and responsible for any and all obligations or liabilities that
may arise or relate to such terminations or agreements. Seller shall be
responsible and liable for handling all products or inventory that may be
returned, before or after the Closing Date, in connection with such terminations
and shall promptly advise Buyer of such returns. To the extent Buyer elects it
may purchase such inventory from Seller. Otherwise Seller may not use, sell or
distribute such returned inventory after the Closing Date.
9.5 NO OTHER BIDS. Until the earlier to occur of (a) the Closing or (b)
the termination of this Agreement pursuant to its terms, Seller and Sub shall
not, and Seller and Sub shall not authorize any of their officers, directors,
employees, agents or other representatives to, directly or indirectly, (i)
initiate, solicit or encourage (including by way of furnishing evaluation
material or other information regarding CSG or the Transferred Assets) any
inquiries, or make any statements to third parties which may reasonably be
expected to lead to any proposal, concerning the sale of CSG, the Shares, or all
or a portion of the Transferred Assets, or (ii) negotiate, engage
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in any substantive discussions, or enter into any agreement, with any person
concerning the sale of the CSG Business, the Shares, or Transferred Assets.
The provisions of this Section 9.5 shall not prohibit Seller from selling the
Lynnwood Unit.
9.6 FUTURE AEREEMENTS. In the event Seller or Sub enters into any
material agreement between the date of this Agreement and the Closing that
primarily relates to the CSG Business or Transferred Assets, Seller or Sub shall
promptly notify Buyer, and, at the request of Buyer, Seller agrees to include
any such agreement within the Assumed Contracts.
9.7 UPDATES OF SCHEDULES. From time to time on or before the Closing
Date, Seller shall update and deliver to Buyer any of the Schedules to this
Agreement and Buyer shall have the sole discretion to either accept or reject
any such updated Schedule (subject to the provisions of Section 10. 1 for
updates to the listing of Listed Employees under Schedule 10. 1 and, with
respect to the listing of Inventory and Additional Inventory under Schedule 6.8,
Seller and Buyer agree that such Schedule may be updated by Seller and Buyer and
Seller's rights and obligations with respect to determining the value of such
Inventory and Buyer's payment obligations are set forth in Section 3.2 hereof)
within a reasonable period of time not to exceed five business days. If an
updated Schedule is accepted by Buyer, such updated Schedule shall be appended
to this Agreement and shall replace and supersede the Schedule that it updates.
9.8 COVENANTS NOT TO COMPETE.
(a) Covenants. As a material inducement and consideration for
Buyer to enter into this Agreement, for a period of five (5) years from and
after the Closing Date (the "RESTRICTED PERIOD"), Seller shall not, within any
state of the United States or any country of the world, directly or indirectly,
carry on any business, or own (in whole or in part), operate, advise, assist,
enable (whether by license, sublicense, assignment or otherwise), or lend funds
to or invest funds in, any person, firm, partnership, business, corporation or
other entity which (with respect to a loan or investment, at the time of the
investment or loan) competes or, to Seller's knowledge, intends to compete, in
whole or in part, with the CSG Business as currently conducted. This Section 9.8
shall not prohibit the ownership by Seller, as a passive investor only, of an
aggregate of not more than one percent (1%) of the total stock or other equity
interests of any company or partnership whose stock or equity interests are
publicly traded on a national stock exchange or in the over-the-counter market.
During the Restricted Period, Seller further agrees not to interfere with,
disrupt or attempt to disrupt the relationship between Buyer or its Affiliates
and any third party, including without limitation any customer, supplier or
employee of Buyer or its Affiliates, and not to endorse or promote any products
which are competitive with the CSG Business as currently conducted. In the event
of a breach of any of the covenants set forth in this Section, Buyer and its
Affiliates shall be entitled to seek an injunction against the Seller
restraining such breach in addition to any other remedies provided by law or
equity. In the event that any covenant in this Section is held to be invalid,
illegal or unenforceable by any court of competent jurisdiction or any other
governmental authority, it is agreed and understood that such covenant shall not
be voided but rather shall be construed to impose limitations upon Seller's
activities no greater than allowable under then applicable law.
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(b) Exceptions. Notwithstanding the provisions of Section
9.8(a), Seller may conduct the operations of the Lynnwood Unit as currently
conducted or purchase from third parties or have third parties make for the
Seller components for disk drives sold by Seller. Further, nothing in this
Section 9.8 is intended to prevent Seller from performing its obligations
under Section 9.9 hereof.
9.9 SERVICE AND WARRANTY OBLIGATIONS. From and after the Closing
Date, except as provided in Section 4.1 (b), Seller is responsible for and
liable for all warranty, returns, customer service, technical support, product
defects (including latent), coop advertising, restocking, price protection or
similar obligations with respect to CSG Business Products sold, distributed or
licensed by Seller prior to Closing or arising out of any agreements or
contracts related thereto. From and after the Closing Date, Seller agrees to
maintain sufficient personnel, facilities and capabilities to satisfy its
liabilities and obligations hereunder. Prior to Closing, Seller and Buyer will
agree on the amount of parts and Inventory related to Host Bus Adapter
Products that Seller may retain in order to fulfill its obligations hereunder.
Seller agrees that except to satisfy its obligations under this Section 9.9,
it shall not sell, transfer, market, distribute or use any inventory it may
retain or receive with respect to any of the CSG Business Products.
9.10 FINANCIAL INFORMATION FOR SEC COMPLIANCE. From and after the
date of this Agreement and continuing after the Closing Date, Seller shall
cooperate and shall cause Seller's Auditor to cooperate with Buyer and Buyer's
Auditor and provide to Buyer and Buyer's Auditor at reasonable expense to
Buyer all financial information that may be required to enable Buyer to comply
in a timely manner with the rules and regulations of the Securities and
Exchange Commission ("SEC") and the requirements of the SEC staff with respect
to reporting and reflecting the transactions contemplated by this Agreement,
including without limitation as may be necessary to comply with a Form 8-K
filing under the Securities and Exchange Act of 1934, as amended.
9.11 TRANSITION MATTERS. Seller shall maintain the facilities and
equipment, and use commercially reasonable efforts to retain the capability
and employees (including the Short-Term Transition Employees) as is necessary
to fulfill its obligations under the Transition Agreement.
9.12 SELLER'S MATERIALS. After the Closing, Buyer and its Affiliates
shall have the right to use and distribute existing packaging, labeling,
containers, advertising materials, brochures, technical data sheets and
documentation and any similar materials related to the CSG Business and the
Transferred Assets, which bear any of Seller's trade names, trademarks or
service marks that are conveyed to Sub or Buyer, until the earlier of (i) 12
months after the Closing Date or (ii) the date existing stocks of such
materials are exhausted; provided, however that such materials are only used
with the products to which they relate as of the Closing Date and in a manner
which would not be misleading to a purchaser of such products.
9.13 POST-CLOSING ACCESS TO INFORMATION. If, after the Closing Date,
in order properly to operate the CSG Business or the Transferred Assets, or
prepare documents or reports required to be filed with Governmental Entities
or prepare Buyer's or Sub's financial statements or tax return or filings for
the CSG Business, it is necessary that Buyer obtain additional information
within Seller's possession relating to the CSG Business or the Transferred
Assets, Seller shall
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furnish or cause its representatives to furnish such information to Buyer or its
representatives. Such information shall include, without limitation, all
agreements between Seller and any person relating to the CSG Business or the
Transferred Assets. Seller shall maintain and make available the information and
records specified in this Section 9.13 for a period of seven years after the
Closing Date.
9.14 NO POST-CLOSING RETENTION OF COPIES. Immediately after the
Closing, Seller shall deliver to Sub or destroy copies of Transferred Assets in
Seller's possession that are in addition to copies delivered to Sub as part of
the transfer, whether such copies are in paper form, on computer media or stored
in another form. Notwithstanding the foregoing Seller may retain, on a
confidential basis, one copy of the following documents: (i) the Financial
Records solely for Seller's use in (A) compliance with this Agreement, (B)
accounting, financial reporting or tax reporting purposes, or (C) resolution of
disputes with third parties and Buyer; and (ii) tangible items evidencing the
Intellectual Property ("INTELLECTUAL PROPERTY RECORDS"). The Intellectual
Property Records are to be retained by Seller's in-house legal department, where
the only parties who have access will be the Seller's General Counsel, and
cannot be used or disclosed for any purpose other than to evidence that the
Intellectual Property was transferred to Sub and for evidentiary purposes only
in connection with resolutions of disputes. In the event that Seller intends to
rely on the Financial Records and share all or a portion thereof with a third
party other than as may be disclosed in published financial statements and
reports filed with the SEC, Seller shall obtain written consent from Buyer,
which consent shall not be unreasonably withheld.
9.15 TAXES.
(a) Seller shall, to the extent that failure to do so could
adversely affect the CSG Business or the Transferred Assets, (i) continue to
file within the time period for filing all returns and reports relating to
Taxes, and such returns and reports shall be true, correct and complete in all
material respects, and (ii) except as provided in Section 8.2, pay when due any
and all Taxes attributable to or levied or imposed upon (A) the Transferred
Assets used in the CSG Business for periods (or portions thereof) through and
including the Closing Date whether or not such payment is required to be paid
after the Closing Date, and (B) the operations of the Seller's business.
(b) At the Closing, Seller shall deliver to Buyer a
certificate, in form and substance satisfactory to Buyer, that Sub is and has
not been a real property holding company within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(a)(ii)
of the Code, and that the Seller is not a "foreign person" with the meaning of
Section 1445(f)(3) of the Code.
9.16 POST-CLOSING AUDITS AND GOVERNMENTAL INQUIRIES. Seller shall be
responsible for responding to any audits, compliance reviews or other government
inquiries or actions related to the conduct of the CSG Business prior to and
through the Closing Date.
9.17 ELECTION UNDER SECTION 338(h)(10). Seller shall jointly elect with
Buyer, under Section 338(h)(10) of the Code and under any applicable similar
provision under state law, to treat the stock sale transaction as an asset sale
solely for federal and state income tax purposes. Within 90 days of the Closing,
Seller (or its advisors) shall prepare and deliver to Buyer an IRS
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Form 8023A in a manner consistent with the purchase price allocation described
in Section 3.4 hereof. Seller, Buyer and Sub agree to take no position for
tax or reporting purposes which is contrary to the information in such IRS From
8023A and purchase price'allocation described in Section 3.4 hereof.
9.18 FURTHER ASSURANCES AND ASSET TRANSFERS.
(a) From and after the date of the Closing, the Seller agrees
to convey, transfer, and assign to Sub or its Affiliates, free and clear of all
Encumbrances, any tangible or intangible rights, properties or assets then held
by the Seller (i) that are necessary to permit the Sub or its Affiliates to
conduct, operate and maintain the CSG Business as currently conducted, (ii) that
are among the Transferred Assets, including without limitation, the Assumed
Contracts, (iii) the conveyance, transfer or assignment of which would have been
necessary for representations and warranties of the Seller herein to be true and
correct as of the date of the Closing, or (iv) the conveyance, transfer or
assignment of which was or is required by the covenants of the Seller contained
in this Agreement. To the extent that any Assumed Contract was not assigned to
Sub or its Affiliates because of a limit on assignability of such Assumed
Contract, the Seller shall take all actions necessary to pass through to the Sub
or its Affiliates all benefits of such Assumed Contracts and the Sub or its
Affiliates shall perform all obligations of the Seller thereunder and shall
indemnify the Seller with respect to such obligations; provided that such
indemnification shall be contingent on the passing of all benefits of such
Assumed Contracts to the Sub or its Affiliates; provided, further, that
compliance of the Seller with this sentence shall not excuse the Seller from any
breach of the representations, warranties and covenants of the Seller, resulting
from such non-assignment.
(b) From and after the Closing Date, Seller shall promptly
execute and deliver to Buyer and Sub any and all such further assignments,
endorsements and other documents as Buyer may reasonably request for the purpose
of effecting the transfer of Seller's title to the Transferred Assets to Sub
and/or carrying out the provisions of the Agreements.
9.19 SURVIVAL OF COVENANTS. Each of the covenants set forth in
Sections 9.4, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13, 9.14, 9.15, 9.16, 9.17 and
9.18, and this Section 9.19 shall survive the Closing.
10. COVENANTS AND AGREEMENTS RELATED TO EWLOYEES.
10.1 OFFERS OF EMPLOYMENT.
(a) At Buyer's request, Seller shall cooperate with Buyer in
identifying those Employees that Buyer may wish to hire and in facilitating the
employment or engagement by Buyer, conditioned upon the Closing, of those
Employees (including any Employees who become such after the Effective Date)
which Buyer elects to employ. Prior to the Closing, Buyer shall have the right
to contact such Employees for the purpose of making offers of employment or
consultancy with Buyer (in each case contingent on consummation of the
transactions contemplated by this Agreement). SCHEDULE 10.1 contains a list of
Employees to whom Buyer has offered employment or a consulting relationship to
be effective as of the Closing Date. The process of identifying the final list
of Employees to whom such employment or consulting
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relationship will be offered bv Buyer is in progress and the parties agree to
update Schedule 1O.1 with the final list as mutually agreed prior to Closing.
The persons listed on such Schedule 10.1 (as so updated) are referred to herein
as the "Listed Employees."
(b) Buyer or Sub shall have the right to employ or engage the
Listed Employees, and Seller shall allow the Listed Employees to terminate their
employment with Seller or its Affiliates with such termination of employment or
consultation with Seller or Affiliates and the commencement of employment or
consulting with Buyer or Sub to be effective upon the Closing Date. Seller
agrees to use its best efforts to (i) retain Listed Employees as employees (or
consultants if they are currently consultants) of Seller through the Closing
Date, and (ii) assist Buyer in securing the employment or engagement on the
Closing Date of the Listed Employees; provided, however, that Seller shall not
be restricted from terminating any Listed Employee for justifiable cause if
Buyer is advised a reasonable period of time in advance of such action. Seller
shall not transfer any Listed Employee to employment with Seller outside of the
CSG Business prior to the Closing without the consent of Buyer. Seller shall
notify Buyer promptly if, notwithstanding the foregoing, any Listed Employee
terminates employment or consultancy with Seller after the Effective Date but
prior to the Closing. Prior to the Closing Date, Buyer shall not reduce the
salary or other benefits offered to any Listed Employee in any offer letter
which has been accepted.
(c) Each such Listed Employee who is employed or engaged by
Seller on the Closing Date and who actually transfers to and becomes an employee
of or consultant to Buyer (or any Affiliate designated by Buyer) on or after the
Closing Date as a result of an offer of employment made by Buyer is hereafter
referred to as a "TRANSFERRED EMPLOYEE." The Transferred Employees shall
consist of (i) the "HIRED EMPLOYEES," whom Buyer or Sub shall hire on a
permanent basis, and (ii) the "LONG-TERM TRANSITION EMPLOYEES," whom Buyer or
Sub shall hire for a limited term, ranging up to nine months, to assist in the
transition of the CSG Business from Seller to Buyer. On or prior to the Closing,
Buyer or Sub and each of the Hired Employees shall execute and deliver an
employment or consulting letter substantially in the form of Exhibit 1O.1(a),
and Buyer or Sub and each of the Long-Term Transition Employees shall execute
and deliver an employment or consulting letter substantially in the form of
Exhibit 10.1(b). Seller hereby consents to the hiring of such Listed Employees
by Buyer and waives, with respect to the employment or engagement by Buyer or
Sub of such Listed Employees, any claims or rights Seller or its Affiliates may
have against Buyer, Sub or any such Listed Employee under any non-competition,
confidentiality or employment agreement to the extent such Listed Employees are
performing services for Buyer or Sub, but only insofar as such services relate
to the CSG Business.
(d) In the event of termination of this Agreement by any or
all of the parties pursuant to Section 15 below, the parties hereby agree that
Buyer may not solicit any of the Listed Employees to become employed by Buyer
prior to February 6, 1997; provided, however, that Buyer may at any time solicit
persons not employed by Seller, including Listed Employees, and provided,
further, notwithstanding the foregoing, Buyer may at any time make general
solicitations for employment to persons, including Listed Employees. General
solicitations shall include any solicitation for employment by Buyer that is not
targeted primarily to one or more of the Listed Employees.
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10.2 EMPLOYMENT TAXES. Seller shall be responsible for any withholding
or employment taxes with respect to any of its employees or consultants,
including the Employees, which accrue or become payable during the period of
such Person's employment or service with Seller or arise out of the termination
of such person's employment or service with Seller. Seller shall be responsible
for filing all federal, state and local employment tax retums with respect to
such Employees attributable to periods of employment or service with Seller.
10.3 WARN COMPLIANCE. In the event that Seller effects a reduction or
cessation of the operations or workforce prior to or subsequent to the Closing,
Seller shall perform and undertake all acts as may be necessary to comply with
the applicable provisions of WARN and laws.
10.4 COMPENSATION: CONTRACTUAL OBLIGATIONS. Without limiting Section
6.26, Seller shall be liable for and obligated to pay and indemnify and hold
Buyer and its Affiliates harmless from any and all expenses, contracts,
agreements, commitments, obligations, claims, suits, and other liabilities of
any nature whatsoever, whether known or unknown, accrued or not accrued, fixed
or contingent or arising hereafter, directly or indirectly, with respect to (i)
any of Seller's obligations under this Section 10; (ii) the employment or
termination of employment of any current or future employee or consultant of
Seller or any of its Affiliates, including without limitation Employees, whether
in connection with the transactions contemplated hereby or otherwise; (iii) any
claims of discrimination under state or federal law provided such claims arise
from such Employee's employment or service with or termination by Seller; (iv)
any other claims or obligations arising out of the terms and conditions of
employment (including under any Seller Employment Agreement), of any person by
Seller or its Affiliates or associated with the CSG Business, whether for
salary, wages, bonuses, profit sharing, commissions, severance, vacation pay,
sick pay or otherwise; (v) any duties or obligations of Seller or administrators
under any existing or future Employee Plans or Seller Employment Agreements (as
such terms are defined herein) or other employee benefit plans of Seller or any
of its Affiliates; or (vi) any present or future obligations or liabilities of
Seller or any of its Affiliates to prior, existing or future employees of Seller
or any of its Affiliates, whether or not specifically described in this Section
10.
10.5 BENEFITS. Seller shall pay to all terminated Employees, including
Transferred Employees, any liability for accrued vacation, sick leave or similar
benefits with respect to such Employees attributable to periods of employment or
service with Seller and shall make such payment within the statutory time period
therefor but in no event later than five days after such Employee's employment
with Seller is terminated. Each Transferred Employee shall have the opportunity
to exercise any outstanding vested stock options held by such Transferred
Employee in accordance with the provisions of Seller's stock option plan and the
stock option agreement between Seller and the Transferred Employee. Unless a
Transferred Employee directs Seller to retain such vested interest under
Seller's plan or directs Seller to transfer such vested interest to an IRA, as
soon as practicable after Closing. Seller shall perform and undertake all acts
as may be necessary to rollover or otherwise transfer the vested interests of
the Transferred Employees in the qualified and non-qualified pension and Section
401(k) plans of Seller to the corresponding plans maintained by Buyer or Sub.
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10.6 SEVERANCE PAYMENTS.
(a) Seller shall be responsible for and pay any liability for
severance payments to any Employee, including Transferred Employees, that
accrues or becomes payable during the period of such Employee's employment or
service with Seller or arise out of the termination of such person's employment
with Seller.
(b) Schedule 10.6 contains a list of Long-Term Transition
Employees and the severance payments due to each such employee. The aggregate
amount of the severance payment due to all Long-Term Transition Employees,
calculated as of the Closing Date, is hereafter referred to as the "Closing
Severance Payment." The Closing Payment shall be reduced by the Closing
Severance Payment as described in Section 3.1 hereof. In the event that any of
the Long-Term Transition Employees are still employed by Buyer or any of its
Affiliates one year after the Closing Date, Buyer shall pay to Seller that
portion of the Closing Severance Payment that is due to such terminated
Long-Term Transition Employees pursuant to Schedule 10.6.
10.7 SHORT-TERM TRANSITION EMPLOYEES. SCHEDULE 10.7 sets forth the
names of those Employees that Seller will use commercially reasonable efforts to
retain for such period as is necessary to assist in Seller's performance under
the Transition Agreement (the "Short-Term Transition Employees ").
10.8 COBRA PAYMENTS. Seller shall be responsible for any COBRA coverage
continuation notices required to be provided with respect to any Employees and
former Employees.
10.9 SELLER EMPLOYEE PLAN CLAIMS; LIFE INSURANCE AND DISABILITY
COVERAGE. Seller shall be responsible for any liability for claims filed with
respect to any Employee or former Employee which are eligible for reimbursement
under the terms of any Employee Plan maintained by Seller, provided such
liability accrued or became payable during the period of such person's
employment or service with Seller or arise out of the termination of such
person's employment with Seller. If the life insurance and disability plans of
Buyer require a waiting period before new employees may participate in such
plans, then Seller shall continue to permit each Transferred Employees to
participate in the life insurance and disability plans maintained by Seller for
up to a maximum of three months following the Closing Date at no cost to such
Transferred Employee until such Transferred Employee is eligible to participate
in Buyer's plans.
10.10 NO SOLICITATION OF FORMER EMPLOYEES. For a period of two (2)
years after the Closing Date, Seller shall not solicit any Transferred Employee
to terminate his employment with Buyer or to become an employee of or consultant
to Seller, without the prior written consent of Buyer; provided, however, the
Seiler may at any time solicit persons not employed by Buyer or its Affiliates,
including Transferred Employees; and provided, further, notwithstanding the
foregoing, Seller may at any time make general solicitations for employment to
persons, including Transferred Employees. General solicitations shall include
any solicitations for employment by Seller that is not targeted primarily to one
or more of the Transferred Employees.
10.11 NO RIGHTS CONFERRED UPON EMPLOYEES. The parties hereby
acknowledge that Buyer is under no obligation to employ any current or future
employee of Seller or its Affiliates.
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Further, nothing In this Agreement shall confer any rights or remedies on any of
Seller's employees or consultants (including without limitation any Employee
or Listed Employee) and no Person (including without limited any Employee or
Listed Employee) shall be a third party beneficiary with respect to any
provision in this Agreement.
11. CONDITIONS TO CLOSING.
11.1 Conditions to Buyer's Obligations. The obligations of Buyer
hereunder shall be subject to the satisfaction and fulfillment of each of the
following conditions, except as Buyer may expressly waive the same in writing:
(a) No Material Adverse Change. From the Effective Date to the
Closing Date, there shall have been no material adverse change in the
Transferred Assets or the financial condition of the CSG Business.
(b) 0pinion of Seller's Counsel. Buyer shall have received
opinions of Gibson, Dunn & Crutcher and Michael Cornelius, Vice President and
General Counsel, as counsel for Seller, dated the Closing Date, to the effect as
set forth in Exhibit 11.1(b) hereto.
(c) Accuracy of Representations and Warranties on Closing
Date. The representations and warranties made herein by Seller and Sub (as
qualified by Seller's Schedule of Exceptions) shall be true and correct in all
material respects, and not misleading in any material respect, on and as of the
date given, and on and as of the Closing Date with the same force and effect as
though such representations and warranties were made on and as of the Closing
Date.
(d) Compliance. As of the Closing Date, Seller and Sub shall
have complied with, and shall have performed, in all material respects, all
conditions, covenants and obligations of this Agreement imposed on Seller and
Sub and required to be performed or complied with by Seller and Sub at, or prior
to, the Closing Date.
(e) No Proceeding or Litigation.
(i) No preliminary or permanent injunction or other
order, judgment, decree, or ruling shall have been issued by any Governmental
Entity, nor shall any statute, rule, regulation or executive order be
promulgated or enacted by any Governmental Entity, which prevents or challenges
the consummation of any of the transactions contemplated by this Agreement.
(ii) No suit, action, claim, proceeding or
investigation by any third party or before or by any Governmental Entity shall
have been commenced and be pending against Seller, Sub, or Buyer, or any of
their respective affiliates, associates, officers or directors, seeking to
prevent the consummation of any of the transactions contemplated by this
Agreement or asserting that the consummation of any of the transactions
contemplated by this Agreement would be illegal or create liability for damages.
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(iii) No suit, action, claim, proceeding or shall
have been commenced and be pending against Seller or, Sub, or any of their
respective Affiliates, associates, officers or directors that could have a
material adverse effect on the CSG Business or the Transferred Assets.
(f) Deliverv of the Shares. Seller shall have delivered, and
Buyer shall have received, the certificates evidencing the Shares.
(g) Delivery of Closing Documents. Seller shall have
delivered, and Buyer shall have received, the Seller Closing Documents.
(h) Seller's Consents Obtained. All consents required to be
obtained by Seller under this Agreement shall have been obtained.
(i) HSR. Any applicable waiting periods under the HSR Act with
respect to the transactions contemplated by this Agreement shall have expired
without a second request or early termination shall have been granted.
(j) Listed Employees. Not less than 80% of the Listed
Employees shall have accepted Buyer's written offer of employment, conditioned
upon the Closing ("LISTED EMPLOYEES CLOSING CONDITION").
(k) ST Agreement. Buyer shall have received written
confirmation from ST that Seller has made arrangements satisfactory to ST to
satisfy the Retained Take or Pay Obligations. Buyer shall be reasonably
satisfied (A) with the progress of good faith negotiations between Buyer and ST
with respect to a modification of the ST Agreement to adopt the ST Agreement to
better fit the needs of Buyer and Sub, simplify the ST Agreement and extend the
ST Agreement for an additional period of time and for additional technologies
and products, and (B) that ST prior to the Closing Date has commenced working
with Buyer to qualify Buyer's parts under ST's processes and to supply
engineering lots for Buyer to perform appropriate testing (the "ST CONTRACT
CLOSING CONDITION").
(l) IBM Agreement - DBM shall have agreed that, as of the
Closing Date, Sub and/or Buyer will be substituted for Seller under the IBM
Agreement, in the form provided to Buyer, through an assignment of all of
Seller's rights in the EBM Agreement without any liability or obligation by
Buyer or Sub for any obligations under the IBM Agreement which may have accrued
prior to the Closing Date, except as may be agreed to by Buyer, and Buyer shall
be reasonably satisfied that the future revenue and orders under the IBM
Agreement are consistent with Seller's prior experience under the IBM Agreement
(the "IBM AGREEMENT CLOSING CONDITION").
(m) Intellectual Property Review. Buyer shall be reasonably
satisfied with the results of an intellectual property review and due diligence
conducted by Buyer and its agents with respect to the Transferred Assets and
related matters regarding existing or potential future licensing or royalty
arrangements or obligations ("INTELLECTUAL PROPERTY REVIEW CLOSING CONDITION").
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(n) Assets Transfer. All documentation pursuant to which the
transactions described in Section 2.1 were to be accomplished including the
Contribution Agreement, bills of sale and other instruments of transfer ("Asset
TRANSFER DOCUMENT") shall have been presented to the Buyer and Buyer's counsel
for review and shall have been consistent with this Agreement and satisfactory
in form and substance to the Buyer and its counsel prior to the consummation of
such transactions. The consummation of the transactions pursuant to such Asset
Transfer Documents shall have been reasonably satisfactory in form and substance
to the Buyer and its legal counsel. All of the Transferred Assets, including the
Assumed Contracts, shall have been transferred or assigned to the Sub free and
clear of all Encumbrances, except as otherwise described in Seller Schedule
Exceptions, and the Buyer and its counsel shall have received evidence of such
transfers reasonably satisfactory to them.
(o) Related Agreements. Seller shall have executed and
delivered the Related Agreements.
(p) Election Under Section 338(h)(10). The Seller shall have
executed the Form 8023A prepared in accordance with Section 9.17.
(q) Buyer's Counsel Review. On or before the Closing Date, all
actions, proceedings, instruments and documents required by, or on behalf of,
Seller to execute, deliver and carry out this Agreement, the Contribution
Agreement and Related Agreements, and all other related legal matters, shall be
reasonably satisfactory to counsel for Buyer.
(r) Ruby Server. On or before the Closing Date, Seller shall
deliver to Sub a server know as "Ruby" which shall contain everything currently
on the Ruby server except for those items related to PSG libraries which shall
be extracted by Seller. When delivered, the Ruby server will contain, among
other things (but not limited to), the following items which are being
transferred or licensed to Sub: (a) the software programs listed on Schedule
2.3(d); (b) the standard cell library for ST's 0.7 micron process referred to
as "4TS" as listed on Schedule 2.3(d); (c) the standard cell library for ST's
0.5 micron process referred to as "5S" as posted on Schedule 2.3(d); (d) the
standard cell library for ST's 0.5 micron process referred to as "5L" as listed
on Schedule 2.3(d); (e) the models and scripts listed on Schedule 2.3(d); and
(f) all of the software design tools listed on Schedule 6.10. Prior to the
Closing Date, Sub shall deliver to Buyer a printout in reasonable detail of the
directories and files contained on Ruby for review by Buyer and the parties
shall negotiate in good faith any issues arising from such review. On the
Closing Date, the parties shall execute a certificate to the effect that the
contents of Ruby are satisfactory.
11.2 CONDITIONS TO SELLER'S OBLIGATIONS. The obligations of Seller
hereunder shall be subject to the satisfaction and fulfillment of each of the
following conditions, except as Seller may expressly waive the same in writing:
(a) Opinion of Buyer's Counsel. Seller shall have received an
opinion of Fenwick & West LLP, counsel for Buyer, dated the Closing Date, to the
effect set forth in EXHIBIT 11.2(a).
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(b) Accuracy of Representations and Warranties on Closing
Date. The representations and warranties made herein by Buyer in Section 5
hereof (as qualified by Buyer's Schedule of Exceptions) shall be true and
correct in all material respects and not misleading in any material respect,
on and as of the date given, and on and as of the Closing Date with the same
force and effect as though such representations and warranties were made on and
as of the Closing Date.
(c) Compliance. As of the Closing Date, Buyer shall have
complied with, and shall have performed, in all material respects, all
conditions, covenants and obligations of this Agreement imposed on Buyer and
required to be performed or complied with by Buyer at, or prior to, the Closing
Date.
(d) No Proceeding or Litigation.
(i) No prelirruinary or permanent injunction or other
order, judgment, decree, or ruling shall have been issued by any Governmental
Entity, nor shall any statute, rule, regulation or executive order be
promulgated or enacted by any Governmental Entity, which prevents or challenges
the consummation. of any of the transactions contemplated by this Agreement.
(ii) No suit, action, claim, proceeding or
investigation by any third party or before or by any Governmental Entity shall
have been commenced and be pending against Seller, Sub, or Buyer, or any of
their respective Affiliates, associates, officers or directors, seeking to
prevent the consummation of any of the transactions contemplated by this
Agreement or asserting that the consummation of any of the transactions
contemplated by this Agreement would be illegal or create liability for damages.
(iii) No suit, action, claim, proceeding or
investigation by any third party or before or by any Governmental Entity shall
have been commenced and be pending against Buyer or any of its respective
Affiliates, associates, officers or directors that could have a material
adverse effect on the CSG Business or the Transferred Assets.
(e) Delivery of Closing Documents. Buyer shall have delivered,
and Seller and shall have received, the Buyer Closing Documents.
(f) HSR. Any applicable waiting periods under the HSR Act
with respect to the transactions contemplated by this Agreement shall have
expired without a second request or early termination shall have been granted.
(g) Related Agreements. Buyer shall have executed and
delivered the Related Agreements.
(h) Seller's Counsel Review. On or before the Closing Date,
all actions, proceedings, instruments and documents required by, or on behalf
of, Buyer to execute, deliver and carry out this Agreement, the Contribution
Agreement and Related Agreements, and all other related legal matters, shall be
reasonably satisfactory to counsel for Seller.
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12. CLOSING OBLIGATIONS.
12.1 BUYER'S CLOSING OBLIGATIONS. At the Closing, Buyer shall
deliver to Seller the followin a documents (the "BUYER CLOSING DOCUMENTS"):
(a) A certificate signed by the President, Chief Financial
Officer, Vice President and Treasurer or Vice President and General Counsel of
Buyer, on behalf of Buyer, regarding the satisfaction of the conditions to
Closing set forth in Sections 11.2(b) and (c);
(b) A certified copy of the resolutions of the Board of
Directors of Buyer authorizing the execution and delivery by Buyer of this
Agreement, and all related agreements, and the consummation of the transactions
contemplated hereby and thereby;
(c) Payment of the net Closing Payment by wire transfer to an
account designated by Seller in the amount of the net Closing Payment;
(d) Written opinions of Buyer's counsel addressed to Seller
and dated the Closing Date in the form of Exhibit 11.2(a);
(e) The Related Agreements executed by Buyer and Sub; and
(f) A Good Standing Certificate, of recent date, for Buyer
from the California Secretary of State.
12.2 SELLER'S CLOSING OBLIGATIONS. At the Closing, Seller shall deliver
to Buyer the following documents (the "SELLER CLOSING DOCUMENTS"):
(a) The certificate representing the Shares, endorsed in blank
or accompanied by a properly endorsed assignment separate from the certificate;
(b) A copy of all charter documents of Sub certified by the
Delaware Secretary of State;
(c) A Good Standing Certificate, of recent date, for Seller
and for Sub from the Secretary of State ot Delaware, as well as evidence of
qualification of both Seller and Sub to do business in the State of California;
(d) A certified copy of the resolutions of the Board of
Directors of Seller and Sub authorizing the execution and delivery by Seller
and Sub of this Agreement, and all related agreements, and the consummation of
the transactions contemplated hereby and thereby;
(e) A certificate signed by the President, Chief Financial
Officer or General Counsel of Seller and of Sub, on behalf of Seller and Sub,
respectively, regarding the satisfaction of the conditions to Closing set forth
in Sections 11.1(a), (c) and (d);
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(f) All consents required to be obtained by Seller pursuant to
Section 9.3:
(g) Written opinions of Seller's counsel, addressed to Buyer
and dated the Closing Date in the form of Exhibit 11.1(b);
(h) The Related Agreements executed by Seller and/or Sub;
(i) The Seller's Schedules of Exceptions and any other
schedules to be delivered by Seller hereunder; and
(j) The Asset Transfer Documents and updated UCC searches with
respect to Seller and Sub.
13. SURVIVAL OF WARRANTIES AND INDEMNIFICATION.
13.1 SURVIVAL OF WARRANTIES. All representations and warranties made by
Seller or Buyer herein, or in any certificate, schedule or exhibit delivered
pursuant hereto, shall survive the Closing for a period of:
(A) the longer of two (2) years from the Closing Date or the period
from the Closing Date until expiration of the applicable statutes of limitation
in the case of (i) the representations and warranties in Sections 6.9, 6.16,
6.17, 6.19, 6.20, 6.23, 6.24 and 6.28; and (ii) all other representations and
warranties in Section 6 to the extent that they relate to environmental,
Intellectual Property or Tax matters, the Shares and organization and
capitalization of Sub, or to title or free and clear ownership of Transferred
Assets; or
(B) two (2) years from the Closing Date in the case of representations
and warranties (i) that are not specified in sub-paragraph (A) above and do not
relate to environmental, Intellectual Property or Tax matters, the Shares and
organization and capitalization of Sub, or to title or free and clear
ownership of Transferred Assets.
13.2 INDEMNIFIED LOSSES. For the purpose of this Section 13 and when
used elsewhere in this agreement, "Loss" shall mean and include any and all
liability, loss, damage, claim, expense, cost, interest, fine, fee, penalty,
obligation or injury, whether accrued, absolute, continent or otherwise,
including, without limitation, those resulting from any and all actions, suits,
proceedings, demands, assessments, judgments, award or arbitration, together
with reasonable costs and expenses including the reasonable attorneys' fees and
other legal costs and expenses relating thereto and reasonable fees or costs
allocable to services provided by the indemnified party's in-house counsel that
relate to such Loss.
13.3 INDEMNIFICATION BY SELLER. Subject to the provisions set forth in
this Section 13, Seller agrees to defend, indemnify and hold harmless Buyer, any
parent, subsidiary or Affiliate of Buyer (including without limitation Sub) and
any director, officer, employee, stockholder, agent or attorney of Buyer or of
any parent, subsidiary or Affiliate of Buyer (collectively, the "BUYER
INDEMNITEES ") from and against any Loss which arises out of or results from, is
caused by or attributable to:
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(a) any breach or inaccuracy or representation in any of
the representations or warranties, or covenants or agreements of Seller or Sub
made in this Agreement (including any schedule or exhibit hereto), the
Contribution Agreement, Related Agreements or Seller's Closing Documents;
(b) the Excluded Liabilities;
(c) the operations and business of the CSG Business through
the Closing Date, including, without limitation, claims by vendors or customers
of Seller;
(d) Taxes, of any kind or nature, arising out of, or payable
with respect to, Seller's business operations through the Closing Date, except
for such liabilities as are specifically and expressly assumed by Buyer in
Section 8.2 hereof;
(e) noncompliance with any bulk sales, bulk transfer or
similar laws applicable to the transactions contemplated by this Agreement;
(f) any demand, claim, debt, suit, cause of action,
arbitration or other proceeding (including, but not limited to, a warranty claim
(subject to Section 4.1(c)), a strict product liability claim or any other
claim) that is made or asserted by any third party that relates to any product
or service, including, without limitation, product defects (including latent
defects), that was sold, licensed or otherwise provided by Seller to any
customer;
(g) any demand, claim, debt, suit, cause of action,
arbitration or other proceeding (including, but not limited to, a warranty claim
(subject to Section 4.1(c)), a strict product liability claim or any other
claim) that is made or asserted by any third party that relates to any product
defects, including latent defects, of any of the CSG Business Products provided
by Buyer or Sub to any customer after Closing to the extent such products (i)
were either sourced from the Inventory or Customer Inventory or (ii) are
produced after the Closing Date and contain a design defect based on unmodified
designs transferred as part of the Transferred Assets;
(h) any demand, claim, debt, suit, cause of action or
proceeding made or asserted by a shareholder, creditor, receiver, or trustee in
bankruptcy of Seller, or of the property or assets of either, asserting that the
transfer of the Transferred Assets to Sub and/or the sale of the Shares to Buyer
hereunder constitutes a fraudulent conveyance, fraudulent transfer, or
constitutes a preference under any applicable state or federal law, including
but not limited to the United States Bankruptcy Code;
(i) any demand, claim, debt, suit, cause of action or
proceeding made or asserted by any employee or independent contractor or any
former employee or independent contractor of Seller, that relates in any manner
to any termination by Seller of its employment or the services of such employee
or independent contractor or any other matter relating to Seller's employment of
such employee or independent contractor; and
(j) Seller's failure to pay ST the Retained Take or Pay
Obligations on the terms agreed to by ST.
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Seller's total aggregate liability to indemnify Buyer for third party
claims under this Section 13.3 is $15,000,000.
The indemnification provided for in thin; Section 13.3 will not apply unless and
until the aggregate Losses for which one or more Buyer Indemnitees seeks
indemnification under this Section 13.3 and Section 13.4 exceeds $375,000, in
which event the indemnification provided in this Section 13.3 will include all
such Losses in excess of $375,000 in the aggregate under Section 13.3 and 13.4.
13.4 Intellectual Property Indemnification By Seller.
(a) In addition to its obligations under Section 13.3),
subject to the provisions set forth in this Section 13, Seller agrees to defend,
indemnify, and hold harmless Buyer Indemnitees from and against any Loss which
arises from out of or results from any demands, claim, debt, suit, cause of
action, arbitration or other proceeding made or asserted by any third party,
asserting or claiming that all, any or any part of the CSG Business Products or
any of the Shared Resources, (collectively the "INDEMNIFIED PRODUCTS AND
RESOURCES" violate or infringe upon any software, patent, copyright, trade
secret, mask work, license or other intellectual or proprietary rights of any
third party, including (but not limited to) any claim by IBM for infringement of
IBM patents which relate to the Target Products, whether or not demanding a per
product royalty on Target Products sold to IBM ("INFTINGEMENT"). If Buyer is
obligated or deems it reasonably appropriate in its good faith judgment to make
any royalty or royalty balancing payment to IBM or any other third party in
order to avoid any actual or claimed Infringement by any of the Indemnified
Products and Resources, Buyer shall notify Seller and provide Seller a
reasonable opportunity, not to exceed fifteen days, to confer with Buyer prior
to Buyer agreeing to any such royalty or royalty balancing payment. Buyer and
Seller shall negotiate in good faith to determine the appropriate allocation of
any royalty or balancing payment attributable to such Indemnified Products
and Resources. Seller shall promptly indemnify and hold Buyer harmless for such
allocation. If Buyer and Seller cannot agree on such allocation, the parties
shall resolve such dispute in accordance with Section 14 herein.
(b) Seller's total aggregate liability to indemnify Buyer
under this Section 13.4 is $ 10,000,000.
The indemnification provided for in this Section 13.4 will not apply unless and
until the aggregate Losses for which one or more Buyer Indemnitees seeks
indemnification under this Section 13.4 and Section 13.3 exceeds $375,000, in
which event the indemnification provided in this Section 13.4 will include all
such Losses in excess of $375,000 in the aggregate under Sections 13.3 and 13.4.
13.5 INDEMNIFICATION BY BUYER. Subject to the provisions set forth in
this Section 13, Buyer agrees to defend, indemnify and hold harmless Seller, any
parent, subsidiary or Affiliate of Seller and any director, officer, employee,
stockholder, agent or attorney of Seller or of any parent, subsidiary or
Affiliate of Seller (collectively, the "SELLER INDEMNITEES") from and against
and in respect of any Loss which arises out of, results from. is caused by or
attributable to:
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(a) any breach or inaccuracy or misrepresentation of any of
the representation or warranties, or covenants or agreements of Buyer made in
the Agreement (including any schedule or exhibit hereto), Related Agreement or
Buyer's Closing Documents;
(b) the failure of Buyer to timely pay or perform any of the
Assumed Liabilities;
(c) the operation of the CSG Business by Sub or Buyer after
the Closing Date;
(d) the sales and use tax imposed on Seller resulting directly
from the transfer of the Transferred Assets to Sub;
(e) any demand, claim, debt, suit, cause of action,
arbitration or other proceeding (including, but not limited to, a warranty
claim, a strict product liability claim or any other claim) that is made or
asserted by any third party that relates to any product defects, including
latent defects, of any product or service, including any of the CSG Business
Products, provided by Buyer or Sub to any customer after Closing unless such
CSG Business Products (i) were sourced from the Inventory or Customer Inventory
or (ii) are produced after the Closing Date and contain a design defect based on
unmodified designs transferred as part of the Transferred Assets; and (f)
any demand, claim, debt, suit, cause of action or proceeding made or asserted
by any employee or independent contractor or any former employee or independent
contractor of Buyer or Sub, that relates in any manner to any termination after
the Closing Date by Buyer or Sub of its employment or the services of such
employee or independent contractor after the Closing Date or any other matter
relating to Buyer's or Sub's employment of such employee or independent
contractor after the Closing Date;
Provided however, that nothing in this Section 13.5 shall impose on Buyer any
duty to indemnify Seller for any Excluded Liabilities.
The indemnification provided for in this Section 13.5 will not apply unless and
until the aggregate Losses for which one or more Seller Indemnitees seeks
indemnification under this Section 13.5 exceeds $375,000, in which event the
indemnification provided in this Section 13.5 will include all such Losses in
excess of $375,000. This $375,000 deductible "bucket" shall not apply to the
Earnout Payment or to Transfer Taxes.
13.6 INDEMNIFICATION PROCEDURE.
(a) Claim. Whenever any Loss shall be asserted against or
incurred by a Buyer Indemnitee or Seller Indemnitee (the "INDEMNIFIED PARTY"),
for which a claim of indemnify can be made under this Section 13, the
Indemnified Party shall give prompt written notice thereof (a "CLAIM") to Seller
or Buyer. as appropriate (the "INDEMNIFYING PARTY"). The Indemnified Party shall
furnish to the Indemnifying Party in reasonable detail such information as the
Indemnified Party may have with respect to the Claim (including in any case
copies of any
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summmons, complaint or other pleading which may have been served on it and any
written claim, I demand, invoice, billing or other document evidencing or
asserting, the same). The failure to give such notice shall not relieve the
Indemnifying Party of its indemnification obligations under this Agreement,
unless and to the extent that the failure to give such notice to the
Indemnifying Party prevents the Indemnifying Party from raising a defense to
the Claim or otherwise materially and adversely affects the Indemnifying
Party's ability to defend against the Claim. The Indemnified Party shall
cooperate in good faith with the Indemnifying Party in resolving any Claim and
shall use commercially reasonably efforts (at the expense of the Indemnifying
Party) to mitigate any Losses which are the subject of such Claim.
(b) Dispute of Claim. If the Indemnifying Party disputes the
claim presented in the Claim, the Indemnifying Party shall notify the
Indemnified Party of such disagreement within thirty (30) days of the receipt of
the Claim. Thereupon, the Indemnified Party and the Indemnifying Party will
negotiate in good faith and use reasonable efforts to resolve their differences
with respect to the Claim during the thirty (30) days following the Indemnifying
Party's notice of disagreement to the Indemnified Party. In the event such
dispute is not resolved upon the expiration of the thirty (30) day period
following the Indemnifying Party's notice of disagreement to the Indemnified
Party, the parties shall resolve the dispute in accordance with the terms of
Section 14 hereof.
(c) Third Party Claims. Subject to the rights of Buyer under
the provisions of Section 13.6(e) if the Claim is based on a claim of a person
that is not a party to this Agreement ("THIRD PARTY CLAIM"), the Indemnifying
Party shall, at its expense, undertake the defense of such Third Party Claim
with attorneys of its own choosing reasonably satisfactory to the Indemnified
Party. In the event the Indemnifying Party, within a reasonable time after the
separate receiving notice of a Third Party Claim from the Indemnified Party,
fails to defend the Third Party Claim, the Indemnified Party may, at the
Indemnifying Party's expense, undertake the defense of the Third Party Claim and
may compromise or settle the Third Party Claim, all for the account of the
Indemnifying Party. After notice from the Indemnifying Party to the Indemnified
Party of its election to assume the defense of such Third Party Claim, the
Indemnifying Party shall not be liable to the Indemnified Party under this
Section 13.6 for any legal expenses subsequently incurred by the Indemnified
Party in connection with the defense thereof, except for such expenses incurred
in connection with cooperation with, or at the request of, the Indemnifying
Party, provided, however, that the Indemnified Party shall have the right, at
the Indeminifying Party's expense, to employ counsel to represent it if, in the
Indemnified Party's reasonable judgment, based upon the advice of counsel, it is
advisable, in light of the separate interests of the Indemnified Party and the
Indemnifying Party, for the Indemnified Party to be represented by separate
counsel.
(d) Consent. The Indemnifying Party shall not consent to entry
of any judament, or enter into any settlement, except with the consent of the
Indemnified Party, which such consent shall not be unreasonably withheld or
delayed. In the event the Indemnified Party refuses to consent to the entry of a
judgment or a settlement for which the Indemnifying Party is solely and
entirely responsible and has indicated its sole and entire responsibility in
writing to the Indemnified Party, following such refusal, the liability of the
Indemnifying Party to the Indemnified Party will be fixed at the amount of money
damages provided in the proposed judgment or settlement.
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(e) Buyer as Indemnified Party. In connection with any Third
Party Claim ac,ainst Buyer, notwithstanding the provisions of Section 13.6(c) or
(d), Buyer may undertake the defense of such Third Party Claim with attorneys of
its own choosing reasonably satisfactory to the Seller Indemnifying Party. In
connection with such defense Buyer shall notify the Seller of the claim and its
election to undertake the defense thereof. Buyer shall also notify Seller from
time to time or at Seller's request of Buyer's strategy and progress with
respect to such Third Party Claim and provide Seller an opportunity to consult
with Buyer with respect thereto. The Buyer and the Seller shall use their
reasonable efforts and attempt in good faith to agree on strategy, settlement
and other issues in connection with such Third Party Claim. Buyer shall promptly
notify Seller of any written settlement offer with respect to such Third Party
Claims. In addition, counsel for any Seller shall be permitted to monitor the
Buyer's defense of such Third Party Claim for the purpose of advising the Buyer
of the status and progress of the defense. Any such activity shall be at the
sole expense of the Seller. Notwithstanding the above, Buyer may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to any Third Party Claim, in a manner that the Buyer in good faith
reasonably deems appropriate, and the Seller will remain responsible for any
Loss Buyer may suffer resulting from, arising out of, relating to, in the nature
of, or caused by such Third Party Claim, including the reasonable legal fees and
expenses associated with Buyer undertaking the defense of such Third Party
Claim. Notwithstanding the foregoing, if (i) Buyer is offered a written
settlement proposal by a third party that has as its sole component the payment
of money by Buyer, (ii) Seller recommends to Buyer in writing that Buyer accept
such settlement proposal (the "SELLER SANCTIONED SETTLEMENT") and (iii) Buyer
refuses to accept such settlement proposal, then in such event if the ultimate
settlement terms agreed to by Buyer with such third party or the final monetary
damages award against Buyer Indemnitees, after exhaustion of all appeals (either
referred to as the "FINAL SETTLEMENT AMOUNT"), is greater than the amount of the
Seller Sanctioned Settlement, Buyer shall be responsible for the differential
between the Final Settlement Amount and the Seller Sanctioned Settlement and
Seller's liability shall be limited to the amount specified in the Seller
Sanctioned Settlement, subject to the maximum indemnification obligations of
Seller under Sections 13.3 and 13.4.
13.7 PERIOD FOR MAKING CLAIMS. A claim for indemnification under
this Section 13 may be brought, if at all, at any time after the Closing Date,
with respect to any claim or claims for indemnification under this Section 13;
provided, however, any claim under Sections 13.3(a) or 13.5(a) with respect to
the inaccuracy or misrepresentation of a representation or warranty must be
brought, if at all, at any time prior to the time such representation or
warranty expires pursuant to Section 13. 1.
14. DISPUTE RESOLUTION.
14.1 MANAGEMENT NEGOTIATION.
(a) The Buyer and Seller shall attempt to resolve disputes
between the Buyer and the Seller arising out of or in connection with this
Agreement through good faith negotiations as provided herein. The parties
agree that disputes shall be fully discussed by the functional representatives
of the Buyer and the Seller involved in the dispute in an attempt to achieve a
prompt resolution of such dispute. In the event that such dispute shall not be
promptly resolved
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by the mutual agreement of the functional representatives of the Buyer and the
Seller, the dispute shall be submitted to senior management representatives of
each of the Buyer and the Seller. Such senior management representatives of the
Buyer and the Seller shall meet and fully discuss such dispute in an attempt to
achieve a prompt resolution of the dispute. If such dispute is not promptly
resolved by the mutual agreement of such senior management representatives of
the Buyer and the Seller, each of the Buyer and the Seller shall be free to
exercise any of the remedies available to it (i) pursuant to the terms of this
Agreement or (ii) otherwise at law or in equity.
(b) The Buyer and the Seller acknowledge that, from time to
time, certain material disputes arising out of or in connection with this
Agreement may objectively require immediate resolutions. Accordingly, any such
dispute may, at the option of either the Buyer or the Seller, be processed
through an abbreviated mediation process. Such abbreviated mediation process
shall entail submitting any such dispute to the senior management
representatives of each of the Buyer and Seller designated by each of the Buyer
and the Seller for a prompt and expeditious resolution. In the event that a
prompt and expeditious resolution of such dispute is not achieved through the
mutual agreement of such senior management representatives of the Buyer and the
Seller, each of the Buyer and the Seller shall be free to exercise any of the
remedies available to it (i) pursuant to the terms of this Agreement or (ii)
otherwise at law or in equity.
(c) Each of the Buyer and the Seller agrees to act reasonably
and in good faith in connection with all matters arising out of or in
connection with this Agreement that are submitted to the mediation process set
forth in this Section 14.
14.2 WAIVER OF JURY TRIAL. The parties hereby waive trial by
jury in any litigation in any court with respect to, in connection with, or
arising out of this Agreement or the transactions contemplated thereby.
15. TERMINATION
15.1 TERMINATION OF AGREEMENT. This Agreement may be
terminated at any time prior to Closing:
(a) By mutual written consent of Buyer and Seller;
(b) By Buyer or Seller if there is a lawsuit, action or
proceeding brought by a third party or Governmental Body Entity with respect to
the transactions contemplated hereby;
(c) By Buyer or Seller if the other party breaches in any
material respect any of its obligations (including its representations,
warranties or covenants) under this Agreement; (d) By Buyer or Seller if the
parties do not receive the required approvals and clearances pursuant to the HSR
Act by May 1, 1996; or
(e) By Buyer or Seller if the Closing has not occurred on or
before May 1, 1996.
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15.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of termination
of this Agreement by any or all of the parties pursuant to Section 15.1
hereof, written notice thereof shall forthwith be given to each other party
specifying the provision hereof pursuant to which such termination is made and,
except for those terms of this Agreement which survive a termination, including
without limitation the provisions contained in Sections 7.1, 11.1(d), 10.4,
14.2, 15.3 and 17 hereof, this Agreement shall forthwith become void and there
shall be no liability on the part of the parties hereto (or their respective
officers, directors, partners, Affiliates, successors or assigns), except as set
forth in Section 15.3 below.
15.3 REIMBURSEMENT OF PREPAID PURCHASE PRICE: SOLE REMEDY. In the event
that Closing of the transactions contemplated by this Agreement does not occur
because of a "Permitted Reason" then, in addition to any other remedies
available to Buyer, Seller shall reimburse Buyer the First Deposit and the
Second Deposit previously paid to Seller. A Permitted Reason shall mean (i)
breach by Seller of any of its obligations (including its representations,
warranties and covenants as provided in this Agreement) to consummate the
transactions contemplated thereunder; (ii) the parties do not receive the
required approvals and clearances pursuant to the HSR, by May 1, 1996; (iii)
there is a lawsuit, action or proceeding brought by any third party or
Governmental Entity with respect to the transactions contemplated hereby; (iv)
contains an untrue statement of a material fact or omits 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; or (v)
on or prior to May 1, 1996 the Listed Employees Closing Condition, the ST
Agreement Closing Condition or the IBM Agreement Closing Condition has not been
or cannot be satisfied. In the event of a termination of this Agreement by Buyer
for other than a Permitted Reasons or by Seller due to a breach by Buyer of this
Agreement, Seller shall have the right to retain all amounts paid by Buyer
pursuant to the terms of Sections 3.1(a) and (b) because the parties agree it
would be impracticable or extremely difficult to fix the actual damages
resulting from Buyer's termination or breach of this Agreement. The parties
agree that such sum or sums shall constitute liquidated damages intended to
reasonably and justly compensate Seller for such termination or breach and shall
be Seller's sole remedy and Buyer's sole liability or obligation to Seller for
any such breach or termination. Such liquidated amount shall be deemed full and
adequate damages for such termination or breach and is not intended by either
party to be a penalty. The liquidated damages provision of this Section 15.3
shall not apply to, or limit any damages arising out of, any breach of Section
7.1 or 10.1(d).
16. AUDIT RIGHTS.
On or before the lapse of sixty (60) days after Buyer submits a report
regarding Earnout Payment or Exceeded Warranty under Sections 3.1(d) and 4.1
(d), respectively, Seller shall have the right to request, in writing, an audit
of Buyer's records, using Seller's employees or Seller's Auditor, with respect
to the determination of the Earnout Payment or Exceeded Warranty for the quarter
or quarters covered by the report and any prior quarters where audit rights may
be available and not waived hereunder; provided. however, that Seller shall be
entitled to only one audit of Buyer's records per calendar year pursuant to this
Section 16, which audit may cover only the most recent four quarters for which
reports have been rendered. If Seller does not notify
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Buyer in writing before the lapse of such sixty (60) day period of Seller's
intent to request an audit by Seller's employees or Seller's Auditor, then
Seller will be deemed to have waived any claims or rights to audit Seller may
have regarding reports and amounts paid (or not paid) to Seller for any periods
which have been reported on and which precede the most recent four quarters for
which reports have been rendered. Upon such request for an audit being timely
made by Seller, Seller's employees or Seller's Auditor may, upon reasonable
notice, during normal business hours and at Seller's expense, inspect the
records of Buyer upon which such report is based, provided that each Seller's
employees or representative of Seller's Auditor first executes Buyer's standard
form of confidentiality agreement prior to undertaking such inspection. Upon
performing such audit, Seller through Seller's Auditor shall provide its
determination to both Buyer and Seller. If, after Seller's audit, Seller
disagrees with Buyer's calculation of either the Earnout Payment or the Exceeded
Warranty Amount, Seller shall deliver written notice to Buyer of its
disagreement as to Seller's calculation of the Earnout Payment or the Exceeded
Warranty Amount ("Audit Notice"). Any such Audit Notice shall specify in
reasonable detail the nature of such disagreement and the basis and supporting
evidence for Seller's position with respect to the disputed terms. Seller and
Buyer shall attempt in good faith to resolve any disagreement for a period of 30
days following the date of the Audit Notice and, if they are unable to do so
within such period, shall seek to resolve their dispute as provided in Section
14. If Buyer and Seller agree upon Seller's Auditor's determination or there is
a determination pursuant to Section 14 then if Buyer has underpaid Seller
pursuant to the applicable payment formula by geater than ten percent (10%) of
the amount actually due (as determined herein), then Buyer shall reimburse
Seller for all reasonable expenses and costs of such audit in addition to its
obligation to make full payment under Sections 3.1(d) and 4.1(b).
17. MISCELLANEOUS.
17.1 EXPENSES. Each of the parties hereto shall bear its own expenses
(including without limitation attorneys' fees) in connection with the
negotiation and consummation of the transaction contemplated hereby.
17.2 NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed given if delivered personally,
telecopied, or sent by certified or registered United States mail (return
receipt requested), postage prepaid, or sent by nationally recognized overnight
express courier and addressed as follows:
(a) If to Seller:
Western Digital Corporation
8105 Irvine Center Drive
Irvine, California 92713
Attention: President
Attention: Vice President and General Counsel
Telephone: (714) 932-5000
Facsimile: (714) 932-7820
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Which copy to:
Gibson, Dunn & Crutcher 1 Montgomery Street
26th Floor
San Francisco, California 94104
Attention: Lawrence Calof, Esq.
Telephone: (415) 393-8231
Facsimile: (415) 986-5309
(b) If to Buyer:
Adaptec, Inc.
691 S. Milpitas Boulevard
Milpitas, California 95035
Attention: President
Attention: Vice President and General Counsel
Telephone: (408) 957-2581.
Facsimile: (408) 957-7317
With copy to:
Fenwick & West
Two Palo Alto Square, Suite 800
Palo Alto, California 94306
Attention: Dennis R. DeBroeck, Esq.
Telephone: (415) 858-7168
Facsimile: (415) 857-0361
or to such other address as the party in question may have furnished to
the other parties by written notice given in accordance with this Section 17.2.
All such notices shall be deemed to have been received (a) in
the case of personal delivery on the date of such delivery, (b) in the case of a
telecopy, when the party sending such copy shall have confirmation of the
transmission of the notice, (c) in the case of mailing, on the third business
day following such mailing, and (d) in the case of delivery by nationally
recognized overnight express courier, on the business day following dispatch.
17.3 ENTIRE AGREEMENT: CAPTIONS. This Agreement, the Schedules hereto
(which are incorporated herein by reference) and the Related Agreements to be
executed and delivered in connection herewith, together constitute the entire
agreement and understanding between the parties and there are no agreements or
commitments with respect to the transactions contemplated herein except as set
forth in this Agreement. This Agreement supersedes any prior offer, agreement or
understanding between the parties with respect to the transactions contemplated
hereby, including but not limited to the Letter of Intent. The captions in this
Agreement are for convenience only and shall not be considered a part of or
affect the construction or interpretation of any provision of this Agreement.
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17.4 AMENDMENT; WAIVER. Any term or provision of this Agreement may be
amended only by a writing signed by Seller and Buyer. The observance of any term
or provision of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only by a writing
signed by the party to be bound by such waiver. No waiver by a party of any
breach of this Agreement will be deemed to constitute a waiver of any other
breach or any succeeding breach.
17.5 NO THIRD PARTY BERIEFICIARIES. Nothing expressed or implied in
this Agreement is intended, or shall be construed, to confer upon or to give any
person, firm or corporation, other than the parties hereto, any rights or
remedies under or by reason of this Agreement.
17.6 EXECUTION IN COUNTERPARTS. For the convenience of the parties,
this Agreement may be executed in one or more counterparts, each of which shall
be deemed an original but all of which together shall constitute one and the
same instrument.
17.7 ASSIGNMENT. This Agreement may not be assigned by any party hereto
without the prior written consent of each other party; except that Seller, Buyer
and Sub may assign this Agreement (and all related agreements) by operation of
law or in connection with any merger, consolidation or sale of all or
substantially all Seller's assets, Buyer's assets or Sub's assets, as the case
may be, or in connection with any similar transaction.
17.8 BENEFIT AND BURDEN. This Agreement shall be binding upon, shall
inure to the benefit of, and be enforceable by and against, the parties hereto
and their respective successors and permitted assigns.
17.9 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of California (excluding
application of any choice of law doctrines that would make applicable the law
of any other state orjurisdiction) and, where appropriate, applicable federal
law.
17-10 SEVERABILITY. If any provision of this Agreement is for any
reason and to any extent deemed to be invalid or unenforceable, then such
provision shall not be voided but rather shall be enforced to the maximum extent
then permissible under then applicable law and so as to reasonably effect the
intent of the parties hereto, and the remainder of this Agreement will remain in
full force and effect.
17-11 ATTORNEYS' FEES. Should a suit or arbitration be brought to
enforce or interpret any provision of this Agreement, the prevailing party shall
be entitled to recover reasonable attomeys' fees and costs (including reasonable
fees and costs allocable to services provided by the prevailing party's in-house
counsel) to be fixed in amount by the Court or the Arbitrator(s) (including
without limitation costs, expenses and fees on any appeal).
17.12 LOCATION OF DEFINITIONS. The following table sets forth the
Sections of this Agreement in which certain terms are defined:
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Term Section
Acquired Cadence Contract 1.2
Additional Inventory 2.2(c)
Adaptec Ramp Up Period 4.1(a)
Affiliate 1.1
Agreement First Paragraph
Agreements 6.11(a)
Asset Transfer Document 11.1(n)
Assumed Contracts 2.2(f)
Assumed Liabilities 4.1
Audit Arbitrator 3.2(d)
Audit Notice 1.6
Barranca Facility 2.3(b)
Business Records 2.2(i)
Buyer First Paragraph
Buyer Closing Documents 12.1
Buyer Indemnitees, 13.3
Buyer Schedule of Exceptions 5.
Buyer's Auditors 3.2(c)
Cadence Contract 1.3
CERCLA 6.24
Claim 13.6(a)
Closing 3.3
Closing Date 3.3
Closing Date Asset and Liability List 3.2(c)
Closing Payment 3.1
Closing Severance Payment 10.6(b)
Code 6.23(g)
Confidential Information 7.1
Contribution Agreement 2.1
CSG Recitals - A.
CSG Business Recitals - A.
CSG Business Products 1.4
Customer Contracts 6.18(a)
Customer Inventory 2.2(c)
Customer Purchase Orders 2.2(f)
Customers 6.18(a)
Description 1.4A
Disclosing Party 7.1
Distributors 6.18(a)
DTG 1.5
DTG Assets 2.3(e)
Earnout Payment 3.1
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Term Section
Earnout Ptoducts 3.1(d)
Effective Date First Paragraph
Employee Plans 6.26(b)
Employees 6.26
Encumbrance 1.6
ERISA Affiliate 6.26(b)
Exceeded Warranty Amount 4.1(b)
Excluded Assets 2.3
Excluded Liabilities 4.2
Final Settlement Amount 13.6(e)
Financial Records 2.2(i)
Financial Statements 6.21
First Deposit 3.1(a)
GAAP 1.7
Governmental Entity 1.8
Hazardous Materials 6.24
Hired Employees 10.1(c)
Host Bus Adapter Products 1.9
IBM Agreement 1.10
IBM Agreement Closing Condition 11.1(l)
Indemnified Party 13.6(a)
Indemnified Products and Resources 13.4(a)
Indemnifying Party 13.6(a)
Infringement 13.4(a)
Initial Transfer 2.1
Intellectual Property 2.2(g)
Intellectual Property Records 9.14
Intellectual Property Review Closing 11.1(m)
Condition
Inventory 2.2(b)
Inventory Reserves 6.8
Letter of Intent 1.11
Licenses 6.9(c)
Listed Employees 10.1(a)
Listed Employees Closing Condition 11.1(j)
Litigation 6.5
Long-Term Transition Employees 10.1(c)
Loss 13.2
Lynnwood Unit 1.12
Net Sales Price 3.1(d)
Notice 3.2(d)
Other Excluded Items 2.3(m)
Permits 2.2(k)
Permitted Reason 15.3
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Term Section
Person 1.13
Prepaid Assets 2.2(i)
Product Rights 2.2(d)
Proprietary Rights Agreements 1.14
Purchase Price 3.1
Receiving Party 7.1
Related Agreements 7.2
Restricted Period 9.8(a)
Retained Cadence Contract 1.15
Retained HBA Inventory 2.3(i)
Retained Take or Pay Obligations 4.1(a)
Second Deposit 3.1(b)
Seller First Paragraph
Seller Closing Documents 12.2
Seller Employment Agreements 6.26
Seller Indemnitees 13.5
Seller Sanctioned Settlement 13.6(e)
Seller Schedule of Exceptions 6.
Seller's Auditors 3.2(c)
Seller's knowledge 1.16
Shares Recitals - D.
Shared Resources 2.3(d)
Short-Term Transition Employees 10.7
Software Programs 1.17
ST 1.18
ST Agreement 1.19
ST Assigmnent 1.20
ST Contract Closing Condition 11.1(k)
ST Inventory 2.2(c)
Strategic Agreements 1.21
Sub First Paragraph
Subcontractor Inventory 2.2(c)
Subsequent Transfer 2.1
Supplier Purchase Orders 2.2(f)
Supply Contracts 6.12
Systems Solutions Products 1.22
Tangible Assets 2.2(h)
Target Products 1.23
Taxes 6.23(a)
Testing Material 1.24
Third Party Claim 13.6(c)
Third Party Rights 6.9(a)
Tools 1.25
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Term Section
Transfer Taxes 8.2
Transferred Assets 2.2
Transferred Employee 10.1(c)
Warranty and Return Expense 6.19
Warranty Reserve 4.1(b)
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IN WITNESS WHEREOF, Buyer, Sub and Seller have executed and delivered
this Agreement by their duly authorized representatives as of the Effective
Date.
SELLER: BUYER:
WESTERN DIGITAL C RPORATION ADAPTEC, INC.
By: /S/ A. KEITH PLANT By: /S/ ROBERT STEPHENS
--------------------- ----------------------
Name: A. Keith Plant Name: Robert Stephens
--------------------- ----------------------
Its: Vice President Its: Chief Operating Officer
--------------------- ----------------------
SUB:
WESTERN DIGITAL CSG CORPORATION
By: /S/ A. KEITH PLANT
-----------------------
Name: A. Keith Plant
-----------------------
Title: Vice President
-----------------------
-66-
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<SECURITIES> 177,056
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